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Oxford Business Group

Oxford Business Group

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Is Mexico’s Road To Recovery Paved In Precious Metals?

Mining was heavily disrupted last year as a result of Covid-19, with most mines and projects suspended for a number of months, before resuming activity under strict health guidelines.

As a result, overall investment took a significant hit in 2020. According to estimates from the Mining Chamber of Mexico (Cámara Minera de México, Camimex), sector-wide investment fell by around 50% relative to pre-virus estimates, dropping from $5bn to $2.5bn.

However, the industry is set for a rebound this year, with a number of companies announcing increased investment in projects across the country.

A prime example of this trend is U.S.-headquartered company, Southern Copper. Having seen its expected investment in Mexican and Peruvian mines fall from $1.1bn to $650m in 2020, the firm has a capital expenditure budget of $1.4bn for this year, rising to $2.9bn in 2024.

Investment for gold and silver

There has been particularly significant movement in silver and gold projects.

In mid-January, for example, Canadian company Torex Gold announced capital expenditure of between $195m and $235m for its Mexican operations in 2021, above last year’s estimated outlays of $175m.

This includes $90-100m for its Media Luna underground deposit, located in the state of Guerrero, along with major investment in its El Limón Guajes mining complex.

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US mining company Newmont similarly announced that it had a capital expenditure budget of $155m for its Peñasquito mine, which produces gold, silver, lead, and zinc – an increase on the $69m invested in the first three quarters of 2020.

Meanwhile, Almos Gold is expected to increase expenditure in its Mulatos mine, located in the northern state of Sonora, from $40m to between $125m and $135m, while new spending has also been announced for Pan American Silver’s La Colorada mine and First Majestic Silver’s Ermitaño project.

As well as investment, there has been production expansion within the industry.

US-based, Latin America-focused company Golden Minerals announced in February that it had poured the first gold from its Rodeo open-cut mine in Mexico’s Durango state. The news came after the company launched operations at the site in mid-January.

Also in February, Minera Gorrión, the Mexican subsidiary of Canadian mining company Almaden Minerals, said it was looking to revive its $1.4bn Ixtaca mining project, which had its environmental impact assessment denied by authorities in December.

The company said it was in discussions with the national regulator with a view to submitting an updated environmental report, noting that the project would create some 1120 jobs during the construction and operation stages.

Key to economic recovery

The increased investment and activity in the mining sector could help support Mexico’s recovery from the economic fallout of the pandemic.

With the economy having contracted by 9% last year, according to the IMF, Mexico was among the countries most affected by Covid-19. The fund expects GDP to rebound this year with growth of 3.5%; however, much is dependent on how key industries such as mining perform.

Prior to the pandemic, Mexico was the world’s largest producer of silver and the ninth-largest producer of gold. The sector accounted for around 4% of GDP, as well as being the sixth-largest generator of foreign currency and providing 2m jobs indirectly.

The increase in investment in both gold and silver mines could thus bode well for Mexico, with both commodities experiencing a spike in value in recent times.

Silver prices reached an eight-year high in February and silver was trading at around $28 per oz as of February 8. Meanwhile, gold – after reaching an all-time high in August last year – was valued at around $59 per kg.

“Precious metal prices, particularly of gold, have surged as a result of the pandemic. This has led to a rise in projected investments in gold extraction,” Amilcar Rosas Orozco, heavy industry sales manager at Danfoss Mexico, told OBG. “However, new mining tenders have slowed due to the disruption of the pandemic. As a result, mining companies now need to produce more with existing investments, which itself requires equipment to be more efficient and have longer life cycles.”

In addition, there are also some signs that demand for some of Mexico’s key minerals will remain strong into the future.

“Historically, most silver demand has been generated by investment and jewelry demand,” Mitchell Krebs, CEO of Coeur Mining, told OBG. “However, increasing use of silver in solar panels, new cars and the ongoing electrification of the world has led to sizeable future growth prospects.”

By Oxford Business Group

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