Owing to favorable geology, extensive pre-established infrastructure and vast mineral wealth, mining in Mexico represents a promising investment opportunity.
Mexico's mining industry is the fourth-largest recipient of foreign direct investment and the second largest and most competitive in Latin America, with the majority arriving from companies in Canada. Owing to favorable geology, extensive pre-established infrastructure and vast mineral wealth, mining in Mexico represents a promising investment opportunity, though not one without risk.
Mining generates considerable revenue for Mexico's economy, with the sector generating a production value of over 281 billion Mexican pesos and representing 8.3 percent of the industrial gross domestic product (GDP) and 2.3 percent of the National GDP according to the National Institute of Statistics and Geography in 2020. A major source of employment for the nation, mining was responsible for over 368,000 direct jobs — and nearly 2 million indirect jobs — in 2020. Mexico is also the world's largest producer of silver and a major source of gold, copper and zinc.
Yet Mexico's current level of production represents only a fraction of its potential. Mexico is incredibly rich in mineral wealth, and it's been estimated that roughly 70 percent of the country has significant geological potential for mining. There is also significant pre-existing infrastructure throughout the country, with approximately 1,158 producing mines.
What's more, only about 25 percent of Mexico has been explored in detail, meaning there is also considerable opportunity for exploration companies — though it's important to note that, as is often the case, this involves considerable risk.
"Early in 2022, Mexico finds itself in a fine position to grasp the opportunity to lead the Americas and the world again (in the mining sector)," John Mark Stuade, CEO of Riverside Resources (TSXV:RRI) toldMexico Business News. "The ongoing global push for decarbonization of the energy chain could propel Mexico’s mining sector in a positive direction to provide commodities and mineral products to fuel global growth and the transition to clean energy, clean air, and clean water. The time for Mexico’s people and resources is now."
An overview of Mexico's mining industry
Recent government decisions have created an air of legislative uncertainty, at least in the short term. Last year, for instance, a senior Mexican official informed Reuters that mining companies in Mexico should expect stricter environmental reviews and tougher regulations. This is in addition to the country blocking new permits and concessions; several major operations have already been forced to shut down, and others have been hit with significant permitting delays. Finally, changes to the federal labor law to prevent outsourcing may pose a problem in some regions.
Despite these considerable roadblocks, the investment outlook for the Mexican mining industry is largely positive, and investors remain optimistic about its potential. For instance, in Q3 2021, mining and exploration companies released technical studies on five separate projects with a combined total CAPEX of US$1 billion. These projects to some extent all involved gold, which is currently among the most promising opportunities in the country.
It is also worth noting that Mexico is not entirely unfriendly to mining investment. Although foreign investors cannot outsource labor, they may nevertheless retain 100 percent ownership of all invested capital stock. Mexico's current president has committed to increased security for mining operations throughout the country, while also waiving a proposed tax increase for foreign mining companies.
Additionally, Mexico has signed extensive free trade agreements with Latin America, North America and the European Union countries.
Gold-producing mines in Mexico
Mexico currently either produces or contains known rich deposits of at least 17 minerals, including copper, zinc, fluorspar, graphite, strontium, coal, lithium, manganese and lead. Beyond the fact that gold prices are expected to spike in 2022, Mexico's gold mining industry has rallied significantly since it began its decline in 2015. Gold production in 2020 experienced its first year over year increase in half a decade, and mining investment increased by roughly 42 percent last year, reaching more than $5 billion.
2022 is also set to be a milestone year for Mexican gold mining, with multiple assets scheduled for first production — this is in addition to output from the country's existing mines. The gold mines listed below are in production:
Owned by Newmont (TSX:NGT,NYSE:NEM), this surface mine is the largest in the country. Located in Zacatecas, it produced an estimated 526,000 ounces of gold in 2020. It is expected to remain operational until 2032.
El Limón-Guajes project
Torex Gold Resources' (TSX:TXG) El Limon-Guajes project is situated in Guerrero. This surface/underground mine is currently nearing the end of its lifespan, and is expected to close operations in 2024. In 2020, it produced roughly 430,000 ounces of gold.
Located in Sonora, Mexico's largest gold-producing state, Herradura is owned by Industrias Penoles (BMV:PE&OLES). It is expected to operate until 2031. In 2020, it produced an estimated 425,288 ounces of gold.
Alamos Gold (TSX:AGI) runs the Mulatos mine, also located in Sonora. It produced roughly 150,800 ounces of gold in 2020. It will operate until 2030.
Pinos Altos mine
A surface and underground mine located in Chihuahua, the Pinos Altos mine produced an estimated 114,798 ounces of gold in 2020. It is owned by Agnico-Eagle Mines (TSE:AEM) and is expected to continue operating until 2026.
Other exploration companies in Mexico
As of 2020, Mexico hosts 26 mining projects with a combined CAPEX of US$9.08 billion. Several of the leading companies involved in these projects are listed below.
Candelaria mining owns two high-grade gold projects in Mexico. The first, Pinos, is situated on a highly productive mining belt in Zacatecas. It is fully permitted and construction-ready, and the initial re-start mine is planned to produce just under 15,000 ounces of gold per year.
The second, Caballo Blanco, is Candelaria’s flagship asset and is currently in the advanced exploration stage. Located in Veracruz on the Eastern Mexican coast, the district is a highly prospective epithermal-porphyry mineralised province with numerous priority targets. The region is known for its excellent mining infrastructure and is also home to two regional-scale distribution centers. It is expected a pre-feasibility study will commence on the lead project by year end.
Once both Caballo Blanco and Pinos are fully developed, Candelaria could output as much as 150,000 ounces of gold per year.
GoGold Resources (TSX:GGD)
A Canadian silver and gold producer, GoGold owns Los Ricos in Jalisco state, Mexico. Consisting of 42 concessions over 22,000 hectares, Los Ricos currently comprises two projects, North and South. Each is home to pre-existing mining infrastructure.
In 2022, GoGold plans to complete several project milestones, including 100,000 meters of drilling, updated resource estimates and a pre-feasibility study at Los Ricos South. GoGold also operates the Parral Tailings project near Chihuahua.
Sonoro Gold (TSXV:SGO)
A junior gold exploration and development firm, Sonoro Gold owns the 1,000 hectare San Marcial project and the 14,000 hectare Cerro Caliche project. Although both projects are currently still in the exploration stage, the company made significant development progress last year. It plans to start the loading of a leaching platform for Cerro Caliche by the end of 2022.
The investment outlook for Mexico is still highly positive despite the government introducing significantly stricter mining regulations in recent years. With investment already ramping up and the presence of numerous exploration and development projects, it's safe to say that Mexico represents a golden opportunity, especially when it comes to exploration and development companies that are about to produce gold.
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