Energy & Mining
Dig The Allure
After a difficult 2015, miners were beginning to breathe sighs of relief by mid-2016, as both gold and silver prices started to recover to levels not seen since 2014. Gold managed to return to above the critical $1,300 per ounce (oz) level in June 2016, while silver also rose to back to trade near the $20/oz level, though copper prices still lie in the doldrums. While in US dollar terms the industry was hurting, the decline in the Mexican peso and improved production took some sting out of the tail for the mining industry, but 2015 remained a year that many hoped represented a low point for global mineral prices. Ever since the turning of the commodities cycle in 2013, the local mining industry has sought to improve productivity and worksite efficiency, retreat from marginal plays, and double down on the ever reliable allure of gold to stay in the game, and retain investment.
According to the National Institute of Statistics and Geography (INEGI), the mining and metallurgy sector was worth some MXN414.43 billion ($26.25 billion) in 2015, or some 3% of national GDP. Additionally, the sector also represented some 8.8% of industrial GDP. Mining tends to represent about one-third of the total GDP that the sector provides, with metallurgical activities making up the bulk. The Mexican Chamber of Mining (CAMIMEX) calculated that mining and metallurgy generated some $14.58 billion in foreign currency for Mexico in 2015, down some 14% on the $17.05 billion generated in 2014. As a result, the sector fell behind tourism ($17.46 billion) as a generator of foreign currency in 2015, with agro-industrial activity now nipping at its heels. Also reflecting the downturn in forex currency generation was the total tonnage of ore exported by the maritime sector, down some 7.3% to 27.04 million tons over 2015 according to the General Directorate of Ports. On the employment front, CAMIMEX estimates that some 344,912 direct jobs were provided by the industry in 2015, with another 1.73 million indirect employment opportunities created. Direct job generation slowed down over 2015, with only around 4,000 new places created over the year, compared to around 8,000 during 2014.
Exports remain important for the Mexican mining industry at the previously mentioned $14.58 billion in 2015, as opposed to imports of some $8.12 billion. Noticeably, some 92.1% of all exports were of metallic mineral products, while non-metallic imports made up 70.6% of the total. As a result, this left Mexico with a positive trading balance for metals in 2015 worth some $7.70 billion, while on the non-metallic side there lay a deficit of $1.24 billion.
Between 2005 and 2015, CAMIMEX estimated that Mexico had managed to increase annual investments in the mining industry from $912 million to $4.63 billion. While this appears a healthy rise, it was actually a retreat on the $4.95 billion generated in 2014, and well down on the 2012 high-water mark of $8.04 billion. Foreign investment over 2015 was at 49% of total investment in the mining sector, or $2.27 billion, and much of that concentrated in Canadian miners taking advantage of the love affair the Toronto Stock Exchange (TSE) has with the local mining industry. Mexico’s mining industry received a shot in the arm back in the early 2000s, when successive governments freed up foreign access to the industry, while the North American Free Trade Agreement (NAFTA) also gave investors even more confidence in the long-term future of the industry.
In terms of production over 2015, INEGI valued precious metals at MXN112.44 billion ($7.12 billion), worth some 52.68% of all mining activity in the country. Gold production rose some 25.7% in quantity terms over 2015 from 98,166 kilograms (kg) in the previous year to 123,364 kg, with the value in Mexican pesos advancing by 37.1%, providing some succor to local miners seeing the gold price decline below $1,100/oz. Gold production is especially concentrated in the states of Sonora (31.6%), Zacatecas (27.6%), Chihuahua (11.3%), and Durango (9.5%), although all states aside from two are involved in gold production, according to INEGI statistics from 2015. New gold mines are still opening up, with many being long in the development pipeline, with one of the largest being the El Limon-Guajes mine in the state of Guerrero. In May 2016, Torox Gold Resources of Toronto formally inaugurated operations at the $800 million facility, which is set to produce some 369,000 oz annually (10,460 kg) on indicated reserves of some 4.77 million oz, with 500 direct jobs being created.
Silver saw a more modest rise in production from 4.73 million kg in 2015 to 4.96 million kg in 2015, or 4.9% in annual terms, while in terms of value it was up a more modest 2.9% for the year at MXN39.60 billion ($2.51 billion). In 2015, Mexico represented 19.78% of the world’s silver production, making it the world’s top supplier. The main silver producing states in 2015 were Zacatecas (41.9%), Durango (16.6%), and Chihuahua (13.1%). The state of Zacatecas, and the Fresnillo area in particular, are at the heart of UK-listed miner Fresnillo plc, which accounts for nearly half of all the silver mined in the country. The precious metals giant produced some 761,700 oz of gold and 47 million oz of silver in 2015 through its six operational mines. Its Fresnillo mine produced around 15.6 million oz of silver, and a handy 34,120 oz of gold on the side, in 2015, according to the company. Incredibly, the Fresnillo area has been mined continuously since 1554, and spanned the time period up until the 1870s, when silver was reputedly Mexico’s dominant export good.
Non-ferrous industrial minerals were valued at MXN64.84 billion ($3.74 billion) for 2015, with copper being the number one item. Mexico produced 485,528 tons of copper worth some MXN42.15 billion ($2.67 billion) in 2015, up 7.3% in volumes, though a mere 2.2% in Mexican peso terms, reflecting the softness of the global copper price. Mexico’s main producer of the metal remains Grupo México, which also has extensive operations in Peru and the US, as well as plans for Chile. In Mexico, the company is bucking the more cautious global investment trend and getting ready to expand its Buenavista del Cobre mine in Sonora state, which will cost $3.5 billion and position the open-cut mine as the third largest in the world. Sonora already represents 81.3% of Mexico’s copper output, with the two main mines of Buenavista del Cobre and La Caridad—both owned by Grupo México —producing between them 265.9 million tons of copper over 2015.
Zinc rounds off the top minerals by both volume and value, at 454,626 tons and MXN13.86 billion ($878 million) respectively in 2015. The US Geological Service (USGS) estimated that Mexico accounted for 5% of world zinc output in 2015, making it the sixth largest producer. Goldcorp’s Peñasquito facility in Zacatecas state was the largest producer in 2015, at some 176,360 tons. However, this zinc output was a sideshow to what Goldcorp was in Peñasquito for: the 860,300 oz of gold and 25.93 million oz of silver that the same mine produced in 2015, making it the most valuable mining facility in Mexico for that year.
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