The Long Run

Mexico’s mining industry

Mexico’s mining industry has become more regulated and nationalized in recent years, but foreign companies are still welcome, especially those that contribute to the digitalization of the industry.

The growth of Mexico’s mining sector began to accelerate around 2015, hitting a YoY growth rate of 10% in 2017. The sector miraculously did not suffer much from the pandemic and touched an all-time high growth rate of 23% in 2021. All things considered, things have been going well for the sector in 2022, as the mining of silver and semiprecious minerals continues.

Precious and semiprecious metals account for almost half of the country’s USD2-billion mining sector, which includes gold, silver, cadmium, mercury, and manganese. Mexico has been recognized as the world’s leading producer of metallurgical minerals and is currently the world’s number-one silver producer, with a production of 197 million ounces in 2021.

There is a rich tradition of mining in the country dating back 500 years ago, with the country’s terrain well suited to mining. Streaks of minerals can be identified across mountain ranges such as Sierra Madre Oriental, Sierra Madre Occidental, and Sierra Madre del Sur. This abundance of natural mines is due to the terrain’s unique geology and high levels of tectonic activity.

Mining activities are mainly concentrated in the northern states of Chihuahua, Sonora, Zacatecas. In addition to local mining companies, some 250 international upstream and—increasingly—downstream mining companies have flocked to Mexico in recent years. Upstream activities, including exploration and production, must be carried out within Mexico’s concession system. Exploration concessions are usually issued for six years and cannot be renewed, while production concessions are valid for 50 years and renewable.

Obtaining a concession requires clearance regarding environmental issues, health and safety, and sustainability. As such, some have pointed out that issuing new concessions has slowed down in the country. The mining authorities, however, argue that the regulatory requirements set by Mexico for issuing concessions is what any responsible government would expect from foreign companies.

All that said, “the US has a strong presence in Mexico’s mining industry with thirty-two companies, led by Newmont and Coeur Mining, having operations or significant investments in the country,” according to the US Department of Commerce. And the surging prices of minerals is drawing even more companies to the country. The industry enjoyed over USD2 billion of FDI in 2021, and there is a good chance that 2022 will be another good year for the industry, with the Ministry of Economy reporting FDI of USD610 million in metallic mining in 1Q2022.

Foreign businesses contemplating the country’s market must be aware that Mexico has a strong local mining sector. Companies such as Grupo Mexico, Fresnillo PLC, and Met-Mex Peñoles dominate the metallic ores sector, with market share of over 75%. Given the tough competition in the supply sector, foreign firms are more drawn to niche segments such as technology-assisted exploration.

Indeed, certain companies coming to Mexico are focusing on exactly that: the digitalization of the industry and the applications of technology in mining. Companies such as German conglomerate Siemens offer digitalized solutions that can make mining more efficient. “There is a great deal of curiosity in the [Mexican] market and a high level of engagement. There are many pioneering companies and CEOs willing to ride the wave of digitalization, while there are others that prefer to wait and see,” said Siemens’s Alejandro Preinfalk to TBY.

Nonconventional minerals such as lithium form yet another niche segment of the market. Although the upstream segment—including the mining and extraction of lithium—was nationalized in 2022, foreign companies can invest in the processing of lithium and battery production. The global demand for lithium has been on the rise with the advent of electric cars, and Mexico, within proven reserves of over 1.7 million tons, is well-placed to be part of this emerging supply chain.

In the coming months, industry leaders are likely to shift from their current half-hearted adoption of digitalization to a complete embrace of digital technologies, because with operational costs going up as a result of inflation, automated solutions can increase efficiencies and cut down on costs. Although digital solutions may seem costly in the beginning, they will more than pay off in the long run.

As for controversies regarding the issue of concessions, putting checks in place is not inherently detrimental to the sector. Obtaining environmental permits, promising to steer clear of indigenous lands, and observing strict health and safety rules are now standard practices across the mining industry in the developed world. So why not in Mexico? However, the streamlining of the permits and more transparency in their issuance will surely be appreciated by foreign mining firms keen to enter Mexico’s market.