Special Section A detailed exploration of the current financial market and the implications of Mexico’s proposed mineral royalties, featuring in-depth analysis, company reactions, and expert opinions.
56, 58, 62, 63
Analysis Viewpoints from the GBR on-theground team on the subjects of mining opportunities in Mexico and security concerns affecting operations in the country, taken from our weekly newsletter the GBRoundup.
41, 70 MINE
Quantitative Data
COMPANY NUMBER
40 33
Locate Mexico’s most promising exploration projects and major operating mines with detailed maps, along with quantitative data showing key trends in the industry
57 49 11 58 38 47 48 1 39 43 15
2 36
26
27
9 23 56 50
12 34
54 35
3
24
4
5
44 46 41
21
16 51 19
25 18 37
30
20
17
31
45
29 10 32
6
13 52
14 7
42
Mexico City 28 22
9, 18, 30, 31
8
55
53
MINERAL
Au 1 Au 2 Au 3 Au 4 Au, Ag, Cu Pb 5 Cu, Ag, Zn, 6 Au 7 Au 8 Ag, Au 9 Ag 10 Ag, Au 11 Ag, Au 12 Ag, Au 13 Ag, Au 14 Ag, Au, Fe Zn 15 Ag, Au, Pb, 16 Ag, Au 17 Ag 18 Ag 19 Au 20 Au 21 Au, Ag 22 Au 23 Au, Ag 24 Au, Ag 25 Au, Ag 26 Ag 27 Ag 28 Ag 29 Au 30 Au, Ag 31 Au, Ag 32 Au, Ag, Cu 33 Au, Ag, Cu 34 Ag, Au 35 Ag, Au, Cu Au 36 Ag, Pg, Zn, 37 Ag, Au 38 Ag 39 Au, Ag 40 Au, Ag 41 Au, Ag, Cu Cu 42 Ag, Zn, Pb, 43 Au, Ag Pb 44 Ag, Au, Zn, 45 Zn, Cu, Pb 46 Ag, Au 47 Zn, Pb, Ag 48 Ag, Au 49 Ag, Pg, Zn 50 Au, Ag, Zn 51 Ag 52 Ag, Au Pb, Zn 53 Au, Ag, Cu, 54 Au 55 Au Pb 56 Cu, Ag, Zn, 57 Ag, Cu 58
Inc. Alamos Gold Inc. Gold Argonaut Gold Inc. Argonaut Gold Inc. Ltd. Argonaut & Gold Mines Avino Silver Mining Corp. Capstone rces Inc. Resou Cayden rces Inc. Cayden ResouInc. g Coeur Minin Silver Corp. Defiance Corp. El Tigre Silver Silver Corp. Endeavour Silver Corp. Endeavour Silver Corp. Endeavour Corp. tic Silver First Majes Silver Corp. tic First Majes Silver Corp. tic First Majes Silver Corp. tic First Majes Silver Corp. tic First Majes rces Inc. Galore Resou Inc. Goldcorp Inc. Goldcorp Inc. Goldcorp Inc. Goldcorp Inc. Ltd Goldcorp h Resources Golden Goliat Resources Ltd h Golden Goliat Corp. t Impac Silver Corp. Impact Silver Mining Ltd Gold Marlin Mining Ltd Marlin Gold Inc. Gold New g Corp. NWM Minin Inc. als Orex Miner als Inc. Orex Miner Corp. ican Silver Pan Amer Corp. ican Silver Pan Amer Corp. ican Silver Pan Amer Corp. ican Silver Pan Amer Corp. ican Silver Pan Amer g Corp. Primero Minin g Corp. Primero Minin Mining Ltd. Silver Santacruz g Ltd. Minin Silver Santacruz g Ltd. Silver Minin Santacruz Corp. g Scorpio Minin Mines Inc. SilverCrest Mines Inc. SilverCrest Mines Inc. SilverCrest rces Inc. ard Resou Silver Stand rces Inc. ard Resou Silver Stand Soltoro Ltd. rces Ltd. Tarsis Resou rces Inc. Inc. Telson Resou Resources Torex Gold Ltd. Ventures Alta Vista Ltd. Ventures Alta Vista Ltd. Ventures Alta Vista
Mulatos da La Colora io San Anton El Castillo Avino Cozamin El Barqueño Morelos Sur Palmarejo e Veta Grand El Tigre Guanaceví Bolañitos El Cubo tada La Encan La Parrilla San Martin ra La Guitar Del Toro s Dos Santo Peñasquito Los Filos El Sauzal Noche Buena Camino Rojo Uruachic La Cruz Zacatecas Capire La Trinidad El Compas Pedro Cerro San Oro / La Jojoba Lluvia de nes Los Cresto Coneto o Alamo Dorad da La Colora Dolores La Virginia
La Bolsa San Dimas Gallo Cerro Del San Felipe Gavilanes Rosario a Nuestra Señor Santa Elena La Joya Cruz de Mayo Pitarrilla in San Agust El Rayo Erika Tahuehueto Morelos Urique nes Dos Nacio Apache
es only, and
tive purpos
This map
Expert Opinions Companies provide their opinions on exploration in Mexico, the tax structure, the support network, the proposed mineral royalties, security concerns, community relations and the environment.
19, 23, 47, 61, 67, 73, 77, 81
Final Thoughts Thoughts on the future potential of the Mexican mining industry, the challenges it faces, the path it must take to overcome these, and the opportunities present, from leading businessmen and industry figures.
86, 87
for illustra is designed
d for use
is not intende
ent tool.
as an investm
CONTENTS
Overview
Special Section
A New Chapter in a Long Story
A Share of Riches
8. An Introduction to Mexico
56. Financial Considerations
10. Interview with the Heenan Blaikie
58. Expert Opinion
A BRIEF OVERVIEW OF THE COUNTRY AND ECONOMY JONATHAN C. LOTZ
11. Mining in Mexico
A GLOBAL MINING LEADER
14. Interview with Lawson Lundell LLP KAREN L. MACMILLAN, PARTNER
15. Interview with Lopez Olivas Asociados, S.C. JAVIER LOPEZ OLIVAS, DIRECTOR GENERAL
Geological Strength Exploration and Production in Mexico
NIETO’S GOVERNMENT AND MEXICO’S FIRST MINING ROYALTY FROM RB ABOGADOS
62. Interview with Davidson & Company LLP
GRANT BLOCK, MANAGING PARTNER; BOB POOLE, PRINCIPAL, PUBLIC COMPANY AUDITS; AND BAHAR SAADAT, CLIENT RELATIONSHIP MANAGER
63. Expert Opinion
FROM GRANT BLOCK, MANAGING PARTNER, DAVIDSON & COMPANY LLP
Respecting Surroundings
JUNIOR EXPLORERS OPERATING IN MEXICO
Security, Communities and Environment
DARREN PYLOT, PRESIDENT & CEO
66. Mex, Drugs and Rocks’in’Holes
UWE SCHMIDT, PRESIDENT
68. Interview with Control Risks
18. The Have Nots?
20. Interview with Capstone Mining Corp. 21. Interview with Galore Resources Inc.
SECURITY IN MEXICO
22. Interview with Orex Minerals Inc.
NICK PANES, GENERAL MANAGER MEXICO
23. Expert Opinion
ELIZABETH SUTTIE, PRINCIPAL – EXECUTIVE TALENT AGENT
GARY COPE, PRESIDENT & CEO
FROM ANDREW ELSWORTH, TAX MANAGER, MINING SPECIALIST, KPMG IN MEXICO
69. Interview with The Suttie Group 70. Analysis
25. Interview with Cayden Resources Inc.
GOLD ORE AND DRUG LORDS
26. Interview with Galileo Minerals Ltd
COMMUNITY RELATIONS IN MEXICO
27. Interview with El Tigre Silver Corp.
MITCHELL KREBS, PRESIDENT & CEO
28. The Haves
ENRIQUE RODRIQUEZ DEL BOSQUE, PARTNER
33. Interview with Pan American Silver Corp. 34. Interview with SilverCrest Mines Inc.
GEORGE R. BURNS, EXECUTIVE VICE PRESIDENT & COO AND CHRISTINE MARKS, DIRECTOR CORPORATE COMMUNICATIONS
36. Interview with New Gold Inc.
PAUL SORBARA, CEO
37. Interview with Silver Standard Resources Inc.
DAVID WOLFIN, PRESIDENT; CARLOS RODRIGUEZ, CEO; AND JASMAN YEE, COO & DIRECTOR
38. Interview with Endeavour Silver Corp.
ENVIRONMENTAL CONSIDERATIONS IN MEXICO
40. Interview with First Majestic Silver Corp.
CHRIS BRODIE, MANAGER OF ENVIRONMENTAL SERVICES
IVAN BEBEK, PRESIDENT, CEO & DIRECTOR DAVID HOTTMAN, PRESIDENT & CEO STUART R. ROSS, PRESIDENT & CEO
PRODUCERS OPERATING IN MEXICO
GEOFF A. BURNS, PRESIDENT & CEO
J. SCOTT DREVER, PRESIDENT & DIRECTOR ROBERT GALLAGHER, PRESIDENT & CEO JOHN SMITH, PRESIDENT & CEO
BRADFORD COOKE, CHAIRMAN & CEO KEITH NEUMEYER, PRESIDENT & CEO
41. Analysis
RESUMING HISTORY
42. Interview with Argonaut Gold Inc. PETER DOUGHERTY, PRESIDENT & CEO
43. Interview with Scorpio Mining Corp.
72. Best Friend or Worst Enemy
74. Interview with Coeur Mining Inc. 75. Interview with RB Abogados 76. Interview with Goldcorp Inc.
78. Interview with Golden Goliath Resource Ltd 79. Interview with Avino Silver & Gold Mines Ltd 80. The Greener Side of Gold
82. Interview with Knight Piésold Ltd 83. Interview with Acme Analystical Laboratories Ltd
GEORGE CARTWRIGTH, PRESIDENT AND JOHN GRAVEL, EXECUTIVE CHAIRMAN
CLAUDIO MANCUSO, DIRECTOR AND CEO
44. Interview with SantaCruz Silver Mining Ltd ARTURO PRESTAMO, PRESIDENT & CEO AND NEIL MACRAE, INVESTOR RELATIONS DIRECTOR
Appendix
46. Innovation and Support
Into the Future
48. Interview with Ingetrol
86. Final Thoughts 88. Index & Company Guide 90. Credits
SERVICE COMPANIES IN MEXICO LUIS SILVA, PRESIDENT & CEO
49. Interview with Martin Engineering
JAVIER SCHMAL, MANAGING DIRECTOR FOR LATIN AMERICA
50. Interview with CAE Mining DAMIAN MCKAY, PRESIDENT
52. Interview with TetraTech
D. BRENT THOMPSON, PRESIDENT – MINING & MINERALS AND IAN J. STEWART, VICE PRESIDENT – MINING DIVISION
53. Interview with Behre Dolbear Group Inc. KARR MCCURDY, PRESIDENT & CEO
All interviews were conducted between March and September 2013. Interviews may therefore not reflect the most recent developments of the companies featured. This research has been conducted by Katie Bromley, Ramzy Bamieh, Chloe Dusser, Joseph Hincks, Sholto Thompson, Ana-Maria Miclea and Maher Tariq Ali | Edited by Mungo Smith and Barnaby Fletcher | Graphic Design by Gonazalo Da Cunha A Global Business Reports Publication For more information, contact info@gbreports.com, follow us on Twitter @GBReports or check out our blog at gbroundup.com.
Source: Shutterstock
Global Business Reports // BRAZIL MINING 2013
5
Global Business Reports
FACTSHEET
Industry Explorations
An Introduction to Mexico A brief overview of the country and economy
Mexico is the second largest economy in Latin America and, except for a sudden plunge of GDP in 2009 of 6.2% as world demand for its exports fried up and its asset prices plummeted, has remained relatively resilient to the financial crisis and recession that have affected businesses to such a great extent in its northern NAFTA neighbour, the United States. In 2010, Mexico returned to growth with an export driven increase of GDP of 5.6%. Furthermore, unlike its other NAFTA colleague, Canada, Mexico’s mining industry has remained buoyant, seeing production increases across all minerals and maintaining large flows of foreign investment. Attracted by the geology and lower operating costs, Mexico is a favourite destination for junior miners and high gold and silver prices encouraged them. The new government formed by the old PRI, which has ruled Mexico almost since its independence, under President Enrique Peña Nieto, will attempt to maintain the momentum that has seem the Mexican economy at the same pace as it has over the past decade. But they face some very hard economic decisions. Pemex, the giant oil company that historically manages the governments’ monopoly over oil and gas and supplies almost one third of government revenues, cannot curb falling production figures and depleting resources. Reforms geared to attracting investment to the industry are essential and the national taboo concerning the Mexican peoples owning of their oil industry must be confronted. Likewise in mining, the situation is currently in a state of uneasy flux as a new mining code is being designed, including the certain introduction if a royalty that is touted to be as high as 7.5%. This has sent shivers down the spine of miners from Yucatan to Vancouver. Labor reforms are also on the 8
Global Business Reports // MEXICO MINING 2013
agenda. Over the past years cheaper labor and operating costs have ensured that their Mexican operations have been a haven of profitability amidst a global economic storm. Now it looks like they must reappraise their assets in Mexico. The impact on the industry might be huge and mine closures and stalled investments are already being considered. The timing for the proposal is considered as unfortunate. Changing the rules unfavorably when the global financial community has already fallen out of love with the mining industry will only dry up the investment even more for the Canadian companies, already struggling to raise finance to develop their Mexican assets. Please note that at the time when we made this research, the proposed royalty was believed to be around 5%. The comments of those that we interviewed on this subject relate, therefore, to this lower figure and would be far more condemning and irate if they could be heard today. Meanwhile, drug-fuelled violence continues a pace in certain parts of the country and the streets have recently been often filled with aggrieved citizens protesting their cause. Per capita is roughly one-third of that is the US and income distribution is very unequal. Both urban and rural poverty are widespread. Separatist and community issues with indigenous peoples remain important, although violent protest has ceased. Nevertheless, Mexico has a huge potential for accelerating economic growth. The country maintained strong growth of 3.9% during 2012. This has been supported by both external and internal demand, with a firmer expansion in services. Gross Domestic Product (GDP) is expected to grow 3.5% during 2013 with a recovery in 2014. Long-term issues include the need to advance reforms to boost growth and to address fiscal challenges associated with a decline in oil
revenues and spending pressures from health and pensions. Royalties applied to minerals can be added to this list, if an agreement is not forthcoming between the industry and the government. The research that went into this report included trips from Vancouver to Quebec and from Mexico, D.F. to Sonora during the first half of 2013, where we met the stake holders of the mining industry. We thank them all for their help, their hospitality and we hope that you will enjoy reading reading their wisdom. •
$1.788 TRILLION GDP (current US dollars) 2012 Source: CIA World Factbook
3.9%
GDP GROWTH RATE 2012 Source: CIA World Factbook
$12.659 BILLION
FOREIGN DIRECT INVESTMENT (BoP, USD) 2012 Source: World Bank
Industry Explorations
UNITED STATES Mexicali
BAJA CALIFORNIA
L O C AT I O N
SONORA CHIHUAHUA
Hermosillo
Chihuahua COAHUILA DE ZARAGOZA
MEXICO
BAJA CALIFORNIA SUR
Culiacan La Paz
SINALOA
NUEVO LEON
Monterrey
Saltillo
DURANGO
Durango
TAMAULIPAS
ZACATECAS
Zacatecas
Gulf of Mexico
Ciudad Victoria
SAN LUIS POTOSI
1 San Luis Potosi Aguascalientes Tepic Guanajuato 7 4 3 Queretaro Guadalajara Pachuca NAYARIT
North Pacific Ocean
JALISCO
Colima COLIMA
Morelia
MICHOACAN DE OCAMPO
Merida
VERACRUZLLAVE
YUCATAN
Campeche
Mexico City 5
Toluca Cuernavaca
2 6
Jalapa 8 Tlaxcala Puebla PUEBLA
TABASCO
Villahermosa
QUINTANA ROO
Chetumal CAMPECHE
Chilpancingo GUERRERO
Belmopan
Oaxaca
Tuxtla Gutierrez
OAXACA
CHIAPAS
BELIZE GUATEMALA
HONDURAS
Tegucigalpa
Guatemala San Salvador
EL SALVADOR
200km 1. 2. 3. 4. 5. 6. 7. 8.
AGUASCALIENTES DISTRITO FEDERAL GUANAJUATO HIDALGO MEXICO MORELOS QUERETARO DE ARTEAGA TLAXCALA
Population and Workforce information
Population (2013)
116,220,947
Source: CIA World Factbook
Youth Unemployment Rate 9.8% (2011)
Industry Explorations
Unemployment Rate 5% (2012)
Labor Force 50.64 (2012)
Literacy Rate 93.5% (2009)
Mexico at a Glance Source: CIA World Factbook
Population: 116,220,947 (July 2013 est.) Capital: Mexico City (D.F). Head of Government: President Enrique Pe単a Nieto (since 1 December 2012) GDP (official exchange rate): $1.788 trillion (2012 est.) Growth Rate: 3.9% (2012 est) GDP per Capita: $15,600 (2012 est.) Economic Sector Breakdown: agriculture: 4.1%; industry: 34.2%; services: 61.8% (2012 est.) Exports: $370.9 billion (2012 est.) manufactured goods, oil and oil products, silver, fruits, vegetables, coffee, cotton Imports: $370.8 billion (2012 est.) metalworking machines, steel mill products, agricultural machinery, electrical equipment, car parts for assembly, repair parts for motor vehicles, aircraft, and aircraft parts Major Trade Partners: USA, China, Japan
Global Business Reports // MEXICO MINING 2013
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Global Business Reports
MAP
Industry Explorations
40 33
58 48
57 49 11 43
47
38 1 39
2 36
15
26
27
9 23 56
34 54
12
50
35 3
44
46 41
5
4
24
16
51 19
21
25
18
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37 29 10 31
30
17
20
6
32
13 52
14
7
42
Mexico City 28 22
30
Global Business Reports // MEXICO MINING 2013
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55
53
Industry Explorations
Global Business Reports
MAP
Industry Explorations
NUMBER
MINERAL
COMPANY
MINE
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58
Au Au Au Au Au, Ag, Cu Cu, Ag, Zn, Pb Au Au Ag, Au Ag Ag, Au Ag, Au Ag, Au Ag, Au Ag, Au, Fe Ag, Au, Pb, Zn Ag, Au Ag Ag Au Au Au, Ag Au Au, Ag Au, Ag Au, Ag Ag Ag Ag Au Au, Ag Au, Ag Au, Ag, Cu Au, Ag, Cu Ag, Au Ag, Au, Cu Ag, Pg, Zn, Au Ag, Au Ag Au, Ag Au, Ag Au, Ag, Cu Ag, Zn, Pb, Cu Au, Ag Ag, Au, Zn, Pb Zn, Cu, Pb Ag, Au Zn, Pb, Ag Ag, Au Ag, Pg, Zn Au, Ag, Zn Ag Ag, Au Au, Ag, Cu, Pb, Zn Au Au Cu, Ag, Zn, Pb Ag, Cu
Alamos Gold Inc. Argonaut Gold Inc. Argonaut Gold Inc. Argonaut Gold Inc. Avino Silver & Gold Mines Ltd. Capstone Mining Corp. Cayden Resources Inc. Cayden Resources Inc. Coeur Mining Inc. Defiance Silver Corp. El Tigre Silver Corp. Endeavour Silver Corp. Endeavour Silver Corp. Endeavour Silver Corp. First Majestic Silver Corp. First Majestic Silver Corp. First Majestic Silver Corp. First Majestic Silver Corp. First Majestic Silver Corp. Galore Resources Inc. Goldcorp Inc. Goldcorp Inc. Goldcorp Inc. Goldcorp Inc. Goldcorp Inc. Golden Goliath Resources Ltd Golden Goliath Resources Ltd Impact Silver Corp. Impact Silver Corp. Marlin Gold Mining Ltd Marlin Gold Mining Ltd New Gold Inc. NWM Mining Corp. Orex Minerals Inc. Orex Minerals Inc. Pan American Silver Corp. Pan American Silver Corp. Pan American Silver Corp. Pan American Silver Corp. Pan American Silver Corp. Primero Mining Corp. Primero Mining Corp. Santacruz Silver Mining Ltd. Santacruz Silver Mining Ltd. Santacruz Silver Mining Ltd. Scorpio Mining Corp. SilverCrest Mines Inc. SilverCrest Mines Inc. SilverCrest Mines Inc. Silver Standard Resources Inc. Silver Standard Resources Inc. Soltoro Ltd. Tarsis Resources Ltd. Telson Resources Inc. Torex Gold Resources Inc. Alta Vista Ventures Ltd. Alta Vista Ventures Ltd. Alta Vista Ventures Ltd.
Mulatos La Colorada San Antonio El Castillo Avino Cozamin El Barqueño Morelos Sur Palmarejo Veta Grande El Tigre Guanaceví Bolañitos El Cubo La Encantada La Parrilla San Martin La Guitarra Del Toro Dos Santos Peñasquito Los Filos El Sauzal Noche Buena Camino Rojo Uruachic La Cruz Zacatecas Capire La Trinidad El Compas Cerro San Pedro Lluvia de Oro / La Jojoba Los Crestones Coneto Alamo Dorado La Colorada Dolores La Virginia La Bolsa San Dimas Cerro Del Gallo San Felipe Gavilanes Rosario Nuestra Señora Santa Elena La Joya Cruz de Mayo Pitarrilla San Agustin El Rayo Erika Tahuehueto Morelos Urique Dos Naciones Apache
This map is designed for illustrative purposes only, and is not intended for use as an investment tool.
Industry Explorations
Global Business Reports // MEXICO MINING 2013
31
Global Business Reports
INTERVIEW
INTERVIEW WITH
Industry Explorations
INTERVIEW WITH
Gary J. Scott Cope Drever
What is the project’s current status and how is the surrounding infrastructure? Fresnillo is currently earning its interest in the project. It has to spend six million dollars over three years; with the first year just ending, it has already spent $3.4 million. A third drill has just been added, which is great news as it shows the results warranted it. Fresnillo has been a great company to work with, providing us with a good flow of information. The infrastructure at Coneto is very good. Power runs PRESIDENT & CEO PRESIDENT & DIRECTOR right through the property, and neither water nor labor is a problem. OREX MINERALS INC INCIt is a very mining-friendly area, the surrounding villages are supSILVERCREST MINES portive of the project. Is Mexico’s legal and regulatory framework set up to support mining? What is your view on the current government proposals to raise taxes Please provide of the Coneto theimpact decisionwill to the takenew on mill or have implement royalties? amounts of gold. The resource has some What on Santa Please update an us overview on construction of theproject new and partners it? We have been in Mexico 2003 and find it to be anstudy excellent good since attributes: a pre-feasibility has mill andforassociated developments at your Elena’s overall production levels? We made our first move for the old mining camp at Coneto four or five years place to explore. As an exploration company we are not involveda Metal production levels with the conven- just been completed which confirmed Santa Elena mine. ago. Many other suchfinancing as Pan American Silver and have in advanced mines,three but we do getozinto of to four corepermitting which can millFresnillo, will significantly increase.permitting In highofgrade SilverCrest Minescompanies, commenced for tional also tried but like us they were never able to pull the multiple concession-owndrilling and exploration, which we have found to be a very easy and the Santa Elena mine in 2009 – this was a 2012, the open-pit heap leach process pro- be extracted, crushed, and transported to the ers together, in particular the two main ones. Orex Minerals finally managed Higher taxesmill. or a new royalties system would Elena equivalent process. per Santa challenge, given the economic climate at duced 2.4 million oz silverstreamlined this two years ago with Orko Silver. We previously worked on the La Preciosa into the economics of any mining resource. Nothing has been 579,000 oz of that time but we were successful in securing year; 33,000 oz of gold andfactor deposit, Orko Silver’s project 60 Km to the south, where we drilled 300,000m introduced yet at the federal level, and I am sure the Mexican states the necessary financing. Construction began silver. In 2013, we expect gold levels to re- The third property is La Joya, what would in collaboration with Pan American Silver. Coneto is a much larger system, would be vocal on any new legislation. Durango is a mining state; it in late 2009, pouring our first gold and sil- main similar to 2012, while the silver should you highlight about this project and how 17Km long with more than 50 known veins: we knew it would require far does not want to drive anyone away. Any fiscal changes are likely to ver in September 2010. Our first phase of increase to about 675,000 oz. Then in 2014, does it fit into SilverCrest’s portfolio? more drilling than La Preciosa, so the sooner we brought in a well-financed be cautious, and not to the detriment of the industry. open-pit heap leach produced good results the run-rate should be about 3-3.5 million Like Santa Elena, La Joya fits into the mapartner, the better. Fresnillo was the obvious choice as a partner as it already from an operational/financial viewpoint, oz silver equivalent; comprised of 36,000 oz trix that SilverCrest favors; it has easy access had an 8% claim to the camp; it became a very easy deal to do. What were the reasons behind your merger with Astral Mining Corp? with good logistics and infrastructure, it is helping achieve our initial corporate strat- gold and 1.3million oz silver. It was a case of a company running into the type of problems being egy of creating a cash flow. It was clear from The addition of the mill will result in a rise located just south of a large city, Durango. encountered more and more often on the exchange. Astral Mining the outset that the grades at the Santa Elena in recovery rates of silver from, 35% to 70% These factors will allow us to develop what had good projects but was basically out of money and, in the current When you also we believe is a large project fairly quickly deposit required a conventional mill because and gold from 70% to 90%.market, probably unable to refinance. We decided it would be betat relatively low into account of the differential recoveries compared to take the increasing silver grades ter to take the wholeand company out than to cost. option one property. The moreattraction silver-fo-was the Los Crestones property in Sinaloa, Mexico, heap leaching and allowances were made the company will become main It isgood always important for definitely mining companies in the permitting process to accommodate cused. which had some very initial results and warranted with your local Can this. However reviewing the markets and follow-up. 39 grams to of engage gold were found over fivecommunities. meters, with some you outline your strategy and initiatives in economics at that time, it would have cost SilverCrest has a strong record of controlling silver and base metals as well, but only 5% of the property had been this regard? $80 - 90 million to construct a conventional operating costs. Can you givemapped. an insight into It is a project in its infancy, but we are anxious to advance it At Santa ElenaAn ourexploration target wasprogram to employ 70% mill, and taken us two years longer to be op- the strategy employed on operation costs within the nextatcouple of months. is being of our work force from the local commuexpectations erational. SilverCrest put the open pit heap Santa Elena and what are your prepared, with financing taking place at the moment.
leach phase of the project on-stream within nine months for less than $20 million, recognizing that we were leaving a large recoverable metal component on the heaps for a later reprocessing through a conventional mill. The design-work has been concluded for a conventional CCD 3,000 mt per day processing mill including detailed engineering work. Major construction is well underway and we have commitments in place on the longer lead-time equipment, some of which have started to be delivered. The target date for mill operation will be late December 2013 to early January 2014, with 3,000 tpd run-rate being achieved within the first quarter of 2014. We are on-track for budget and schedule.
34 22
Global Business Reports // MEXICO MINING 2013
for the life-span the mine considering this nity, which has been exceeded. Our corporate M social (CSR) program at increased production? Should we expect more & A responsibility activity from Orex Minerals in the The rising costs are somewhat offsetyears? by our Santa Elena includes local community medcoming attention; school years projects by supplying declining strip ratio and the risingjoint grades Further ventureical activity in the coming is a possibility. The materials to construct a scholarship as we get deeper into the pit. We are com- set market is certainly up for strong juniors facilities; with treasuries or stock prices they can acquisitions. I would be grades lying ifto I said there program for high-school progress ing towards the bottom of the open-pit anduse for notwe opportunities right now for companies Orex Minerals and we assistlike with municipal the strip ratio is reducing; inwere 2012 were to university; to to pick offand attractive properties•which others are unable to refinance. 4.25:1, in 2013 will be closer 3:1, in facilities. the final year of open-pit production will be How do you see your Mexican share price developing in the future? 1:1 or less. The main factor determining our Mexican share price will be the drill results In close proximity to the Santa Elenaproduce mine isby Fresnillo at Coneto. So far they have been excelandyou there is no reason to think this will not continue. If we also your Cruz de Mayo project, lent could proachieve the type of results Astral Mining managed at Los Crestones we vide an overview of the property? will have two constant sources of good news. We have been around Cruz de Mayo has attracted a great deal of emphasis and interest, and long was enough one of to thesee a few cycles and this one is bound to turn around. point will look at mining and exploration and confirst properties we acquired At in some Mexico. It people is clude they are undervalued. • predominantly a silver deposit with small
Industry Explorations
Global Business Reports
ANALYSIS
Industry Explorations
Mexican tax treatment of exploration expenses Andrew Ellsworth, Tax Manager, Mining specialist, KPMG in Mexico
Investment in Mexico’s mining industry has Under Mexico’s Income Tax Act (MITA), mingrown exponentially. For 2012, Mexico’s min- ing exploration expenditures, what is referred ing chamber, Camimex, estimated that invest- to as the pre-operating period, are amortized ment by mining companies was USD 7.6 bil- at the maximum rate of 10% on a straight-line lion, up from USD 5.6 billion in 2011 and USD basis when the project for which the expendi3.3 billion in 2010. For 2013, investment is tures were made moves to the operating phase. anticipated to increase up to 40% from 2012. The expenditures must be made to locate and This rise in investment it is attributed to a quantify new deposits susceptible to exploitacombination of high precious and base metal tion. Therefore, once the project is in the opprices, a friendly regulatory environment and erating phase, all qualifying expenditures made the country’s geology. In addition, Mexico has during all years of the pre-operating period are a history of mining dating back to the pre-His- put into one pool and deducted for income tax panic and colonial periods and modern techpurposes at2:01 the maximum rate of 10% annually. SVL_Ad_HalfPage_1307_PRINT.pdf 1 13-07-19 PM nologies have made it more efficient to further In addition, the income tax deduction for the explore and exploit existing mineral deposits pre-operating expenses should be indexed for that were mined decades ago. inflation, thus granting an additional benefit. Mexico is the world’s largest producer of silver, Alternatively, taxpayers involved in mining which accounted for 27% of Mexico’s mining activities may elect, under the MITA , to fully output in 2011 according to Mexico’s National deduct expenditures during the pre-operating Institute of Statistics and Geography (INEGI). period in the year in which the outlays are Gold represented 25% of total mining produc- made. This election must be taken for pre-opertion and copper 20%. Other base metals repre- ating expenses corresponding to the same minsented 11% of total output. eral deposit or project. As a result, this election The Mexican Geological Survey has identified 23 should be made in the first year pre-operating giant world class mineral deposits and six super expenses are outlayed for a specific exploration giant deposits. Because of this, in 2011, Mexico project and expenses in all subsequent years invested more money in exploration than all but relating to the same mineral deposit or project three other countries; Canada, Australia and the must be fully deducted in those years the outUSA. According to Camimex, more than USD lays are made. Exploration expenses relating to PEOPLE Management team has FINANCIAL Strong balance sheet 1 billion was spent on exploration in 2011 on several mineral deposits or projects must be accumulated a century’s worth with growing free cash flow 763 projects by 320 companies. separated and either amortized for income tax of international mining success PRODUCTION GROWTH According to Camimex, foreign capital repre- purposes once the pre-operating period ends or PRODUCTION Santa Elena Expansion plan to increase AgEq sents Mine approximately of all Mexican an election to fully deduct those expenses (Mexico) 40% high-grade gold mining production 50-75% taken in 2014 production, with approximately 70% of this bein the year of expenditure. & silver, open-pit heap leach RESOURCE GROWTH La Joya 198 ing from Canada. mine, transitioning to million oz AgEq resource & growing Because a substantialinnumber underground 2014 of foreign-owned What is the pre-operating period? Mexican mining companies are currently involved in exploration activities or looking at The MITA does not define the pre-operating pecommercial production in the short-term, these riod. Although International Scan the QR Financial Reportcodes for more companies should be interested in the cor- ing Standard (IFRS) 6 discusses the accounting info. Get the responding tax treatment of exploration and treatment of exploration for and evaluation of FREE mobile other expenses incurred in getting their projects mineral resources,app: IFRS 6 does not give any http:// gettag.mobi into production. guidance on defining the pre-operating pe-
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riod. However, it is industry practice for mining companies to consider that commercial production is reached and therefore the pre-operating period concluded, when a mine is in the condition necessary for it to be capable of operating in the manner intended by management. A range of factors are taken into account when determining whether commercial production has been reached, which may include demonstration of continuous production near the level required by the design capacity of the processing facilities, demonstration of continuous throughput levels at or above a target percentage of the design capacity and demonstration of the ability to produce output at a net margin that is consistent with expectations. Usually, a mining company will assess a mine’s ability to sustain production and throughput over a TStoXthree .V:SVL period of approximately one months, depending on the complexity of the NYS E MK T: Soperation, V LC prior to declaring that commercial production has been reached.
Types of pre-operating expenses The amortization or immediate deduction of exploration expenses during the pre-operating period is limited to expenses that are not otherwise depreciable (i.e. non-depreciable property). Tax depreciable property or assets such as buildings, machinery and equipment and tools must be separated from the pre-operating period exploration expenses and depreciated at the maximum authorized rates provided by the MITA on a straight-line basis or immediately deducted at the maximum rates established by the MITA or by presidential decree in the year the asset is first put into use or the following year. 501 – 570 Granville Street Once production commences, the accumulated Vancouver, BC V6C 3P1 pre-operating period exploration expenses may Tel: 604-694-1730 | Fax: 604-694-1761 be amortized at the maximum rate of 10% on a Toll Free: 1-866-691-1730 straight-line basis or if an election is made, fully info@silvercrestmines.com deducted in the year of expenditure. www.silvercrestmines.com Global Business Reports // MEXICO MINING 2013
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EDITORIAL TEAM Senior Project Director (Vancouver): Katie Bromley (kbromley@gbreports.com) Project Coordinator (Mexico): Ana-Maria Miclea (amiclea@gbreports.com) Project Coordinator (Toronto): Chloe Dusser (cdusser@gbreports.com) Journalist Journalist Journalist Journalist
(Vancouver): Ramzy Bamieh (rbamieh@gbreports.com) (Mexico): Maher Tariq Ali (mali@gbreports.com) (Toronto): Joseph Hincks (joseph@gbreports.com) (Vancouver): Sholto Thompson (sthompson@gbreports.com)
Research Assistance: Pelin Arin (parin@gbreports.com) Editor: Mungo Smith (mungo@gbreports.com) Editor: Barnaby Fletcher (bfletcher@gbreports.com) Graphic Designer: Gonzalo Da Cunha (gonidc@gmail.com) Regional Director: Alfonso Tejerina (alfonso@gbreports.com) General Manager: Agostina Da Cunha (agostina@gbreports.com) For more information about GBR, please email info@gbreports.com. For updated industry news from our on-the-ground teams around the world, please follow us on Twitter @GBReports or subscribe to our newsletter at gbroundup.com. Additional copies of this book can be ordered at gbroundup.com/publications.
THANK YOU GBR would like to sincerely thank all the companies, associations and individuals that took the time to provide their insights into the market.
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