2018
2018 If 2016 provided the fireworks of recovery for the mining sector, then 2017 has been something of a damp squib. The sky is still lit up – the prices of metals including gold, silver and copper all rose during the first half of the year – but not as brightly as many hoped. Many mining companies are relieved simply to be making a profit again but this is thanks more to the cost-cutting that was implemented during the downturn than to the value of their wares. The road back to the sunny days of 2011, when gold was trading above US$1,800/oz, seems like a long one. But the sector is well-placed for strong long-term performance. Silver production is falling while demand is underpinned by the solar energy industry, EVs and other electronic applications. Gold is still seen as an attractive safe haven from stock market volatility and base metals including copper, lithium and nickel are essential components in battery manufacturing. As a leading player in the global mining industry, this is good news for Mexico but the country faces challenges. After a 24-year absence, an Undersecretariat for Mining has finally been reestablished at the Ministry of Economy. The new department must drive further investment into the industry, propel the sector into the modern age by welcoming and encouraging new technology and act as a mediator in the squabbling over tax policy that is dominating public-private relations. With presidential elections looming in 2018, the new administration must also remember that mining companies – and investors – value regulatory clarity and consistency above all else.
Mexico Mining Review 2018 offers insight, opinion and analysis from the individuals and institutions shaping the mining industry in Mexico today. With over 200 interviews, technology and project spotlights, interactive maps and information-packed infographics, it provides a complete overview of the most powerful trends and pressing challenges facing the sector and connects the entire value chain – operator, investor, explorer and service provider – in one book.
ALL RIGHTS RESERVED Š Mexico Business Publications S.A. de C.V., 2017. This annual publication contains material protected under International, United States and Mexican Laws and international Treaties. Any unauthorized reprint or use of this material is prohibited. No part of this book may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying, recording, or by any information storage and retrieval system without express written permission from Mexico Business Publication S.A. de C.V. Mexico Mining Review is a registered trademark.
The publisher has made all reasonable efforts to provide accurate information, and the information contained in this publication is derived from sources believed to be true and accurate. However, the information in this publication should not be considered to be complete or definitive, and may contain inaccuracies or typographical errors. The publisher accepts no responsibility regarding the accuracy of information and use of such information is at your own risk. The publisher will not be liable to any party for any direct, indirect, special or other consequential damages arising out of any use of information in this publication. The publisher provides no representations or warranties, express or implied, including any implied warranties of fitness for a particular purpose, merchantability or otherwise in relation to any information provided by the publisher in this publication.
ISBN: 978-0-9993108-1-6
TABLE OF CONTENTS
1
STATE OF THE INDUSTRY
8
PLANNING & CONSTRUCTION
2
FINANCE, INVESTMENT & REGULATION
9
MINE OPERATIONS
3
GOLD
10
4
SILVER
11
AUTOMATION & DIGITALIZATION
5
COPPER, BASE METALS & INDUSTRIAL MINERALS
12
LOGISTICS & TRADE
6
EXPLORATION
13
ENERGY & SUSTAINABILITY
7
DRILLING & PROSPECTION
14
INDUSTRY OUTLOOK
MINERAL PROCESSING
Metal smelting
STATE OF THE INDUSTRY
1
The mining industry has reached a crossroads. Although metal prices are rising again, they have not performed as well as many expected. As a result, global spending on exploration decreased for a fourth consecutive year in 2016 as mining executives remained cautious. But the cost-cutting that companies were forced into during the downturn is boosting corporate balance sheets and widening profit margins, and the avenues toward high-risk exploration activity are opening up once again. In Mexico, the creation of the Undersecretariat for Mining in December 2016 was lauded by the industry as a step in the right direction but disagreements between private and public bodies on a variety of tax issues continue to bubble under the surface and thwart progress.
This chapter provides an overview of the mining sector, covering all the key trends and issues that are shaping the industry today. Policymakers share their perspectives on the current state of affairs and lay out their plans for the future, international commentators offer their opinion of the sector in Mexico and leading figures from the country’s top mining companies explain what they feel needs to be done for the country to fulfill its potential and play a leading role in the national economy for years to come.
5
7
CHAPTER 1: STATE OF THE INDUSTRY 8
ANALYSIS: The Year in Review
11
VIEW FROM THE TOP: Ildefonso Guajardo Villarreal, Minister of Economy
12
INFOGRAPHIC: A Volatile But Promising Year
14
VIEW FROM THE TOP: Mario Alfonso Cantú, Ministry of Economy
16
VIEW FROM THE TOP: Susana Corella, Federal Government of Mexico
17
VIEW FROM THE TOP: James Gordon Carr, Canadian Ministry of Natural Resources
18
VIEW FROM THE TOP: Jaime Lomelín, CLUSMIN
19
INFOGRAPHIC: Mexico’s Mining Clusters
20
VIEW FROM THE TOP: Alfredo Phillips, Guerrero Mining Cluster
22
VIEW FROM THE TOP: Orlee Wertheim, Toronto Stock Exchange and TSX Venture Exchange
23
VIEW FROM THE TOP: José-Oriol Bosch, BMV Group
24
VIEW FROM THE TOP: Octavio Alvídrez, Fresnillo
25
VIEW FROM THE TOP: Marco Bernal, AIMMGM
26
VIEW FROM THE TOP: Sergio Almazán, CAMIMEX
28
INSIGHT: Alfredo Álvarez, EY
29
VIEW FROM THE TOP: Euridice González, McEwen Mining and WIM México
30
ROUNDTABLE: What Challenges Do You Face As a Female Executive in The Mining Industry?
ANALYSIS
THE YEAR IN REVIEW For the mining industry, 2016 was a year of two halves. A
billion, 9 percent more than the MX$213.3
recovery in metals prices motivated the industry to believe an
billion output the previous year. Once again,
upswing was finally on the way. But even with global geopolitics
gold made the largest contribution to the
causing a strain, miners believe they have reason to celebrate
total value with 37.4 percent, followed by copper (19 percent) and silver (18 percent).
8
For the global mining industry, 2016 was a year of two halves.
According to IMSS, the sector generated 9,790 new jobs
A recovery in metals prices motivated the industry to believe
in 2016, more than twice the number of new jobs in 2015.
an upswing was finally on the way. But even with global
The industry now employs over 354,000 people in Mexico.
geopolitical events causing a strain, many miners believe they have reason to celebrate
GOLD – BOUNCING BACK Like many commodities, gold suffered a volatile 2016 as
Metal prices recovered strongly during the first six months
unprecedented political shifts took their toll. After a strong
after a painful, four-year downturn. In June, gold rose to
start to the year, rising 25 percent to US$1,361/oz by June 27,
US$1,361/oz, its highest price since 2013. But the latter part
bullion prices began to fall off in July and continued to falter in
of the year was dominated by the political shockwaves of
the build up to, and aftermath of, the US presidential election
Brexit and the US presidential election result; gold fell by
that put Donald Trump in the White House. Between Oct.
15 percent and silver by 19 percent during 2H16 as investors
24 and Dec. 25, the price of an ounce of gold fell 13 percent
sat back, scratched their heads, and wondered “What
to US$1,133/oz from US$1,304/oz. The “Trump Bump” was
next?” But prices rebounded during the first half of 2017, a
more of a “Trump Slump” for precious metal investors. But the
result of improved economic performance in China and a
commodity rebounded in 1H17, rising steadily to reach a six-
depreciation of the US dollar. The industry may have finally
month high of US$1,293/oz in July as uncertainty continued
turned the corner.
to roil international marketplaces.
In Mexico, the creation of the Undersecretariat of Mining at
Annual gold production for the year fell by 0.2 percent
the Ministry of Economy was announced in December 2016
to 99.7 million ounces worldwide. For the second year
in what felt like a seminal moment for the industry. Despite
running, Mexico placed eighth on the global list of gold
its geological potential, total investment in the Mexican
output, second in Latin America behind Peru, with a total
mining sector fell 20.9 percent in 2016. The challenge facing
of 4.26 million ounces. On the corporate side, Fresnillo
the new Undersecretary for Mining, Mario Alfonso Cantú, is
overtook Goldcorp as the country’s top gold producer
to rejuvenate a traditional sector still struggling to fulfill its
after churning out over 935,000 ounces of bullion, a 22
potential in the modern age.
percent YOY improvement. Goldcorp’s fall into second place was a result of its commitment to stripping its
“The Undersecretariat was created as an acknowledgement of
portfolio of noncore assets, a strategy that resulted in
the importance of mining as a strategic activity,” says Cantú.
the sales of the Los Filos, Camino Rojo and San Nicolas
“It was a response to the industry’s expansion and the need
projects during 1H17.
for regulation, promotion and development.” Fresnillo’s La Herradura asset was the most productive gold
MINING IN MEXICO
mine in the country, ahead of Goldcorp’s Peñasquito, with
In the context of Mexico’s sluggish growth in 2016 – an
520,400 ounces. Then, in 2017, Fresnillo outlined a new US$110
expansion of just 2.3 percent compared to the global average
million investment plan for La Herradura.
of 3.1 percent – there were encouraging signs of recovery for the local mining sector. After FDI crashed in 2015 to just
SILVER – MEXICO THE TOP DOG
US$370 million – a byproduct of controversial fiscal reforms
After falling for five consecutive years from 2011, the silver
implemented the previous year – foreign investment bounced
price finally turned a corner in 2016 and continued the
back in 2016 to US$718 million, a jump of 94 percent. This
upward curve in 2017, never dropping below the US$15/
is still some way off the US$2.1 billion that foreign investors
oz mark during the first half of the year. With strong
poured into the sector in 2014 but a positive sign of returning
demand from solar energy and electronics, the price
confidence nonetheless.
was underpinned by falling supply. According to figures compiled by The Silver Institute, global mine production of
The green shoots of recovery were also present on the
silver fell by 0.6 percent to 885.8 million ounces in 2016, the
production side. Mexico’s total value of metal and mineral
first yearly drop since 2002, while scrap supply also fell for
production in 2016 surged to a record high of MX$234.3
the fourth consecutive year.
Mexico comfortably retained its place at the top of the
Exchange (LME) trading at US$5,500/t. Then, thanks to
silver production tree, producing 173.9 million ounces and
a more solid forecast in Chinese economic growth and a
contributing 21 percent to global output, according to INEGI.
possible scrap metal ban in the country, in July 2017 copper
Peru was second with 16.7 percent, followed by China (12.7
reached US$6,292/t, its highest level in two years. According
percent) and Chile (5.4 percent). Fresnillo was once again
to Reuters, China accounts for 45 percent of global demand
the top producer in Mexico (and the world), with 45.7 million
for the brown metal.
ounces, followed by Goldcorp and Industrias Peñoles. With 21 million ounces of silver produced, Fresnillo’s Saucito was the
Mexico remained in 10th position on the list of global copper
most productive silver mine in Mexico, followed by Peñasquito
producers, contributing 766,000 tons – or 3.2 percent – to
and the Fresnillo mine.
the total copper output, which amounted to 19.4 million tons. But this hides a spectacular YOY rise of 28.9 percent in
Fresnillo’s strong performance continued into 2017, reporting
national production by year-end 2016, buoyed mainly by the
1H17 silver production of 28 million ounces, up 11.2 percent
significant expansion at Grupo México’s Buenavista del Cobre
against 2H16. The company is aiming for 65 million oz/y silver
mine, which produced 316,000 tons.
output by 2018. With its entire producing portfolio in Mexico, the fundamentals for the national silver industry look strong.
EXPLORATION COMES BACK TO LIFE As the lifeblood of mining, spending on exploration is
COPPER – LONG-AWAITED GROWTH
always an important indicator of the current state of the
After reaching a low of US$4,310/t in January 2016, many
industry. According to S&P Global Market Intelligence, world
believed the outlook was bleak for copper. But prices shot
investment in exploration fell YOY by 28 percent to US$6.9
up in October and finished the year on the London Metals
billion, the fourth consecutive yearly fall, suggesting that investors are yet to be entirely convinced of the longevity
INVERSIÓN MUNDIALINEN EXPLORACIÓN MINERA WORLD INVESTMENT EXPLORATION (US$ Billion)
The situation in Mexico is complex. Following the 2015
25 20.5
fiscal reforms, companies are no longer able to deduct exploration expenses after a project’s first year; they now
18.2
of recipients for global exploration expenditures in 2015, 6.9
7.1
companies. But after falling to seventh place on the list 9.2
11.4
11.5
significant financial obstacle for cash-short junior exploration
7.3
9.9
12.6
15
must wait 10 years to be reimbursed. The ruling provides a
15.2
20
10
of the price recovery.
Mexico climbed up one place to sixth in 2016 after attracting US$400.9 million in total. Canada is still first on the list, ahead
5
2016
2015
2014
2013
2012
2011
2010
2009
2008
2007
0
2006
of Australia, the US, Chile and Peru.
PARTCIICPACIÓN EN LA INVERSIÓN WORLD INVESTMENT GLOBAL MINERA IN EXPLORATION 2016
The positive trend is also reflected in the number of new exploration projects in Mexico. In 2016, mining companies started work on a total of 55 new projects, with a total value of US$130 million. This is compared to 44 projects with a total value of US$103 million in 2015. Buoyed by the improved price environment, a number of exciting development projects, including Timmins Gold’s Ana Paula,
US$6.89 billion
Fresnillo’s Juanicipio, and Industrias Peñoles’ Rey de Plata, have advanced well and should be coming online during 2018, underpinning Mexico’s future production profile.
TAXING TIMES Despite the signs pointing to a bright future, the mining sector in Mexico still faces several challenges. Most Canada 14.1% 29.2% Otros
6.2% Peru 5.7% China 3.5% Brazil
13.0% 5.8% Mexico 14.1%Australia Canada 4.7% Rusia 2.1% DRC US 5.7% China 7.3% 13.0% Australia 3.5% Brasil 2% Argentina Chile 4.7% Russia Other 6.4% 29.2% 7.3% Eua 2.1% Rep del Congo Source: CAMIMEX 6.4% Chile
2% Argentina
6.2% Perú 5.8% Mexico Source: SP & Global market intelligence
pressing is the ongoing standoff between the public and private sector on a number of tax-related issues. In early 2017, the Federal Chief of Governmental Audit released a report claiming that 59 mining companies had not met their financial obligations to the Mining Trust Fund -- allegations
9
March 2016
TIMELINE 2016-2017
the companies deny. In June, Reuters reported that the
Torex Gold announces commercial production at
federal tax agency SAT owes Canadian miners a total of
the El Limón-Guajes mine in Guerrero
June 2016
Gold rises to US$1,361/oz, its highest since 2013; silver rises to highest point since 2014
July 2016
Alamos Gold completes a US$1.5 billion merger with Aurico Gold
July 2016
Japanese machinery giant Komatsu announces a US$3.7 billion deal to buy Joy Global
10
August 2016
October 2016
Fresnillo begins commercial production at its San
October 2016
November 2016 December 2016
Then there are the infamous “Ecological Taxes” announced by the State Government of Zacatecas, a proposal that infuriated and alienated companies working in the region. The issue is being considered by the Supreme Court of the Nation (SCJN); if the tax is deemed constitutional and implemented, it would set a dangerous precedent for other
Julian silver-gold mine following a US$515 million
states. Against this backdrop, the 8 percent tax slapped
investment
onto precious metal production in 2014 continues to rile
Premier Gold completes the US$122.5 million deal
operators. If the corporations and the government cannot
to buy Yamana Gold’s Mercedes mine in Sonora
US$360 million in back taxes.
resolve their differences, the sector is certainly in danger.
Goldcorp’s Peñasquito mine is forced into a temporary shutdown after a blockade by a
There are other issues. Mining companies regularly run into
trucking contractor
conflict with local communities and ejidos over land use.
Both gold and silver crash by 10 percent as the US
More could still be made of the opportunities afforded by the
presidential election result shocks the world
digital revolution. And the industry at large is still struggling to
The Zacatecas State Government announces
correct its image as a reckless exploiter of natural resources.
controversial new Ecological Taxes. Mining companies including Fresnillo and Peñoles contest the legislation December 2016
Gold is made available to the Islamic investor community following landmark deal between the World Gold Council and the Accounting and Auditing Organization for the Islamic Financial Institutions (AAO-iFI)
December 2016
Mario Alfonso Cantú is sworn in as Mexico’s first Undersecretary for Mining in 23 years
January 2017
Goldcorp confirms deal to sell the Los Filos mine to Leagold in a deal worth US$350 million
February 2017
Canada’s Minister for Natural Resources and Undersecretary for Mining Mario Alfonso Cantú sign a Memorandum of Understanding (MoU) in Mexico City
March 2017
March 2017
April 2017 April 2017 June 2017 June 2017
July 2017
global financial markets but metal prices nevertheless rose steadily during 2016 and 1H17. Considering the strong demand fundamentals provided by the blossoming electric car, solar energy and electronics industries, coupled with the ever-improving technology making mining operations more productive and cost-efficient, this trend can be expected to continue. With many of the world’s largest mines running out of steam and resources, mining companies must now renew the industry’s faith by investing more in exploration to prepare the global production pipeline for the demands of a digital, environmentally responsible world. The priorities for Mexico are clear. The country has enormous
during the Mexico Mining Day at PDAC
mineral potential, a fact reflected in the increased exploration
Sonora Governor Claudia Pavlovich announces a
activity in 2016, but it is not the only country in Latin America
plan to contest the ruling on exploration expense
to be blessed with abundant natural resources. To woo
deductibility in Congress
international investors, the government – and particularly
Premier Gold’s San Dimas mine reopens following
the Undersecretariat of Mining – must provide the basic
eight-week stoppage of unionized employees
regulatory and financial framework to make the mining
President Enrique Peña Nieto opens Industrias
sector attractive. With presidential elections on the agenda
Peñoles’ 200MW wind farm in Coahuila
in 2018, the incoming administration must also remember
Goldcorp continues asset divestiture with Camino
that miners appreciate operational stability and consistency above all else.
Reuters reports that Canadian mining companies million in back taxes
June 2017
are not immune to the insecurity and inconsistency affecting
The Guerrero Mining Cluster and Sudbury mining
working in Mexico are owed a total of US$360
The global mining sector is moving forward. Mining companies
technology cluster (SAMSSA) sign a historic MoU
Rojo and San Nicolas sales
INDUSTRY OUTLOOK
But co-operation is a two-way street; mining companies working in Mexico have to show willingness to work
Gold finishes 1H17 up 7 percent; silver closes 2
alongside the public sector and, if necessary, challenge new
percent up from the beginning of the year
legislation according to legal protocol. If the entire mining
Copper rises to US$6,400/t, a 2-year high, on
community can use its respective strengths as a collective,
stronger economic data from China
the sector can expect to thrive.
VIEW FROM THE TOP
UNDERSECRETARIAT OF MINING REFLECTS SECTOR’S IMPORTANCE ILDEFONSO GUAJARDO VILLARREAL Minister of Economy
Q: How will the newly created Undersecretariat of Mining
A: The Fiscal Law of the State of Zacatecas - effective as of
benefit the mining sector in Mexico?
Jan. 1, 2017 - created the “Ecological Taxes” despite the state’s
A: The Undersecretariat of Mining was created in December
lack of competency to legislate environmental taxes because
2016, acknowledging the importance of mining as a
the General Constitution does not expressly allow it. Similarly,
strategic activity for boosting the country’s productivity
the General Law of Ecological Equilibrium and Environmental
and to address the need for regulation, promotion and
Protection (LGEEPA) did not grant this attribution. The federal
development of the sector.
government submitted a challenge to the Supreme Court of Justice of the Nation to determine the constitutionality of
The Undersecretariat has a number of priority targets.
the actions of the State of Zacatecas. If the Supreme Court
It will aim to strengthen human resources, digitalize the
concludes that the legislator and the governor of Zacatecas
concession process and cartography to decrease the
issued a general provision, exercising powers that are under
number of days required to provide a concession title, re-
the jurisdiction of the federation, the contested provision
engage the Mexican Geological Survey (SGM) resources
could be declared invalid and without effect.
toward exploration activities and reinforce the InterInstitutional Mining Group, made up of federal government
Q: What strategies are you following to ensure that Mexico
agencies involved in regulating the sector.
remains a competitive destination for FDI? A: Mexico is one of the most open economies to international
Q: What is the strategy to consolidate Mexico’s position
trade and investment. The set of structural reforms carried
in the face of competition from Peru, Colombia and Chile?
out by President Peña Nieto’s administration have paved
A: The Ministry of Economy’s agenda to boost mining
the way to attract domestic and foreign investments in
competitiveness includes the promotion of local and
strategic sectors, namely energy and telecommunications.
foreign investment and the allocation of funds to the sector; the development of small and medium-scale
Specifically, the Ministry of Economy has implemented
mining, including social mining; and the digitalization
several actions to ease doing business in Mexico. It has
of the procedures related to mining concessions. The
reduced regulations to facilitate investment in sectors where
federal government is acting on the structural challenges
FDI was previously restricted, such as telecommunications
affecting mine production, such as insecurity and
and energy. It has increased accessibility and transparency
financing. To address insecurity, the armed police and the
of the Public Registry of Commerce and Property. With
federal police are making substantial efforts to strengthen
Congress’ support, it has created a new corporate figure
surveillance at mining operations throughout the country.
called Simplified Joint Stock Company, which allows an
In terms of financing, the Mining Development Trust
individual to open a business online, at no cost, and at any
Fund (FIFOMI) has provided loans to mineral producers,
time when its annual income remains below MX$5 million.
outsourced services companies and primary mineral
Finally, it has encouraged the use of electronic platforms
processors. To improve the provision of information
to ease processes concerning FDI registry, allowing access
on mineral resources (rare earths and base industrial
to the required national standardization procedures and
metals), geological-mining mapping and exploration
applicable standards or technical regulations.
activities, SGM has established collaboration agreements with internationally recognized institutions, namely the Geological Surveys of Canada and China.
The Ministry of Economy is responsible for creating and overseeing policies related to industry, foreign trade, the
Q: What is the federal government’s view of the taxes
interior, supply and prices in Mexico to promote the generation
imposed by the State of Zacatecas?
of quality jobs and economic growth
11
INFOGRAPHIC
A VOLATILE BUT PROMISING YEAR Metals prices are rising. Everyone in the industry is feeling
consecutive year, an investment drop
bullish, especially in light of the geopolitical uncertainty of
prevailed worldwide. “Mexico has become
past months that traditionally has investors running to gold for
one of the most expensive countries to invest
safe haven. The future of the industry looks bright
in mining,” Daniel Chávez, President of the Mexican Mining Chamber (CAMIMEX) warns.
12
Volatility was the driver for the mining industry in 2016. A
Despite the vast potential of the Mexican mining industry,
slower production due to a reduced appetite from China
new taxes, excessive increases in existing taxes and lack
was only just compensated by price recovery in some
of legal certainty are dissuading investments. But this
metals and geopolitical uncertainty.
year, hope came in the form of the new Undersecretariat dedicated to mining, leaving many to speculate that the
To counteract this lower demand, mining companies
federal government is finally beginning to pay the sector
had to reduce debt and trim production. For the fourth
the attention it deserves.
METALS INDEX METALSPRICE PRICE INDEX 300
——Gold ——Silver
250
——Iron ——Copper
——Lead ——Zinc
200 150 100 50 0 2016
2015
2014
2013
2012
2011
2010
2009
2008
2007
UNDERSECRETARIAT OF MINING
Metal
Var. % 20152016
Var. % 20112016
Gold
7.8
-20.3
Silver
9.2
-51.2
Lead
4.7
-22.1
• To enable the right implementation of public mining policies, and evaluate their results
Copper
-11.5
-35.5
• To adhere to the Article 27 of the Constitution (“all natural resources belong to the
Zinc
8.2
-4.7
Iron
4.4
-65.6
Twenty-three years since it closed, in December 2016 the Mining Undersecretariat was reopened. Mario Alfonso Cantú was appointed as Undersecretary, and his duties are: • To increase mining’s presence nationally and internationally, at all government levels
nation”)
LESS EXPLORATION MINING-METAL INDUSTRY 2016 FOR MEXICO:
GDP
Investments reduced to US$401 million, US$90 million less than 2015
9% Industrial GDP 2.9% National GDP 3.9% National GDP (including indirect mining activities)
TRADE BALANCE US$7.7 billion 1.7% growth from last year 19.6% more than 2015
MEXICAN MINING-METAL PRODUCTION (MX$ BILLIONS) AND DOMESTIC INVESTMENT (US$ BILLIONS)
MEXICAN MINING-METAL PRODUCTION (MX$ billion) AND DOMESTIC INVESTMENT (US$ billion) 250
10
Production ——Domestic investment
200
8
234.1
200.9
196.9
213.7
234.3
0
214.5
2
144.5
50 94.8
4
94
100
90.3
6
78.6
150
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
SILVER MARKET SHARE
516.0
Projects Expansion
558.0
953.9
New Projects
467.1
650.5
Training and Productivity
26.5
51.3
Equipment Acquisition
625.4
913.8
Environment
190.3
249.7
Health and Safety
70.1
102.8
Property Security
35.5
15.7
21.4
376.4
431.6
61.0
350.0 550.0 900.0 5,531.8
-1
ium
5 0
-1.1
-5
-1
-2
NONMETAL MINERALS MINING FUND
SONORA INDUSTRIAL METALS CONTRIBUTION
Export
PRECIOUS METALS MX$1.7
(MX$ million)
-2
Metal minerals Precious metals -10 Industrial metals MINING-METAL PRODUCTION WORTH (2015-2016) -15 Nonmetal minerals
-20
6TH
MINING FUNDING (MX$ MILLIONS)
EXPORTS VS IMPORTS VARIATION 2015-2016 (percent)
7.5
5TH
-2
te Sulfa
9.1
hite
8.3
Grap
10
-18
esium Magn
-2
4TH
5.43% Cadmium 4.2% Magnesium Sulfate 1.83% Graphite
Lead
500.0 3,752.2
Cadm
Subtotal Mining Total *Real figures **Projected figures
lfate
4,631.8
439.0
6
TH
m Su
um
Exploration Assets
654.2
nite
bden
Non members
5.42% Molybdenum 5.19% Lead
sto Wolla
Zinc
Moly
3,250.2
LD
Community Support
Subtotal
W O R
3RD
4TH 9.57% Wollastonite
Sodiu
27.5
485.9
TH E
5TH 5.97% Zinc
14.9
Others
2ND
6.86% Bismuth 4.10% Sodium Sulfate
18.2
Clean Energies
Maintenance
1ST PLA CE IN
3RD 22.00% Celestite
te
17.2
20.74% Silver
2ND 15.63% Fluorite
r
40.6
1ST
Silve
tite Celes
uth
Community Development
producer in the world. Among several mining products, Mexico is:
E SHAR
367.3
KET
Exploration
Since 2010, Mexico has outperformed Peru as the main silver
MAR
2017**
Fluori
2016*
Bism
CAMIMEX Members
0
VER A SIL
THE INVESTMENT AGENDA (US$ million)
13
ZACATECAS
579.6 Sonora
billion were collected METAL MINERALS CHIHUAHUA 340.9 Zacatecas in 2016 and Sonora contributed the 232.1 Chihuahua DURANGO biggest share 148.9 Durango OTHERS 433.8 Others
-18 Import
MINING-METAL PRODUCTION WORTH (MX$ million) Precious Metals Non ferrous industrial metals Metals and steel related minerals
2015 2016
Non metal minerals 0
30
60
90
120
150
VIEW FROM THE TOP
UNDERSECRETARY SETTLES INTO NEW ROLE MARIO ALFONSO CANTÚ Undersecretary of Mining at the Ministry of Economy
14
Q: To what extent does the creation of the Undersecretariat
communication and bring attention to mining issues in
of Mining reflect the growing importance of mining?
these and similar instances.
A: The Undersecretariat was created by the Ministry of Economy as an acknowledgment of the importance of
Q: How will the Undersecretariat operate differently from
mining as a strategic activity and a response to the industry’s
the General Coordination of Mining?
expansion and the need for regulation, promotion and
A: The growing investment in the mining sector is
development. Investment in Mexican mining was US$19.8
demanding that we increase our institutional capacity
billion in 2011 and 2012, and in the next four years, from
to provide better and easier ways for local and foreign
2013 to 2016, amid falling metal prices, it reached US$19.9
investors in their projects. The Undersecretariat is carrying
billion. The mining industry’s share of total GDP increased
out five key priorities. Firstly, we are strengthening human
from 0.86 percent in the period between 2009 and 2012
resources to fulfill institutional functions and objectives.
to 0.96 percent in the 2013-2016 period. Employment in
Secondly, we are modernizing our technological platform
the mining-metallurgical sector as of December 2012 was
and digitalizing the concession process and cartography
328,555 workers, while in December 2016 it registered a
to accelerate the process for allocating a concession title.
total of 354,702 workers. Finally, exports reached a similar
Thirdly, we have prioritized re-engagement of Mexican
level, with a US$17.8 billion annual average in 2009-2012 and
Geological Survey (SGM) resources in exploration activities
US$16.4 billion in 2013-2016. This demonstrates that, despite
to provide more projects with more information focused on
falling metal prices from 2013 to 2016, investment levels,
rare earths and base industrial metals. Along the same vein,
GDP and employment in the mining industry registered
we are also promoting the generation of geological-mining,
better performance than in previous years.
geochemical and geophysical mapping of the national territory on a scale of 1:50,000, prioritizing the areas of
Another reason for the creation of the Undersecretariat
greatest interest and susceptibility to contain new potential
was the need to reach a better level of communication
mineral deposits. Finally, we are strengthening the Inter-
and conversation both at a national and international
Institutional Mining Group, made up of federal government
level. Internally, the General Coordination of Mining lacked
agencies involved in regulating the sector.
communication with areas of the federal government that are directly related to mining, such as the Ministries
Q: What is your opinion of the decision to implement the
of Environment, Labor, Energy and Finance. It was
Ecological Taxes by the Zacatecas government?
therefore proposed that the General Coordination should
A: According to a mining sector specialist, the state
be elevated to a higher level to boost this relationship,
of Zacatecas does not have jurisdiction to legislate on
since its counterparts have always worked at the level of
environmental taxes, as the General Constitution does
Undersecretaries.
not expressly establish it. Equally, the General Law of Ecological Equilibrium and Environmental Protection
Internationally, Mexico is a member of various trade
(LGEEPA) does not grant the authority this power.
organizations. As part of the Pacific Alliance (AP), along
Both the federal and state governments have the power
with Chile, Colombia and Peru, the AP Mining Group has
to design, develop and apply economic instruments
been formed. Our country is also a member of APEC, in
that encourage the fulfilment of environmental policy
which there is the group called the Mining Task Force.
objectives but this is limited to setting fiscal incentives
Finally, in bilateral relations, Mexico also belongs to
and it cannot be used for tax purposes.
instruments such as the Mexico-China High Level Working Group and the Mexico-Canada High Level Working Group.
On Feb. 14, 2017, the federal government therefore
The existence of the Undersecretariat will facilitate
submitted, through its General Counsel, a constitutional
conflict claim to the Supreme Court of Justice of the Nation
as well as government policies targeting the rational
(SCJN). The court will now determine the constitutionality
and sustainable use of mineral resources. China Mining,
of the actions of the state of Zacatecas. If the SCJN
the most important mining event in that country, was
concludes that the legislator and the Governor of Zacatecas
attended by a Mexican delegation that included mining
issued a general provision exercising powers that fall within
project holders, who held business meetings with Chinese
the jurisdiction of the federation, the contested provision
entrepreneurs.
could be declared invalid and without effect. Another one of the policies implemented by the current Q: What does Mexico need to do to compete with other
federal administration is to increase the quality of
jurisdictions to attract more greenfield investment?
information for mining projects, thereby developing
A: The public policy of the Mexican government regarding
detailed geology, geophysics and geochemistry activities
the mining sector is included in the Mining Development
plus direct exploration through diamond drilling. This
Program 2013-2018, which defines the objectives,
provides the means to continue exploration, according to
strategies and lines of action to boost mining activity
the results derived from mining operations.
within a framework of sustainable development. One of the purposes of the Mining Development Program is to
To attract more greenfield investment, SGM allocates most
promote higher levels of investment and competitiveness
of its human resources and budget to developing Mexican
in the mining sector. The Undersecretariat of Mining carries
mining potential through continuous mapping the country
out investment promotion policies through participation in
on a 1:50,000 scale. This is an essential requirement to
the main national and international mining events.
identify mining exploration targets. The accumulated goal set for 2017 is 837,717km2 with a coverage of around 60
The most important conventions that we attend, among
percent of the national territory with mining potential.
others, include the annual Prospectors and Developers Association of Canada (PDAC) Conference in Toronto and the China Mining Conference. At PDAC, the Mexican
The Undersecretariat of Mining was created as a specialized
delegation implemented actions aimed at disseminating
division of the federal Ministry of Economy in 2016 in response
the advantages of national mining as an investment
to the growing importance of the mining sector. Mario Alfonso
destination, services and policies to support the sector,
CantĂş was appointed to serve as Undersecretary
15
VIEW FROM THE TOP
MINING COMMISSION ENSURES LEGISLATIVE CLARITY SUSANA CORELLA Federal Deputy for Sonora and Head of the Special Mining Commission for the Federal Government of Mexico
16
Q: What do you think of the current development of the
Certainly, the sector is not going through the best time but
Mexican mining industry?
it is likely that it will regain strength due to the status of
A: I see an industry with capacity and potential. However, it is
commodities as an investor refuge from uncertainty. Gold
necessary to create conditions that provide investments with
prices rose almost 8 percent in 2016 due to the fall in crude
greater certainty, including federal and state-level mining-
oil prices and losses on the stock markets, factors that
related legislation. In this sense, I am pleased that President
support the demand for assets considered as safe haven.
Peña Nieto has already created the Mining Undersecretariat, which should oversee guidelines, procedures and a
The responsibility of my state as a leader in production,
general policy that directly relates to Mexican mining. The
projects, concessioned land and investment attraction lies
development of this industry empowers us to occupy a
not only in the data but also in the way other states behave.
competitive position on the international stage. In addition,
Governor Claudia Pavlovich has made it clear that we must
it is necessary to take advantage of the competitive
take great responsibility for our rich minerals and projects.
advantages given to Mexico by its trade agreements with
I am greatly motivated to ensure the transparency of the
the countries of the Pacific and Europe.
Mining Fund, since to date Sonora is also the leader in attracting those resources with more than MX$2 billion. The
We must analyze the challenges from multiple
communities give life to the industry and that translates into
perspectives, among investors, operators, workers, mining
optimization and strong operation of projects. My work is
communities and government players. We should all
not limited to governmental responsibilities but I have also
accept the challenge to develop of the Mexican mining
been working as a liaison between companies and towns.
industry, firstly to increase the country’s efficiency and
For this reason the responsibility of a state like Sonora lies
secondly, so that this efficiency is translated into the
in the example we can provide.
country’s development and benefits for our citizens. Today, we know that it is necessary to create better conditions for
Q: Why was the Mining Commission created and what are
mining exploration, hence our commitment to an initiative
its short and long-term objectives?
to reinstate the deductibility of preoperative exploration
A: The importance of mining activity cannot be denied,
expenses. We continue to lobby for the inclusion of this
given its significance to Mexico’s economic, social and
policy to be considered within the 2018 revenue package.
environmental life so it is necessary to dedicate the appropriate resources to the industry. The mining sector
Q: What is the state’s responsibility to promote the
in Mexico has been and is crucial for the development of
Mexican mining sector, both nationally and internationally?
our country. Mexico is a world leader in silver production
A: I am certain of one thing: the sector is too important
and is among the top 10 producers of 19 minerals. For this
to jeopardize. It generates jobs in remote regions, it
reason, in recent years, legislative analysis on the subject
attracts foreign exchange, it contributes to the GDP and
of mining in Mexico has generated intense debates and as
today in Mexico it also makes direct contributions to the
a result, the Mining Commission was created.
development of our people and communities through the Mining Fund.
As for the short and long-term goals, we are in the penultimate year of the administration so we are making plans to standardize the commission, which will allow us to make
The Special Mining Commission was created within the federal
more long-term plans. Another objective is to strengthen the
Chamber of Deputies in response to the importance of the
links between state authorities, investors and executives in
industry in Mexico. Headed by Susana Corella, the Commission
the sector to boost mining and standardize criteria. We want
has representatives of the most important mining states
mining as a theme to be incorporated into the agenda.
VIEW FROM THE TOP
CANADA AND MEXICO: PARTNERS FOR THE LONG TERM JAMES GORDON CARR Canadian Minister of Natural Resources
Q: How does the Canadian government and ministry
I am proud to say that Canadian companies have made it
support companies that want to enter Mexico?
a priority to engage early and respectfully throughout the
A: Mexico is an important partner for Canada, with more
lifecycle of their Mexican projects.
than $40 billion in trade between us in 2016. That trade was dominated by the minerals and metals sector and Mexico is
Q: To what extent can mining truly respect the environment
a leading destination for Canadian mining assets abroad. Our
and what can be done to minimize its impact?
government is supporting this strong partnership in a number
A: Canadians believe that it is not only possible to minimize
of ways. Canada’s Trade Commissioner Service, the Canadian
the impact of mining on the environment, it is essential.
Embassy in Mexico and Export Development Canada
That begins with strong legislation and, in Canada,
provide Canadian companies with market intelligence and
mining activities are governed by two main statutes.
key contacts in Mexico. We are also promoting Canadian
The first is the Canadian Environmental Assessment Act,
services, equipment, and technologies. We are fostering
2012, which covers federal environmental assessments.
opportunities for more trade and investment through
These assessments are required for mining, energy,
government-to-government engagement.
hydroelectric, nuclear, infrastructure and other projects and aim to minimize environmental impacts. The provincial
This engagement is carried out primarily through bilateral
and territorial governments have similar legislation for
agreements, and in February 2017, I had the pleasure
assessing projects under their jurisdiction. The second is
of visiting Mexico and signing the Memorandum of
the Canadian Environmental Protection Act, which governs
Understanding on Collaboration in Sustainable Mineral
areas of federal jurisdiction such as the regulation of toxic
Development between Natural Resources Canada and
substances, cross-border air and water pollution and waste
Mexico’s Ministry of Economy. That visit showcased
disposal into oceans.
Canadian expertise and opened the door to new business opportunities between our two countries.
In addition to these general statutes, we have industryspecific regulations. For example, under the Fisheries Act,
Q: How can some of Canada’s best practices be adapted
there are Metal Mining Effluent Regulations, which set
to the Mexican context?
standards for the quality of all effluent discharged into
A: One of the best ways to share expertise is through
Canada’s waterways. As well as establishing environmental
initiatives such as the Canada-Mexico Partnership.
laws, it is also critical to invest in new, clean technologies
Through that partnership, we have collaborated with the
that minimize the environmental impact of mining. Canadian
Mexican government to hold seminars on consultation and
mining companies are making significant investments in
engagement with indigenous communities – something
green mining practices – investments that have produced
that our exploration and mining industry has had great
impressive results in managing water use, minimizing waste
success with. We have also shared best practices in tailings
and reducing their environmental footprint. By focusing
and wastewater management as well as green mining
our efforts on developing innovative technologies and
technologies. Looking ahead, case studies in both countries
providing regulatory certainty, Canada is leading the way
will provide information on environmental innovation and
in developing environmentally responsible mining practices.
the use of renewable energy. Our government expects Canadian companies to respect
The Canadian Ministry of Natural Resources is part of the
all laws and follow the highest international standards
Canadian Federal Government and oversees all matters related
of corporate social responsibility and environmental
to management of natural resources. In mining matters, it is
stewardship, whether they are operating at home or abroad.
working toward sustainable development
17
VIEW FROM THE TOP
BRINGING INDUSTRY, ACADEMIA AND GOVERNMENT CLOSER JAIME LOMELÍN President of CLUSMIN
18
Q: What are CLUSMIN's primary objectives?
A: We are acutely aware of the need to educate the next
A: The goal of the mining cluster is not to promote the
generation. To this end, the National Science and Technology
sector – the government, the long history of mineral
Council (CONACYT) funded a study to determine the precise
extraction in Mexico and the country’s extensive resources
number of workers required to support the industrialization
act as a natural basis for investment promotion. We are
of the state until 2025. The study will be completed during
aiming to support the economic development of Zacatecas
2H17 and will provide data on the number of metallurgists,
state through the mining sector. We quickly realized that the
geologists, maintenance engineers and technicians needed
main goal should be to play to our strengths and maximize
by the sector for the next 18 years. The state polytechnic
the productivity of the industry in Zacatecas. To achieve this
university has recently created a course on metallurgical
objective, the entire value chain that participates in mining
engineering. The course will focus initially on mathematical
activities in the state needs to take part in and support
and scientific theory but second and third-year students will
the cluster.
spend at least one week out of every four in the field, at a metallurgical processing plant.
The cluster is split into four committees. The supplier committee, which is charged with attracting new businesses
The cluster is focused on the future. The state government
to Zacatecas; the human capital committee, which focuses
has built a science and technology park, which is helping
on attracting and developing human capital; the science
to finance new projects and innovative start-up companies.
and technology committee that ensures the continued
Minera Frisco set up the Laboratory for Mining Investigation,
technological development of the industry; and finally,
Development and Training in this park, with an investment
the well-being committee, which works to protect the
of over MX$50 million. The University of Arizona is also
environment and to improve worker safety and health.
working on an international research center for compatible mining that will focus on sustainable tailings facilities,
Q: What role does the government play in the cluster?
remediation, forestation and biodiversity.
A: Although the cluster operates entirely separately from the state government, the public sector has an extremely
Q: How does the cluster contribute to the creation of new
important role. Firstly, the government must facilitate the
jobs in Zacatecas?
creation of new businesses, which includes reducing waiting
A: The mining cluster began by creating a supplier
times for permits and other qualifications. Secondly, it must
committee, whose role is to attract new businesses to the
create industrial parks, where businesses can work together
state and create jobs for local workers. We are also working
and share knowledge and experience. Thirdly, it has a vital
toward bridging the gap between the suppliers and the
duty to attract new financial institutions to the state that
client, which can reduce costs, improve the level of service
can help SMEs access the capital required to grow and
and therefore boost productivity.
contribute to the local economy. We are under pressure from the trade unions to create Q: What training does the cluster provide to the new
more sources of employment because mining is becoming
generation of workers in the mining industry?
increasingly digital and mechanized. This is changing the nature of the mining job market, which now requires highly trained but fewer workers, and the industry as a whole has
The Zacatecas Mining Cluster (CLUSMIN) is a nonprofit civil
a responsibility to react and continue providing jobs. One
association formed by industry representatives and academia to
of the cluster’s main objectives is to attract new companies
strengthen the mining industry through the development of its
to Zacatecas that can train the large number of manual
human capital, as well as the attraction of suppliers to the state
workers in the state to use modern industrial equipment.
INFOGRAPHIC
MEXICO’S MINING CLUSTERS Since the creation of Mexico’s mining clusters, the states they
gathering private companies, universities,
belong to have experienced a greater level of communication
associations, trade chambers and public
with the government and academia, as well as a more
institutions, the mining value chain can
streamlined supply chain
increase competitiveness and align itself more efficiently with environmental regulation.
The Mexican industrial policy established within the
Clusters have the added focus of promoting R&D, training
Ministry of Economy’s National Development Plan and
and human resources development. Mexico currently
the Mining Development Program 2013-2018 emphasizes
has five mining clusters in Guerrero, Sonora, Chihuahua,
the promotion of mining clusters as a key component.
Coahuila and Zacatecas. But with the mining industry
Their main objective is to coordinate an agenda among
present in 25 of Mexico’s 32 states, there is a great deal of
governmental agencies, companies and academia. By
opportunity for the creation of further clusters.
137 18 associates
Sonora
mining units
78
Coahuila
President: Xavier Garcia de Quevedo
• 11 education institutions
• 5 labor associations
• 3 Research Centers
• 7 education institutions
• 17 municipal authorities
silver, aluminum copper
• Coahuila state Founded in 2014
iron molybdenum
President: Rogelio Montemayor
and selenium
Source: www.clusterminerosonora.com.mx
Zacatecas
13
130 associates
Chihuahua
• 63 companies (all based
companies • Incentivizes interaction
comes from mining
between the providers of the region • 96% of the state based companies are there
Source: www.clumin.org
7
companies
Gold
Source: Guerrero Mining Cluster
President: Jesús González
• 35% of the state GDP
MAIN PRODUCTS
President: Alfredo Phillips
Founded in 2012
in Zacatecas)
Source: www.clusmin.org
• Gathers Mexican, Canadian and US
• 3 providing companies
Founded in 2016
with the cluster
mining units
• 2 academic institutions
Guerrero
company is associated
14
associates
• 2 government bodies,
President: Jaime Lomelín
government • Only one foreign
Source: www.clustercoahuila.org.mx
• 7 mining groups
Founded in 2012
companies
• 106 service providers
• Main products: gold, Founded in 2014
46
associates
Silver
• Teloloapan, Arcelia, Cocula and Eduardo Neri are the main mining municipalities • Potential investment of over US$2 billion in the next six years • Tecnopolo, in Iguala, will be the headquarters taking advantage of logistics in the region
Zinc
• Guerrero’s Gold Belt attracted Canadian firms
Cooper
• An agreement was signed with Sudbury Area Mining
Lead
Supply and Service Association: mining cluster from
Iron ore
Canada considered the biggest in the world
19
VIEW FROM THE TOP
GUERRERO COULD BECOME TOP GOLD PRODUCER ALFREDO PHILLIPS President of the Guerrero Mining Cluster and Corporate Affairs Director of Torex Gold
20
Q: What unique role does the cluster play in developing
the great potential the state offers. With the help of the
the mining industry in Guerrero?
government, we can foster the entry of equipment suppliers
A: To create a conducive environment for developing the
into Mexico and hopefully convert Iguala into a technical
mining sector in the state of Guerrero it was vital to create
mining hub.
critical mass from a business perspective. This would provide resources to our company Torex Gold, as the largest
Q: How will the cluster finance itself and its operations?
investor in Guerrero, and other companies to push projects
A: In 2015, the member companies of the cluster represented
forward. For the development of the state, we felt all players
a US$900 million-US$1 billion investment, US$800 million
must have a stake in the development of the sector and we
coming from Torex’s Limón Guajes project. For the next four
wanted to optimize operations for the benefit of not only
years, the projected capital investments for the members
ourselves but also the surrounding communities and the
of the cluster adds up to around US$1.2 billion. If Torex’s
regional economic development of the northern part of
second project, Media Luna, moves ahead uninterrupted, the
Guerrero, known also as Tierra Caliente.
company will invest close to another US$600 million by 2020.
In doing this, we focused on helping the government
Other projects such as Los Filos, which was being acquired
understand the benefits of mining and promoting a sector
by Leagold, are considering additional CAPEX investments
that, in many parts of the world, has been a national lever
to optimize underground mining and other operations
for sustainable development. We identified the benefits of
adding close to US$250 million. Timmins Gold will also start
creating the cluster to promote regional development and
construction this year at Ana Paula and Industrias Peñoles is
to incorporate all local stakeholders into the value chain to
planning to start up its Rey de Plata project, which equates
ensure those benefits are distributed to all involved.
to a further US$250 million each. This only takes into account the investment that is already being considered as part of
There is also a significant business role for the cluster. This
the short-term planning process so regardless of whether
involves sharing best practices among like companies,
there is further investment in the industry in 2017, the state
guaranteeing the safety of our personnel and our
will receive a significant cash boost.
communities and creating political capital to protect our interests from political outliers that may pose a threat. We
The Guerrero cluster is modeled after the Zacatecas
ensure we are positioned in such a way that we can lead
cluster (CLUSMIN), although given our local needs, we
the economic and social development of our communities
decided to structure our committees differently. We
with our investment.
have three committees: one dedicated to economic development and our value chain, one to human
Currently I am working with the Greater Sudbury
capital and training and the third to corporate social
Development Corporation, the city of Sudbury, Ontario,
responsibility and communication since we find this to
Canada and Sudbury Association of Manufacturers and
be a fundamental element to change the perception of
Suppliers (SAMSA) to establish a collaboration with the
our sector. We also have an informal working group that
Guerrero cluster. Sudbury is a world-leading cluster with
deals with security because it is so complex and can be
300 companies that excel in providing equipment and
greatly misunderstood so we decided it would be best
services to mining companies such as ours. The letter of
to work on it but not to formalize it.
intent was signed at PDAC 2017 and will be supported by development of a regional industrial park that will serve as
Regarding the cluster, financing its operations is not
a landing space in Iguala to bring to Mexico companies from
difficult. I currently dedicate a reasonable part of my time to
Sudbury and other parts of the world that are attracted to
getting the cluster up and running and whenever we need
additional resources for events or meetings, either Torex or
to our contractors. This kind of chain of communication is
the other members provide the necessary resources.
useful for dispelling myths and exaggerations that surround the safety issues in the state given the media hype. Of course,
Q: Why do you believe Guerrero can become the biggest
there are issues but as a representative of a company with
gold producer in Mexico and what do companies need to
operations in the area, I can confirm that Guerrero is a place
do to reach this goal?
where business is possible as long as security issues are
A: If companies begin taking advantage of Guerrero’s
closely monitored and adequate protocols are followed.
potential, it could easily reach this position. Recent data from SGM suggests the state’s potential as a gold
We have been working diligently with the government
producer to be the best in the country. For example,
to help it through sharing best practices and creating
companies such as Agnico Eagle that have a new property
information exchanges. We coordinate activities with our
next to those of Torex and Los Filos, are now looking
neighbors and we fundamentally focus on keeping our
closely at carrying out bigger exploration programs given
communities and people safe. Once we start organizing
the region’s recent results.
these issues, they are much easier to resolve in collaboration with all interested parties.
The problem with the drop in gold production of 21 percent in the last four years is that there was only one producer,
close to 380,000 gold ounces in 2017.
The projected capital investments by the cluster add up to around US$1.2 billion over the next four years
The largest gold producer in the country is Goldcorp’s
Q: What is the main goal for the cluster over the next
Peñasquito, followed by Fresnillo’s Herradura, both in
five years?
Zacatecas, but Guerrero now hosts the number three and
A: Once the cluster starts gaining traction, our goal for
four mines in the country. In 2016, ELG and Los Filos ranked
the next one to two years is to successfully develop a
third and fourth, respectively, in gold production in Mexico.
collaboration with other external groups that can help
Once we get Media Luna online in 2020, it is targeted to
us incorporate Guerrero-based companies into the value
produce close to 320,000 gold equivalent ounces with about
chain. This will require collaboration with governments at
180,000 ounces of gold so Guerrero can easily take a top-
federal and state levels because many of these companies
three spot nationwide in terms of gold production in the
have limitations and require support to meet the strict
short term. In the next five to 10 years in fact, it could easily
requirements the industry maintains. As an example,
become one of the richest gold regions in Latin America.
the chairman of COPARMEX in Chilpancingo who has a
Los Filos, and its production levels dropped. El LimónGuajes (ELG) produced 280,000 ounces in 2016, which increased production significantly for the state, making it the fourth gold producer in the country. It will ramp up to
construction company told us in a meeting that working Q: To what extent is the cluster trying to change Guerrero’s
for Torex helped improve his company. For him to provide
image as an unsafe mining jurisdiction?
services to our ELG project, he had to perfect the service
A: Security was not formalized as a committee because it is
his company offered and he is thankful for that. In two
such a difficult, delicate and sometimes confidential area of
years, I hope to have large number of similar success
business. We have a permanent working group on security
stories from companies across the value chain, which in
and a permanent hotline to share information. The security
the end should help develop a regional mining hub.
personnel of each company communicate with each other regularly because we think it is important to keep open
I would also like to see an increase in exploration activities
communication channels and to collaborate. In addition, we
and new companies entering Guerrero, to the point where
have close relationships with state and federal authorities.
mining is able to grow by 100 percent in the next five to 10 years. As a cluster, we hope that our presence in Guerrero
We understand that security is a big problem for the state and
creates benefits for all and develops a new paradigm for
it has a deep-rooted structural origin. However, we are also
responsible mining.
well aware that the current state and federal governments are doing everything they can to resolve the issues and we are trying to help in that process. The first thing we have to do is to
The Guerrero Mining Cluster was inaugurated in 2016,
ensure the members of the cluster are confident that Guerrero
becoming the fifth mining cluster in Mexico alongside
is a safe area in which to work and that they are actually
Zacatecas, Sonora, Coahuila and Chihuahua. It serves as a tool
secure. After that point, we need to transmit this mentality
to strengthen the state's supply chain
21
VIEW FROM THE TOP
JUMP IN TSXV GOOD OMEN FOR MINING JUNIORS ORLEE WERTHEIM Head, Business Development – Global Mining at Toronto Stock Exchange and TSX Venture Exchange
22
Q: To what extent have you seen confidence return to the
We set up the TSX Venture 50 program to recognize the 50
global mining sector as prices have risen during 2017?
top performing companies listed on the exchange divided
A: In early 2016 we began to see more investor interest
by industry. Every year, the top 10 mining companies are
in precious metals, particularly gold and silver, as well as
selected as part of the program and we organize a large
battery metals such as lithium. There was a 38 percent
campaign to tell the market about each company and the
increase in the amount of capital raised by mining
reason behind its success. We help each company prepare
companies listed on Toronto Stock Exchange (TSX) and TSX
a video, which we show on our website and a variety of
Venture Exchange (TSXV), along with an increase of 134
different platforms, as well as connecting the companies
percent in money raised on TSXV, where the vast majority of
to investors and other sources of capital.
junior companies are listed. This shows that there has been a substantial increase in the amount of money flowing into
Q: What benefits could a dual-listing on both TSX and BMV
exploration. During the downturn, everyone suffered from
offer to mining companies operating in Mexico?
a lack of access to capital but that issue was more acute
A: I always feel that a dual listing could prove beneficial
for the juniors. But exploration companies are now going
under the right circumstances. For example, a mining
to market more frequently – at least a couple of times a
company that is headquartered in Canada might consider
year – and that is an encouraging sign. There is still some
a listing in Mexico to allow the local investor community to
way to reach the peak of a few years ago but there is no
participate. It can also help boost government relations.
doubt the industry is moving forward.
The issue is that the threshold to list on the BMV is set at a much higher level than either TSXV or TSX. For one,
Q: What does Toronto Stock Exchange do to help junior
to list on the BMV a company has to have revenue and
companies get access to capital?
thus be a producer, which rules out a large chunk of the
A: We are constantly looking at how we can ensure that
market. We see more dual-listings in jurisdictions such as
investors have confidence in the companies listed on
Chile and Peru, which have a similar support system for
our market and to do that we need to make sure there
junior exploration companies.
is a strong set of rules and regulations designed to make investors feel comfortable. TSX and TSXV each have
I believe that the larger Mexican mining companies could
different sets of regulations because we recognize that
stand to gain by listing on TSX. They are already well-
companies at varying stages of development need to be
capitalized but there is a solid investor base in Canada.
governed differently. We are always making small changes
It would also open up avenues for M&A deals and further
to these regulations depending on the market’s evolution.
exposure. We have over 200 analysts that cover the mining
We also need to make sure that our issuers can access
sector, so there is a wealth of opportunities here.
capital without having to navigate complex regulations while maintaining a clear and efficient rulebook. Wherever
We have a strong relationship with the BMV. We are in
possible, we try to simplify our processes to enable
frequent communication, travelling to Mexico fregularly,
companies to save time and money and reinvest capital
and we are always discussing ways to collaborate and
into their projects.
share information. In Latin America, there are many small enterprises participating in the mining sector and they do not appreciate the value of a listing on the stock exchange.
Toronto Stock Exchange (TSX) is the ninth-largest exchange in
During our visits, we try to educate the local community
the world in market capitalization. TSX represents a variety of
about the benefits of going public and I believe we are
companies, both Canadian and international. Toronto Venture
seeing a fundamental shift in the new generation where
Exchange (TSXV) is an electronic stock exchange in Canada.
more and more private companies are considering an IPO.
VIEW FROM THE TOP
PROMOTING MINING SME PARTICIPATION ON BMV JOSÉ-ORIOL BOSCH Director General of BMV Group
Q: Why are there only a few mining companies listed on the
But the root of the problem goes beyond the number of
Mexico Stock Exchange (BMV)?
companies listed. If 200 companies were to list on the BMV
A: It is one of the industries with most room for growth in
tomorrow, there would not be a market big enough to buy
Mexico. Mining represents almost 5 percent of the country’s
these shares. To create a healthy trading market, a balance
GDP but the BMV only has four Mexican companies listed
of both companies and investors is needed. Banks and
from the industry. These companies represent almost 6
brokerage firms can change this context by offering more
percent of the daily traded volume of the stock exchange
financial education as trading activity has little penetration
and 8 percent of the total market cap of the companies in
in the country.
the BMV. Their market cap is higher than their daily traded volume because these four companies have high dividends
Q: How can the stock exchange be more accessible to smaller
for investors. Mining stocks are a long-term investment as
companies?
commodities can fluctuate with currency exchange rates.
A: We are trying to encourage smaller companies to participate but the lack of financial culture is a challenge.
About 200 Canadian companies are investing in Mexico
Our team is traveling to different states to teach companies
but they tend to do so in small amounts and mostly
about the benefits the BMV can offer. We found that in
directed toward exploration. Canada is home to an active
many of these states businessmen have no idea how the
stock exchange that is welcoming to companies within the
stock exchange works. First of all, many of these companies
industry. Canada is also popular because it has the advantage
think they are too small for the stock exchange while
of having the Venture Exchange (TSXV), a specific mining
regulation allows them to participate with 20 million units
regulatory framework and an important pool of investors
of direct investment (UDI) in paid in capital, which is as little
that understand these type of risks and investments. It is a
as MX$120 million pesos. Of the 5 million companies that
viable option for smaller companies and ventures that use
are registered in the country, thousands would qualify for
investor capital to invest in small and greenfield projects in
listing on the BMV when it comes to capital. Sushiito is an
Mexico since the BMV currently does not cater to this market.
excellent example of a family company that just recently listed debt for only MX$150 million.
Q: What are the main challenges you face when it comes to promoting the participation of companies in the BMV?
Q: How is the creation of a second stock exchange, BIVA,
A: The biggest challenge is creating a financial culture in
impacting the BMV?
Mexico that is open to investing in the stock exchange. The
A: We are hoping the impact will be positive. We
country has 5 million registered companies and only 350 are
recognize that issues in Mexico’s financial culture
using the BMV as a form of finance, of which 150 participate
cannot be automatically fixed through the creation of a
in the capital markets. Only 400,000 companies use other
second stock exchange. The regulation in Mexico had to
methods such as credit as the rest use capital from partners,
be changed to allow more than one stock exchange to
clients and suppliers.
participate. The BMV strives to make sure the additional costs of having a second stock exchange will not result
Another issue is that over 90 percent of the 350 companies
in inefficiency or fragmentation.
on the BMV are divided among only four states in Mexico: Mexico City, Nuevo Leon, Jalisco and the State of Mexico. There are 32 states in the country and 12 of these, such
The BMV Group operates a stock exchange, the central
as Zacatecas, Durango and Guerrero, do not have any
securities depository in Mexico a securities clearinghouse and
companies listed on the Mexican Stock Exchange in either
a derivative chamber, as well as a pricing and risk management
capital or debt markets, regardless of the industry.
services
23
VIEW FROM THE TOP
PRODUCTION GROWS, ACCIDENTS DOWN OCTAVIO ALVÍDREZ CEO of Fresnillo
24
Q: What were the main contributors to Fresnillo's strong
at San Julian online. All told, 2016 was the second-best
performance in 2016?
year for Fresnillo since the company made its listing on the
A: Like all miners, we were helped by external factors such
London Stock Exchange nine years ago.
as the devaluation of the peso that enabled us to improve the internal cost structure. But we also managed to lower
Q: What actions are you taking to reduce fatality rates at
operational costs at several of our mines, which generated
your mines?
savings of US$25 million across our portfolio. Moreover, we
A: This is the most important challenge Fresnillo is facing and
were boosted by the increase in production at our mines,
we are disappointed that we have not reached our objective
particularly at La Herradura, Nochebuena and Saucito, while
of zero fatalities, which is the company’s primary goal. We
we also brought the first phase of commercial production
are trialing a new, in-depth safety system in the Saucito mine that we hope will help us achieve our zero-fatality goal. We already have safety protocols and equipment of the highest
Fresnillo is the world’s leading silver producer and Mexico’s
standard but we need to focus on educating our staff and
largest gold producer. It is a subsidiary of Grupo BAL and
contractors. We are determined to increase awareness and
operator Industrias Peñoles. The company is listed on the
risk identification throughout the company. If we succeed, this
London Stock Exchange’s FTSE 100
system will be implemented across all of our mines.
VIEW FROM THE TOP
AIMMGM STRENGTHENING TIES TO PUBLIC SECTOR MARCO BERNAL President of the Mexican Association of Mining Engineers, Metallurgists and Geologists (AIMMGM)
Q: How has the sector in Mexico reacted to the volatile
will be used either to fund environmental protection or socio-
geopolitical environment in the region and the world?
economic development. The tax simply encourages mining
A: The prevailing sentiment is that factors such as the
companies to look elsewhere for their next investment so
new presidential administration in the US and the Chinese
that is why we, along with a number of institutions working
economic rebound should have a positive effect on the
in the state filed for an amparo. We are still waiting for the
mining industry. The aggressive and unpredictable foreign
decision from the Supreme Court of Justice of the Nation
policy of President Trump in particular is generating
(SCJN) but we are hopeful of a positive outcome.
economic instability on a global scale and this will encourage investors to look for less risky assets like precious metals
Q: How satisfied have you been with the application of funds
and other commodities. The mining sector will always be
generated by the Mining Trust Fund?
volatile and difficult to predict but in terms of metal prices,
A: The money is taking too long to be spent and we know
2017 is shaping up to be a strong year and we have already
of municipalities across the country that are still waiting to
seen companies being more active in the sector.
receive funds for projects that have been approved. There needs to be more transparency because at this point we
Q: What have been your biggest achievements since you
are still waiting to see the results we were promised. At the
started your role in July 2016?
moment, the mining companies are still showing patience,
A: One of the main focuses has been to renovate and
despite the fact that the program has already been in place
restructure the internal processes of the organization.
for three years. But their patience will run out eventually.
This helps us offer a better service to our members. We
The mining companies are capable of supporting local
also managed to secure more funding, much of which
communities with their own resources but these expenses
will be spent on the convention in Guadalajara in October
are not tax deductible. It is now up to the government to
2017. Following the creation of the Undersecretariat of
apply the resources from the Mining Trust Fund but it is not
Mining, a decision we had been anticipating for more than
fulfilling this duty. The communities blame the companies
20 years, we will be doubling our efforts to increase our
for not doing enough, despite the fact that the companies
cooperation with the federal authorities and to strengthen
no longer have the power to help. Another factor is that
this relationship. We have had several meetings with the
NGOs see this social unrest as an opportunity to pressure
Mining Commission, which gave us the opportunity to
the mining industry. If left unresolved, this issue could create
raise certain issues that we believe need to be tackled. We
a very difficult situation.
feel that our concerns are being heard by the authorities and we hope that we can work together to create a more
The constant alteration and modification of regulations has
sustainable and profitable industry going forward.
meant that Mexico has lost its competitive edge. Foreign investors are not interested in investing their money in
Q: Why did you decide to file an amparo against the
countries that chop and change regulation constantly and
Zacatecas Ecological Tax?
that is the primary factor behind the drop in investment in
A: There are several reasons why we filed our amparo.
Mexico. We have to work hard to reverse this trend because
Our first responsibility is to protect our members. Mining
the mineral potential in Mexico is unquestioned.
contributes 30 percent to the GDP of Zacatecas and mining companies already fulfill extensive obligations regarding environmental protection. But the tax will make mining in the
AIMMGM is the premier association for mining professionals
state economically unfeasible. There are many communities
in Mexico. The group works toward the technological and
in the state that continue to suffer from poverty and yet we
economic development of the mining sector and counts the
are not convinced that the resources generated by the tax
country's top operators and suppliers among its members
25
VIEW FROM THE TOP
UNDERSECRETARIAT THE FIRST STEP TO A LONG-TERM MINING POLICY SERGIO ALMAZÁN 26
Director General of CAMIMEX
Q: How have global political events changed Mexico’s
Q: How will the 2018 presidential elections affect the
mining industry outlook and what does the country need
continuity of mining policy?
to do to weather further storms?
A: This is exactly what worries us. It is important to have
A: Conditions are changing in a significant way and without
continuity. We will have to wait and see what the results
doubt, all sectors are facing a new context and new hurdles.
will be but whatever the outcome, we are dedicated to
Mining is no exception. In Mexico, we need to re-evaluate our
working with the government for the promotion of the
mining policy. One of the main points CAMIMEX is fighting
sector, regardless of ideologies. The most important task
for is the implementation of a long-term state mining policy.
is being able to communicate the importance of mining
This policy should be developed jointly with federal and
for our country because many people do not recognize its
municipal authorities and obviously with those that know
value. Essentially, Mexico is a mining country, not because
the sector, such as operators, geologists and academics.
miners decided it should be that way but because of its rich mineralization and resources. In fact, Mexico is often
In our opinion, there is no stable mining policy. The last few
ranked as one of the most promising mining countries in the
administrations have only implemented mining programs
world because of the reserves it holds. Often, when people
that stipulate the plan that will be developed for that
think of mining, they imagine the mines of the past when
particular term. What we need is a policy that lays out the
rudimentary methods were employed. On the contrary,
investment, the promotion and the objectives over the
Mexico has a mature and modern industry that is socially
course of 10, 20 or 50 years. The mining industry is one that
and environmentally conscious.
requires long periods for an investment to mature and pay off. In the best-case scenario, exploration takes around seven
Q: Given that the mining taxes have been in force now
years, at which point construction begins and the mine can
for three years, how do you evaluate the reaction of the
continue to produce. But in other cases, it can take 20 years
industry?
just to explore the property. This is why a long-term mining
A: Unfortunately, the taxes were conceived at a time when
vision is essential for the industry’s survival.
metals prices were at their peak, in 2011-2012. But when they were enforced in 2014, the prices had already been
Q: How has the government proven its commitment to the
suffering for a few years and the new taxes jeopardized
sector with the creation of the mining Undersecretariat?
the industry’s competitivity. In 2011, Mexico placed 11th on
A: Fortunately, this year the mining Undersecretary was
a global level as an attractive investment destination on the
appointed after 24 years without such a position. Without
Fraser Institute’s survey but in 2016, Mexico was in 50th
a doubt, this is good news for the sector. CAMIMEX believes
place. This shows us that something is definitely wrong.
that this will give a boost to the industry because there will
The situation illustrates that it is necessary to revise the
be more weight behind the promotion and development of
country’s fiscal framework in terms of mining, and this is
mining activities. The Undersecretary now holds the same
what we are fighting for.
level of power as his peers in other ministries. It is a very good indicator and may allow us to continue pushing for
Our global position in exploration has also dropped. In
the long-term mining policy we want.
2011, Mexico was in fourth place and ranked higher than our closest competitors, Peru and Chile. Now we are in sixth place and those two countries have surpassed us.
CAMIMEX is the Mexican Mining Chamber, the activities of
Another piece of evidence that demonstrates Mexico’s
which include research and promotion of mining activities as
declining attractiveness is that more than 169 projects
well as communicating with the industry and the government
have been deferred or suspended. These international
to attract investment and help shape government policies
studies show that the new taxes, the lack of juridical
certainty and the lack of security have become very
Canada has developed a great deal within the mining
dissuasive factors for investment in Mexico.
industry on a global scale, advancing technology, creating new financing options and prioritizing traditional ones. The
Q: How do you evaluate the Ecological Tax imposed by the
TSX and the TSXV are useful tools to finance exploration
Zacatecas state government and how will this situation
activity in Mexico. In Mexico, Canadian companies have
unfold?
consistently demonstrated that they are demanding in
A: We reject these types of taxes for a variety of reasons
terms of compliance with rules and regulations.
but primarily because we feel they are unconstitutional. We understand that two amparos have been received on behalf
Q: What do you predict for the industry in terms of prices,
of two companies and that they have a valid argument
taxes and exploration activities?
against the tax. But one only needs to look at the figures
A: Judging by the current situation, I think mining
on how much competitivity we have lost as a result of the
companies will continue to be cautious. I do not foresee
federal taxes to realize that an additional state-level tax
any issues with the companies that are already well-
would be catastrophic.
consolidated in the country but I think their focus will be on continuing to make their operations more efficient
Q: What is the likelihood the Sonora governor’s proposal
and increasing production. I think all companies will be
to eliminate nondeducibility of exploration expenses will
cautious and will prefer to invest in existing projects
come to pass?
rather than initiating greenfield activity. In terms of prices,
A: We are optimistic. Ultimately, we will be able to convince
production and exploration investment, I believe that in
the government of the importance of the previous
2017 and 2018 we will continue to see similar behavior
structure whereby pre-operative exploration expenses
to that in 2016.
could be deducted in the same fiscal year they were made. We greatly welcome the support we are receiving from
We are continuing to face challenges and we will continue
the governors of states like Sonora and Durango. Part of
to work toward exploration expenses being deductible in
our mission is to approach various governors to explain
the same year they are made. It is also important to revise
the benefits of mining and what it means for the country
the current fiscal framework and schemes. For companies
and communities.
that already invest independently in the environment and social issues, it would be welcome if this were taken into
Q: How important is Mexico’s relationship with Canada
account when calculating the taxes, which would allow
and how can mining help to strengthen it?
us to return to our position as one of the world leaders
A: Canadian companies, to a large extent, tend to be the
in mining. We want the government to see mining as a
ones that carry out most exploration activity in Mexico.
strategic sector with a bright future.
STATES WITH THE LARGEST NUMBER OF MINING CONCESSIONS State
2014
2015
2016
Concessions
Area (ha)
Concessions
Area (ha)
Concessions
Area (ha)
Baja California
606
1,650,326.16
610
1,484,650.51
622
1,500,757
Coahuila
1,930
2,847,323.02
1,964
1,705,327.42
1,977
1,676,456
Chihuahua
3,347
2,265,241.71
3,352
2,080,882.74
3,369
2,013,967
Durango
3,486
2,367,269.09
3,571
2,183,698.69
3,603
2,025,774
Guerrero
695
935,671.12
687
896,236.40
662
789,588
Guanajuato
632
326,905.76
637
327,156.13
630
307,891
Hidalgo
406
114,565.36
408
109,046.59
408
108,014
Jalisco
1,440
1,588,521.91
1,458
1,663,128.32
1,470
1,626,125
Michoacan
900
1,095,679.87
896
1,079,447.47
883
1,055,772
Nuevo Leon
491
503,747.98
527
373,306.16
557
378,233
Sinaloa
1,394
1,079,512.63
1,365
1,043,679.93
1,409
1,016,241
Sonora
4,408
4,432,576.20
4,421
4,153,065.89
4,454
3,990,494
San Luis Potosi
599
593,887.19
619
638,873.59
624
601,766
Zacatecas
2,287
1,910,603.48
2,317
1,773,975.56
2,311
1,685,729
Total
22,621
21,711,831.48
22,832
19,512,475.40
22,979
18,776,807
National Total
25,267
25,631,928.12
25,506
23,134,990.07
25,652
22,065,094
Source: CAMIMEX
27
INSIGHT
MEXICO NEEDS TO REVAMP INVESTMENT STRUCTURE ALFREDO ÁLVAREZ Energy Segment Leader, Latin America North of EY
28
The end of the commodity price slump is near and Mexico
In return, authorities should recognize the industry’s
has the ability to attract its fair share of investment that is
interest in being environmentally safe and in investing in
flowing into the industry, provided it implements the right
surrounding communities, says Álvarez. As the country
structure. But punitive environmental taxes could threaten
aspires to produce at least one-third of its energy from clean
to derail this progress, warns Alfredo Álvarez, Energy
sources, a coordinated effort from both private companies
Segment Leader, Latin America North at EY, if they are not
and the public sector is required. Actions from authorities
implemented responsibly.
need to align with these efforts and new taxes such as the environmental levy in Zacatecas do not promote clean
“The main issue is that Mexico does not focus enough on
energy nor environmental practices despite their name,
rebuilding its offering to the mining industry,” he says.
says Álvarez. Legislative barriers consume the time and
“Countries like Chile and Peru prioritize the mining sector
energy of companies as legal battles can take up to three
and strive to adopt the best legislation. On the other hand,
years to resolve, which implies a period of uncertainty that
Mexico both fortunately and unfortunately, has a diverse
impacts financial statements. “The mining sector does more
source of wealth and prosperity that drive it to have a
to protect the environment than other industrial sectors in
different focus.”
Mexico,” he says.
“
Legislation should not be used to fix an imbalance created by the lack of proper governmental administration”
The Energy Reform also has the ability to further impact the mining industry and mining companies are starting to understand their role in the process as up to 40 percent of their costs comes from electricity consumption. This new mindset can be seen through Industrias Peñoles’ new Eolica de Coahuila wind farm in the north of Mexico, which can be used to power energy-intensive mining activities. But not enough time has passed to make a judgement on its progress and not enough companies
While not opposed to the implementation of taxes, Álvarez
have adopted this mindset. “The mining industry needs
argues that punitive expenses can inflict long-term damage
time to adopt the use of clean energy because it requires
on an industry, which is especially risky due to mining’s
a significant investment but can really pay off in the long-
recent recovery. “Taxes such as the one in Zacatecas scare
term,” says Álvarez. “The market is just starting to adapt
off investment,” he continues. “Legislation should not be
to the new energy context.”
used to fix an imbalance created by the lack of proper governmental administration.”
To be a qualified user and supplier, companies have certain benchmarks and megawatt capacity that they
Although entrepreneurs will never applaud the creation
need to meet. “Few companies meet this threshold but
of taxes, a different attitude could arise from a more
some mining companies have managed to fit in these
transparent and concise distribution of funds such as the
parameters,” says Álvarez, citing Peñoles and Grupo
mining royalties, he says. The government cannot expect
México as good examples. “Mining players that are willing
companies to welcome royalties and Álvarez believes that
to participate directly have the freedom to do so.” The
the implementation of a royalty fund is not out of place as
transition is not easy but companies will reap many
many other countries have a similar structure. But he adds
benefits. Álvarez predicts the market will become more
that the structure should be revised to assure companies
stable with the entrance of new players and the price of
that their money is being used efficiently.
energy will fluctuate less.
VIEW FROM THE TOP
PROMOTING GENDER PARITY AND CHANGING ATTITUDES EURIDICE GONZÁLEZ Mexico Country Manager of McEwen Mining and President of Mujeres WIM México
Q: Why was it necessary to adopt the WIM program in Mexico
metallurgists, biologists, ecologists, lawyers, administrators
and what are the main issues the organization deals with?
and accountants, among a host of other professions.
A: The organization promotes gender parity within the mining industry by promoting the participation and the quality of
Q: What is your opinion of the attitudes in mining toward
working life of women in Mexico. This organization was
women and what needs to improve?
created as a result of an invitation from WIM International
A: The mining community is increasingly open to the
and developed with the support of professional women
concept of an inclusive mining sector; few people still
that were committed to mining in Mexico. We are the only
resist the concept of inclusion. An example of this maturity
organization in the country supported by the Women in
is the support we have received from Mexico’s various
Mining International organization through its President
mining associations, notably AIMMGM and the Mexican
Barbara Dischingler and the Latin American Director Gladys
Mining Chamber (CAMIMEX). We have received a great
Smith. This gives us great pride and generates a greater
deal of attention and demonstrations of support from the
commitment and enthusiasm to promote the efforts of our
main mining players in the country and for that we are
colleagues in the industry and strengthen an organization
very grateful. Having said that, we now need to work on
worthy of the mining women of Mexico.
improving the percentage of female participation in mining positions, since we represent only 10 percent of the industry.
Q: What are the benefits of gender diversity in mining and how can companies achieve greater balance? A: It is important to recognize the ability of the female gender in daily life. The high level of responsibility women undertake and their execution capacity contribute to efficient processes and resources and therefore better results. Mujeres
Women constitute only 10 percent of the mining industry in Mexico
WIM México also seeks to act as a bridge for communication between Mexican companies and women. We are integrating a job board that companies can consult to find candidates for
Q: To what extent do you work with universities to promote
their vacancies. Our goal is to encourage greater opportunities
training of women for mining roles?
for women, according to nonquota capacities, and encourage
A: Although we are in the early stages, we have already begun
more women to apply for this industry when there is a
communicating with students and universities. Currently, in
vacancy. That way we will continue to advance.
conjunction with AIMMGM, we have formed close ties with UNAM’s Faculty of Mining and Metallurgy, with which we
Q: What kind of progress have you seen in recent years in
are in talks to promote good gender equality and inclusion
terms of the number of women in mining and their positions?
practices. We hope to complete this project in 2017 and we
A: Although it has moved at a slow pace, there has been
have many others in the pipeline. We work directly with
greater participation of women in recent years in both mining
students associated with Mujeres WIM México, who have
operations and administrative areas. In Mexico, in the last
shown great enthusiasm and initiatives because, as students,
federal government administration, the General Coordinator of
the culture of inclusion, equity and respect is reinforced.
Mining - the highest authority in the field of mining regulation at the time - was María Jimena Valverde, a historical fact that, as women, fills us with pride. Meanwhile, in mining operations,
Mujeres WIM México is a nongovernmental organization
more and more women are filling administrative, technical
with the purpose of promoting gender equity in the mining
and operational positions and becoming geologists, mining
sector, women’s participation in more roles and greater
engineers, machine operators, topographers, planners,
female responsibility in the sector
29
ROUNDTABLE
30
WHAT CHALLENGES DO YOU FACE AS A FEMALE EXECUTIVE IN THE MINING INDUSTRY?
According to a 2015 review carried out by PwC, women take up only 7.9 percent of board seats in the top 500 global mining companies and 94 percent of all board positions held by women in the top 100 listed mining companies were in non-executive roles. Despite this reality, women’s inclusion in mining is improving, and the same report even found that, of the top 500 mining companies, those with mixed-gender boards significantly outperformed those companies with all-male boards in terms of dividend yields. As the mining industry begins to awaken to the potential of women, Mexico Mining Review asked the female leaders within the industry in Mexico about the main challenges they face.
There is nothing better than generating policies and making decisions with a view to parity. I hope this can be done by a woman so she can speak from her own experience and attitude. Women have talent to manage and we have a great challenge, which is to break the wall of prejudices. Regarding gender parity in the mining industry, I consider it beneficial because it can add experience, skills and knowledge. Women have a lot to contribute but I am happy to know that we have left behind the idea
SUSANA CORELLA Federal Deputy for Sonora and Head of the Special Mining Commission
that only men work in mining. It is time for us to overcome quotas and achieve parity, so that decision-making positions and executive levels include more women. Companies can contribute by having strategies and policies in favor of gender parity, opening positions in management, trusting women and eradicating labels, stigmas and prejudices.
A company is enriched and learns from a diversity of approaches, experiences, skills and sensibilities, particularly if that diversity involves well-prepared women who know how to work together, who are courageous in taking challenges and creative in solving problems. The will exists but some do not know how to follow through. Fortunately, there are associations such as Women in Mining that help integration succeed by supporting the use of effective systems in companies,
IRMA POTES Subdirector of Community Development at Grupo México
training women, promoting academia to plurality, among other initiatives. We have seen many advances in this integration in the mining industry, especially in the areas of laboratories, environment, security, communication and community development.
There is no difference between one sector and the others; ours is a basic infrastructure industry. The challenges for women executives are the same in any business sector: financial, political or industrial, though it might seem much harder in this last one. I do not believe in “fighting for equality” of genders because that implies starting from “no equality.” The beginning of equality is in the mind. My conviction is in growth, in increased capability, in “do as you say and say as you do,”
ALICIA BARNETCHE President of Kepler
in integrity and respect. This gives you the place and respect you deserve. It was not easy at the beginning. Every day we see more and more women participating in this tough industry. Women are increasingly more educated and prepared for top-level executive posts.
One of the things that makes me happy about being part of this industry is that mining companies are on the cutting edge in so many aspects. We strive to ensure the best safety, community relations, health and environmental practices and equity and inclusion are not the exception. At Agnico Eagle Mexico, our entire team is concerned with holding the industry to the highest gender equity standards. I am proud to say that the company has received various awards, such as The Gender Equity Model granted by the National Institute for Women. This is only an example of how an industry that for years has been managed by men welcomes and values the female gender. I would like to encourage our mining colleagues to use women’s
KAREN FLORES Corporate and Government Affairs Manager at Agnico Eagle Mexico 31
strength for the benefit of their companies and the mining industry. Although there is still some way to go, we are heading in the right direction.
I began my career as a legal intern for a great lawyer, Juan Manuel González Olguien, who at that time was already recognized as a mining lawyer. I grew step by step and with effort and dedication, I have reached the position I have now. I do not perceive that the mining industry is particularly closed to the participation of women. On the contrary, it is an inclusive industry in which a great number of specialists converge, with a high sense of belonging, which makes us a great family. Women play an important role in this industry and as a woman it is enough to want to belong to the Mexican mining industry, to work every day with respect
LAURA DÍAZ Partner at DBR Abogados
and a commitment to achieve personal goals and thus make a small contribution to boosting the industry as one of the best in the country and the world. It is a privilege for me to be a mining lawyer.
For any person in business it is important to maintain a productive, positive mindset and to embrace the differences of others with professionalism and an open mind to the benefits of diversity. As a woman, this is especially true as the numbers show we are only just entering most workplaces. Females are vastly outnumbered. But whether it is change in the workplace or globalization of economies putting pressure on culture, it will take some time. I look to the young people in Mexico to inspire me and I am encouraged that this issue will disappear. Rather than hiring based on quotas, I prefer the idea of mentoring for all regardless of sex with the focus being more on skillset and natural talent. The fact is that women and especially young
CINDY COLLINS Founder of Mining Technology Partners
women need to continue what they are doing in entering their chosen careers and setting examples for others while we all continue to work toward self-improvement.
The first challenge is to make one’s skills, aptitudes and professional qualities stand out beyond being a man or a woman. That is achieved with time and of course results. But it takes character, perseverance and a lot of commitment. More and more companies are seeking to attract women to decision-making positions because they can bring other characteristics like negotiating skills and sensitivity. At Goldcorp, the Creating Opportunities and Growing Opportunities program has been created to focus on preparing women who work in the company so they can feel confident and empowered in an industry where only 11 percent is female. This is a great initiative that opens the possibility for industries such as mining to be increasingly attractive not only in economic terms but also because of the professional challenge it means.
DORIS VEGA Communications and Public Relations Manager at Goldcorp
PeĂąasquito Mine, Zacatecas, Goldcorp
2
FINANCE, INVESTMENT & REGULATION
The regulatory landscape in Mexico has been dominated by one central theme in the past 12 months: taxes. According to reports, the government tax authority SAT owes Canadian mining companies a total of US$360 million in back taxes. Companies working in Zacatecas and federal government officials alike are aggrieved at the Ecological Tax proposals, while junior explorers are shackled by the ruling on exploration expense deductibility. On the other hand, the government claims certain mining companies are not meeting their tax obligations to the Mining Trust Fund. All the while, the country is trying to attract investment into the sector – which fell by 20.9 percent in 2016 – and to provide financial support to small and medium-sized mining companies.
Against this backdrop, this chapter explores the most pressing financial and regulatory challenges facing the local mining sector. Both government representatives and corporate executives offer their versions of the complex tax debates, while legal professionals weigh in with their view of the situation and suggest ways to improve the operational framework.
33
CHAPTER 2: FINANCE, INVESTMENT & REGULATION 35
36
ANALYSIS: New Zacatecas Ecological Tax Alienates Operators
38
VIEW FROM THE TOP: Armando Pérez, FIFOMI
40
VIEW FROM THE TOP: Jorge Vidal, Minister of Economy for Sonora
41
VIEW FROM THE TOP: Ricardo López, SEDATU
42
VIEW FROM THE TOP: Juan Torres-Landa, Hogan Lovells BSTL
Brenda Rogel, Hogan Lovells BSTL
44
VIEW FROM THE TOP: Bradford Cooke, Endeavour Silver
45
VIEW FROM THE TOP: Enrique Rodríguez del Bosque, RB Abogados
46
ANALYSIS: Mining Mega Deals Suggest Return to Form
48
VIEW FROM THE TOP: Carlos Espinosa, SoftLanding Group Mexico
49
VIEW FROM THE TOP: Joel González, ALN Abogados
50
INSIGHT: Javier Reyes, Credipresto
51
INSIGHT: Ryan Matthiesen, Haywood Securities
William O’Hara, Haywood Securities 52
EXPERT OPINION: Antonio Nieto, MineralsTech
53
VIEW FROM THE TOP: Laura Díaz, DBR Abogados
54
VIEW FROM THE TOP: Alfonso Rodríguez, Legalmex
55
VIEW FROM THE TOP: Carlos Pavón, SNMM
56
ROUNDTABLE: How Can Juniors Overcome Regulatory, Financial Challenges?
ANALYSIS
NEW ZACATECAS ECOLOGICAL TAX ALIENATES OPERATORS Following the controversial fiscal reform for the mining sector
mines in the world. These two mines alone
in 2014, the state government of Zacatecas announced in
brought in 37.6 million ounces and the state
December 2016 new Ecological Taxes for industries with highly
contributed 19 percent to mining production
contaminating activities. The industry’s reaction was swift
in 2015, according to figures from the Ministry of Economy. Carlos Pavón, Secretary General
36
The proposal for the new Ecological Tax made by the
of mining union SNMM, notes that Fresnillo currently pays
Zacatecas government, which came into effect in January
MX$100 million under the current mining tax regulations
2017, was put forward by state Governor Alejandro Tello
established in 2014. With the Ecological Tax, the company
and approved by the state Congress. Its conception was
will be required to pay MX$250 million more.
largely due to the state’s deficit of over MX$1.5 billion and it will apply a charge to extractive companies installed in the
Fernando Alanís, Director General of Fresnillo’s sister
state, considering them highly polluting companies.
company Industrias Peñoles says he is “saddened” by the imposition of the taxes. “It suggests that the Zacatecas
This, explained the state Minister of Finance Jorge Miranda,
state government does not recognize the value that mining
is the first tax of its kind in the country. The measure was
adds to the region. The industry represents 30 percent of
designed to raise MX$1.2 billion by imposing charges related
the state GDP and accounts for 13,000 jobs, and many of
to contamination levels. Víctor Armas, Zacatecas’ Minister
the companies operating in Zacatecas – including Peñoles
of Water and the Environment explained that the tax will
– are certified as clean enterprises by PROFEPA.”
be broken down into four sections.
INDUSTRY RESPONSE The first tax will apply to minerals like gravel and stone
Pan American Silver’s La Colorada underground mine is
quarry, for which companies will be charged per m .
located in the state and, although Mexico Country Manager
Secondly, companies must pay MX$250/t of carbon and
Christopher Warwick admits the tax will not affect the
methane emitted to the atmosphere by their operations.
underground operation as much as it would an open-pit, he is
Thirdly, companies will be charged per m2 of contaminated
concerned about the precedent it sets for other states. “With
3
soil and per m of contaminated water found to be caused
the latest introduction of the Ecological Tax by the state of
by their operations. Finally, companies will be charged for
Zacatecas in a traditional mining state within Mexico, at very
storage of waste with high compositions of chromium,
short notice and without prior discussion and the unclear
lead and cyanide.
reasons for its imposition, it sends out a very mixed message
3
to the investors in the Mexico mining industry,” he says. CONDITIONS OF THE ZACATECAS ECOLOGICAL TAX Tax
Consideration
Environmental remediation
Tax for each cubic meter of material extracted during mineral processing
Results
Charge of MX$25 for each square meter impacted by dangerous substances
Carbon dioxide
Charge of MX$25 for each ton of carbon dioxide released into the atmosphere
Storage
Charge of MX$100 for each ton of waste stored in public or private landfills
Source: CAMIMEX
The Mexican Mining Chamber (CAMIMEX) also condemned the new taxes. In a statement, the Chamber stated that “on behalf of its affiliated companies, CAMIMEX expresses its deep discontent and rejection of the tax measures.” It reminded the government that companies already manage social and environmental responsibility programs and have done so for some time, without government intervention. The Chamber also points out that the government is already benefiting a great deal from mining company operations in Zacatecas. “In addition to ordinary taxes, the mining industry pays the special, extraordinary and additional
ZACATECAS’ MINING COMPETITIVENESS
duties established two years ago, 80 percent of which are
Mexico is number one in the world for silver production and
allocated directly to the Fund for the Sustainable Regional
the infamous “Silver Belt” crosses straight through Zacatecas’
Development of States and Mining Municipalities,” the
territory. In 2015, two mines in Zacatecas –Fresnillo and
statement says. “This represents more than MX$850 million
Saucito – both belonging to one of the world’s largest silver
for the State of Zacatecas: MX$414 million for the year 2014
producers Fresnillo made it into third place and fifth place
and MX$444 million for the year 2015. This fund is twice the
respectively in The Silver Institute’s list of the top producing
payroll tax collected by the entity per year.”
Even Julio César Nava, Zacatecas’ SEMARNAT delegate
they must comply with environmental law in order to obtain
voiced his opposition to the taxes. “The whole point of issuing
the relevant permission to operate.
certifications is because (mining companies) fully comply with all federal regulations,” he says. “Mining companies
Similarly, Warwick says that miners have always worked
must report everything to SEMARNAT in terms of permits,
under this federal framework, and changing requirements
use of water, loss of plant cover and generation of toxic
retrospectively and on a state level would be counter-
substances, and that is overseen by the annual operating
productive. “Our perception is that our work has the
certificate.” He also added that both CONAGUA and
approval of the federal authorities to proceed and continue,
PROFEPA are authorized to carry out random inspections
because we have always worked within the regulations
and that if any mining company is found in breach of
given by the government agencies appointed to approve
regulations, it is liable for a fine or even mine closure.
such matters,” he says. “I have no problem with tightening up environmental laws in Mexico but it is so important that
MINERS FIGHTING BACK
this is done correctly and then fairly administered.”
The implications of the Ecological Tax could be extensive and a number of companies are considering legal action
Alanís is confident that the SCJN will rule in favor of
or even removal of activities from the Mexican market.
the miners. “The mining law is federal, so the measure
Bradford Cooke, CEO of Endeavour Silver, which has the
is unconstitutional. We are delighted that the federal
El Compas development project in Zacatecas, told Mexico
government has already sent the issue to the SCJN,” he
Mining Forum in February 2017 that the company’s Board
says. “We are confident of a positive outcome from the
of Directors was displeased with the tax. “The board told
hearing but because we have already been granted an
me to find some projects outside of Mexico. So there is a
amparo, we will not pay an extra peso as a result of this tax.”
reality here that we have to deal with,” he said.
CLEARING THE DEFICIT Alanís and Octavio Alvídrez, CEO of Fresnillo describe the
Zacatecas places seventh in the country in terms of debt
tax as “excessive” and are leading the charge to legally
per capita at MX$5,160.8, according to the state's Ministry
challenge its constitutionality. The tax came into force on
of Finance. Zacatecas Minister of Finance Jorge Miranda
Jan. 1, 2017 but by Feb. 8, Peñoles had already submitted an
warned that if the taxes are not approved by the SCJN,
amparo against it. On Feb. 20, President Enrique Peña Nieto
there is a real risk that Zacatecas will be unable to pay
threw his support behind the mining industry by ordering
its teachers, nurses and civil servants. The current state
the Legal Department of the Federal Executive Branch to
government inherited MX$7.3 billion in debt from its
file an order of constitutional conflict with the Supreme
predecessor and Miranda says the conditions of these loans
Court of Justice of the Nation (SCJN). Right now, the tax
are “unsustainable” since interest and commissions ran to
is on hold due to its constitutionality being considered by
MX$2.6 billion up to March 2017. He says the MX$500 million
the SCJN. A decision is expected in September.
budget given to Zacatecas by the federal government is not nearly enough to cover debt repayment. Miranda says
ACTING OUTSIDE JURISDICTION?
there are three options for reducing the debt: raising the
The federal government argues that the taxes implemented
government’s income, reducing expenses or applying for
at state level by the Zacatecas authorities overstep state
a new line of credit. The third option, he says, is out of the
authority and fall under federal jurisdiction. According to
question since the state’s debt increase has triggered the
the Minister of Economy, Ildefonso Guajardo Villarreal, “if
debt alert scheme, which means the state of Zacatecas is
the SCJN concludes that the legislator and the Governor of
no longer eligible to apply for more credit.
Zacatecas issued a general provision, exercising powers that are under the jurisdiction of the Federation, the contested
Until March 2017, he says the tax had raised over MX$1.8
provision could be declared invalid and without effect.” He
billion, with some notable mining companies having already
argues that Mexico’s General Law of Ecological Equilibrium
contributed. He calls for “solidarity with the Zacatecan
and Environmental Protection (LGEEPA) does not allow
people” and blames the “shortsighted” financial approach
this kind of legislation to be implemented on a state level.
of the previous state government for the implementation of “painful measures”. He stresses that the state government is
This is a sentiment echoed by industry insiders. CAMIMEX
in communication with the affected companies, to provide
claims that the creation of the new taxes violates the
support for the new tax. “We are not enemies of mining or
Federal Pact and the rule of law due to the fact that, as
large corporations,” he says. “We simply recognize that in
a concessioned activity, mining is exclusively subject to
times of adverse economic crisis there are big winners and
the scrutiny of the federal government. It also states that
big losers. We respectfully request that (the big winners)
mining companies adhere to standards and regulations, as
share this benefit to give Zacatecas financial viability."
37
VIEW FROM THE TOP
FENDING OFF COMPETITION FOR INVESTMENT ARMANDO PÉREZ Former Director General of the Mining Development Trust Fund (FIFOMI) 38
Q: What were FIFOMI’s main achievements in 2016?
Q: What is FIFOMI doing to promote the sector on a
A: In 2015, the authorities made changes to the regulatory
global scale?
framework for financial institutions in Mexico to ensure
A: Strong mining jurisdictions in Latin America like Peru
that both commercial and development banks are held
and Chile are all fighting for investment from Asia, North
to the same requirements. FIFOMI acts as a development
America, Australia and Europe. Like its neighbors to the
bank for the mining sector so we are now regulated like
south, Mexico has a capital deficit and needs foreign
any other credit institution in the country. The focus in
investment so we need to ensure that our processes and
2016 was on adapting to these changes and restructuring
practices to attract foreign capital are superior to the
and streamlining the internal loan processes. We now
competition. We are present in the main international
focus on supporting the core businesses within the
mining conferences around the world to spread the word
sector, which are production and processing of minerals.
about the potential of the mining sector and mineral
Without a strong, well-developed mineral processing
resources in the country. Fortunately, not only do we
industry in Mexico, all the extracted metals and minerals
have exceptional natural resources but we also have well-
will be processed elsewhere. This means that Mexico will
developed infrastructure compared to other countries in
become dependent on other countries and therefore far
Latin America. It is our job, as a public banking institution,
more susceptible to volatility in the global economy. It is
to promote the mining sector and ensure that everyone
vital that we industrialize and promote the consumption
knows about the opportunities in Mexico. Of course,
of metals in the domestic market.
Mexico has challenges, just like all jurisdictions, but mining is ultimately about geology and few countries
The majority of loans granted by FIFOMI range between US$5-10 million
have stronger mineral potential than Mexico. We must take advantage of this. Q: Why are private-sector financial institutions so unwilling to participate in the mining industry in Mexico? A: There is asymmetric information regarding mining projects. For example, every commercial bank on Main
By acting as a development bank for the mining industry,
Street has a home loan department because they all
we have to focus on providing support for projects and
have experience with this sector and therefore know
areas that private banks do not finance and the most
how to assess and manage the different risks associated
urgent of these is mineral processing. We are working
with this activity. The banking sector does not have this
alongside other federal government banks to finance a
kind of experience with mining projects, so executives
company in Zacatecas that manufactures ceramic tiles,
are reluctant to hand out loans to the industry because
which is struggling to compete with companies from
they do not have the tools or data to evaluate the risks
Spain and Italy.
inherent to this activity. One of the main reasons is that many mines are located in remote regions of the country
Other financial institutions, such as equity funds and
and so only a fraction of the country’s population is
investment banks, are not well-informed regarding
exposed to this activity.
the financing of mining projects. That is where we can provide added value, by bringing our experience of the
In contrast, people in Canada understand mining – one
mining sector to the table. We have been operating for
could ask someone on the street in Toronto what is the
82 years, so we believe we have unrivalled knowledge
price of an ounce of gold and that person would be able
of the sector.
give the correct answer. This explains why so many mining
companies are listed on the Toronto Stock Exchange,
Q: What are the most important challenges that Mexico
despite the fact that their projects are in Mexico.
has to overcome if it is to fulfil its potential? A: The biggest challenge is the lack of knowledge at the
FIFOMI works with other banks to share knowledge and
international level regarding Mexico’s mineral reserves. We
create a culture of financing mining projects. We have a
have deep, well-established investment relationships with
number of co-financing agreements and act as a stepping
both the US and Canada and it is vital to keep fostering
stone for commercial and development banks to enter the
those relationships. But we need to do more business
sector. It is a gradual process but an important one if we
with other major global economies, with a specific focus
want the mining sector in Mexico to continue to progress
on China and Australia. China is the largest consumer of
and fulfill its potential.
commodities on the planet, while Australia is similar to Canada in that its economy is geared toward support of
Q: Why did you decide to put a US$25 million limit on loans
the mining sector.
and how has this program helped SMEs? A: We do not want to finance just two or three enormous
We need to attract investment from these countries.
companies because they have other options for financing
Although the distance between Mexico and these two
available. We believe our primary role is to finance SMEs that
countries represents a barrier to bilateral investment,
are exploring or already processing minerals. Many of these
globalization is gathering pace and distance is an
are family-owned enterprises lacking revenue so we can help
increasingly minor problem. We have started to build ties –
them build up liquidity and advise them on how to expand
there are already a number of Chinese companies working
capacity. The majority of our loans range between US$5-
in the Mexican mining sector - and we are coming closer
10 million. We are financing several infrastructure projects
every year.
for junior companies, as well as offering training and other technical assistance. We make sure that small miners comply
But there is a lot of competition. If Mexico wants to
with all the national and international standards when it comes
strengthen its position within the context of global mining,
to sustainability, taxation and information disclosure, which
the entire mining community needs to work toward the
is vital for the success of any project. FIFOMI is the only
common goal and I am delighted to say that it is already
institution in Mexico to offer this kind of service to small and
happening. We have close working relationships with
medium-sized miners.
the Mexican Mining Chamber (CAMIMEX), the Canadian Chamber and similar associations, and I have witnessed a
Our primary objective is to encourage medium-sized
tremendous effort from all sides to promote the country. I
mining companies in Mexico to obtain funds from capital
am sure that our sector will continue to grow rapidly over
markets. We are already in discussions with the Mexican
the next five years.
Stock Exchange (BMV) to see how we can facilitate the entry of mining companies onto the BMV to take advantage of this valuable tool and raise capital. It is the most efficient form of achieving sustainable, long-term growth.
FIFOMI is a state-owned development bank designed to promote and monetize the mining industry in Mexico through loans and other forms of financial support. It promotes the sector abroad by attending international conferences
39
VIEW FROM THE TOP
GOVERNMENT INVOLVEMENT CREATES FAVORABLE INDUSTRY JORGE VIDAL Minister of Economy for Sonora 40
Q: What are the most important highlights of 2016 for the
We approached the owners of the company to make an
mining sector in Sonora?
inventory of its needs, from uniforms and food to more
A: The most important developments concern the large
complex requirements such as explosives. We then showed
investments that were made by companies like Grupo
the list to the municipal authorities of Magdalena and used
México, which invested over US$4 billion. This extra capital
it to bring together companies that could meet the needs
inflow will lead to a significant increase in production. The
of the mine. Through this exercise, we were able to promote
growth is happening step by step because it also brings
a large amount of business transactions that benefited bot
about challenges such as the short-term need to create
the community in Magdalena and the mine.
smelting facilities. These investments need to be created to take full advantage of the material that is being extracted.
Q: What role could lithium play in the future of the mining industry in Sonora?
Exploration slowed down last year due to the federal
A: We are conscious of the fact that battery-powered
government’s fiscal policy changes. In Sonora, 23 percent
automobiles from companies like Tesla are making lithium
of the total territory, or 430,000km , is dedicated to
increasingly attractive. There are currently two main
exploration. The state has a dozen companies that are
projects in the state. One is Sonora Lithium, which is the
focusing on exploration and possibly four mines that
property of Bacanora Minerals and is worth US$542 million.
will to start operating in the coming year. Among these
It is currently in the exploration phase with metallurgical
is Alamos Gold’s La Yaqui, which will enter production in
samples being taken. The project still has a long way to go
2017, and GoGold’s Santa Gertrudis. The mining industry
but it already has a purchase agreement with Tesla.
2
is an important part of the state economy. It represents 17 percent of the state GDP and offers 18,000 direct jobs. The
Sonora also encompasses the initial stage Electra Project,
number grows even bigger when considering that for every
which is owned by Alix Resources and Lithium Australia.
direct job, five more are created indirectly.
There is high interest from Australian and Canadian companies to enter the lithium market. Other states like
Q: How would you describe the progress and contribution
San Luis Potosi and Zacatecas also have lithium deposits
of mining clusters?
but they have not been as successful commercially as
A: Sonora’s mining cluster is in a constant state of growth
Sonora. These projects will position Sonora as the state
to provide support for the industry. As the government
that produces the most lithium in the country. Lithium will
of Sonora continues to incorporate itself into the value
ultimately open an alliance between the automotive and
chain of the mining world, the sector will keep playing a
mining industries in Mexico.
significant role in the state’s economy. The mining cluster works closely with the Ministry of Economy because we
Q: What role does copper play in Sonora?
share similar objectives. We both seek to boost the number
A: Grupo México is advancing with its own projects and
of local suppliers and manufacturers in the state. When
it recently discovered a zinc deposit that will require new
Minera Autlan entered Sonora and opened a mine near
installations in the coming years. Now, the goal is to become
Magdalena, it required an investment of US$70 million.
more involved in processing the ore because sending it in its raw form means companies cannot fully take advantage of its commercialization. Smelting facilities will make exporting
The Ministry of Economy of Sonora has a General Mining
raw materials a smoother process. Grupo Bal is leading the
Directorate, with the purpose of promoting mining activity, by
appetite for minerals in Sonora with La Herradura mine,
providing technical support and credit to small and medium-
In total, companies are investing approximately US$410
sized miners. Mining provides 17 percent of Sonora’s GDP
million in Sonora’s mining sector.
VIEW FROM THE TOP
MINING FUND: RESULTS ARE ON THE WAY RICARDO LÓPEZ Director General of the Mining Trust Fund at SEDATU 41
Q: What have been the main achievements of the Mining
the figure rose to MX$2.1 billion and we expect to see this
Trust Fund since 2014?
trend continue in the years to come.
A: As part of the fiscal reforms introduced in 2014, three new taxes were created for participants in the mining
Q: How do you respond to the mining companies that say
sector. The Mining Trust Fund was then set up to collect
that the Fund is ineffective in supporting communities?
the revenues from the new taxes and use them to fund
A: The relationship between mining companies and the
infrastructure projects in targeted regions where there is
communities is well-established and the Mining Trust Fund
mineral extraction. The idea was to ensure that the extra
should not do anything to negate that. They work with and
funds collected by SAT would be used to the benefit of
live alongside each other on a daily basis and have done
communities living in mining regions. It grants these remote
so for decades in some cases, so it is essential that this
towns and villages, which are often left out of large-scale,
relationship continues to grow. Our job is to make sure that
city-focused public-sector initiatives, access to new
the funds received from the new taxes are reinvested into
services. Mining can bring new jobs, businesses and other
infrastructure projects. It is the government’s responsibility
benefits to far-flung regions but it is a finite industry. It is our
to improve public services, not the private sector’s, and
job to ensure that communities do not become dependent
that is what we are doing. I understand that the mining
on support from the extraction activities going on around
companies want to see results but I can assure them that
them and to give them the tools to thrive once the mining
results are on the way. A total of 812 projects have been
projects have closed down.
started and more than 250 of those have been completed. We expect this number to increase year on year.
The fund is an innovative public initiative, in which all three levels of government play a role. Of our total funding, 77.5
Q: What are the main goals for distribution of the Mining
percent is constituted of the funds collected by the new
Trust Fund in 2017?
taxes. From that total, the municipal government, which
A: We are going to continue investing the funds we have
is closest to the communities, is in charge of distributing
collected over the past three years, focusing on regional
62.5 percent, while the state government distributes
development. We have compiled a social development plan
37.5 percent. The rest of the tax collection is distributed
for each region where there is mineral extraction and we
directly by the federal government. In each state where
will ensure that each project we authorize is in line with the
there is mining activity, a special five-person committee
plan for that community. During the first year, we focused
has been set up to decide how to invest the resources. One
primarily on community infrastructure projects, such as
representative from a local mining company, one from an
schools and hospitals but in the next couple of years we
ejido or similar agrarian community, and three members of
will be switching our attention toward regional projects that
the public sector, a municipal governor from the region, a
impact a larger number of people. We have already started
member of the state government and a SEDATU deputy.
work on a new highway in Sonora. This project will require
The five members of each committee discuss all the ideas
an investment of MX$130 million but it will affect a number
for infrastructure projects and vote to decide on where to
of communities in the state. This is an example of the kinds
allocate the funds.
of projects we are going to focus on in the coming years.
In 2014, over MX$2 billion was distributed in 25 different states, according to the percentage each state contributes
The Mining Trust Fund was set up in 2014 to raise the quality
to the country’s overall mineral production. This information
of life of the inhabitants in areas of mining activity. The Fund
is collected by INEGI and cross-referenced with the results
is responsible for 80 percent of the collection of the payments
mining companies provide the Ministry of Economy. In 2015,
from the Special, Additional and Extraordinary taxes
VIEW FROM THE TOP
COMMUNICATION KEY TO SUCCESSFUL MINING PROJECTS Juan Torres-Landa Partner at Hogan Lovells BSTL
Brenda Rogel Partner at Hogan Lovells BSTL
42
Q: How would you describe the main challenges the mining
Q: How has the Energy Reform changed the mining
industry in Mexico faces?
industry in Mexico?
JT: The global mining industry sees Mexico as a favorable
JT: Mining lends itself to cooperation with the energy
country for operations but taxes and security challenges
sector. The players in the sector know how to interact
definitely have a negative impact nowadays. Our clients
with communities and map out the geological potential
consider these two factors to be the main obstacles for
of areas. Companies used to have issues with the cold
the industry. Companies also worry about environmental
methane bed gas that was naturally developed as part of
and labor issues. The mining royalty scheme is a burden
the mining process as the law did not allow operators to
that affects the number of projects that enter the country.
use it. The resource was being completely wasted but the
Peru and Chile provide strong competition when it comes
Energy Reform allows for more flexibility. This is actually an
to mining. Consequently, they are attracting operators that
activity that is complementary to operations. Obviously, if
are not pleased with the royalty taxes in Mexico. The taxes
gas or energy become the central focus of operations, then
have had a negative impact on the overall position of the
the company would no longer work in the mining sector, it
country on a global scale. The special royalty taxes have
would enter a different industry.
forged a complicated scenario for mining companies and the metal prices have created a dent in operations. But
Carbon in particular creates a type of methane gas that
operators must understand that it is now part of the cost
can naturally be a form of revenue for mining companies.
of doing business in Mexico.
Many mines also have hydrocarbon deposits in areas where plants are being built. When hydrocarbon prices become
Mine sites have the ability to become an important source
more favorable, we might see more collaboration between
of resources for surrounding communities but the isolation
mining and oil and gas companies.
of these areas often creates risks such as insecurity. We have clients that struggle with the transportation of the
Q: How effective do you think mining regulation is in
final product. Some companies are forced to even fly the
Mexico?
product out of mine sites due to security risks, an expensive
BR: From an environmental point of view, SEMARNAT has
transportation method.
several guidelines for all projects that could potentially impact the environment. The agency is making a strong
Mining reserved areas are also potential obstacles. When
effort to offer additional information and support because
the government labels an area as a reserve, it has the
global companies consider the quality of the governmental
authority to approve the purpose it will hold, even if it has
processes within the country highly important. The first
a mineral deposit. Therefore, companies must be careful
stage of projects is usually the least regulated but more
and make sure that the area they wish to develop is free
advanced phases, like exploration and exportation, are more
for mining before applying for a concession. Geological
stringent. If a company does not start following norms in
and seismic analysis are more complicated than simply
the beginning, it can experience considerable problems
looking at a map. They are in fact extremely necessary.
later on in the process. As long as companies have more
Communication with geologists, prospectors and engineers
effective procedures with governmental issues, they can
is required to develop a map before choosing an area to
ensure more effective projects.
apply for a concession to make sure it is not a reserved area or owned by someone else. This is one of the most difficult
Q: What are the largest areas of opportunity within social
parts of the process, but following the correct steps makes
and environmental compliance?
it easier for mining companies to be successful in securing
JT: In the past, outdated or obsolete methods were
concessions.
commonly used. Operators thought that working in isolated
communities gave them the freedom to do as they please
helps align the objectives of a project with the needs of
without suffering any consequences. This mentality left a
surrounding communities and ensures success. But, as
legacy in the mining industry that is still present today.
many of these projects are performed far from cities, it is
Despite the beliefs of many companies, it is not enough
difficult to have an effective form of communication.
to secure governmental authorizations. Problems are more likely to arise in the future without the approval of
Only 35 percent of mine sites were compliant with PROFEPA norms in 2015
communities or indigenous groups. San Pedro in San Luis Potosi was one example of this trend, as it generated years of conflict and chaos. All sectors should be prioritizing community consultation, in particular hydrocarbons. Communities need to see clear signs of concern and cooperation. Q: How has the industry’s attitude toward environmental impact changed?
JT: We find it effective for operators to use a combination of
JT: The accident in Rio Sonora in 2014 helped raise
outside and internal consultants to manage environmental
environmental awareness in mine sites. It pushed companies
and social issues. Independent and external advisory
to start prioritizing environmental compliance. Now,
services are recommended as the initial work requires a
the entire life cycle of mine sites is being evaluated for
detailed amount of heavy analysis. A large team is needed
environmental compliance, not just the initial phase. Mining
to map out the complex necessities of the project and the
operators are starting to see environmental compliance as
community to create a strong foundation. The idea is to
a duty when they actually used to commonly leave mine
highlight the risks of the project and create strategies that
sites open and in ecological devastation.
can resolve them.
BR: The percentage of noncompliance was massive and
But operators need to remember that community
the challenge was brought to light by PROFEPA, our
development projects should always be created through
federal environment prosecutor. The institution completed
dialogues. For instance, we heard of an operator that was
more or less 1,000 inspections within mining companies
building a soccer field in a community as an attempt to
throughout 2015. The results were released in January
create rapport. But the company quickly realized that
2016 and only 35 percent of the visits revealed mine sites
the project was greatly opposed as it was in an area that
that were compliant with norms. We were not surprised by
mostly plays basketball. It proves that each community
this outcome considering the situation in Sonora. Mining
is different and companies cannot just assume the needs
companies need to take the concept of corporate social
of the area.
responsibility to a whole new level. JT: It may not be easy but many projects prove that For the oil and gas industry, the National Human Rights
proactive approaches can create a greater end result
Commission released recommendations for environmental
both from an economic perspective as well as a social and
compliance in August 2016 that now include community
environmental status. Companies should rightfully benefit
consultations and are based on international norms.
from implementing well established business decisions that
However, these same specifications were not established
also create positive effects on social and environmental
for other industries, so many mining companies struggle
factors. These types of actions are commonly supported
with the lack of clearly established regulations in terms of
by shareholders.
community consultation. Environmental issues are complex as they need to include a human rights perspective and
A common problem in mining operations is that locals are
international recommendations. These norms push projects
not involved in overseeing the projects. Having a team that
to respect the rights of people in surrounding communities
cannot even speak the language or understand the culture
and indigenous groups.
of the area is obviously bound to cause issues. Locals should always be considered and included in mining projects.
Q: What is the most efficient method to include social and environmental projects within a business strategy? BR: Operators can incorporate more preventive and
Hogan Lovells is an international law firm that recently merged
proactive approaches by identifying, within economically
with BSTL, a firm with profound knowledge of the Mexican
viable projects, a map of advantages, areas of opportunities
market. Together, they specialize in various industries including
and allies. Taking the time to develop a strategy often
energy and natural resources, infrastructure and transportation
43
VIEW FROM THE TOP
REGULATORY KINKS MUST BE IRONED OUT BRADFORD COOKE CEO of Endeavour Silver 44
Q: What strategies does the company use to ensure
right to tax us for the environment so we have all filed
healthy levels of cash flow?
constitutional challenges in court to block the new taxes.
A: To survive the last five-year bear market in metal prices,
Even the federal government is challenging the new state
Endeavour Silver had to incorporate several strategies
taxes in court. Our hope is that these taxes are defeated
to reduce our cash operating and all-in sustaining costs.
in court because this legislation was poorly thought out.
We reduced our workforce and retrained our remaining employees to use newer and more efficient mining equipment
Q: What challenges are you experiencing at Terronera?
and methods. We also reduced our exploration and capital
A: We ran into several issues with state governmental
budgets. Last year, when metal prices started to increase, we
authorities when it came to issuing permits. They do not
raised some equity capital to invest in growth. In 2017, we plan
have the experience or expertise in approving mine permits
to raise some debt financing as well to build one of our new
so they were moving very slowly. We requested some
mines. Our healthy cash flows are now helping us become one
assistance from the federal authorities and now our permit
of the fastest-growing silver mining companies in the world.
applications are moving more smoothly.
Q: How much of a challenge is the new Ecological Tax in
Q: How do you expect your investments in Mexico to
Zacatecas for miners?
progress?
A: We think the state government is in financial difficulty
A: When it comes to investing, our board is becoming
and this was the solution. However, we and most other
nervous about investing in Mexico, which is why we are active
mining companies in Zacatecas think the state has no
in Chile. We told the Undersecretary for Mining that we need more positive action from the Mexican administration before we can approve more investments. Mexico is an ideal location
Endeavour Silver is a mid-tier silver mining company focused
for Canadian investment but the country needs to implement
on the growth of its silver production, reserves and resources
deferred exploration expenditures, amend its mining duties,
in Mexico. Since start-up in 2004, it has grown silver equivalent
improve its VAT refunds and permit timelines to attract new
ounce production to 9.7 million ounces in 2016
investment in exploration.
VIEW FROM THE TOP
BMV AN UNTAPPED RESOURCE FOR MEXICAN MINERS ENRIQUE RODRÍGUEZ DEL BOSQUE Founding Partner at RB Abogados 45
Q: What is your current perception of the Mexican mining
promote their business. Companies should focus on
legislation in comparison to the global market?
promoting themselves to mutual funds over individuals
A: The legislation covers most of the issues the mining
and in exchange mutual funds need to direct their
industry faces on a daily basis. Mexico used to be a leader
market to individuals. Mutual funds in Mexico are strong
in Latin American on mining law and countries used to
as they include retirement funds and connect to other
mimic it. But other systems are starting to advance at a
funds around the world. The BMV’s legislation is similar
faster pace when it comes to covering new elements in the
to that found in the NYSE, and indeed many Mexican
sector. We consider the legislation and norms to be fair but
companies are also listed in New York. But listing in
there are gray areas that need to be addressed. The Energy
Mexico is expensive.
Reform, for instance, may have opened up a new market to mining companies but the division of land use is not
Q: What can authorities do to promote the growth of
clear. It reduced the amount of land that can be released
exploration?
by mining authorities and the rights of way have not been
A: Our clients have the difficulty with the non-immediate
defined between these two industries.
deduction of exploration costs and VAT refunds process. The deduction of exploration costs needs to be more
Q: What needs to happen to promote mining investment
immediate. Companies are not willing to wait 10 years
on the Mexican Stock Exchange (BMV)?
to get their investment back. Mines are ageing without a
A: There are a few mining companies listed on the BMV
generation of new projects to replace them and some of our
like Industrias Peñoles, Grupo México, Minera Frisco and
clients are starting to look at alternative countries in which
First Majestic Silver but in general the BMV is an area of
to direct their exploration capital. The authorities need to
opportunity that is not being fully taken advantage of.
realize that mining companies work for shareholders and
Mexico relies on foreign capital and Mexicans are not keen
they have a responsibility to take care of their capital.
to invest in the mining industry, unlike investors in other
Mexico may have a long mining history with an abundance
countries like Canada. Mutual funds need to invest in these
of natural resources and skilled people, but its rules are
large players to create a balance in their portfolio but
discouraging companies from entering the country.
individuals that have a few thousand pesos in their pockets
Investors direct billions of dollars into the industry, at times
tend to invest in other markets like Toronto. Mexico needs
without ever seeing the mine in person.
to start promoting the BMV as a viable alternative. Q: What is RB Abogados priorities in the long-term? The problem is that investing in stock exchanges is not a
A: Our goal is not to become a large law firm but to
feasible option for the general public. Most of the country
remain as the strongest and fastest reactive law firm for
is busy living day-to-day and saving to pay for their
the industry. We are unusually selective when it comes to
children’s school tuition and medical care. People do not
choosing clients and cases. Our goal is to represent the
have sufficient additional revenue to invest in the stock
mining industry and be seen as the best option for mining
market. In Canada, a recent college graduate with US$500
transactions, mining project finance, mining agreements,
in savings will most likely invest in the stock exchange,
corporate structures, joint ventures and M&A.
but in Mexico everyday costs can be more expensive as a proportion of salary. RB Abogados is a law firm founded in 1993 by Enrique
Another option is a dual listing, which can bring many
Rodríguez del Bosque. It has become one of the leading
benefits to companies. On the BMV, companies can
companies in Mexican mining law, M&A and project finance
expand their market to mutual funds if they adequately
transactions
ANALYSIS
MINING MEGA DEALS SUGGEST RETURN TO FORM Global M&A activity in the mining sector rose by 33 percent
Camino Rojo asset in a deal with Orla Mining
in 2016. A rush of high-profile M&A deals during 1H17 is
that provided Goldcorp 19.9 percent of Orla’s
encouraging market participants that the industry could be
outstanding common shares.
set for its most active year since 2012 JUNIORS TURN TO M&A FOR GROWTH
46
The year began with a bang in January when Goldcorp
A reactivated sector provides opportunity throughout the
agreed to sell its Los Filos asset in Guerrero to Leagold
mining value chain, and a number of smaller deals confirms
Mining, in a deal worth US$350 million, funds it then used
the bullishness of the world’s junior producers.
to acquire Exeter Resource Corporation for CA$247 million. This was followed in April by Barrick Gold’s decision to sell
In February, McEwen Mining said it would be acquiring Lexam
50 percent of its giant Veladero mine in Argentina to state-
VG Gold in a friendly takeover, while in April, Gold Mining
owned Chinese investor Shandong Gold for US$960 million.
announced an agreement to acquire all outstanding common shares of Colombia-focused Bellhaven. Junior silver producer
Considering the encouraging performance of precious
Excellon Resources publicly stated that it will be actively
metals in 1H17, industry analysts believe the green shoots
pursuing M&A deals in 2017 as a means to complement its
of recovery for the mining M&A market could flourish
exploration activities and generate shareholder value.
as the year progresses. “With the prices on an upward curve again, we have seen more market re-evaluation of
“Apart from targeting organic growth through exploration,
companies within the sector and investors are now looking
we are looking to add to our production profile and increase
at the sector in a more positive light,” said Philip Hopwood,
cashflow through M&A transactions,” said Ben Pullinger,
Global Mining Leader at consultancy Deloitte. “Many mining
the company’s Vice President for Geology. “We have an
companies have started to outperform the stock markets
experienced management team and would like to leverage
so there is value in the sector and returns to be made.”
their expertise to grow the company further.”
The flurry of activity is an encouraging sign that confidence
ACTIVITY SET TO CONTINUE
is beginning to return to a sector that was badly hurt by a
Any sustained rise in mining M&A deals is dependent on
downturn in commodity prices that lasted from 2012-2016.
commodity price but market conditions point to a strong
In 2007, global M&A value peaked at over US$210 billion,
year for metals. The new presidential administration in
according to accountancy firm EY. In 2016, the figure stood
the US is still finding its feet but a planned infrastructure
at just US$44.3 billion, the lowest levels since 2004 and 9
push should drive demand for copper, iron ore and other
percent lower than the previous year. That said, the number
industrial minerals upward. Meanwhile, any uncertainty
of deals in 2016 rose YOY by 33 percent to 477, an early sign
regarding US fiscal and foreign policy would send investors
that the sector was ready to turn a corner.
rushing to the safe haven provided by precious metals.
MEXICO DEALS LEAD OPERATOR DIVESTITURES
On the production side, falling grades and exhausted
In Mexico, the first signs of recovery emerged in 2H16, with the
deposits will also squeeze supply. According to Harvey,
acquisition of the Yamana Gold’s Mercedes mine by Premier
production levels and reserves have declined greatly over
Gold Mines for US$122 million, the standout deal in the latter
the past five years, while real and nominal interest rates
part of the year. Goldcorp, the world’s fourth-largest bullion
remain low, encouraging investors to buy gold and silver.
producer, then sold its noncore Los Filos mine to little-known
“Future supply will be tighter,” he said.
outfit Leagold and then swiftly entered into an agreement to acquire Chile-focused junior explorer Exeter Resource.
Of course, there is still some way to go before M&A in the sector reaches the heights of 2007. But for Gutierrez, all
“We sold the Filos Mine to Leagold as part of our strategy
the fundamentals are there for the uptake in activity to
to concentrate on assets of a certain size and quality,”
continue into the second half of the year. “As a rule, M&A
says Michael Harvey, Director for Corporate Affairs and
activity should pick up as prices increase and with the
Security at Goldcorp Latin America. “Filos is a fine asset
mine closures and labor conflicts going on in jurisdictions
but was too small for our strategy.” Goldcorp also sold its
around the world, this should create a supply constraint
21 percent stake in the San Nicolas property in Zacatecas
that will push prices upward,” he said. “This could lead
to Teck Resources for US$50 million, before parting with its
to more deals.”
MAIN AGREEMENTS, MERGERS AND ACQUISITIONS IN 2016 Date
Original Company
Project
Mineral
State
Acquiring Company
January
N/A
Cerro Cascarón
Au, Ag
Chihuahua
Evrim Resources
January
Teck Resources
Los Verdes
Cu, Mo
Sonora
Sandstorm Gold
January
Aurcana Corp
La Negra
Au, Ag
Queretaro
Orion Mine Finance
Yago
Au, Ag
Nayarit
Mezquites
Au, Ag
Nayarit
San Pedro
Au, Ag
Jalisco
February
Alianza Minerals
Almadex Minerals
February
N/A
Ariel
Cu-Au
Sonora
Riverside Resources
March
N/A
Magistral del Oro
Au, Ag
Durango
Firma Holdings
March
N/A
La Cobota
Cu
Sonora
Era Resources
Promontorio
Ag
Sonora
La Negra
Ag
Sonora
La Cigarra
Au, Ag, Pb, Zn
Chihuahua
April
Northair Silver
Kootenay Silver
May
Argonaut Gold
La Fortuna
Au, Ag
Durango
Minera Alamos
May
Oro Silver Resources
El Compás
Au
Zacatecas
Endeavour Silver
May
Electrum Global Holdings
Cerro Las Minitas
Au, Ag, Pb, Zn, Cu
Durango
Southern Silver Exploration
May
Auxico Resources Canada
Zamora
Au, Ag
Sinaloa
Telfersoot Resources
May
Mexus Gold
Julio/Santa Elena
Au
Sonora
MarMar Holdings
May
Almadex Minerals
El Encuentro
Au, Ag
Sinaloa
McEwen Mining
May
Alix Resources
Electra (25%)
Li
Sonora
Lithium Australia
June
Private Sellers
Lechuguilla Expandida
Au, Ag
Durango
Primero Mining
June
Sunshine Silver Mining
Los Gatos (30%)
Ag, Zn, Pb
Chihuahua
Dowa Metals and Mining
July
Timmins Gold
Caballo Blanco
Au
Veracruz
Candelaria Mining
Li, K, B
Zacatecas
Alset Energy (Grupo Minero Alset)
Taviche
Au, Ag
Oaxaca
Aura Silver
La Caridad Este
Cu, Mo
Sonora
Aqua Zarca
Au, Ag
Sonora
La Pitahaya
N/A
Sonora
San Marco
Au, Ag
Sonora
La Frazada
Ag, Pb, Zn
Nayarit
Peñasco Quemada
Au, Ag
Sonora
Plutón
Au, Ag
Durango
Caliguay La Donacella La Colorada July
N/A
La Salada Santa Clara Saldivar Chapala
July
Maverix Metals
September
Globe Trotters Resource Group
September
Mexus Gold
September
First Mining Finance
San Marcos Resources
MarMar Holdings
Silver One Resources
September
Aurico Gold
San Diego
Au
Sonora
Kootenay Silver
October
Yamana Gold
Mercedes
Au, Ag
Sonora
Premier Gold Mines
October
Gracepoint Mining
Relaves Magistral del Oro (50%)
Au, Ag
Durango
MX Gold Corp
November
Hawkeye Gold and Diamond
Cobriza Groupings
Au, Ag
Durango
Firma Holdings
El Parral
Ag
La Palmilla
Ag
San Patricio
Ag
Chihuahua
Endeavour Silver
Veta Colorada
Ag
Chipriona
Au
Sonora
Agnico Eagle
November
December Source: CAMIMEX
Silver Standard
Sonoro Metals
47
VIEW FROM THE TOP
ENTRY BARRIERS SLOWLY RECEDING CARLOS ESPINOSA Partner at SoftLanding Group Mexico 48
Q: How do you perceive the positioning of the Mexican
about security issues across the entire country. One of
mining industry in comparison to other global markets?
the key tasks to attract investment to Mexico is providing
A: I see Mexico as a highly competitive culture for mining
education about the true nature of mining in the country
but for the last five years, there have been various issues
to foreign players that may not be well-informed on the
that need to be addressed, including royalties, security
issue. There is no doubt that the mineral potential is there.
and social license. Mexico is not considered a safe jurisdiction for mining like Canada, the US, Australia,
Q: What can be done to minimize entry barriers new
New Zealand and Western Europe. Regardless, Mexico
companies face when entering the Mexican mining sector?
is one of the best options, if not the best option in
A: Firstly, we need to divide the mining industry into
Latin America. Although Chile and Peru offer strong
two groups: larger companies and juniors. It is important
competition, Mexico certainly has much to offer in terms
to make this distinction because larger companies have
of experience, location and personnel. Foreign investors
greater resources so they can recruit consultants and they
familiar with Mexico know that in the country there are
can afford to make mistakes.
areas that can be highly complicated in terms of security and social issues, but most of the country is friendly
On the other hand, the juniors have a much smaller budget
toward mining.
so have much less room for error. Right now, to minimize the risk, junior companies are beginning to look to middlemen
On the other hand, those investors that have not
of sorts, which are companies like SoftLanding Group,
previously done business in Mexico tend to generalize
Export Development Canada or the Canadian Institute of Mining to seek advice that will soften the cultural blow. These companies learn from local knowledge and prepare
SoftLanding Group Mexico is an international trade and
Canadian companies for entry into Mexico. This applies
development group that facilitates the entry of Canadian mining
especially now because in 2011 even junior companies
companies into Mexico. Carlos Espinosa previously served as
could afford to make mistakes, whereas now cash flows
Head of Business Development, Global Mining at the TSX
are restricted and every penny counts.
VIEW FROM THE TOP
TAX REFORMS NEED CLARITY JOEL GONZĂ LEZ Managing Partner of ALN Abogados 49
Q: How do you feel the fiscal reforms affected Mexico's
uncommon for companies to want to do so but it provides
attractiveness as a destination for mineral exploration?
an additional layer of certainty.
A: Exploration is a crucial area for us and we work with numerous Canadian junior exploration companies with
Q: How would you assess the efficiency of the SGM and its
projects in the Durango-Sonora-Chihuahua gold-silver belt.
handling of the mining concessions?
We have been working with Agnico Eagle for the last five
A: SGM has a lot of information and it has worked a great
years as general counsel for all the company’s projects in
deal in the last few years to provide more data. It has a new
Mexico. We started working with Agnico Eagle on a tax rebate
database of projects and it has invested a great deal of money
case and we subsequently began an audit on all its land tenure
in technology and infrastructure. This is extremely helpful for
and concessions. From then on, we became like a full-service
companies coming from abroad to see the mining potential
firm for Agnico Eagle.
of Mexico. In terms of the technical part of SGM, there are no problems. The mining regulation bureau is the one involved
The reform had a well-documented negative impact on
with mining applications related to regulatory compliance
exploration companies because it delayed the deduction of
for mining concessions. That is where the difficulties lie
expenses, which was the biggest issue. For mine operators that
because of the lack of infrastructure and human resources.
have been paying the royalty, the rules have not been clearly
Most likely, budgetary restraints mean the process to approve
defined and applied. We still have some amparos pending
applications can be slow.
against the royalty so we have not yet seen clearly how this will evolve after the supreme court issues its resolution. The point
Q: What are the firm’s expectations for 2017?
is that companies are challenging whether the tax reform is
A: We want to develop our business in other states. We are
constitutional or not. The mining fund involves a committee
particularly strong in Sonora, Durango and Chihuahua but
made up of the three levels of government, the community
we see a lot of potential for other states in the south such as
and the company so the viability of bringing the funds to the
Jalisco and Nayarit. These are states with a great deal of small
municipalities with mining projects is not yet clear.
mining operations and there is a lot of exploration projects springing up right now. There is a lot of mining potential in
Q: To what extent have you seen an improvement in the
states such as Michoacan, Oaxaca and Guerrero but social
mechanisms used to enforce the regulatory changes?
problems are constant so the industry is still not viewed in a
A: Unfortunately, I have seen no improvement in this area.
positive light. In the northern states, we have been blessed
Since the industry is lacking these mechanisms, mining
with communities that are far easier to negotiate with than
companies have no guarantee that court rulings will be upheld
those in the south.
and enforced. The government should work with the private sector to develop mechanisms that allow greater certainty
The structure of the communities in the south is far more
in the mining environment and reduce the risk mining
complex. Oaxaca, for example, is not the largest state but
operators assume working in Mexico. In land tenure, we work
it has around 570 municipalities. This means a lot of work
very closely with the community from the beginning of the
for mining companies, since a mine concession can require
project and we try to involve the mining companies with these
several agreements over land use, making things complicated.
consultations so all parties are clear about the needs of the mining communities. Afterward, we take time to explain to each party how the agreement will work and what benefits
ALN Abogados is a Chihuahua-based law firm with a focus
they can expect. The agreement is then taken to court, not
on mining. It has over 35 years of experience in a variety of
to file a claim but to create a precedent that reinforces the
disciplines, including environmental, contractual and mining
judicial recognition we require from the agreement. It is
regulation
INSIGHT
BOOST FINANCING OPTIONS FOR JUNIOR MINERS JAVIER REYES Director General of Credipresto 50
The Toronto Stock Exchange (TSX) and TSX Venture
interested in Mexico because it is one of the most favorable
Exchange (TSXV) are the two leading global exchanges for
mining jurisdictions in the world,” says Reyes. “Mostly, we
mining. In 2016, mining companies listed on the TSX senior
work with foreign lenders from the US and the UK. There is
market raised CA$6.8 billion, and the TSXV, which attracts
a niche where specialized mining funds exist that focus on
many mining juniors, saw its listings jump 150 percent
projects requiring US$50-100 million of investment.”
from 2015 to raise CA$2.5 billion. By comparison, the Mexican Stock Exchange (BMV) is home to only six mining
The problem with the BMV, he says, is that listed companies
companies: First Majestic Silver, Minera Autlan, Fresnillo,
do not need the funding the exchange offers because they
Grupo México, Minera Frisco and Industrias Peñoles, none
are major corporations. Around 30 percent of the companies
of which are juniors.
listed represent 95 percent of the Mexican volume daily, so this equates to around 25-30 companies that represent
According to Javier Reyes, Director of mining finance
almost all of the daily volume. “Around 50 years ago, there
company Credipresto, junior mining exploration and
were probably around 20 times more companies listed in
development companies have to seek funding in locations
Mexico than there are today, so this says something about
like Canada because in countries that understand mining
the exchange,” he says. “Mexican mining companies were
finance and risk culture more, there are many more tools
also listed much more in foreign exchanges so the state of
and many more players willing to fund these projects. “In
the market has changed considerably.”
Mexico, I think there is a lack of understanding of very high-risk investors and there is no way to transfer money
Mining finance needs to be long-term, Reyes says, and
from investors to these projects,” he says. “In Canada, the
for many mining companies, investment from financial
main function of the TSXV is to transfer money to high-risk
institutions is not an option due to the level of risk involved.
assets, such as very early-stage exploration projects. There
“In general, the financial institutions in Mexico do not lend
is no similar mechanism in Mexico.”
money to anyone,” he says. “Most of the revenues generated by commercial banks in Mexico come from fee collection
Credipresto is a finance company that is diversified in its
and interest collection in retail banking. There is no incentive
products and lines of credit with FIFOMI and Nafinsa. It
for them to take on the risk of lending.”
offers turnkey advisory services for clients and its advisors take an active role in ensuring the investment is used in
If midsize Mexican mining is to be developed, Reyes stresses,
the right way. “As a Mexican company, we understand the
sources of financing must be developed. “FIFOMI’s line of
culture and, instead of just lending the money, we want
credit extends to MX$3 billion but these amounts are a
to work with the company through the project financing
drop in the ocean compared to the type of money mining
stage,” Reyes explains. It also works with the communities
companies deal with,” he says. “Other development banks
and municipal governments to ensure there is no political
like Bancomext and NAFINSA have much deeper pockets. I
factor that may prevent the mine from reaching production.
think these options should be explored.” Most importantly, he believes the BMV should promote the type of risk found in
In most cases, Credipresto enters at the development stage
mining more and follow the model of the TSXV in providing
providing interest rates of between 10 and 15 percent. In
incentives to those companies that need the financing to
many cases, depending on the company it works with, it
seek the resources of the BMV. And this may just be in the
obtains a warranty component so that it has an upside
works. “The creation of a new stock exchange in Mexico is in
on the equity if the stock goes up. Credipresto lends
the pipeline” he says. “This should incentivize new kinds of
independently up to US$5 million and for any amount
investment and remove the monopoly of the BMV in Mexico,
greater than this it can co-lend. “There are many investors
creating a healthier, more competitive market.”
INSIGHT
STRIKING GOLD WITH UNDERVALUED ASSETS
“
Junior Mining companies are a priority for us because they have viable projects that are often ignored by the market in their early stages” Ryan Matthiesen, Managing Director of Investment Banking at Haywood Securities
are struggling to strike a balance between the industry and environmental organizations and NGOs. Despite its ability to compete globally, Mexico struggles to prove investment stability, according to the Haywood directors. It can be challenging to attract capital in the country when political or security issues arise because these influence the investment perception of the entire region. “Mexico just needs to have more jurisdictional stability,” says O’Hara. As a result, Haywood Securities is selective when it comes to choosing its projects. Its team of analysts prioritizes
The junior exploration market in Mexico is one of the
administrators with a strong track record of discoveries and
investment industry’s best-kept secrets. It has a wide array
interaction with surrounding communities. The firm mostly
of highly underrated projects in the shadows waiting to
works with companies from Africa and Latin America, regions
be found and acquired at low prices. The trick is to remain one step ahead of the crowd and catch these hidden jewels before word gets out to maximize profitability and stock value. “Junior Mining companies are a priority for us because they have viable projects that are often ignored by the market in their early stages,” says Ryan Matthiesen, Managing Director of Corporate Finance at Haywood Securities, Canada’s largest boutique investment bank with a mining specialty. “This is an area of opportunity that we take advantage of by having a team of mining analysts that travel the world in search of inexpensive projects that can be acquired and sold at a much higher value.” The firm provides advice to mining issuers that are active in several global mining regions including Mexico, predominantly those exploring for precious
“
that have a higher number of companies listed on the TSX.
During the last five years, the equity market in the mining industry was raising a small amount of money, which caused an increase in the prevalence of mergers and acquisitions” William O’Hara, Managing Director of Institutional Sales (Toronto) at Haywood Securities
metals like gold and silver.
RAISING CAPITAL
In Mexico, the firm collaborates with Kootenay Silver and
Haywood Securities mitigates risk by having a diversified
Minera Alamos in its La Fortuna project, among other
portfolio. Half of its business is mergers and acquisitions
prospects in the country. La Fortuna is an open-pit gold
while the remainder is capital raising. “During the last five
project that Minera Alamos acquired from Argonaut Gold
years, the equity market in the mining industry was raising
in early 2016. It is expected to be a high-margin, late-
a small amount of money, which caused an increase in the
development stage project with manageable capital
prevalence of mergers and acquisitions,” says William O'Hara,
requirements. The project has successfully completed the
Haywood's Managing Director of Institutional Sales (Toronto).
surface rights agreement stage and is scheduled to receive
“The challenge for many was having enough money to take
technical reports and enter into the construction phase by
advantage of these cheap properties.”
the end of the year.
The investment bank places Mexico at the top of its list in
This is an exemplary project for Haywood, say the directors.
terms of activity through client issuers. It is a geologically
“It is a good example of an extremely undervalued project
endowed area that offers favorable benefits in comparison
that is releasing positive economic studies and has an
to countries such as Russia and Turkey. Mexico is also better
experienced management team orchestrating the process,”
positioned than its Latin American neighbors like Chile that
says Matthiessen.
51
EXPERT OPINION
UNDERSTANDING RISK: THE KEY TO PROMOTING INVESTMENT ANTONIO NIETO Founding Director of MineralsTech 52
Traditionally, Mexico has been known as an important mining
understanding by the country’s banking and financial sector
country. It is globally ranked among the top 10 producers
of the unique technical aspects involved in the mining
of 20 mineral commodities including silver, copper, gold,
business, specifically how to manage risk to accurately
lead, zinc, iron, manganese and molybdenum. The mining
verify the economic value of the mining prospect. Other
sector, including aggregates, represents close to 5 percent
mining countries such as Canada and Australia, which
of Mexico’s GDP. Mexico is also, despite recent revised tax
have a strong financing culture in the minerals industry,
reforms, ranked as one of the most appealing jurisdictions
know that the economic uncertainty of determining the
for mining investment, attracting US$5.2 billion and US$4.7
economic value of a mining project and the associated risk
billion in 2015 and 2016 respectively.
can be managed with healthy rates of return. Both countries understand the importance of clearly reporting risk when
However, there is still potential to increase mining
negotiating a new mining initiative for potential financing.
investment in Mexico. Besides hosting a handful of large operations, the country’s mining industry mainly consists of
In Mexico, however, the uncertainty and risk-reporting
relatively small-scale operations when compared to other
process is often outsourced to professionals based in
countries with strong mining economies. According to
Canada and the US where banking and financial institutions
data from CAMIMEX, of the roughly 150 mining operations
are familiar with the NI 43-101 and JORC reporting
active in Mexico, about 10 could be considered large-scale
protocols. Mexico’s banking and financial sector considers
operations with ore processing capacities higher than 4
the mining business as a high-risk endeavor that requires
million t/y. This proportion means that the top 10 largest
massive amounts of resources, mostly capital and time,
mines in Mexico contribute to about 65 percent of Mexico’s
which makes potential investment hard to justify. Adding
total mineral production capacity. These numbers also
to the pessimistic perception about mining by the financial
indicate that Mexico has tremendous potential to increase
sector in Mexico, mining is indeed an atypical business when
its mining capacity if the sector is incentivized with
considering that the return of investment is based on the
economic mechanisms designed to promote investment.
value of a mineral product that is “concealed” underground, making the valuation process complex if compared to other,
The top 10 largest mines in Mexico represent about 65 percent of Mexico’s total mineral production capacity
more typical, business initiatives. Thus, it is imperative to make sure that the financing partner clearly understands how uncertainty is managed by geologists and mining experts to verify the value of the mineral resource and to confirm the economic feasibility of extraction. A possible path to reducing the gap of access to finance for
Indeed, having just five Mexican mining companies trading
mining businesses may lie in the development of a clear and
on the Mexican Stock Exchange (BMV) may be an indicator
comprehensive National Reporting Code for Exploration
of the need for the Mexican banking and financial sector
Results, Mineral Resources and Ore Reserves, including an
to promote new financial mechanisms. The five listed
Economic Valuation Code for mineral prospects designed
companies typically do not rely on external funding
specifically for the banking and finance sector in Mexico.
when opening new projects, exercising new exploration
Understanding uncertainty and how risk can be managed in
campaigns or considering increasing production capacity.
the minerals industry is key to promoting access to finance in Mexico. Having a clear reporting code for minerals
One possible reason for the gap to promote access
initiatives in Mexico will help demystify mining risk before
to finance in Mexico may be attributed to the lack of
the eyes of bankers and capital investors.
VIEW FROM THE TOP
LAW FIRM GUIDES MINERS THROUGH INVESTMENT LANDSCAPE LAURA DÍAZ Partner at DBR Abogados 53
Q: What is the status of DBR Abogados’ challenge to the
lithium. I predict many companies related to lithium will be
constitutionality of the mining tax?
attracted to Mexico in the near future.
A: The firm is only representing McEwen Mining in these matters. We attempted to file amparos for Aranzazú Holding
Q: How has the election of Donald Trump affected your
and a Chinese company but were unsuccessful. The case
clients and the work you do?
is still under review with the Supreme Court of Justice of
A: We have not seen any effect so far because although
the Nation (SCJN) and we do not know for sure when this
much of the investment in mining in Mexico comes from
will be resolved. The petition was lodged in October 2015.
North America, the vast majority is Canadian. I do not
When the law was introduced, we believe a technical mistake
predict any negative effects at all from the presidency
was made and we must wait to see if the SCJN agrees with
because mining is a global industry and it does not depend
us. This is a favorable situation because until we have the
on the US as much as other sectors like automotive. It is
resolution of the amparo, the company is not obligated to
such a diversified global industry and this is positive in that
pay the mining royalty, giving McEwen some room to breathe
no one player can really cause too much of an effect. I
while developing its project. As far as I know, this is the only
would even go so far as to say that Trump’s presidency
company in the mining industry that does not pay the mining
could create a positive effect due to the rate of the dollar
tax. We are convinced that we will win this case. We are
against the peso. Because salaries and often operating
aware that other companies have filed amparos but we are
costs of Mexican mines are in pesos, this offers dollar-
not sure under which basis they are arguing the case. We
denominated companies an added advantage financially.
hope to have a resolution as soon as possible because this would be positive for the entire industry.
Q: What is DBR doing to prepare itself for 2017 and what will be the biggest trends?
Q: What other projects are you working on with mining
A: We expect more investment in Mexico in 2017
companies?
because metal prices are going up, which gives us more
A: We are working on the Ana Paula project with Timmins
opportunities, especially in exploration. We are hoping
Gold that is being put into production, which is a huge
the government will modify the rules slightly to attract
challenge. Many factors must be considered, such as land
more investment.
rights and community relations, and several parties must be consulted, including SEMARNAT and CONAGUA. All
For the last few decades, the mining sector has been
the concessions must be in good standing and permits like
incorporated into the Ministry of Economy under the
that for explosives must be obtained. Helping clients take a
General Coordination of Mines, which attributes less
project into production is how law firms really prove their
importance to the sector. At the end of last year, mining
expertise in mining.
was assigned its own Undersecretary under Mario Alfonso Cantú, emphasizing the increasing importance the
Another challenge is when a project is sold to another
federal government is ascribing the industry. This helped
company and another law firm is reviewing all the actions
the government elevate mining in accordance with its
taken. This is a very good test of the caliber of any law
contribution to the country’s GDP.
firm. Last year, we carried out a few interesting projects, including overseeing Timmins’ sale of the Caballo Blanco concession to Candelaria Mining. We were also involved in
Díaz, Bouchot and Raya (DBR) Abogados is a firm specialized
the acquisition of Paramount Gold by Coeur Mining. Other
in providing comprehensive solutions for its clients. DBR
tasks included project-financing assistance. A market with
provides personalized legal services that adhere to the highest
which we worked in Zacatecas and we believe will grow is
standards of ethics and responsibility
VIEW FROM THE TOP
DELICATE, PRECARIOUS TIMES FOR EMPLOYEES ALFONSO RODRĂ?GUEZ Director General of Legalmex 54
Q: How would you evaluate the working environment in
to make justice more effective, efficient and honest and
Mexico?
replace the currently flawed process.
A: This is a delicate time, where salaries do not adequately compensate the work performed. There is a precariousness
Another major change is the creation of a new independent,
in general regarding employment and this results in
autonomous body with its own assets, which will be in
employees who are discontented and discouraged.
charge of regulating the registration of trade unions, the
According to the authorities, employment rates have
expedition of payment, changes in statutes and directives,
increased on the basis of incomes of new IMSS registrations
registration of new collective agreements and revisions to
but this fails to take into account working conditions, such
existing ones, accreditation of representativeness in both
as the number of work-related casualties. Nor does it take
cases, supervision of and compliance with transparency
into account the average wages of the insured parties,
obligations, among other duties. This has worried many
which are ridiculously low in comparison with any other
of the unions, which are considering challenging the
OECD country.
constitutionality of this measure through an amparo.
Trade unions have lost much of their strength and changes to
Q: What impact will the implementation of the reform have
the law have contributed to this. Their freedom to pressure
on unions?
companies and the government itself has been more strictly
A: If the law is fully implemented according to its
regulated so they will now have to demonstrate that they
explanatory memorandum, the vast majority of trade union,
effectively represent workers’ rights and will be obligated
will be significantly affected. This also applies to trade
to make the union’s finances transparent to its members.
unions in the mining industry, with few exceptions. Since important unions like SNMM are not employer-led, nor do
Q: What challenges do companies face with the
they employ protection contracts, in theory they should
implementation of the latest labor reform?
not be impacted or worried about the change. But other
A: The mining industry was seriously affected by the
unions that have served as allies of employers and that
changes of the law in 2012 in terms of occupational health
have collective bargaining agreements (which only exist
and safety. Regardless, it is necessary to recognize the
on paper since they are not legally binding) may find that
enormous effort of employers within the mining sector,
the amendment creates conflict within their corporate and
as well as some unions - especially SNMM - in accident
financial management structures.
prevention. Effectively, they have managed to reduce the incidence of accidents and fatalities.
Q: What additional changes have to be made to labor legislation?
The latest constitutional labor reform is scheduled to be
A: At present the labor issue has been overseen by the
implemented by Feb. 24, 2018 and mainly deals with the
Public Prosecutor. Few entrepreneurs are fully informed
disappearance of the Conciliation and Arbitration Boards,
about the implementation of the CFDI payroll system,
which will now be incorporated into the judiciary through
and most relevant the filling of the complementary CFDI
labor courts or tribunals. This was done in an effort to try
payroll V1.2. This is important since with these documents, which are mandatory as of Jan. 1, 2017, the tax and labor authorities, IMSS, Infonavit, local treasuries, the Ministry
Legalmex is a law firm specializing in labor issues, offering
of Labor and Arbitration and Conciliation Boards are able
solutions tailored to the particular needs of each client, helping
to immediately detect failure to adhere to the law. This
throughout the legal process from the hiring of personnel to
includes subcontracting, improper or incomplete payment
the liquidation of the company
of employer taxes and other issues.
VIEW FROM THE TOP
UNION WORKS WITH EMPLOYEES, EXECUTIVES TO BUILD TRUST, REACH GOALS CARLOS PAVĂ“N Secretary General of the National Miners Union (SNMM) 55
Q: What was the reasoning behind the creation of the
We are attempting to change the entire culture and mindset
National Miners Union (SNMM)?
of the industry and as always there are some members of
A: We began operations in 2009 with the goal of creating a
the community who are opposed to change and react badly
trustworthy, respected union for miners throughout Mexico.
to it. However, step by step we are getting the message
There were three main objectives, which remain the same
across and that brings us great satisfaction. Technological
today. First is security. As miners, we understand that
advances are also helping on the safety front but we find
security is not only the responsibility of the corporations
that only the largest mining companies have the newest
but also of the union, the authorities and the workers
technologies. There are still many junior operators that use
themselves because they are the ones who know the
old and potentially faulty equipment and this is a big danger
conditions better than anyone. Second, we represent
for workers. As a union, we enter the mines with which we
miners’ rights and we work to ensure that we receive what
work and check every vehicle that enters the site to be sure
we deserve. Finally, we want to ensure that the mining
that the brakes are working correctly, the hydraulic system
sector continues to create jobs for people throughout the
is up to standards, as well as other technical checks. Our
country. Mexico needs as many sources of work as possible
primary objective is to have zero fatal accidents in mines
because the sad truth is that many people in this country
and I am confident that we can reach this goal. I have seen a
simply do not have any opportunities to work. As a union,
big improvement in the past six years, especially concerning
our goal is to preserve these sources of employment and
the number of fatalities.
create new ones. Q: What does SNMM think about salary levels for miners in Q: How does the union work alongside mining companies?
Mexico and how important an issue is this for the union?
A: The relationship between the union and the mining
A: We still believe that wages for miners in Mexico are too
companies is extremely close, and that is essential. We
low and we are working to improve them but there are
work not only with the workers, providing them support
certain things one must take into account. Firstly, wages do
on a daily basis, but also with executives to bring about
not include bonuses, which are a big part of the take-home
change in the long-term. The path to change is far more
pay for miners. The bonuses are dependent on productivity
straightforward when there is a strong relationship between
and production levels and can increase the daily wage for
both parties and we recognize the need to be flexible
workers by up to 150 percent. Secondly, if metal prices are
during our discussions with a company’s decision-makers.
strong and the mine is profitable during the year, 10 percent
It is exceptionally rare for us to call a strike because we
of profit is shared among the workers as an extra bonus.
prefer to hold discussions and sign agreements. Nobody
During the boom years, around 2010-2011, the bonus that
wins when a mine shuts down.
the workers received at the end of the year was far greater than their annual wages, so our fingers are crossed that the
Q: How is the union working to improve mine safety?
recovery of the metal prices will continue in 2017. Thirdly,
A: We work primarily with the employees because we want
Mexican miners benefit from the fact that the companies
them to know that they have the support of the union.
pay 100 percent of their social security. This is not the case
The workers are the main point of contact we have with
in other mining countries around the world.
the mining companies. We provide training courses on the subject of security and we a hold a conference every year where miners can get together to discuss issues
The National Union of Miners and Metallurgists (SNMM) is one
and conditions in the workplace, both good and bad. We
of the only mining unions in Mexico that is not employer-led.
recognize the importance of worker safety and we believe
It has 16 chapters representing miners and works with major
that the workers themselves must take responsibility.
operators to negotiate better working conditions in mines
ROUNDTABLE
HOW CAN JUNIORS OVERCOME REGULATORY, FINANCIAL CHALLENGES?
Life is not easy for today’s junior mining companies Acquiring permits for land usage can be a painfully slow process; the routes open to accessing capital are increasingly few and far between as volatility continues to plague financial markets and the lottery system for mining concessions favors the major companies and their monopoly over the most promising projects. But the industry needs junior companies to be able to grow, not only to provide healthy competition to the majors but also to encourage new players to enter the market. Mexico Mining Review asked leading public and private sector executives about how the community can provide the
56
necessary support to this vital segment of the industry.
Our primary role is to finance SMEs, who are exploring or already processing minerals. Many of these family-owned enterprises lack revenue so we can help them build up their liquidity and advise them on how to expand capacity. The majority of our loans range between US$5-10 million. We make sure that small miners comply with all the national and international standards when it comes to sustainability, taxation and information disclosure. FIFOMI is the only institution in Mexico to offer this kind
ARMANDO PÉREZ Former Director General of the Mining Development Trust Fund (FIFOMI)
of service to small and medium-sized miners. Our long-term goal is to encourage medium-sized mining companies in Mexico to obtain funds from the capital markets. We are already in discussions with the BMV to see how we can facilitate the entry of mining companies onto the stock exchange to raise capital - it is the most efficient form of achieving sustainable growth.
Larger companies have much more resources so they can recruit consultants and they can afford to make mistakes. On the other hand, the juniors have a much smaller budget so have much less room for error. Right now, to minimize the risk, junior companies are beginning to look to middle-man companies like SoftLanding Group, Export Development Canada or the Canadian Institute of Mining to seek advice that will soften the cultural blow. These companies learn from local knowledge
CARLOS ESPINOSA Partner at SoftLanding Group Mexico
and prepare Canadian companies for entry into Mexico. This applies especially now because in 2011, even junior companies could afford to make mistakes, whereas now cash flows are restricted and every penny counts.
Specialized mining funds exist that focus on projects requiring US$50-100 million of investment. FIFOMI’s line of credit extends to MX$3 billion but these amounts are a drop in the ocean compared to the type of money mining companies deal with. Other development banks like Bancomext and Nafinsa have much deeper pockets and are capable of lending much more, and I think these options should be explored for the Mexican mining industry. The creation of a new stock exchange in Mexico is currently
JAVIER REYES Director General of Credipresto
in the pipeline and it should be opened in the near future. In an ideal scenario, this would incentivize new kinds of investment and remove the monopoly of the BMV in Mexico, creating a healthier, more competitive market.
In Mexico, exploration is controlled by the large companies with scalable budgets and mostly they reap the rewards. But Mexico is a huge jurisdiction and even the big three Mexican mining companies cannot cover all the opportunities by themselves, which is why there has been such a strong influx of Canadian companies into the market in the past 10 years. In my opinion, the Mexican institutional and retail investor community deserves to have exposure to local mining projects. The Mexican government has already done a good job in providing a working regulatory framework to promote and develop mining projects. Providing an efficient public capital raising framework seems like the logical next step.
MARIO GUTIÉRREZ Managing Partner at Tauro Capital Partners 57
When we are looking to acquire new concessions, we are running into significant problems with the process of application, granting and cancellation of mining concessions by the government. The delays related to the land concessions may mean Mexico could miss out on opportunities to generate wealth for the country and it could result in several years without investment. Out of 2,000 showings, only one becomes a mine. This means there are huge swathes of the country that are not being tested or utilized and because claim applications are not being granted, the government is missing out on taxes. This has a huge trickle-down impact because without access to this land, no new discoveries can be made and no new mines can
JAMES MCDONALD President and CEO of Kootenay Silver
come into production. This impacts not only the mining sector but the economy as a whole due to the industry’s role as an employment creator.
Sometimes it can be challenging to do business for companies other than the big Mexican operators, and issues such as land ownership can become complicated and drawn-out. We have a number of projects that we would like to develop but we cannot get a ruling on land ownership. But this is a very minor criticism. Mexico is more modernized than other jurisdictions like Peru so for North American companies it is easier to do business and I believe that Mexico is in the top five mining jurisdictions in the world. We have not had any security issues, and we have always had strong support from the local authorities. We are happy with Mexico as a jurisdiction and
DARREN BLASUTTI CEO of Americas Silver Corp
we want to grow our business.
Many small and medium-sized mining companies in Mexico often lack access to the products that can improve the efficiency of their operations. In some cases, these are family-run operations, and EDC can assist them to pinpoint where their operations can be improved and then put them in touch with the suppliers that can make a real difference to efficiency and profit margins. We want to connect Mexican miners with Canadian suppliers, so our efforts are focused on first establishing financial relationships with Mexican miners. On the basis of that relationship, we learn about the investment plans of each particular project and then connect them with the right Canadian supplier that can add value to the mining operation.
SEAN EMMOND Regional Manager for Mexico at Export Development Canada (EDC)
Gold Pouring
GOLD
3
Although still considered a safe haven for those seeking to de-risk investment portfolios, gold is not entirely immune to market volatility and the past 18 months have been turbulent for the yellow metal. A sharp rise in 1H16 precluded a dramatic crash in November in the build-up to, and aftermath of, the US presidential election. In 2017, gold has recovered steadily, peaking at US$1,293/ oz in June, but a return to the carefree days of 2011, when gold was trading at close to US$1,900/oz, still seems a long way off. Mexico continues to play a leading role in world gold production, contributing 4.26 million ounces, or 4 percent, to global output. While Sonora is still the primary area for national bullion production, an ever-growing list of projects means that Guerrero is now making a significant contribution. On the corporate side, Fresnillo took over from Goldcorp as the country’s leading gold producer in 2016.
This chapter provides an insight into the current state of play in the Mexican gold industry. Executives from both foreign and national enterprises outline the projects that are leading their production pipeline, as well as those exploration and development-stage assets that will take up the mantle in years to come. They also detail the challenges and advantages of working in the Mexican gold sector today.
59
CHAPTER 3: GOLD 62
ANALYSIS: New Projects, Expansions Put Mexico On Track to Climb Rankings
64
INFOGRAPHIC: Mexico's Gold Production: Rising to Demand
66
VIEW FROM THE TOP: Joseph Conway, Primero Mining
68
VIEW FROM THE TOP: Fred Stanford, Torex Gold
69
VIEW FROM THE TOP: Arturo Bonillas, Timmins Gold
70
MAP: Mexico's Main Gold Mines
74
ANALYSIS: Sharia-Compliant Gold Opens Door for Islamic Investors
75
INSIGHT: Michael Harvey, Goldcorp
77
VIEW FROM THE TOP: Robert Eadie, Starcore International Mines
78
MINE SPOTLIGHT: Los Filos
81
INSIGHT: Ewan Downie, Premier Gold Mines
82
MINE SPOTLIGHT: La Herradura
84
EXPERT OPINION: Jason Reid, Gold Resource Corporation
86
INSIGHT: Darrell Rader, Minaurum Gold
David Jones, Minaurum Gold 87
INSIGHT: Randy Reifel, Chesapeake Gold
88
MINE SPOTLIGHT: El Limón-Guajes
90
INSIGHT: John McCluskey, Alamos Gold
91
INSIGHT: Ramon Pérez, Candelaria Mining
92
ROUNDTABLE: Which Projects Will Help Mexico Grow As a Force in The Global Gold Market?
61
ANALYSIS
NEW PROJECTS, EXPANSIONS PUT MEXICO ON TRACK TO CLIMB RANKINGS With global financial markets still plagued by uncertainty in
targeted – so that reflects the vital role that
2017, investors are increasingly bullish on gold’s long-term
this commodity has to play for the company.”
prospects. An exciting pipeline of new projects means Mexico is well-placed to benefit from surging demand
The smaller miners are also contributing. Alio Gold, formerly Timmins Gold, will start
62
While Mexico is rightly recognized for its dominance in
production at its Ana Paula project in 2018 and Torex
the global silver market, once again topping the global
Gold, which brought El Limón-Guajes (ELG) online in
production charts in 2016, the country is also a significant
2016, is already planning construction at the neighboring
contributor to the world’s gold production. According to
Media Luna deposit. Alfredo Phillips, Torex Gold and
Mexico's national statistics agency INEGI, bullion output
President of the Guerrero Cluster, believes the state
totaled 4.26 million ounces in 2016, placing Mexico eighth
will be crucial in converting Mexico into one of the top
on the list of most productive jurisdictions and second
jurisdictions for gold mining.
in Latin America behind Peru. Although Mexico’s output was down 1.7 percent on the total the country registered
“The company will invest close to another US$600 million
in 2015, the country's mineral wealth, a series of new
by 2020,” says Phillips. “In the next five to 10 years,
projects and ambitious brownfield expansion plans
Guerrero could easily become one of the richest gold
suggest that the country could soon establish itself as a
regions in Latin America.”
powerhouse in the global gold market.
THE COMEBACK KID GOLD PRODUCERS COMMIT TO MEXICO
Like many commodities, gold suffered a volatile 2016 as
The world’s fourth-largest gold miner by production,
political shifts took their toll. After a strong start to the
Goldcorp, sent shockwaves through the industry when
year – rising 25 percent on the year to US$1,361/oz on
it announced the sale of its Los Filos asset in Guerrero
June 27 – bullion prices began to fall off in July before
in January 2017 as well as its Camino Rojo exploration
a dramatic crash in the build up to, and aftermath of,
project the following June. But the Vancouver-based
the US presidential election. Between October 24 and
company has since reaffirmed its full commitment to
December 25, the price of an ounce of gold fell 13 percent
Mexico and is planning an ambitious exploration program
to US$1,133/oz from US$1,304/oz. The “Trump Bump” was
to expand the mine life of its flagship asset, Peñasquito.
more of a “Trump Slump” for precious metal investors.
Meanwhile, after increasing year-on-year gold production by 22 percent in 2016, silver giant Fresnillo confirmed
But in 2017, the story changed. Controversial decisions
it will invest US$110 million to expand its primary gold
from President Trump, like the firing of FBI Director
asset, La Herradura. The mine produced 520,500 ounces
James Comey and the decision to pull out of the Paris
of gold in 2016, usurping Peñasquito as the country’s
Agreement on climate change, continued to put pressure
most productive gold project.
on the US dollar, and demand for gold surged. Thanks to extra help from a vital ruling enabling Islamic investors
Mexico was the world's eighth largest gold producer in 2016 with 125 million tons of gold output
to access the market for the first time, at the end of May gold rose to US$1,267/oz after registering its sixth straight month of growth – its best run since 2010.
GIANT MINES CONTINUE GROWTH With Mexico’s two most productive gold mines ready for long-term production, gold’s return to form is good news for the country. Fresnillo’s La Herradura mine produced 520,366 ounces of gold in 2016, making it the highest producer in the country, and this will only increase with
“When we listed on the London Stock Exchange in
the new investment.
2008, our growth plan was to double gold production to 250,000 ounces by 2018,” says Fresnillo CEO Octavio
Goldcorp’s Peñasquito fell to second place on the list of
Alvidrez. “We are now aiming to produce 1 million ounces
gold producers in Mexico with 465,000 ounces output
of gold in 2018 – 300 percent more than we had initially
but company Director of Corporate Affairs and Security
Michael Harvey says that it will focus on improving its
OPERATIONAL CHALLENGES PUT ASIDE
prized asset through an extensive exploration plan and
Despite the strong growth pipeline for gold projects
pyrite leach project, which could boost production by
in Mexico, the sector has its challenges. Miners are still
140,000 ounces by 2018. “The exploration work will allow
coming to terms with the 2014 fiscal reform, which placed
us to extend the life of the mine,” says Harvey.
a 7.5 percent royalty on all precious metal production, while investors are growing weary of security concerns.
Mexico’s midsized and junior miners are also getting in
In Zacatecas, a controversial Ecological Tax announced
on the act. Toronto-based Alamos Gold already has two
by the state government in late 2016 threatened to slash
producing assets in Mexico, at Mulatos and El Chanate,
profit margins of mining operations and was slammed
but it plans to at least double that number in the next few
by business leaders. The issue is under review by the
years. Production at the La Yaqui development project is
Supreme Court of the Nation (SCJN).
expected to start in 3Q17, with construction already under
63
way. The mine will only deliver about 10,000 ounces
But these concerns are not enough to dissuade companies
of gold in the first year, but this number should jump
to continue ramping up gold targets in Mexico. With the
when the neighboring La Yaqui Grande deposit, with
yellow metal set for a strong year in 2017, Mexico’s gold
its 523,000 measured and indicated resources, moves
sector could soon rival silver.
into production. The company also plans to bring the Cerro Pelon project, a potential 100,000oz/y asset, into
“Mining is a highly strategic industry for Mexico that is not as
production in the next few years.
vulnerable as other industries to external political factors,” says Harvey. “Mexico absolutely has what it takes to get back
“We have a further five exploration projects in the district that we will be exploring over the next several years and ultimately looking to develop,” says John McCluskey, President and CEO of Alamos Gold. “Our growth pipeline
to the level of attractiveness it had just a few years ago.”
PARTICIPACIÓN EN LA PRODUCCIÓN MINERA DE ORO ENPRODUCTION MÉXICO PORBY ESTADO EN 2016 GOLD STATE 2016
for Mexico over the next few years is very strong.” Vancouver-based Alio Gold, which changed its name
4.26
from Timmins Gold in early 2017, runs the profitable San Francisco mine in Sonora that produced over 100,000
million ounces
ounces in 2016. But San Francisco is winding down and the company’s main hopes are pinned to the Ana Paula development project in Guerrero. The asset already has proven and probable reserves totaling 13.4 million tons and Alio Gold released a positive Pre-Feasibility study (PFS) in May 2017. The company hopes to start construction in early 2018. “The project is moving along very smoothly,” confirms Arturo Bonillas, former President of Timmins Gold. Torex Gold’s plans are also fixed on Guerrero. After
35.8% Sonora Sonora 35.8%
17.8% Zacatecas Zacatecas 17.8%
Chihuahua 13.6% Chihuahua 13.6%
11.5% Guerrero 9.3% Durango 12.0% Others
12.0% Otros PRODUCCIÓN MINERA DE ORO EN MÉXICO POR COMPAÑIA EN 2016 11.5% Guerrero GOLD PRODUCTION BY COMPANY 2016 9.3% Durango
production began at its flagship ELG asset, the company plans to spend US$5 million on exploration to identify
Source: INEGI
further resources in 2017. Meanwhile construction permit
4.26
applications for the tunnel at Media Luna have been submitted. The project is still in the early stages but
million ounces
it could produce “far more ounces than El Limon for a longer period of time,” according to Philips. Guerrero is also home to the Los Filos operation, sold by Goldcorp to Leagold Mining for US$271 million cash
32.6% Otros
use the project as its platform for growth and will build
22% Fresnillo 22% Fresnillo pcl 16.3% Goldcorp 16.3% Goldcorp 9.0% Minera Frisco
a new underground operation at the Bermejal deposit.
Source: CAMIMEX
and a further US$71 million in common shares. Although seen as a noncore asset by Goldcorp, its new owners will
9.0% Minera Frisco 8.3% Agnico Eagle Mines 6.6% Torex Gold
8.3% Agnico Eagle 6.6% Torex Gold 32.6% Others
INFOGRAPHIC
MEXICO'S GOLD PRODUCTION: RISING TO DEMAND As a vital component in modern medicine, engineering and
currently held by the Bank of England in vaults
electronics, the world's long-standing fixation with gold
underneath the City of London. It is also a central
shows no sign of abating. Gold miners in Mexico are quickly
component in modern technology, including cell
responding
phones, memory chips and television screens. Mexico's annual gold output has risen by over
64
Gold has always played a special role in modern civilization.
650 percent, enough to see the country rise to eighth place on
Ancient cultures used it to decorate temples and tombs, and
the list of global gold producers. Although annual production
as financial systems evolved, it became a medium of exchange
dipped by 1.7 percent in 2016 to 4.26 million tons, a number
and the basis for the modern concept of money. Today,
of projects -- particularly in Guerrero and Sonora -- should
despite the rise of digital banking, it remains an essential
help that figure rise over the coming years. The infographic
reserve asset for central banks around the world. According
below explains where Mexico's gold comes from and shows
to the London Bullion Association, around 7,500 tons are
the leading role the country plays in the global gold market.
MAIN GOLD PRODUCERS BY MUNICIPALITY 2015
GOLD PRODUCTION PER STATE JAN-DEC 2015 (Thousands of kilos) Sonora 42,591.50
7
1 10
Zacatecas 37,160.30 Chihuahua 15,286.50
4 3
Durango 12,762.00 Guerrero 8,972.90 San Luis Potosi 4,482.00 Sinaloa 3,028.30 2
9 8 Municipality
Baja California 2,776.60 Guanajuato 2,367.30
6
Oaxaca 2,120.30
% Participation
State of Mexico 1,216.90
1
Caborca
15.7
2
Mazapil
12.1
3
Ocampo
7.9
Queretaro 556.8 Michoacan 263.2
4
Sahuaripa
6.3
5
Cocula
5.9
6
Eduardo Neri
5.6
Aguascalientes 802.3
6
Jalisco 126 5
Nayarit 122.6
7
Altar
4.6
Hidalgo 118.9
8
Fresnillo
3.0
Coahuila 4.3
9
San Juan del Rio
2.7
10
Santa Ana
2.7
50
40
30
Source: CAMIMEX
20
10
0
Source: INEGI
GOLD PRICES 1985-2015 (US$/oz) 1800 1500 1200 900 600 300 0
1985
1986
1987
1988
1989
Source: DGPM with information from Metals Week
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
MEXICO PRODUCTION VOLUME (Thousands of tons) 140 120 100 80 60 40 20 0 1995 1997 1999 2001 2003 2005
2007
2009
2011
2013
2015
2016
Source: CAMIMEX
GOLD ACCORDING TO THE 2015 US$ VALUE 2.4%*
4000
160 1.2%* 120 80 40 0
5000 27.5%* IMPORTS
EXPORTS
200
2014
INVESTMENT
Annual volume of gold bought by investors increased by at least 235% over the last three decades. 29.6%*
CENTRAL BANKS
Central Banks sold 7,853 tonnes of gold between 1987 and 2009; between 2010 and 2016 they bought 3,297 tonnes.
3000 2000 1000 0
2015
TECHNOLOGY 2014
Gold has long been central to innovations in electronics. Today its unique properties and the advent of 'nanotechnology' are driving new uses in medicine, engineering and environmental management.
2015
Source: CAMIMEX
*Share
AMONG NATIONS (Tons) In 2016, China was the top world producer, but America is the driver with 5 countries among the top 10 producers.
162.1
274.4
Canada
Russia
3
225.7
United States
463.7
1
China
128.4
107.9
Mexico
Indonesia
166.0
2
Peru
96.8
287.3
165.6
Brazil
Australia
South Africa
Source: Metals Focus (WGO).
In June 2002, gold was trading at US$312/oz. Fifteen years later in June 2017, the price has risen to US$1,254/oz, an increase of over 300 percent
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
65
VIEW FROM THE TOP
TAXES WEIGH HEAVY ON OPERATOR JOSEPH CONWAY Interim President and CEO of Primero Mining
66
Q: 2016 was a challenging year for Primero Mining. Why did
within two years. This was very attractive to us and so we
the company encounter so many operational and financial
went full steam ahead with the construction, but in hindsight
stumbling blocks?
we did not build out our infrastructure surrounding the
A: The majority of the financial issues were driven by the
mine sufficiently to cope with the extra strain. When we
decision taken by SAT to change its position with respect
got behind on the infrastructure, the problems began to
to our advanced tax ruling. We sell a large portion of our
mount from an operational point of view. On the plus side,
silver production to Wheaton Precious Metals at a fixed
we have learned from this experience and will not be making
price of approximately US$4.20, and we reached a deal
the same mistake again.
with the previous federal government for an advanced tax ruling with respect to this arrangement. Unfortunately, the
Q: How are you rethinking your strategy at San Dimas
current administration is trying to retroactively change this
following events in 2016?
agreement, so we are in ongoing discussions with the Mexican
A: We are going to downsize the operation significantly,
tax authorities. Coupled with the fact that we are currently
reducing the number of veins we are mining from around
owed US$42 million in VAT and income taxes receivable, the
30 to just five or six core targets, and daily production
issue has weighed down our balance sheet during the past
will decline to below 2,500t/d. We will also be changing
year. That said, we have a strong relationship with the Mexican
the mining method, which will lead to a far more efficient
government – we have been working here for a number of
operation. Unfortunately, this will require fewer workers.
years – so I am sure the issue will soon be resolved.
We currently have a workforce that is much larger than we require, and this provided the catalyst for the strike at the
On the operational side, we carried out a significant amount
mine in February 2017. The two main issues are the size of
of expansion at the San Dimas mine over the past six
the workforce and the bonus structure. We will need to cut
years. In 2016 we planned expansion to 3,000t/d, and we
the workforce by around 25 percent. It is an uncomfortable
calculated that we would make a return on that investment
position but unfortunately this is the reality that we face. I am
San Dimas mine, Durango, Primero Mining
not happy to let go of so many workers but these adjustments
ready for permitting and construction. It is currently being
are necessary to stay financially viable and to secure the
kept on standby, but if the gold price comes back we will be
long-term future of the project and the company, so we
keen to develop that project.
are prepared to accept a lengthy shutdown of operations if necessary to reach our objective.
Q: What will be your main objectives as interim CEO and where will Mexico fit into your overall strategy?
Regarding the bonus structure, the existing structure almost
A: Mexico is a critical jurisdiction for us, and will continue to
guarantees a monthly bonus for each worker, which is not
be. San Dimas is the company’s flagship asset, so we need
what we believe a bonus structure should be based on. So
make that mine profitable for us again as soon as possible. In
we need to revise this system, not to take anything away
the past, the company has been focused on growth but now
from our employees, but to ensure that only quality work
we will be focused on profitability and consolidation of our
is rewarded.
assets. At the start of 2017 we secured a binding term sheet for a US$75 million loan. This was an important development
Q: Despite the issues, San Dimas is still a high-quality
that will ensure the future of the company for the next
deposit. What is the long-term vision for the mine?
three years or so while we work back toward profitability.
A: The mine has been operating for over 200 years and the
The majority of the proceeds from the loan will go toward
mineral potential on the property is still very strong. Due to
repaying our revolving credit facility that is due in May 2017.
the issues we experienced in 2016, we were unable to do much exploration or drilling work on site but in the past, we
Q: How well-placed do you feel the global mining sector is
have replenished our reserves on a yearly basis, so it has a
for strong performance in 2017?
great track record and anyone that visits the property from
A: Given the uncertainty surrounding US interest rates
a technical or geological point of view leaves with a very
and the strength of the dollar, I expect the gold price in
positive impression. We are confident and once we have
particular to be fairly flat in 2017. That said, it should be
settled into the new mine plan, we will begin exploring the
remembered that current prices are still good, and operators
property again and hopefully we can make new discoveries
can be very profitable under these conditions. There is
and increase our workforce. However, in the short term
a lot more confidence in the sector, and companies are
our focus is on streamlining the operation to maximize the
showing willingness to spend more on exploration and other
potential of our core mineral targets that drive the most
investments, so 2017 could be an encouraging year with a lot
profitability.
more activity than we have seen in recent times.
Q: The Cerro de Gallo Project was not included in the list of priorities for 2017. What is the latest on that asset?
Primero Mining is a Canadian-based precious metals producer
A: Cerro de Gallo is a project that is only economically viable
that owns the San Dimas mine and the Cerro del Gallo
when the gold price is at US$1,400 or higher. It is a large
development project in Mexico, as well as the Black Fox mine
asset, and the feasibility study is completed so in theory it is
in Ontario, Canada
67
VIEW FROM THE TOP
EXPANDING GUERRERO’S MINING FOOTPRINT FRED STANFORD President and CEO of Torex Gold
68
Q: How do you assess the regulatory and social environment
eliminates the risk of any tailings spilling into the Balsas
for foreign mining companies working in Mexico?
River. But it is a complex mechanism so we have been
A: For the most part, regulations in Mexico are clearly
working through a number of details to ensure that the
established and if a company adheres to all the requirements
operation works to its full capacity. We are also constructing
there should be no issues. For a mining operation, an efficient
a new SART plant, which is due for completion by the end of
rule of law is essential because otherwise the asset simply
2017. This facility will not help throughput directly but it will
becomes too risky, so we truly value the cooperation we enjoy
reduce AISC by around US$100/oz once it is operational.
with the Guerrero State Government and from the governor. While we were building El Limon-Guajes, exploration fell The social side of operating in Mexico is more complex. We
down our list of priorities but this is set to change now that
are working in Guerrero, which does not have a history of
the mine is in production. We have had some encouraging
industrial activity, so we have to educate the local workforce
high-grade intercepts from recent borehole drilling,
about the benefits of the industry and how it works. Mining
including some 300g/t hits. This is 10 times higher than
is entirely different to sustenance farming, which has
anything we have ever seen before on the property, so it
traditionally dominated the area, and this lack of industrial
gives us great encouragement. We plan to spend at least
experience can be challenging. The local communities are
US$5 million developing the resource this year.
open to mining and see the long-term advantages of the activity but there is a lack of expertise. For example, we
Q: What are the latest plans for Media Luna and what
recently suffered a blockade because certain members of the
impact could this asset have on your portfolio?
community wanted to be employed, but we cannot employ
A: Media Luna has the potential to turn the area into a
all 7,000 people in the local area. Given that we have made
district that mines for generations. Permit applications for
a US$1 billion investment into the state, this is disappointing
the exploration tunnel are in their final stages and will soon
but it is a reality that we are dealing with.
be submitted, so we expect to start drifting during 4Q17. From that point we can start the process of upgrading the
Q: What were the highlights during the first year of
current resources and continue plans for engineering and
commercial production at El Limon-Guajes?
construction. Fortunately, we now have a constant revenue
A: There is an endless series of bottlenecks that need to be
stream from El Limon so we know that financing the project
negotiated when moving a project from the development
will not be an issue. Eventually we expect Media Luna to
phase into construction and production. We first needed to
produce far more gold ounces than El Limon for a longer
ensure that the grinding circuit was functioning efficiently,
period of time.
then we needed to test the leach circuit and figure out how to deal with the large quantity of copper in the deposit. We
Q: What do you think Mexico should be doing to attract
are now working on the final major obstacle, the tailings
further investment into the sector?
filtration circuit. We have installed the biggest tailings
A: The government needs to find a way to reduce the
filtration circuit in the world at the plant and the system
mining royalty tax or expedite the return of those funds
not only enables us to recycle all the water we use but also
to the communities. Mining is an industry that brings employment and other opportunities to parts of the country where no other industry is present, but the tax is
Torex Gold is an emerging intermediate gold producer based
making it difficult for companies to continue doing that.
in Canada and engaged in the exploration, development and
Three years have now passed since the introduction of the
exploitation of its 100 percent-owned Morelos gold property,
reform, which is enough time to make an impact but we
an area of 29,000 hectares in the Guerrero Gold Belt
have yet to see any results.
VIEW FROM THE TOP
ANA PAULA HEADING FOR PRODUCTION IN 2018 ARTURO BONILLAS President and Director of Timmins Gold
69
Q: To what do you attribute your impressive YTD
step in extracting ore. Now we have extended the lifespan
performance on the TSX and NYSE?
of the mine but we will still need to catch up on several
A: The main driver is of course the rise of the gold price,
operations that were either slowed down or halted entirely
which has helped boost the stocks of the majority of gold
in preparation for the closure. It is fantastic news that we
miners around the world. However, we also made some
will be able to keep the mine open for the foreseeable
internal changes that have helped drive the company
future. We are carrying out extensive exploration work and
forward. We altered our short-term production outlook and
although we do not yet have the numbers, we are optimistic
lowered costs across the board, enabling us to become
that results at San Francisco in 2017 will be better than our
a much leaner organization and, crucially, allowing us
markedly conservative projection.
to pay off our debt. The San Francisco mine now has a tremendously strong projected cash flow, while the Ana
Q: Why did you hire Grupo PEAL, an independent
Paula development project offers high margins and low
contractor, to handle the mine’s day-to-day operations?
CAPEX. Indeed, at Ana Paula we are now moving rapidly
A: When we were doing the pre-feasibility study on the
toward a full economic feasibility study and have already
San Francisco mine in 2009 we crunched the numbers
begun the process for applying for permits.
and we decided that it would be far more cost-effective to hire a subcontractor instead of operating the mine
Q: What are the company’s expectations for the Ana Paula
ourselves. I strongly believe that gold producers should
project in 2017?
hire independent companies to handle certain aspects of
A: Alongside a number of engineering firms we are
their operations, especially on short-term mine projects like
completing a full feasibility study and we anticipate it will be
ours at San Francisco. Timmins Gold focuses on producing
ready before the end of 2017. The project is moving along
gold, whereas Grupo PEAL is a specialized contractor with
very smoothly and we have found the state of Guerrero to
extensive experience of managing open-pit operations.
be extremely favorable toward mining projects. There are metallurgical and geotechnical testing work being carried
Q: What was the strategic thinking behind the US$17.5
out in Canada and we hope to begin construction of the
million sale of the Caballo Blanco project?
mine in 4Q17 or 1Q18 with operations to commence during
A: The main reason is that we had guaranteed debt that
2018. The project should benefit from the proximity of Torex
needed to be paid at the end of 2015 and so, despite the
Gold’s El Limon-Guajes mine because many of the suppliers
strong performance at San Francisco, we really had no
that we will need to deliver cyanide and diesel are already
choice but to sell Caballo Blanco. We were delighted to
operating in the area. We also have an independent water
find a buyer in Candelaria Mining. It is a project with great
aquifer and power commission infrastructure, so the project
potential in the state of Veracruz but at the time we decided
should not run into many hurdles when it comes to planning
to prioritize our two main projects – the San Francisco mine
and construction.
and the Ana Paula development project. The Caballo Blanco sale enabled us to pay all our guaranteed debt and in many
Q: How much of a boost is the extension of the San
ways laid the foundations for the strong performance the
Francisco mine’s life to 23 years?
company has enjoyed in the last 12 months.
A: The mine plan we have devised for the next few years is still conservative, based on a gold price of US$1,100-1,250/ oz. Our production target for 2016 is 90,000-100,000 gold
Timmins Gold is a Canadian gold mining company engaged in
ounces, although this will drop in 2017. We were originally
exploration, development and production in Mexico. Its assets
planning to shut the mine down in September 2016 and
include the producing San Francisco mine in Sonora and the
the new mine plan delayed the stripping, which is a crucial
development stage Ana Paula project in Guerrero
MEXICO'S MAIN GOLD MINES
3
5
7
6
4
8 9 12
10
11
13 15 16 14 17
70 18
19
20
21
23
26 25 27 24 28
22 35
29 30 31 32 33 34 36 40
44
41 37
46
42
45
47
43
2 1 48 49
38 39 53
55
54
58
World Class Deposits Production Development Exploration Source: SGM, company websites
71
50
51
52
56 57
63 59 60
62 61
64
MEXICO'S MAIN GOLD MINES Number 1
Company
Stage
State
Invecture Group
Development
Baja California Sur
2
San Antonio
Argonaut Gold
Development
Baja California Sur
3
La Herradura
Fresnillo
Production
Sonora
4
Noche Buena
Fresnillo
Production
Sonora
5
Soledad-Dipolos
Fresnillo
Production
Sonora
6
Mina de Julio/Santa Elena
Mexus Gold
Production
Sonora
El Pilar
Americas Mining Corporation
Production
Sonora
7
72
Name Los Cardones
8
Lluvia de Oro/Columbia
Metallōrum Holding
Production
Sonora
9
San Francisco
Timmins Gold/Alio Gold
Production
Sonora
10
Santa Gertrudis
GoGold
Production
Sonora
11
Picacho
Firma Holdings
Production
Sonora
12
El Chanate
Alamos Gold
Production
Sonora
13
Cerro Prieto
Goldgroup Mining
Production
Sonora
14
La Escondida
Alamos Gold
Development
Sonora
15
Mercedes
Premier Gold Mines
Production
Sonora
16
Santa Elena
First Majestic Silver
Production
Sonora
17
San Felipe
Santacruz Silver
Development
Sonora
18
La Colorada
Argonaut Gold
Production
Sonora
19
Luz de Cobre
Red Tiger Mining
Development
Sonora
20
La India
Agnico Eagle
Production
Sonora
21
Mulatos
Alamos Gold
Production
Sonora
22
Alamo Dorado
Pan American Silver
Production
Sonora
23
Santa Eulalia
Americas Mining Corporation
Production
Chihuahua
24
Las Bolas/Los Hilos
Golden Goliath Resources
Promotion
Chihuahua
25
Ocampo
Minera Frisco
Production
Chihuahua
26
Creston Mascota
Agnico Eagle
Production
Chihuahua
27
Concheño
Minera Frisco
Production
Chihuahua
28
Pinos Altos
Agnico Eagle
Production
Chihuahua
29
Monterde
Invecture Group
Development
Chihuahua
30
San Miguel/La Currita
Coeur Mining
Production
Chihuahua
31
Cieneguita
Pan American Goldfields (80), Minera Rio Tinto (20)
Production
Chihuahua
32
El Sauzal
Goldcorp
Closed
Chihuahua
Leagold's Los Filos Mine, Guerrero
Number
Name
Company
Stage
State
33
Don Román
Firma Holdings
Development
Sinaloa
34
San José de Gracia
Dyna Resource
Production
Sinaloa
35
Charay
Rose Petroleum
Production
Sinaloa
36
El Gallo
McEwen Mining
Production
Sinaloa
37
Nuestra Señora
Americas Silver Corporation
Production
Sinaloa
38
La Trinidad
Marlin Gold
Production
Sinaloa
39
Taunus
Marlin Gold
Production
Sinaloa
40
La Fortuna
Minera Alamos
Development
Durango
41
La Ciénega
Fresnillo
Production
Durango
42
Metates
Chesapeake Gold Corp
Development
Durango
43
San Dimas
Primero Mining
Production
Durango
44
La India
Northair
Production
Durango
45
El Castillo
Argonaut Gold
Production
Durango
46
San Agustín
Argonaut Gold
Development
Durango
47
Velardeña
Industrias Peñoles
Production
Durango
48
El Saucito
Fresnillo
Production
Zacatecas
49
Fresnillo
Fresnillo
Production
Zacatecas
50
Camino Rojo
Orla Mining
Development
Zacatecas
51
Veta Grande
Santacruz Silver
Production
Zacatecas
52
Catanava/Pinos District
Candelaria Mining
Producton
Zacatecas
53
El Diablito
Rose Petroleum
Production
Nayarit
54
Mina Real
Rochester Resources
Production
Nayarit
55
El Porvenir
Minera Frisco
Production
Aguascalientes
56
San Ignacio
Great Panther Silver
Production
Guanajuato
57
San Martín
Starcore International
Production
Queretaro
58
Tepal
Geologix Exploration
Development
Michoacan
59
Campo Morado
Telson Resources
Development
Guerrero
60
El Limón-Guajes
Torex Gold
Production
Guerrero
61
Los Filos
Leagold
Production
Guerrero
62
Rey de Plata
Industrias Peñoles
Production
Guerrero
63
Cerro Jumil (Esperanza)
Alamos Gold
Development
Morelos
64
El Águila
Gold Resource
Development
Oaxaca
73
ANALYSIS
SHARIA-COMPLIANT GOLD OPENS DOOR FOR ISLAMIC INVESTORS Financial institutions scurry to develop new products and gold
THE MARKET REACTS
prices jump as investing in the yellow metal is approved by
In the first months following the plan’s
Accounting and Auditing Organization for Islamic Financial
announcement, banks, stock exchanges, fund
Institutions (AAOIFI)
managers and metals traders began rolling out new products to offer the Islamic community.
74
In December 2016, global bullion markets received a
In December 2016, the Singapore Stock Exchange (SGX)
welcome boost when it was announced the yellow metal
confirmed its gold futures contracts were Sharia-compliant,
can now be used as a commodity to back Sharia-based
while Turkey’s Borsa Istanbul signed a Memorandum
financial products. For the first time, participants in the
of Understanding with the Dubai Multi Commodities
Islamic finance industry, which is valued at US$1.88 trillion,
Center (DMCC) to launch a universal, Sharia-compliant
can refer to specific regulations for gold trading after the
gold exchange for Islamic markets. Malaysian company
World Gold Council and AAOIFI announced the issuance
HelloGold took matters one step further by launching an
of Sharia Standard Number 57.
online application for bullion trading specifically catering to the Islamic investor pool.
The news opened up investment opportunities in goldbased financial products to the 1.6 billion Muslims around
In January 2017, Canadian fintech company Goldmoney
the world. As the eighth-highest gold producer in the world,
certified its gold-based products as Sharia-compliant.
Mexico’s mining sector stands to benefit greatly from a
The company, which has more than 1.3 million users and
sustained increase in demand and bullion price recovery.
administers US$1.7 billion in assets, has developed products that are fully-backed by reserved gold to adhere to AAOIFI
Fresnillo CEO Octavio Alvidrez says that the new regulation
guidelines. Toronto-based metal trader Bullion Management
is an important factor in his company’s growing interest in
Group (BMG) took similar steps to ensure its doors are open
the yellow metal. “Every time we see a new investment tool,
to Islamic investors when it developed a Sharia-compliant
such as the Exchange Traded Funds (ETFs) a few years ago,
fund in January 2017, while Irish trader GoldCore launched
we expect to see a pickup in investment demand,” he says.
a Sharia gold trading platform during 1Q17.
“We view (the AAOIFI initiative) as a positive development and we believe the demand for gold as an investment will
A LONG-TERM BOOST
grow as this new market begins to make its presence felt.”
Any sustained boost to demand is dependent on the instruments financial institutions make available to gold’s
INVESTING IN GOLD
new investor base. The news is still fresh and financial
All economic activity in Islamic finance must be compliant
institutions around the world will need time to develop the
with Sharia law, which has stringent rules to prevent unjust
complex tools required for Islamic investors to make their
transactions. In Islamic texts, gold is qualified as one of six
mark on global gold demand. Moreover, Islamic investors
ribawi, items so important to daily life that they must be
have always had access to the gold market in the form of
sold on weight and measure. To keep them in circulation
coins and jewelry, which were allowed to be traded under
and prevent artificial shortages, ribawi cannot be used as a
the former conditions.
speculative trading or investment tool. Until December the use of gold under Sharia law was complex and unclear, preventing
But these investors now have a whole range of diverse
Islamic investors from buying mining shares or bullion bars.
options available to them, from Exchange Traded Funds (ETFs) and futures contracts to physical gold bars and
The new guidelines provide a set rulebook. Muslims are now
mining stocks. GoldCore research shows that if Islamic
free to invest in and trade gold, as long as the transaction
Finance institutions were to allocate just 1 percent of their
is backed up by physical gold. “There is a lot of pent-
assets into new gold products, demand could rise by
up demand to bring gold-backed Sharia instruments to
500-1,000t/y.
market,” Natalie Dempster, Managing Director for Central Banks and Public Policy at the World Gold Council told
“Islamic finance will have a greater say in the setting of the
Reuters. “Muslim consumers and investors can now benefit
gold price,” Mark O’Byrne, Executive Director at GoldCore,
from exposure to gold, including its portfolio diversification
wrote on the company website. “Longer term this new
properties, its status as a safe-haven asset, and its role as a
source of investment demand for vaulted gold bullion will
long-term preserver of wealth.”
almost certainly contribute to higher gold prices.”
INSIGHT
GOLDCORP REAFFIRMS COMMITMENT AFTER FILOS SALE MICHAEL HARVEY Director of Corporate Affairs and Security for Goldcorp
75
In January 2017, Goldcorp announced that it would sell
While profit margins at Peñasquito were threatened by
its Los Filos asset to the little-known Leagold Group,
the taxes in Zacatecas, the Los Filos mine is situated
a move that shocked the market in Mexico. With over
in the heart of Guerrero, a state that has a damaging
272,000 ounces of gold produced in 2015, Los Filos was
reputation as one of the most violent in Mexico. But
the third-most prolific bullion producer in the country
Harvey refuses to be discouraged, insisting that security
and apparently, the perfect sidekick to the company’s
concerns had nothing to do with the sale to Leagold. In
superstar, Peñasquito. The sale, completed in April for a
fact, he is optimistic that Guerrero can continue to grow
total of US$279 million in cash and a further US$71 million
as a mining state and that the industry can play an active
in common shares, led many to question Goldcorp’s
role in erasing some of the violence that has generated
commitment to Mexico. According to Michael Harvey, the
the negative headlines in recent years.
company’s Director for Corporate Affairs and Security, such questions are wide of the mark.
“Mining provides legitimate employment opportunities and strengthens social cohesion,“ he says. “There is
“We sold the Filos Mine to Leagold as part of our strategy
tremendous potential in Guerrero and the governor has
to concentrate on assets of a certain size and quality. Filos
shown that he understands just how much benefit this can
is a fine asset but was too small for our strategy,” he says.
bring to the people. We want to see Guerrero do well.”
“Peñasquito in Zacatecas is one of our main camps, and we are in the process of delivering US$50-60 million to
Although the Los Filos sale means that Goldcorp’s direct
the mine in efficiencies.”
involvement in Guerrero has ended, the company still has a financial interest in the state through the 30 percent
This commitment to further brownfield exploration in
interest in Leagold, received upon completion of the sale.
Mexico will have been greeted with a huge sigh of relief in
The company also has a stake in Timmins Gold, which
the Undersecretariat of Mining at the Ministry of Economy.
will bring its Guerrero-based Ana Paula project into
Goldcorp, the world’s fourth-largest bullion producer, operates
construction in 2018.
one of the country’s largest gold mines at Peñasquito and is a vital contributor to the local mining sector.
For now, though, Goldcorp appears to be firmly focused on continuing to develop and improve its prized asset at
But the Vancouver-based corporation is not blind to the
Peñasquito. The mine is currently in a significant stripping
challenges brought about by working in Mexico. Harvey
phase, which will reduce gold production from 449,000
describes the tax environment as “uncompetitive,” while
ounces in 2016 to approximately 410,000 ounces in 2017. But
urging authorities to confront the “legal uncertainty” that
this will rebound once the pyrite leach project is completed
weighs down the appeal for investors. The Ecological Taxes
in 2018, an upgrade that will add 100,000-140,000 ounces
imposed by the Zacatecas state government in December
of gold annual production and 4-6 million ounces of silver.
2016 were another blot on the copybook. Harvey admits
The strategic role Mexico plays in Goldcorp’s international
that this was “an unfortunate mistake” that was inspired by
portfolio does not appear to be shifting anytime soon.
“revenue generation, not environmental protection,” but not enough to damage his faith in a jurisdiction in which
“The exploration work will allow us to extend the life of the
the company has been working for so long.
mine,” says Harvey. “Mining is a highly strategic industry for Mexico that is not as vulnerable as other industries to
¨I know that the governor understands mining is absolutely
external political factors. Mexico absolutely has what it
essential to the viability of Zacatecas and we will get past
takes to get back to the level of attractiveness it had just
this hiccup,” he says.
a few years ago.”
76
VIEW FROM THE TOP
ALTIPLANO PLANT TO RAMP UP PRODUCTION ROBERT EADIE President and CEO of Starcore International Mines
77
Q: What strategies helped Starcore International’s stock
started life as a small gold mine and emerged as one of
price jump by over 100 percent during 2016?
the biggest copper mines in the world.
A: First and foremost, precious metals prices were on the rise, which rapidly adds to our profitability. We were
Q: What inspired the company to move away from
also careful to keep costs for development, drilling and
contractors and operate the mine almost singlehandedly?
production stable. For us, 2016 was a building year. We
A: Put simply, we do not feel that contractors add any value
installed a carbon-in-leach (CIL) plant at San Martin,
to the company. We feel that our full-time employees have
allowing us to treat carbonaceous ore, which required a
more of a vested interest in doing the best possible job
substantial amount of work, as well as an investment of
than part-time contractors. If we ever need a particularly
US$1.6 million.
specialized service, we would bring in a contractor. For example, we recently hired a company to help us with
Then in March 2016 we opened and commissioned the
renovation work and electrical fitting on a building but
Altiplano processing facility at Matehaula, two hours north
anything related to mining is done internally. This gives us
of San Luis Potosi, which was also capital intensive. This
complete control over the operational side of the project.
plant is designed to process 48t/d, although our initial target is 25t/d. The facility still has not been tested to its
Thanks to the added cash flow from the Altiplano project,
full capacity but the target is around 30,000oz/y. This will
we will have enough liquidity to finance exploration projects
double total production for the company so in time it will
internally, which will save both time and money. We financed
become a significant boost to our bottom line and our
the recent drilling program in Nevada ourselves and this will
balance sheet.
be the business model for the company going forward.
Q: What was behind the 16 percent year-on-year slide in
Q: What is the issue that is holding up progress at El
production at San Martin during 3Q16?
Creston and what are your plans for that property?
A: We reached carbonaceous ore that we were unable to
A: Two members of the local ejido signed a deal with the
treat until we installed the CIL plant. Now that the plant
previous owners of the project that was illegal. We are
is installed and fully operational, we predict production
trying to nullify that agreement and then renegotiate with
will rise and we are aiming for 18,000 equivalent gold
the ejido. There is already a positive PEA on the project
ounces in 2017.
but we do not intend to put it into production and for that reason it is available for sale. Moreover, it is a molybdenum
Another reason for the fall in production is that we are
deposit so we are waiting for the price of that particular
beginning to focus on exploration at the mine again. We
commodity to increase. We expect that by the end of 2017
completed 14,000m of drilling in 2016 and our target
or early 2018 the price will have risen sufficiently for it to
for 2017 is 18,000m, which should add considerably to
make economic sense for a buyer. One of the advantages of
our reserves. We have not uncovered any significant
the project is location and low strip ratio. In addition to this,
veins but it is important to remember that San Martin
the Creston Main deposit is located within a 5.5km trend of
is a complicated mine. It is heavily fault controlled,
mineralization that ultimately provides exploration upside.
making the veins distinctly unpredictable and hard to track. That said, the factors that attracted us to the mine when we purchased it from Goldcorp in 2007
Starcore International is a growth-oriented producing mining
remain. The concession is almost 13,000 hectares and is
company focused on continued mineral production and
an epithermal deposit, which means it has potential to
development at its San Martin mine in Mexico and the precious
grow into a huge mine. Grupo MÊxico’s Cananea project
metals processing business at the Altiplano facility
MINE SPOTLIGHT
78
LOS FILOS On Jan. 12, 2017, one of Mexico’s largest precious metal mines changed hands. Leagold Mining, a newly incorporated company based in Vancouver, reached an agreement to acquire the Los Filos gold asset in the Guerrero gold belt from fellow Canadian Goldcorp in a deal worth US$350 million. The mine, which started commercial production in 2008 and was Mexico’s fifth-highest gold producer in 2016, formally became Leagold’s first project when the purchase was completed in April for US$279 million in cash and a further US$71 million issued in common shares. Although new to Mexico, Leagold has considerable operating experience. CEO Neil Woodyer played a vital role in converting Endeavour Mining into a leading, midtier gold producer in West Africa. The group plans to do the same with Leagold and Los Filos will provide the foundation for a Latin America-centric vision with a clear focus on assets that offer existing or near-term cash flow. “Today marks a strong beginning for Leagold with the Los Filos mine becoming our platform for growth,” said Woodyer in a statement when the deal was confirmed. “We will immediately focus on optimizing the mine and progressing the drilling programs.” There is certainly work to be done to convert the mine into a long-term cash producer. In 2016, gold production at Los Filos fell by over 15 percent to 231,000 ounces from 272,900 ounces the previous year and the current life-ofmine plan suggests that the two heap-leach open-pits will cease production in 2024. According to Michael Harvey, Director of Corporate Affairs and Security at Goldcorp, the decision to sell was part of the company’s strategy to focus on “assets of a certain size and quality.” Despite boasting measured and indicated mineral reserves of 422.5 million tons at 0.85 g/t grade, the world’s fourth-largest gold producer clearly saw no long-term future at Los Filos. But Leagold has a different view of Los Filos. The company has outlined plans to spend a total of US$47 million in capital expenditures to develop the Bermejal undergound mine, also located on the Los Filos property. Initial results from a US$7.7 million, 56,000m drilling program were encouraging and Leagold is now aiming to build a second underground mine at Bermejal that could start operations as early as 2019. The company hopes the new mine will add 200,000oz/y to its production until 2025 at least, while the Guadalupe and San Pablo brownfield exploration targets could extend that further. There may be life in Los Filos yet.
79
80
INSIGHT
PREMIER BOLSTERS PORTFOLIO WITH MERCEDES MINE EWAN DOWNIE President and CEO of Premier Gold Mines
81
The Mercedes mine lies in the arid Sonora desert, framed
owned the property. Downie, however, sees a great deal of
by hilly scrubland and a scattering of green and gold-
potential in finding new veins. “Historically, the mine drifted
leafed trees. It is a 2,000t/d relatively low-cost, high-grade
on known veins and Yamana traced it up dip and down
producing asset with a five-year mine life that Yamana
dip but failed to look in the surrounding areas in search of
Gold took into production before selling in late July 2016.
parallel veins,” he says. Since Premier acquired the property,
Although this deal marked the exit of Yamana Gold from
it has already discovered three new vein systems very close
Mexico, it also heralded the entry of Premier Gold Mines,
to the existing discovery by using this technique.
a small miner with two projects in Nevada – one operated by Barrick Gold – that is hoping to become a mid-sized
“We will drill several new target areas this year and hopefully
miner by 2020. And its US$150 million investment means
they will become future resources that we can move into
Mercedes plays a key role in that strategy.
reserves,” says Downie. Premier’s goal for the year is to continue drilling and finding new resources that will allow
“We have had around six months working as a producer,”
it to replenish reserves year on year. “I would like to believe
says Ewan Downie, Premier’s President and CEO. “Until
we can extend this mine’s life to around 10 years through
2016 we had one operation in production so we were actively looking for additional mining operations to make sure we had a longer-term production pipeline.” Downie’s team had previous experience in Mexico on the Santa Teresa JV located in the historic El Alamo mining district in Baja California. The Mercedes project, he says, was an opportunity to acquire a producing asset surrounded by a great deal of favorable deposits. “We see this as a launching pad for expanding our operations across the Americas.'' Part of what made the Mercedes mine so attractive was the fact that it was already highly de-risked at the point
“
systematic annual exploration,” he says.
We see this as a launching pad for expanding our operations across the Americas''
Premier also expects to build its first mine – McCoy-Cove – from the ground up later in 2017 in Nevada. With initial
of acquisition. “It was already built, it had experienced
development planned for late in 2017, Downie expects
staff and is a very safe mine,” says Downie. “There has
this to enter full production by 2020. He anticipates that
been no LTI in over one year – contractor or employee.”
this will be financed by existing cash flow without the
The property also has significant potential outside of the
need to borrow more money or dilute shares, so Premier
existing mine and the Premier team has not abandoned
share prices should stay strong. This cash flow will also
its exploration roots, which is evident with the US$10
be used to finance part of the work required to create an
million exploration budget it allocated to Mercedes. This
underground mine at the South Arturo JV with Barrick
program is designed to constantly extend the mine life of
Gold, given that the current pit will run out of ore at the
the deposit and the way to do this, according to Downie,
end of 2017.
is through external exploration. Premier has installed the infrastructure necessary for this program and in early
Until then, the Mercedes project will underpin the company’s
March 2017 was drilling a known deposit when it hit new
growth while it makes the necessary preparations for
mineralized vein zones.
development and expansion of its other assets. “The areas surrounding Mercedes hold a great deal of opportunities
Because the asset was noncore to Yamana’s activities, the
and since we already have the mill, we will be actively
operator carried out little near-mine exploration when it
seeking new deposits in that area,” Downie says.
MINE SPOTLIGHT
82
LA HERRADURA Fresnillo appears to be going from strength to strength. The Industrias Peñoles subsidiary is firmly established as the world’s primary silver producer – targeting 70 million oz/y by 2019 – but in 2016 it overtook Goldcorp as Mexico’s largest gold producer after recording 935,000 ounces output. This is in large part thanks to the company’s primary gold asset, La Herradura, now the biggest gold mine by production in Mexico after recording 520,900 ounces output in 2016, up 30.5 percent from the previous year. Drilling first began at La Herradura - an 18,211 hectare asset in the heart of Sonora's gold belt - in 1991. The project, which is 125 km northwest of the nearest town Caboroa, was soon turned into a conventional open-pit, heap leach gold mine, achieving commercial production in 1998 with an original life span of 10 years. During 1H17, it produced 224,000 ounces of gold at a cash cost of US$483.9/oz, a slight decrease from the 248,600 ounces output during 1H16 due to falling grade, which the company expects will turn around during the second half of the year. Silver production also fell during the first half of the year to 222,000 ounces from 304,000 ounces in 1H16. Despite the slip in production levels, La Herradura was Fresnillo’s most profitable asset during 1H17, contributing 29.2 percent to the company’s total gross profit of US$460 million. It is by far and away Fresnillo’s most valuable gold asset, accounting for 51.7 percent of goldadjusted revenues during 1H17, and is central to reaching the company’s 2017 gold production target of 870,000900,000oz. While the current performance of La Herradura is a shining light in Fresnillo’s portfolio, the future looks even brighter. As of December 2016, the deposit holds 5.2 million ounces of gold in reserves and 10.8 million ounces in resources, while the company has invested US$110 million in the construction of a new on-site dynamic leaching plant, to be commissioned in 2018. This facility will extend the life of mine to 12 years and will help secure average annual gold production of 390,000oz. Illustrating the importance of this asset to Fresnillo’s growth strategy, the company is in the midst of an intensive exploration program at the site. During 1H17, Fresnillo spent US$8.4 million on exploration activities at La Herradura, mainly focused on developing the Centauro vein. This was Fresnillo’s biggest outlay on exploration across its portfolio.
83
EXPERT OPINION
GOVERNMENT CAUSE AND EFFECT ON THE OAXACA MINER JASON REID President, CEO and Director of Gold Resource Corporation
84
While the mining industry is not for the faint of heart due
While Mexico in general has lost ground in global rankings,
to the numerous challenges confronting companies that
the state of Oaxaca presents additional challenges for
participate, governments and mining-friendly jurisdictions
mining companies. Gold Resource has been working on an
are the primary focus of future company capital allocation.
electrical power-grid program over the course of several
It is unfortunate that Mexico recently has and continues to
years. While there is an existing power line that supplies
slip as one of the premier mining-friendly jurisdictions and
its Aguila project, it has very limited electrical capacity
in doing so it has caused Gold Resource Corporation to
so the company has sought to increase the power grid
look outside the jurisdiction as it allocates additional capital
infrastructure to create additional power. This would not
toward future mining units.
only help the company operate but would also aid numerous local communities along the new proposed power line route,
While Gold Resource was exploring, developing and putting
from the nearest substation to the Aguila project.
its Aguila project into production, Mexico was consistently ranked among the top mining-friendly jurisdictions in the
One would think the government of Oaxaca would
world. This is changing. In the global 2016 Fraser Institute
enthusiastically agree to have a third party pay for
Survey on Mining Companies’ Investment Attractiveness
the necessary electrical-power infrastructure, as
Index, Mexico dropped from 37 in 2015 to 50 in 2016.
Gold Resource has offered to do, and to facilitate and
Mexico was ranked 25th globally in 2012, showing the
expedite this project due to its positive effect on many
degradation of its Investment Attractiveness Index ranking
local communities. But the fact this project remains in
over the last five years. The 2014 implementation of the
the evaluation stage after many years underscores the
7.5 percent mining duty along with another 0.5 percent
challenges companies may face while operating in Oaxaca
fee on precious-metal producers contributed significantly
and Mexico in general. Whether it is the high turnover
to Mexico losing ground in the world rankings of mining
rate of employees at the CFE or the lack of interest or
investment attractiveness.
initiative, the net effect is that this problem is but one more challenge that discourages additional allocation of capital being deployed into Mexico.
OAXACA: A CHALLENGING STATE FOR OPERATORS
In addition to the federal and state government challenges, the labor unions push for yearly pay increases irrespective of market forces, world events or
Oaxaca is a notoriously difficult state in which to carry
company financial health. There appears to be no effort
out mining operations. In the north, the historic mining
by the government to help manage these unreasonable
states of Sonora, Chihuahua, Durango and Zacatecas
expectations as labor unions continue to drive local
have communities that are welcoming to the industry.
operations in Mexico. Historically in the US, excessive
According to operators, obtaining mining concessions
union demands have caused many businesses to fail and
is one of the most challenging aspects of operating in
ultimately destroyed those companies and the unions
Oaxaca since even small land packages can belong to
in the process. Mexico, with the government’s tacit
a multitude of different ejidos and each one must be
union support, seems determined to follow in the same
negotiated with individually. As a result, the number
footsteps of the US union workers focused on the short-
of mining concessions dropped 6.4 percent to 341 in
term gain leading to long-term pain for all.
2016 from 319 in 2013. The total land under concession plunged 52 percent to 469,434ha compared to
The royalty tax imposed on a federal level has not only hit
714,931ha in the same period.
miners in their pockets but confidence in the government
has also taken a hit. The miners are expected to pay taxes without receiving the appropriate support or returns. If Mexico had not imposed its 8 percent mining tax or if it had imposed a more reasonable percentage, it is highly plausible that Gold Resource’s second mining unit would have also been located in the country. The aforementioned additional challenges from the local
Mexico dropped from 37 in 2015 to 50 in 2016 on the Mining Investment Attractiveness Index
government and continuous union demands added to that outcome. can either attract business or become a deterrent for A new mining unit implies tens of millions of dollars
business investment. There is a direct cause and effect
invested, new jobs created, ancillary business growth,
to governmental and union actions that is often ignored
opportunities and the additional millions of tax dollars
until it is too late. My hope for Mexico is that it takes the
for the government, which has tremendous value. History
necessary steps to return to its previous levels of investment
demonstrates money flows where it is most appreciated.
attractiveness on a global scale and reassumes its previous
When national and local governments create significant tax
position as a premier mining-friendly jurisdiction. Mexico will
burdens on businesses and fail to support or help facilitate
need to act for that to happen as the current trajectory of
projects and infrastructure, the allocation of capital for
the country as a mining-friendly jurisdiction is not favorable.
that nation or government eventually ends up elsewhere. Likewise, government sanctioning of excessive demands
Once Gold Resource gets its Nevada mining unit into
and overreaching by labor unions will cause the allocation
production, it will be looking for a third mining project in
of capital to go elsewhere.
another mining-friendly jurisdiction. Oaxaca is a special and beautiful place, with terrific, hardworking people and
While Gold Resource is content to continue operating
vast geologic potential. We remain hopeful that Mexico’s
its Oaxaca mining unit and plans to do so for a long
federal government, state governments and unions will
time, our decision to allocate new capital into Nevada
once again appreciate business investment enough to
demonstrates what happens when investment into Mexico
encourage the additional capital allocation for our third
is not appreciated. Governments, both national and local,
mining unit. Only time will tell.
85
INSIGHT
EXPLORER BANKS ON GUERRERO, SONORA, OAXACA Darrell Rader President and CEO of Minaurum Gold
David Jones Director at Minaurum Gold
86
When metals prices took a dip in 2012, the first casualty was
acquisition, we have been carrying out a lot of mapping
exploration. With no budget, mining companies in Mexico
and discovering new veins and targets,” says Rader. The
focused on improving processes at existing mines instead
explorer is now at the point where it plans to drill 5,000m
of seeking new greenfield projects for expansion. Now, with
starting in 2Q17 and Rader is hopeful of finding a deposit
prices starting to move upward, a group of top geologists
that was missed by the 19th century miners.
is banking on its collective experience for a standalone discovery that could offer shareholders a “Spinco” windfall.
Minaurum Gold’s management team and Board of Directors is composed of a high caliber of technical expertise.
Minaurum Gold saw the opportunity to gather some of the
Megaw is responsible for the discovery of La Platosa,
most experienced geologists in the industry to form an
now in Excellon’s portfolio and the 200 million-ounce
exploration company that would target Mexico, having a
Juanicipio mine, which is now a JV between Fresnillo and
team with extensive experience in the country. Minaurum
MAG Silver. Jones discovered an 8-million-ounce deposit
is focused on three key areas in Mexico – southern Sonora,
in Guerrero that went on to become Los Filos, later sold to
the Guerrero gold belt and the Oaxaca-Chiapas region. “We
Goldcorp and the 2-million-ounce Buckhorn gold deposit
have a considerable amount of deal flow in those areas due
in Washington State, now owned by Kinross.
to David Jones, Peter Megaw and myself having carried out extensive work there over the course of our careers,” says
In Guerrero, Minaurum is also looking at the promising
the company’s President and CEO Darrell Rader. According
Vuelcos del Destino project. For Jones, “All the large gold
to Jones, one of the company’s directors, the team hopes
deposits in the Guerrero gold belt are associated with an
to make a standalone discovery that will justify creating a
intrusive complex. This includes Los Filos, Timmins Gold’s
“Spinco” pure play. “This only happens when a concession
Ana Paula concession and Torex Gold’s Media Luna.” Many
has a tangible value and this will hopefully happen in the
years ago, he acquired the mineral rights to what is now
next year or two,” he says.
Vuelcos del Destino, which has never before been explored or drilled. “I see the same indicators in the new project as I
The “Spinco” model dictates that if a sizeable discovery
did in Los Filos,” he says. A third project – Santa Marta – is
is made, the company will spin it off into a new company,
located in southern Oaxaca, an area that is not traditionally
allowing shareholders a direct interest and greater leverage
familiar with mining, which opens the opportunity for
over the project. For instance, if Minaurum makes a large
significant exploration potential.
find at its Alamos silver project in Sonora, it could spin this off into Minaurum Silver and shareholders would own
Another issue the young company has run into is the
both companies. “The second company would have its own
Mexican mining authorities’ slow pace in freeing up old
listing and trade on the TSX,” explains Rader. “This model
claims, especially those lost with the metals downturn in
adds extra value for shareholders as they can start off with
2012. “Legislature dictates that these claims should be
one company and end up with multiple.”
released after six to 10 months but five years later we are still waiting for many to be staked in title lotteries,”
The project in question – Alamos - is located in the
says Rader.
historically rich Alamos silver district and accounts for about 80 percent of its silver production, according to
Despite these challenges, Minaurum has not lost its appetite
Rader. For many years, it was not drilled or explored due
for investing in Mexico. “We are here for the long-term and
to ownership issues until a family from Hermosillo was able
the idea is to chase these big discoveries,” says Rader. “We
to consolidate the property, permit the project through to
believe in real results, developing our expertise and moving
construction and sell it on to Minaurum. “Since making the
onto bigger and better projects.”
INSIGHT
GIANT GOLD DEPOSIT PRIMED FOR DEVELOPMENT RANDY REIFEL President of Chesapeake Gold
87
Hidden away in the heart of the state of Durango lies
several mineralized hydrothermal systems,” says Reifel.
Metates, the world’s largest undeveloped gold deposit and
“A grassroots discovery would significantly change the
the flagship project for its owner, Chesapeake Gold. Randy
dynamics and long-term opportunity at Metates.”
Reifel, the company’s President and CEO, is in no doubt as to the mineral potential of the deposit. “One day, Metates
According to Reifel, institutional interest has returned to the
will be the largest gold and silver mine in Mexico,” he says.
mining sector following the downturn and junior explorers no longer need to focus on weathering the bear cycle with
According to a 2016 Pre-Feasibility Study (PFS), the Metates
little liquidity or access to capital markets. Drilling and
deposit in Durango holds 18.5 million ounces of gold, 526
exploration funding is now available to juniors, providing a
million ounces of silver and 4.2 billion pounds of zinc in
significant boost to Chesapeake’s greenfield efforts.
proven and probable reserves. The study lays out a plan for a scalable, viable development option at the site that would
Metates could produce over 600,000oz/y gold and 12 million oz/y silver for 30 years
start small and grow into something much bigger. “The PFS demonstrated that a smaller mine at an initial throughput rate of 30,000t/d can ramp up to 90,000t/d largely funded by cash flow,” says Reifel. “The capital cost would be about US$2 billion as opposed to a US$3-4 billion investment. The CAPEX for undeveloped world class deposits of a similar scale are typically over US$5 billion.” Chesapeake, the 100 percent owner of the property,
“We are not a producer and normally we do not see the
started drilling at Metates in 2007 and has been patient
volatility in our trade from rising metal prices on a daily
in developing the deposit. The updated PFS de-risked the
basis but we do benefit from the market viewing gold
property for a potential suitor in terms of metallurgy, flow
as an attractive, long-term investment,” he says. “Higher
sheet, recoveries, tailings management, water and power.
metal prices increase the project economics of Metates and
Local communities have been kept in the loop regarding
investors know this.”
the project’s development and are now largely supportive of the operation, which could produce over 600,000oz/y
With new funding avenues opening up, Chesapeake will
gold and 12 million oz/y silver for some 30 years.
have greater flexibility to start looking at concessions in other jurisdictions. But the company has been associated
With all the critical boxes checked, Chesapeake is now
with Mexico since 1992 – making the groundbreaking El
focusing on exploration work around the site while it waits
Sauzal discovery four years later – and is familiar with the
for a suitable offer from a major mine operator. From its
regulatory framework in the country. Reifel admits he sees
regional reconnaissance work, the company has identified
no reason to turn his back on a country that has brought
four highly prospective projects that have district-scale
him so much success over the years.
potential, and follow-up systematic exploration has advanced several targets to the drill stage, including the
“I have worked in several Latin American countries and
70,000ha Yarely concession package. Handily located
enjoyed similar exploration success,” he says. “I prefer
just 15km off a main paved highway and just 25km from
Mexico as a mining jurisdiction. The overall permitting
the proposed Metates process site, Yarely will become
process is more streamlined, and all the key civil inputs,
Chesapeake’s first grassroots drill program in over a
infrastructure and skilled labor is there. For seeking the next
decade. “Yarely is an area of extensive alteration hosting
discovery, the country is vast and still largely unexplored.”
MINE SPOTLIGHT
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EL LIMÓN-GUAJES Roughly 80km southwest of the historic mining town of Taxco, Guerrero, lies Torex Gold’s El Limón-Guajes (ELG) mine. The project is part of a growing list of impressive gold projects in the southwestern Mexican state, alongside Leagold Mining’s Los Filos mine and Alio Gold’s Ana Paula development project, that has the potential to transform Guerrero into one of the most prolific gold districts in Latin America. ELG achieved commercial production in March 2016. It produced a total of 279,937 ounces at AISC of US$733/oz in 2016, and is targeting 350,000-380,000 ounces in 2017. In June 2017, the first 260 tons of ore were delivered from the sub-sill underground deposit; a random sample returned an average grade of 98g/t. Once fully up and running, the company expects costs to drop to US$616/oz and production to average 370,000oz/y. This would make ELG one of the highest-producing gold assets in the country. ELG consists of a rich, open-pit skarn deposit with measured and indicated resources of 4.16 million ounces of gold at 2.65g/t. A further 360,000 ounces lie at 1.86g/t, and a recent technical report revealed the possibility of a fully operational Life of Mine (LOM) lasting 13 years, with a high probability of further discoveries. According to President and CEO Fred Stanford, Torex plans to spend US$5 million on exploration and development of the resource in 2017. Construction of a new SART plant, which should deliver cost savings of US$100/oz, is already underway. The company has installed the world’s largest tailings filtration circuit at the plant. “The system not only enables us to recycle all the water we use but also eliminates the risk of any tailings spilling into the Balsas River and increases the efficiency of our land use,” says Stanford. Boosted by production revenue from ELG, Torex Gold is rapidly developing its next project. Lying just 2km away on the south side of the river, the Media Luna deposit is a magnetic anomaly with 7.4 million inferred gold equivalent ounces. A 2015 Preliminary Economic Assessment (PEA) revealed a plan for an underground operation with annual production of 313,000 ounces at an AISC of US$636/oz. The deposit will also produce 1.6 million oz/y silver and 46 million lb/y copper once the mine is fully operational. The company has already applied for a permit to start construction of the ramp and is targeting commercial production by 2020. Total CAPEX is estimated at US$481.8 million, pushing Torex’ total investment in Guerrero past the US$1 billion mark. Stanford is confident of the potential impact Media Luna will have on both the company and the state.
89
INSIGHT
PRODUCER POISED TO PROP UP PIPELINE JOHN MCCLUSKEY President and CEO of Alamos Gold 90
With 222,000 ounces of gold produced from two mines deep
and dynamic business strategy. “The capital raising has
in Sonora’s Sierra Madre gold country in 2016, Alamos Gold is
strengthened our balance sheet and allowed us to become
already an established name in Mexico’s bullion industry. When
debt free,” he says. “This will allow Alamos to be more flexible
the company’s extensive list of exploration and development-
and nimble when it comes to developing our growth pipeline.”
stage projects and debt-free balance sheet are factored into the equation, Alamos Gold’s role in the national mining sector
The results are already showing. On top of the Mexico-based
looks set to become increasingly pivotal.
projects, Alamos completed two positive feasibility studies for the Aği Daği and Kirazli ventures and a preliminary economic
“We permitted Phase 1 of the La Yaqui project, located in
assessment at Camyurt, all in Turkey. Kirazli should be in
the Mulatos district, in 4Q16 and started construction almost
production by 2019 and Aği Daği two years later. Depending
immediately,” says John McCluskey, the company’s President
on the outcome of another feasibility study scheduled for
and CEO. “We expect initial production from La Yaqui in 3Q17,
3Q17, the Lynn Lake project in northern Manitoba could
delivering approximately 10,000 ounces of gold in the first six
join them. “Combined, these three projects will add around
months before ramping it up to about 20,000 ounces in 2018.”
400,000 ounces of annual production to our portfolio,” says McCluskey.
Within the next few years, the company expects to start developing the neighboring La Yaqui Grande deposit, which
But McCluskey is not blind to the unique set of challenges
holds 600,000 ounces of gold at 1.4g/t and could become
Mexico throws up. He is skeptical of the work carried out by the
a 100,000oz/y producer, as well as bringing the Cerro Pelón
Mining Trust Fund, describing the system as “very inefficient”
project, where 220,000 ounces of reserves and resources
due to lengthy bureaucratic processes. Most importantly,
have already been delineated, into production. “We have a
he wants to see a change to the law that prohibits mining
further five exploration projects in the district that we will be
companies from writing off exploration costs for 10 years. “It
exploring over the next several years and ultimately looking
is an extremely regressive policy,” he says. “Exploration is a
to develop,” says McCluskey. “Our growth pipeline for Mexico
necessary cost to keep the industry alive but instead of being
over the next few years is very strong.”
treated as an expense it is being treated as an investment. This needs to be corrected if the federal government wants to see
The timing is perfect. The company posted record overall
further investment in exploration in Mexico.”
production figures for the year with 392,000 ounces of gold, while generating US$35 million free cash flow. But Alamos’
But for McCluskey, there are encouraging signs that the policy
third producing asset, El Chanate, is beginning to wind down
and regulatory situation could be about to improve. Sonora
and the company expects the mine to transition into residual
Governor Claudia Pavlovich, in office since 2015, has stated
leaching by 2020. Considering it has produced over 147,000
that one of her administration’s main objectives is to protect
ounces of gold over the past two years, closure at El Chanate
and promote the local mining sector. This goodwill gesture is
will leave a significant hole in annual production figures.
enough to convince Alamos to continue developing its assets
Projects like La Yaqui and Cerro Pelón are vital to ensure the
in the state, for the time being at least.
continued growth of the company. “I am hopeful that the new administration will bring positive But a strong project pipeline means nothing if the finances
changes,” says McCluskey. “I have tremendous faith in the
required to develop the assets are not available. To address
public officials in Mexico, and it is one of the reasons why we
this issue, in February 2017 Alamos Gold completed a US$250
continue to invest in the country. Despite the challenges, we
million capital-raising effort. According to McCluskey, these
believe Mexico has a very bright future and we want to be a
funds will enable the company to develop a more open
part of that success.”
INSIGHT
HEADING EAST WITH MINING INVESTMENT RAMON PÉREZ President and Director of Candelaria Mining
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Mexico’s traditional mining states are clustered in the
he says. “Social and environmental factors are the most
northwest of the country. The country’s mineral belts
important components of any mining investment, so having
sweep down from the north, laying side by side from
government support goes a long way.”
the disseminated porphyry copper-molybdenum-gold deposits down the west coast to the zinc-silver-lead
Another benefit of the traditional oil and gas sector
mantos, stacks and veins down the country’s center. The
in Veracruz is that there is already a great deal of
country is undoubtedly mineral-rich but the east coast has
infrastructure in place to boost the development of
traditionally been oil and gas territory, its commodities
Caballo Blanco. “Veracruz is already a very industrial
found in the deepwaters of the Gulf of Mexico.
state,” explains Pérez. “Fortunately, there is a highway that passes less than 1km from our project and we
Candelaria Mining believes the east has potential beyond
have electricity that runs through the project. Veracruz
oil and gas. The company acquired the development-stage
obviously has some important ports too. For the mining
Caballo Blanco property in Veracruz in July 2016. “Although
sector, the infrastructure is excellent.”
there are not yet many mining projects in Veracruz and certainly no large-scale precious metals mines, we are now
This allows Candelaria to focus its attention and
starting to see the state open up more to mining,” says
resources on the development of the project itself.
Ramon Pérez, the company’s president. Although Veracruz
The concession has been explored in one area, La
has faced some high-profile political difficulties over the last
Paila, where the outcropping mineralization was first
few years, he says the government has been welcoming and
discovered. La Paila contains close to 1 million ounces
Candelaria’s mine can help them provide much-needed jobs
of gold as per the compliant resource from 2012. “We
to the communities. “Caballo Blanco can be a way for the
are looking to have the permits approved for the mine
state to surmount its previous problems,” he says.
soon, at which point we will explore further and increase the resource through an exploration program that will
This return of industry has been welcome for Veracruz,
be implemented in 2017,” Pérez says. “We plan to invest
given the slowdown in oil and gas activity. “Because the
around US$12 million more into the mine and from there,
oil and gas sector has slowed down in recent years, there
we will likely begin a prefeasibility study, which could be
have been few opportunities for employment in the state,”
released by late 2018.” Construction will likely commence
he says. Along with Almadex Minerals, a mining company
in 2019 and production is planned for late 2019, with the
exploring in Veracruz, Candelaria is looking to develop its
goal of producing over 100,000oz/y of gold.
projects and bring the benefits of a healthy mining sector to the state. “I believe there is a lot of potential in the state
Having entered the country in 2016, reaching production
and there are still a lot of areas to be explored,” says Pérez.
within three years is no mean feat and requires a hefty investment. Surprisingly, Candelaria has no large
Because the government is so eager to attract investment
corporations backing it but its shareholder base, around
in light of oil-price stagnation, Pérez says Candelaria has
70 percent of which is Mexican. “We are trying to follow
not experienced the pushback that mining companies can
the Peruvian and Chilean model and get more domestic
encounter when entering states like Oaxaca or Chiapas.
investors involved in the local mining sector,” says Pérez.
“The government of Veracruz walked through the levels
“The Mexican majors – Grupo México, Industrias Peñoles,
of investment with us when initiating the Caballo Blanco
Fresnillo and Minera Frisco – control the majority of the
project. It also acts as a liaison between the operators
local mining sector so we would like to bring Mexican
and the local communities and NGOs so the latter
investors back in.” Pérez expects to have completed an
parties can understand the role of a mining company,”
IPO for Candelaria Mining on the BMV by the end of 2017.
ROUNDTABLE
WHICH PROJECTS WILL HELP MEXICO GROW AS A FORCE IN THE GLOBAL GOLD MARKET?
In 2016, Mexico produced a total of 4.26 million ounces of gold, according to the national statistics agency INEGI. Although this placed the country eighth on the global list of bullion producers, the figure was 1.7 percent down on the total gold output recorded in 2015, suggesting that Mexico’s gold miners need to fill their respective production pipelines with strong assets – and revamp existing mines – to ensure the country’s place in the top 10 in the long run. Below, a handful of Mexico’s leading gold executives highlight their plans to ramp up production levels and outline which exploration and development-phase projects could make a lasting contribution to national gold output.
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Fresnillo’s La Herradura mine was the most productive gold asset in the country with 520,400 ounces of output in 2016, helping to make Fresnillo the largest gold producer in Mexico last year. Gold has always held an important position in our portfolio and we have bullish views about this commodity’s future. When we listed on the London Stock Exchange in 2008, our growth plan was to double silver production to 65 million ounces and double gold production to 250,000 ounces of gold by 2018.
OCTAVIO ALVÍDREZ CEO of Fresnillo
We are now aiming to produce 1 million ounces of gold in 2018 – 300 percent more than we had initially targeted – so that reflects the vital role that this commodity has to play for the company.
The San Dimas mine has been operating for over 200 years and the mineral potential on the property is still very strong. Due to the issues we experienced in 2016, we were unable to do much exploration or drilling work onsite but in the past, we have replenished our reserves on a yearly basis, so it has a great track record and anyone that visits the property from a technical or geological point of view leaves with a very positive impression. We are confident and once we have settled into the new
JOSEPH CONWAY Interim President and CEO of Primero Mining
mine plan, we will begin exploring the property again and hopefully we can make new discoveries and increase our workforce. However, in the short-term our focus is on streamlining the operation to maximize the potential of our core mineral targets that drive the most profitability.
We have devised a new mine plan for the San Francisco project that will extend mine life to 23 years. This is still conservative, based on a gold price of US$1,100-1,250/oz. Our production target for 2016 is 90,000-100,000 gold ounces, although this will drop in 2017. We were originally planning to shut the mine down in September 2016 and the new mine plan delayed the stripping, which is a crucial step in extracting ore. We will still need to catch up on several operations that were either slowed
ARTURO BONILLAS President and Director of Timmins Gold
down or halted entirely in preparation for the closure but it is fantastic news that we will be able to keep the mine open for the foreseeable future. We are carrying out extensive exploration work and although we do not yet have the numbers, we are optimistic that results at San Francisco in 2017 will be better than our markedly conservative projection.
We will drill several new target areas this year at Mercedes and hopefully they will become future resources that we can move into reserves. I would like to believe we can extend this mine’s life to around 10 years through systematic annual exploration. The areas surrounding Mercedes hold a great deal of opportunities and since we already have the mill, we will be actively seeking new deposits in that area. It is a very safe mine - there has been no LTI in over one year, either contractor or employee. We see this as a launching pad for expanding our operations across the Americas.
EWAN DOWNIE President and CEO of Premier Gold Mines
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If companies begin taking advantage of Guerrero’s potential, it could easily become the biggest gold producing state in Mexico. Recent data from the Mexican Geological Survey (SGM) suggests the state’s potential as a gold producer to be the best in the country. For example, companies such as Agnico Eagle that have a new property next to Torex’s and Los Filos, are now looking closely at carrying out bigger exploration programs given the region’s recent results. By 2020, once Torex Gold’s Media Luna is online, it is targeted to produce close to 320,000 gold equivalent ounces with about 180,000 ounces of gold so Guerrero can easily take a top-three place nationwide in terms of gold production in the short-term. In the next five to 10 years, it could easily become one of the richest gold regions in Latin America.
ALFREDO PHILLIPS President of the Guerrero Mining Cluster and Corporate Affairs Director of Torex Gold
One day, Metates will be the largest gold and silver mine in Mexico. The PFS demonstrated that a smaller mine at an initial throughput rate of 30,000t/d can ramp up to 90,000t/d largely funded by cash flow. The capital cost would be about US$2 billion as opposed to a US$3-4 billion investment to fund a 90,000-120,000t/d initial startup mine. The CAPEX for undeveloped world class deposits of a similar scale are typically over US$5 billion. Higher metal prices increase the project economics of Metates and investors recognize the value and optionality given the limited number of undeveloped world-class deposits. For seeking the next discovery, Mexico is vast
RANDY REIFEL President of Chesapeake Gold
and still largely unexplored.
Currently, the Caballo Blanco concession has been explored in one area, La Paila, where the first outcropping mineralization was discovered. La Paila contains close to 1 million ounces of gold as per the compliant resource from 2012. We are looking to have the permits approved for the mine soon, at which point we will explore further and increase the resource through an exploration program that will be implemented in 2017. We plan to invest around US$12 million more into the mine and from there, we will likely begin a pre-feasibility study, which will could be released by late 2018. Construction will likely commence in 2019 and production is planned for late 2019. Our goal is to produce over 100,000 ounces of gold annually.
RAMON PÉREZ President and Director of Candelaria Mining
Silver ore sample
SILVER
4
The great silver recovery predicted by many industry insiders has not quite materialized. Since rising to above US$20/oz in July 2016, the grey metal has struggled to maintain consistent growth and closed 1H17 at US$16.63/oz, rising just 2 percent since the start of the year. But production fell for the first time since 2002 in 2016 and with strong demand coming from solar applications, electronics and the automotive industry, the long-term outlook for silver prices is positive.
For the seventh successive year, Mexico was the world’s largest silver producer in 2016 with 21 percent of the global share. But national annual output fell by 9.2 percent to 173.9 million ounces, highlighting the need for Mexico’s silver producers to ramp up production rates and invest in exploration to replace ageing projects.
This chapter highlights the primary trends in Mexico’s silver industry, focusing on the development of the country’s main projects at all stages of the mine cycle. Corporate decision-makers detail growth pipelines and public figures explain what strategies are in place to ensure that Mexico plays its part in meeting the world’s increasing demand for silver.
95
CHAPTER 4: SILVER 98
ANALYSIS: Silver Producers Enjoying Sunny Solar Revolution 97
100
VIEW FROM THE TOP: Octavio Alvídrez, Fresnillo
102
MAP: Mexico's Main Silver Mines
104
VIEW FROM THE TOP: Mitchell Krebs, Coeur Mining
105
VIEW FROM THE TOP: Christopher Warwick, Pan American Silver
106
VIEW FROM THE TOP: Bradford Cooke, Endeavour Silver
Godfrey Walton, Endeavour Silver
108
VIEW FROM THE TOP: James McDonald, Kootenay Silver
112
VIEW FROM THE TOP: Robert Archer, Great Panther Silver
113
INSIGHT: Frederick Davidson, IMPACT Silver
114
ROUNDTABLE: What Does Mexico Need to Ensure Its Position As The World’s Leading
Silver Producer?
116
VIEW FROM THE TOP: Eric Fier, SilverCrest Metals
118
INSIGHT: Greg Crowe, Silver One Resources
119
INSIGHT: Carlos Rodríguez, Avino Silver and Gold Mines
120
MINE SPOTLIGHT: Palmarejo
123
INSIGHT: Bruce Winfield, Defiance Silver
124
VIEW FROM THE TOP: Michael DiRienzo, The Silver Institute
125
VIEW FROM THE TOP: Randy Smallwood, Wheaton Precious Metals
126
MINE SPOTLIGHT: San Julián
ANALYSIS
SILVER PRODUCERS ENJOYING SUNNY SOLAR REVOLUTION The cure for what ailed silver appears to be in the sky as the
While China and the US are leading the charge,
rise of solar energy spurred demand for the grey metal, a
Mexico’s contribution is growing. According
key component in solar panels, and helped to spark a price
to Mexico’s National Electricity System
rebound in 2016/17
Development Plan (PRODESEN), the country’s installed solar capacity rose to 145MW in 2016
98
After falling for five consecutive years from 2011, the silver
from just 56MW the previous year, a jump of 157 percent.
price finally turned a corner in 2016 and continued the
Solar energy generated 160MWh electricity last year, up
upward curve in 2017, never dropping below the US$15/oz
104 percent from 78MWh in 2015.
mark during the first half of the year. Thanks to the seemingly unstoppable global march away from fossil fuels and toward
“Silver demand for photovoltaic applications rose 34
renewable energy, added to silver’s vital use as a conductor
percent last year, the strongest increase since 2010,”
for solar panels, industrial demand is well-placed to rise in
says Michael DiRienzo, Executive Director of The Silver
the coming years and underpin the grey metal. As the world’s
Institute, a nonprofit institution that aims to increase public
largest silver producer, this is good news for Mexico.
awareness of silver use. “Silver is the metal of choice for most solar panel manufacturers, so it is a win-win situation.”
“Silver is an intimate part of solar technology, and solar panels can operate for around 20 years,” says Peter Megaw, Chief Exploration Officer at MAG Silver and the man behind
PRODUCCIÓN MINERA DE PLATA EN MÉXICO POR COMPAÑIA 2016 MEXICAN SILVEREN PRODUCTION BY COMPANY 2016
the Juanicipio discovery in Zacatecas, one of the most significant silver development projects in the world. “This means that the turnover is not too high and we will not see oversupply. It is clear that many countries around the world are starting to look more seriously at solar power.” As both corporations and governments come under
173.9 million ounces
increasing pressure to clean up their energy usage, solar is taking on a vital role in global electricity generation. In 2016, total global installed solar power capacity rose by 50 percent on the previous year to reach 305GW, according to data from SolarPower Europe. That is up from just 50GW in 2010. By 2020, Bloomberg New Energy Finance expects this figure to increase to 605GW.
42.9% Otros 26.3% Fresnillo 6.8% First Majestic Silver 26.3% Fresnillo pcl 10.3% Goldcorp 6.6% Pan American Silver 10.3% Industrias Peñoles 42.9% Other 7.1% Goldcorp 7.1% Peñoles
Source: CAMIMEX
6.8% First Majestic
PARTICIPATION IN PRODUCTION IN MEXICO PARTICIPACIÓN ENSILVER LA PRODUCCIÓN MINERA DE BY STATE EN 2016 PLATA MÉXICO POR ESTADO EN 2016
6.6% Pan American Silver BOOST PRICE Source: Peñoles, Informes Públicos de lassilver empresas, Further improving the outlook, supply Inegi y Estimaciones propias
is declining.
According to figures compiled by The Silver Institute, global mine production of silver fell by 0.6 percent to 885.8 million ounces in 2016, the first yearly drop since 2002,
173.9
while scrap supply also fell for the fourth consecutive year. Many of the big silver deposits are old and nearing the
million ounces
point of exhaustion, and with the downturn in the silver price between 2012-2016, exploration was not at the top of the agenda.
40.8% Zacatecas Zacatecas 40.8% 14.0% Durango 14.0% Durango 13.9% Chihuahua Chihuahua 13.9% 18.8% Otros
Source: CAMIMEX
7.9% Sonora
4.6% Oaxaca
“There are very few pure silver mines that exist in the
7.9% Sonora 4.6% Oaxaca 18.8% Other
world and supplies are not quite as robust as they once were,” says Greg Crowe, President, CEO and Director of Silver One Resources, a junior exploration company. With supply waning and demand on the rise, the markets are
Top Energy's solar panels, Aguascalientes city center
99
responding. In 2016, the annual average silver price grew
Canadian Endeavour Silver plans to double its portfolio
by 10 percent to US$17.14/oz, the first rise since 2011. The
of three mines in Mexico within three years, to increase
price was more volatile in 2017 but crucially the metal never
production by 50 percent. Bradford Cooke, the company’s
dropped below the important US$15/oz benchmark.
President and CEO, is planning to add further value to the group’s silver production by tapping into the solar market.
Silver miners in Mexico are responding to demand with plans to boost output in 2017. In May, the world’s largest silver
“We have historically used the power grid but, now
miner Fresnillo announced plans to spend US$160 million
that Mexico has opened up the energy sector to mining
on exploration in 2017. The company, whose seven mines
companies, the company plans to install solar and wind
are all in Mexico, produced 50.3 million ounces in 2016 and
panels in mine sites, initially at Terronera,” he says. “If it
is targeting 65 million oz/y by 2018. This will be helped by
proves to be economically viable, we plan to install more
the beginning of Phase 1 of San Julian, which is currently
alternative energy solutions.”
ramping up, with Phase 2 slated to begin production in 2018, as well as construction at Juanicipio, a giant silver
As the world’s top silver producer, the world’s thirst for
deposit in Zacatecas that Fresnillo is operating as part
solar power is great news for Mexico. The grey metal has
of a JV with MAG Silver. The mine should be processing
exceptionally high electrical and thermal conductivity,
4,000t/d by 2019.
making it ideal for any electronic device. But it is also extremely reflective – communities in China have been
US outfit Coeur Mining has remodeled its flagship Palmarejo
using it in mirrors for centuries – making it ideal for
asset in Chihuahua into a fully underground operation in
photovoltaic panel construction. The metal is turned into
a bid to increase production by 50 percent in 2017. The
a paste and used as a conductor on the front and back
company is also conducting a new drilling program at the
side of crystalline solar cells. Taking into account all the
La Preciosa development project in Durango, with a view
other uses for silver, including X-ray technology, food
to carrying out a new Preliminary Economic Assessment
packaging and jewelry, demand for the grey metal is only
(PEA) and mine plan.
expected to rise.
VIEW FROM THE TOP
SAN JULIAN, JUANICIPIO BOOST PRODUCTION PIPELINE OCTAVIO ALVÍDREZ CEO of Fresnillo
100
Q: World silver production fell by 0.6 percent to 885.6
to our production level for the next few years but we will
million ounces in 2016, the first drop since 2002. What
also be heavily exploring the district because we estimate
was Fresnillo’s reaction?
that only 30 percent of the area has been explored. There
A: From 2011 until 2016, metal prices dropped on a yearly
is a lot of potential to increase resources and we feel that
basis and the global mining industry was faced with real
this project will become one of our flagship assets in the
challenges. During this extended downturn, many mining
coming years.
companies were cutting exploration budgets and pausing ongoing projects. This trend impacted global output and
Q: How is the Juanicipio JV with MAG Silver progressing
caused it to fall for the first time in 15 years in 2016. In
and what role does it have in Fresnillo’s long-term growth
many ways, Fresnillo bucked the trend. While many mining
pipeline?
companies were focusing on strengthening their balance
A: Juanicipio is a very exciting project, with a resource base
sheet and cutting debt, we have always targeted a positive
of approximately 240 million ounces of silver. Although it is
net cash flow. Adhering to a long-term strategy, during
smaller than some of the other assets in our portfolio, it is
the slow years we continued with our balanced approach
in a terrific silver district with an exceptionally high-grade
to growth based on investment in exploration and project
ore body. We are applying for the final permits and will
development, and that helped us to continue growing and to
soon be submitting our plans to the board for approval,
increase our output to a record 50.3 million ounces of silver
with construction set to begin during 4Q17. If all goes to
in 2016. In the past nine years, we have doubled our silver
plan, operations will begin during 1H19.
resources to 2 billion ounces and more than tripled our gold resources from 9 million ounces to over 34 million ounces.
This is one of our key assets in our project pipeline but we
This is now reaping rewards because the silver price turned
are planning to develop a number of early stage projects
a corner in 2016 and has continued on the same trajectory in
in the coming years. Historically, roughly 90-95 percent
2017. Every year, we reinvest approximately 50 percent of our
of our growth has been organic and we continue to invest
net profit into the company and its projects. The remaining
in exploration. In 2017, we will invest US$160 million on
50 percent is paid out in dividends to our shareholders. This
exploration. These resources will be split evenly between
is a strategy that has brought success over the years and we
our current operations, our development-phase projects
will not be diverging from this approach.
and on greenfield exploration. Around 5-7 percent of this figure is invested in Peru, where we have been exploring
Fresnillo is on track to produce 65 million oz/y silver and 1 million oz/y gold by 2018
for the past eight years and have a project with 50 million ounces of silver. We are also considering some activity in Chile and Argentina but the vast majority of the funds will be invested in Mexico. Q: How is the turnaround at the Fresnillo mine progressing
Q: How pleased has the company been with initial
and what long-term aspirations does the company have
operations at San Julian and what impact will Phase 2
for this historic asset?
have on the project?
A: The Fresnillo district has been mined continuously since
A: San Julian has been a challenging project from the
the 1500s and it remains an outstanding ore deposit and
outset. It is the largest investment in the group, with US$515
mine. We have identified close to 800 million ounces of silver
million, and it is located in an extremely isolated area. We
in resources at the deposit, which equates to a mine life of at
initiated Phase 1 during 2016 and Phase 2 during 2H17.
least 25 years. In the past couple of years, we had some issues
Combined, the two phases will add 10 million oz/y of silver
at the mine, falling short of our development targets. We have
Fresnillo Mine, Zacatecas
101
now increased our development rate to regain operational
ounces of gold by 2018. We are now aiming to produce 1
flexibility and last year we were able stabilize production.
million ounces of gold in 2018 – 300 percent more than we
Our aim is to increase silver output by 7-10 percent in 2017.
had initially targeted – so that reflects the vital role that
It is now a very efficient and productive operation and given
this commodity has to play for the company. We expect
that there is still strong exploration potential in the area, we
our silver production to grow at a much greater speed
believe that the Fresnillo mine will continue to provide the
than gold but we are certainly bullish on this commodity.
base for growth for several decades to come. It has always
This confidence is driven by a number of factors, including
been a flagship project and this will not change.
the announcement in 2016 to make gold available as an investment to the Islamic investor community for the first
Q: Mexico’s silver production fell 3 percent in 2016 but it
time. Every time we see a new investment tool, such as the
still holds the top spot globally. What must Mexico do to
Exchange Traded Funds (ETFs) a few years ago, we expect
ensure its place as a leading silver producer?
to see a pickup in investment demand. We view this issue
A: In terms of geological potential, Mexico is in an extremely
as a positive development and we believe the demand for
privileged position, and in most of the country there are
gold as an investment will grow as this new market begins
also strong links to water, energy and other vital resources
to make its presence felt. In a world in which there is more
for mining operations. The country needs to combine
and more uncertainty, precious metals play the role of safe
this strong infrastructure and geology with policies that
haven and this helps to support prices.
encourage mining and mining investment. Unfortunately, during the past few years a number of new taxes have been
Q: What are the primary long-term objectives that will
introduced that have taken away the competitive advantage
drive the company’s strategy going forward?
that Mexico enjoys over other countries. We need to see
A: We are on track to achieve our goal of reaching annual
policies that promote and encourage exploration, which
production of 65 million ounces silver and 1 million ounces
are in place in other jurisdictions. If this happens, Mexico
of gold by 2018. We are now in the process of defining what
will start to meet its mining potential and we will see the
comes beyond 2018. Given our rate of growth over the past
industry playing a more significant role in national economic
10 years, it will certainly be a challenge to maintain the
development. I am confident that the public sector will
same level of expansion but I am confident that Fresnillo
provide the necessary regulatory support.
will continue to grow efficiently and productively by adding exceptional projects to the portfolio. One of the
Q: Fresnillo is one of Mexico’s leading gold producers, with
key objectives is to avoid diluting the quality of our asset
the company’s production rising 22 percent to 935,500
base, so we will only bring online projects that will drive
ounces in 2016. What role does gold play in the company’s
long-term growth.
overall growth plan? A: Fresnillo was the largest gold producer in Mexico in 2016 and gold has always held an important position in our
Fresnillo is the world’s leading silver producer and Mexico’s
portfolio. When we listed on the London Stock Exchange in
largest gold producer. It is a subsidiary of Grupo BAL and
2008, our growth plan was to double silver production to
operator Industrias Peñoles. The company is listed on the
65 million ounces and double gold production to 250,000
London Stock Exchange’s FTSE 100
MEXICO'S MAIN SILVER MINES
1
2
102 5
10
3 6
4
7
8 11
9 17
15 16 14
19
Production
20
Development
13
24 25
Exploration Number
23 26 27
Name
Company
Stage
State
1
San Felipe
Minera Frisco
Production
Baja California
2
San Felix
Mexus Gold
Production
Sonora
3
Promontorio-La Negra
Kootenay Silver (optioned to Pan American Silver)
Development
Sonora
4
Palmarejo
Coeur Mining
Production
Chihuahua
5
Cusihuiriachi (San Miguel Mine)
Sierra Metals
Production
Chihuahua
6
Los Gatos
Sunshine Silver (70), DOWA Metals and Mining (30)
Production
Chihuahua
7
La Cigarra
Kootenay Silver
Development
Chihuahua
8
Esmeralda/Parral Tailings
GoGold
Production
Chihuahua
9
San Julian
Fresnillo
Production
Chihuahua/Durango
10
La Encantada
First Majestic Silver
Production
Coahuila
11
Cuatro CiĂŠnegas/ El Granizo
Compania Minera Coronado
Development
Coahuila
12
El CajĂłn
Americas Silver Corporation
Development
Sinaloa
13
Plomosas
First Majestic Silver
Development
Sinaloa
14
Topia
Great Panther Silver
Production
Durango
Source: SGM, company websites
22
18
12
World Class Deposits
31 32
21 28
Number 15
29 30
33 34 35
36
37
38
39
40
Name
Company
Stage
State
Guanaceví
Endeavour Silver
Production
Durango
16
La Pitarrilla
Silver Standard
Development
Durango
17
La Platosa
Excellon Resources
Production
Durango
18
San Sebastian
Hecla Mining
Production
Durango
19
La Joya
First Majestic Silver
Development
Durango
20
La Parrilla
First Majestic Silver
Production
Durango
21
Unidad El Bote
Desarrollo Monarca
Production
Zacatecas
22
Peñasquito
Goldcorp
Production
Zacatecas
23
Juanicipio
MAG Silver (44)/Fresnillo (56)
Development
Zacatecas
24
Del Toro
First Majestic Silver
Production
Zacatecas
25
La Colorada
Pan American Silver
Production
Zacatecas
26
San Acacio
Defiance Silver
Production
Zacatecas
27
El Compas
Endeavour Silver
Development
Zacatecas
28
El Coronel
Minera Frisco
Production
Zacatecas
29
La Luz
First Majestic Silver
Production
San Luis Potosi
30
Rosario
Santacruz Silver
Production
San Luis Potosi
31
Zuloaga
First Majestic Silver
Production
Jalisco
32
San Martin/El Pilon
First Majestic Silver
Production
Jalisco
33
Bolañitos
Endeavour Silver
Production
Guanajuato
34
Guanajuato
Great Panther Silver
Production
Guanajuato
35
El Cubo
Endeavour Silver
Production
Guanajuato
36
La Negra
Aurcana Corp (80)/Reyna Mining (20)
Production
Queretaro
37
La Guitarra
First Majestic Silver
Production
State of Mexico
38
Cuchara-Oscar
IMPACT Silver
Production
State of Mexico
39
San Ramon
IMPACT Silver
Production
State of Mexico
40
San José/ Cuzcatlan
Fortuna Silver
Production
Oaxaca
103
VIEW FROM THE TOP
GIANT MINE FINDS SECOND WIND MITCHELL KREBS President and CEO of Coeur Mining
104
Q: Given the recovery of precious metals prices in 2016
reposition our asset portfolio over the last four years, it
and early 2017, to what extent is optimism returning to
became a sticking point for investors. In the last 15 months
the mining community?
we have repaid roughly US$350 million in debt and our cash
A: The industry is certainly becoming more optimistic. Many
flow has more than doubled.
companies had been focusing on survival, hoping for an upturn in prices for several years, so when that upturn finally
Q: What is the latest update from the Palmarejo mine?
came in 2016, there was a collective sigh of relief.
A: In 2014 most looked at Palmarejo and thought it was coming to the end of its production cycle. But we
While Coeur has enjoyed these tailwinds as well, our team
renegotiated an expensive royalty into a more favorable
is consciously maintaining its focus on cost and operational
gold stream expected to significantly increase free cash
discipline. This translates into continued discipline around
flow and developed the Guadalupe underground deposit.
growth. Before we decide to pursue an opportunity, it must
We also acquired Paramount Gold and Silver, the owner
meet rigid criteria anchored to a healthy rate of return. I
of the San Miguel project adjacent to Palmarejo, allowing
believe this is true across the industry. While the increased
us to develop the Independencia deposit, which began
optimism is noticeable, so is the persistent conservatism
production in 2016 and is expected to ramp up significantly
and tempered risk appetite.
during 2017.
Q: What were the financial highlights for the company in
Palmarejo is now 100 percent underground. Production is
the last year and how were you able to generate such a
expected to increase over 50 percent in 2017 and based
strong growth rate?
on reserves, it now has a seven-year expected mine life.
A: Our stock performance over the last 12 months reflects
Importantly, grade and recovery rates have also improved
the confluence of a number of things. Firstly, our team
and overall costs continue to trend lower. Once again, we
has made tremendous progress in repositioning our asset
view Palmarejo as a long-term cash-flow generator for the
portfolio over the last four years. Our costs used to be
company.
among the highest in the industry but since 2013, we have reduced our costs by approximately 30 percent on an all-in
Q: What else can investors and shareholders expect to see
sustaining basis. While we benefited from several external
from Coeur Mining in 2017?
factors such as a more favorable peso exchange rate and
A: We will be focusing on completing a couple of new
lower diesel prices, most of these cost reductions were
growth projects. The first is the Kensington gold mine
internally generated through operational efficiencies, higher
in Alaska, where we are developing the Juneau deposit,
recovery rates and rationalization of outside services. This
which is expected to begin production in late 2017. The
makes the magnitude of our cost reductions even more
second is at the Rochester mine in Nevada, where we are
remarkable and, importantly, sustainable over the long-run.
constructing a leach pad expansion, which is expected to be commissioned in 3Q17.
Secondly, our balance sheet was dominated by debt 12 months ago. While we needed this capital to invest in and
In the last few years we have been focused on our strategic repositioning but now that we have seen successful results from those efforts, we can focus on growth again. To
Coeur Mining is a diversified precious metals producer with
complement our transition to underground operations at
five mines in the Americas: Palmarejo in Chihuahua, Mexico,
Palmarejo and expansions at Rochester and Kensington, our
Rochester in Nevada, Kensington in Alaska, Wharf in South
drilling and exploration budget has been increased for 2017
Dakota, and San BartolomĂŠ in Bolivia
to target a strong pipeline of projects in key jurisdictions.
VIEW FROM THE TOP
SILVER PRODUCER WARY OF ECOLOGICAL TAX CHRISTOPHER WARWICK Mexico Country Manager of Pan American Silver
Q: Considering Pan American Silver ’s operations
an impact. The law may be re-examined and repackaged
throughout Latin America, what are the pros and cons of
but I doubt that it will be repealed. When a mining company
mining in Mexico?
carries out the initial stages of assessing a potential project,
A: The attractiveness of future investment in Mexico’s mining
SEMARNAT comes in to ensure that all regulations and
sector should be the industry’s number one priority. There
guidelines are followed. After the mine is established, there
were some problems with the introduction of the royalty
are then regular visits and audits to check compliance and
tax a few years ago that certainly impacted negatively on
mines work to continue abiding by the norms within that
mining investment, admittedly at a time of falling metal
framework. Our perception is that the work at the operation
prices. Now, the latest introduction of an Ecological Tax
has the approval of the federal authorities to proceed
imposed by the state of Zacatecas sends a very mixed
and continue because we have always worked within the
message to investors in the Mexico mining industry.
parameters outlined by the government organizations
Zacatecas is a traditional mining state within Mexico
appointed to approve such work. I have no problem
and there was very little notice and no prior discussion
with tightening up environmental laws in Mexico but it
regarding the implementation of the tax, and the reasons
is so important that this is done correctly and then fairly
for its imposition remain unclear.
administered.
Certainly, this tax affects one of our mines, La Colorada,
Q: How did Pan American Silver decrease its AISC 32
in Zacatecas but the effect is not as devastating to an
percent from 2015 to 2016?
underground operation in the same way it would be
A: This was achieved through project expansion. Four years
to an open-pit mine due to the waste movement and
ago, when metal prices dropped, we made the decision to
management that is required of the waste dumps. It is
really optimize our production at our existing operations,
of minimal impact but fear remains of the possibility of
which would mean that any kind of upward movement later
such a tax being rolled out nationwide. Pan American is
in metal prices would bring the benefits of those expansions
uncomfortable with the potential for this to happen so
to our shareholders. Our prime resource is silver, which has
our actions in the next few months will be aligned with
moved from US$13 to US$17 in recent months and now we
those of other companies operating in the state that
are directly starting to benefit from that due to our prior
are challenging the implementation of the tax. This is
investment decision.
especially daunting when our operations have been carefully vetted by the relevant government agencies who
This was the most important action the company has taken
authorize our work with diligence and with emphasis on
in recent years. Our deliberate strategy and foresight a
the overall environmental considerations. Our operations
few years ago will pay the return expected and attract the
may have an impact before we even start mining and
anticipated investment in the company, which in turn will
these authorities are very diligent in following up on the
reward shareholders the returns they deserve. Historically
operation to ensure the guidelines given at the time of
Mexico is a business-friendly environment and it would be a
issuance are followed and in sanctioning any deviation
shame if this were to change as a result of the introduction
from any norm at the time of inspection.
of the regulatory changes.
Q: Do you think the outrage at the tax will cause it to be revoked?
Pan American Silver is the world’s second-largest primary
A: There is a great deal of both external and internal
silver producer with three producing assets in Mexico: Alamo
pressure. However, I have been working in Mexico long
Dorado in Sonora, La Colorada in Zacatecas and Dolores in
enough to realize that outrage tends not to have much of
Chihuahua, as well as the La Bolsa exploration project in Sonora
105
VIEW FROM THE TOP
ENDEAVOUR EYES 50 PERCENT PRODUCTION BOOST Bradford Cooke CEO of Endeavour Silver
106
Godfrey Walton President and COO of Endeavour Silver
Q: What role does the Mexican mining sector play within
to discover new orebodies, expand the reserves and
Endeavour Silver’s global business strategy?
resources, redevelop the property and rebuild the plant
BC: Mexico is our key jurisdiction for the discovery,
and surface infrastructure. After being forced to accept
development and operation of our silver and gold mines.
some operating losses during the turnaround phase, El
Thanks to the rise of metal prices in 2017, we are now
Cubo broke through last year and generated healthy
transitioning our focus from reducing costs to growing
positive cash flow.
production. Endeavour Silver is planning to develop three new mines in the coming three years to increase
Q: What strategy does the company follow when
our production by 50 percent.
selecting new areas for acquisition and development? GW: We look for brownfield opportunities where we
Q: What have been the main highlights and challenges
can make a difference. Our geological expertise helps
of Endeavour Silver’s three operating mines in Mexico?
us to decide where to go and what needs to be done
BC: Our only disappointment last year was the Guanaceví
to discover new orebodies. Investing in drill holes to
mine, which fell behind its planned production. It
test virgin targets is a must. One example of success
encountered some operating issues underground,
is Guanaceví. It was producing 100t/d of old tailings
including breaking into an area of hot water and we did
when we bought the mine and now it is producing up to
not have sufficient pumping, ventilation and electrical
1,200t/d of high-grade ores. Bolañitos is another example;
capacity to cope. We started a recovery plan last year
it was producing 50t/d of old Spanish mine fill when we
to expand those capacities and the work should be
bought it and now it is producing up to 1,600t/d of high-
completed in 2017 so that the mine will be back on
grade ores.
track by year-end. We remain confident in the long-term potential at Guanaceví.
BC: We have several exciting development projects in our portfolio. El Compas is a small but high-grade mine that
Our second mine, Bolañitos, was last year and has for
should be in production by the end of 2017. We bought
many years been our most profitable mine. The gold we
El Compas because even though the resources are small,
produce at Bolañitos typically exceeds the total cost to
the exploration and production potential are much larger,
run the mine so the production of silver is effectively free.
the mine is mostly permitted and the plant was already
We are concerned about its short mine life and we are
built and available on a 10-year lease.
working on exploration and land acquisitions to identify further reserves and resources.
Endeavour has several prospective properties in our exploration portfolio, including the large Guadalupe
El Cubo, our third operating mine, was originally bought
y Calvo district in Chihuahua. The district was famous
at the top of the metals market in 2012 as an operational
many years ago for its high-grade ores and is located
turnaround candidate and a synergistic fit with Bolañitos.
only 25km from Fresnillo’s newest large silver-gold mine
It was a high-cost mine that was unwanted by its previous
at San Julian. We are testing new targets at Guadalupe
owner. We invested a substantial amount of capital
y Calvo to augment the historic high-grade resources and we believe the opportunities here are promising, especially given the area's historic potential.
Endeavour Silver is a midtier silver mining company focused on the growth of its silver production, reserves and resources
Terronera in Jalisco was acquired because it is an entire
in Mexico. Since start-up in 2004, it has grown silver equivalent
district of silver-gold veins that had never been properly
ounce production to 9.7 million ounces in 2016
explored in modern times. It has the potential to be the
Endeavour Silver is planning to increase silver production by 50 percent in the next three years
biggest and second-most profitable of our mines by the end of 2018. Our first discovery is shallower, thicker and richer than the orebodies at our operating mines, so it has a high probability of having better economics. It will initially produce at 1,000t/d, then expand to 2,000t/d in year two, to eventually produce over 5 million ounces of silver equivalent. Finally, our Parral project was acquired because it has a 32-million-ounce historic resource and there are multiple untested exploration targets to expand the resources. Parral is a possible production startup by the end of 2019.
trees than every logging company in Mexico, which GW: We also have an exploration office in Chile and have
equated to 34,000 plantings in 2016.
staked two large and highly prospective mineralized zones in northern Chile. One is a silver-lead-zinc manto
We invest in surrounding communities by training people
target and the other is a porphyry copper-molybdenum
to work on our mine projects and by giving them a
prospect. The company plans to advance both projects
chance to start a new career in the industry. They should
to drill stage, then either drill or bring in partners in to
have the opportunity to become miners if they choose
drill on our behalf, given the large scope and higher cost
so we offer them diplomas and certifications. Teaching
and risk of such targets.
people skills is more valuable than handing them money because we are offering them abilities that they can use
Q: How would you describe the company’s approach to
for the rest of their lives. It is an opportunity to be part
sustainability?
of a high-paying sector and can offer a long-term way
BC: Endeavour Silver was only the seventh mining
to sustain communities that can otherwise be extremely
company in Canada to report sustainability initiatives
isolated and where typically employment opportunities
under the Global Reporting Initiative (GRI). This global
are scarce.
reporting institute is a way to promote sustainable mining by measuring the impact of business sectors against
Mexico’s Energy Reform also presents an interesting
certain metrics including climate change, human rights
opportunity to lower the company’s environmental
and corruption. Now we publish an annual sustainability
footprint. We have historically used the power grid but
report that includes our entire impact on society and
now that Mexico has opened up the energy sector to
the environment, the amount of water we use, carbon
mining companies, the company plans to install solar and
emissions and many other factors. We share all our
wind panels in mines sites, initially at Terronera. The idea
activities related to sustainability including corporate
is to use the alternative energy for internal consumption
governance, health and safety, training and education,
and to share it with the surrounding communities as well.
environmental remediation, economic investment and
If it proves to be economically viable for the company, we
community engagement. As an example, we plant more
plan to install more alternative-energy solutions.
107
VIEW FROM THE TOP
PERMITTING HEADACHES STALL MEXICO PROJECTS JAMES MCDONALD President and CEO of Kootenay Silver
108
Q: What differentiates Kootenay most from other
high strategy, we were able to add an advanced silver
exploration-stage companies?
asset to our portfolio and push our NI 43-101 silver asset
A: The expertise of our team on the ground is one of our
base to over 140 million ounces of silver. When we were
strongest assets and there are few companies that have
closing that agreement, the first real signs of a market
this kind of experience. We have assembled one of the
turnaround emerged so we were in a favorable position
largest silver-asset banks in Mexico held by a junior that
to take advantage of that. There are some exciting early
provides our shareholders with exceptional leverage to
stage projects we are evaluating at the moment that
the silver market. At a corporate and board level, we have
we believe could provide us with some new discoveries
broad knowledge that covers the whole mining spectrum
and significant mineral potential. Our goal is to pursue
from grassroots discovery to mine construction, finance
projects of around 100 million ounces of silver.
and operations. Q: What progress is being made on La Cigarra? I was personally involved in the Mulatos project in Sonora
A: It had a strong start last year and has recently pulled
in 2000 where we carried out exactly the same thing
back slightly, which is natural. We are now responding by
we are attempting with La Cigarra. The Mulatos deposit
advancing the La Cigarra asset because we believe we
was more advanced than La Cigarra and it was gold
acquired something that can be turned into a mine and
but it was not an economic deposit so it was extremely
expanded significantly. It is a strong asset in a historic
undervalued. We bought it for US$12 million and brought
Mexican silver district and just south of our project there
in a financing partner in John McCluskey. Now the asset
are significant production levels. We now want to start
belongs to Alamos Gold and is an established midtier
exploring that asset, testing our targets, expanding
producing gold mine. We believe our La Cigarra asset
resources, making some discoveries and ultimately
can become something similar. We are differentiated by
to take it to a feasibility stage where we can make a
the willingness to take that kind of educated risk and
production decision. The near future will hold a lot of
our experience greatly helps us identify those kinds of
geological work, drilling and metallurgical studies for
opportunities.
potential future extraction.
Q: With companies beginning to expand their portfolios
We are evaluating whether we can improve the current
again with acquisitions and exploration, how is Kootenay
resource model on La Cigarra. The better the grade, the
responding?
higher the profits and we believe there is an opportunity
A: One year ago, we acquired Northair Silver for 100
to refine our model, resulting in a better grade and making
percent of the La Cigarra asset as a response to our
the mine ultimately more profitable. Also, a deeper level
positioning in the silver market at that time. Essentially,
of understanding over the geological aspects of the silver
we bought silver assets at a fraction of the cost for an
will greatly enhance our ability to further expand our
operator to discover these same assets, so we made
current resources. The major part of this work will be
moves that pre-empted this new market confidence. By
completed by the end of March 2017 and we can then
taking advantage of the opportunity for a buy-low, sell-
refine our development plan going forward. Q: What other projects are you working on in Mexico
Kootenay Silver is a Canadian and Mexican-based silver
apart from La Cigarra?
exploration company engaged in the development of three
A: We also have the very promising Promontorio-La
major silver projects in Mexico, including La Cigarra in
Negra asset in Sonora that we optioned one year ago
Chihuahua, and Promontorio and La Negra in Sonora
to Pan American Silver. This is one of the biggest silver-
mining companies in the world and is now overseeing the exploration of that mine with a carried to production interest. Through this agreement, Pan American has four years to earn 75 percent and must invest US$8 million and pay us another US$8 million. After four years, Pan American must supply all the money for any further expenditures incurred on the property but is allowed to recover these expenditures from 75 percent of our share of production if it is successful in building a mine. This is good for us because it mitigates the financial and
On Promontorio-La Negra, Pan American has four years to earn 75 percent, must invest US$8 million and pay Kootenay another US$8 million. After four years, Pan American must cover all further expenditures
technical risk faced by Kootenay. Pan American recently began its second phase of drilling on the La Negra project
or utilized and because claim applications are not being
following a phase one program that was highly successful
granted, the government is missing out on taxes for
in returning a series of high-grade silver intercepts at
these concessions. This is unfortunate and the amount
depth, confirming results from previous drilling.
of money involved can go a long way toward the GDP and the country's economic health.
Q: What are the main challenges you have faced working in Mexico?
Out of 2,000 showings, only one becomes a mine so
A: When we are looking to acquire new concessions, we
drilling and testing is absolutely essential to advance the
are running into significant problems with the process
creation of mines. This has a huge trickle-down impact
of application, granting and cancellation of mining
because without access to this land, no exploration can
concessions by the government. Some of this is a
be carried out, no new discoveries can be made and
result of the new energy law, which placed a priority on
ultimately, no new mines can come into production. This
hydrocarbons in Mexico over all other assets. This has
impacts not only the mining sector but the economy as
created a barrier to mining in large areas across Mexico
a whole due to the industry’s role as an employment
and, unfortunately, a mechanism has not yet been created
creator, revenue generator and huge contributor to the
to address this issue.
country’s GDP.
Unfortunately, this obstacle comes at the most
We recently completed a deal on a project for which we
inopportune time because, with the market’s upturn,
have been waiting for approvals for over three years. This
companies are beginning to display an appetite to
project would not require a great deal of investment to
explore again. The delays related to the land concessions
take it to the drilling stage, which is extremely rare. This is
may mean Mexico could miss out on opportunities to
because the target is so clear and we have already carried
generate wealth for the country and it could result
out sampling and determined that the grade is sufficient. We
in several years where no investment is made in the
are concerned about this and we want to start discussing
country’s resource to advance it. This means there are
the problems with officials at different levels to gauge how
huge swathes of the country that are not being tested
it is affecting the company and the country.
109
INFOGRAPHIC
SILVER: MEXICO'S FAVORITE METAL After recovering in 2016, the silver price hit more stumbling
Taxco runs the country’s silver belt, crossing
blocks as it flatlined through 1H17. But with over 20 percent
through Zacatecas, Durango and Chihuahua
of global production, Mexico's love affair with the grey metal
all the way up to the US border. Over the
shows no sign of waning
years, it is Zacatecas that has become the jewel in Mexico’s silver crown, thanks to the
110
Silver and Mexico have always gone hand in hand.
discovery of world class deposits like Peñasquito, Saucito,
Less than one year after the arrival of Hernan Cortes in
Fresnillo and Juanicipio. These last three deposits have
1521, the rich silver deposits of colonial city Taxco were
contributed to transforming Mexican operator Fresnillo
plundered and the city became renowned for its high-
into a household name and the world’s premier silver
grade silver. But in a straight line due northwest from
producer.
GLOBAL PRODUCTION 2016
886
Production share Reserves
25
million ounces is the production share of the world
20 15
• Latin America is the main producer (53%), Asia is second place (22%).
10 5 0
Mexico
USA
Peru
Bolivia
Chile
Poland Russia
• Biggest increases in: Mongolia, Papua New Guinea, Indonesia and Kazakhstan
China Australia Others 20
• Biggest drops in: Australia, Argentina, Bolivia, Chile, Mexico and India.
85 25
39
37
570
56
120 22
89
thousand tons of total global silver reserves
77
Silver reserves by country (thousands of Tons*)
DESPITE GROWTH SINCE 2015, PRICES HAVE BEEN ON A ROLLERCOASTER 10%
58%
16%
12%
-2%
38%
74%
-11%
-24%
-20%
-18%
10%
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
50 40 30 20 10 0
2005
——High
2006
——Low
——Average
Variation
Sources: CAMIMEX, company websites, INEGI, Mineral Commodity Summaries, USGS, Silver Institute
TOP 5 MINES BY PRODUCTION 2016
ZACATECAS: A SILVER STATE
Mine
Company
State
Production (million ounces)
Saucito
Fresnillo
Zacatecas
21.95
Peñasquito
Goldcorp
Zacatecas
17.90
Fresnillo
Fresnillo
Zacatecas
15.87
San José
Fortuna Silver
Oaxaca
6.12
Tizapa
Industrias Peñoles
State of Mexico
5.80
Zacatecas remained Mexico's leading producer in 2016 with the country's top 3 silver mines
Peñasquito
With 13% of national
PRODUCTION BY STATE 2016
91.92
SAUCITO: THE SILVER JEWEL
Fresnillo
biggest silver mine in Mexico.
18.8%
million ounces produced by top 10 mines
production, Saucito is the
Ownership: 100%
Saucito
rest of the country
Fresnillo Location: Zacatecas, 8km SW of the Fresnillo mine Commodity: Silver, Gold
4.6%
Operational since:
40.8%
Oaxaca
2011
Zacatecas
Facilities: Underground mine with
7.9%
flotation plants
173.9
Sonora
Workforce: 773 employees, 1,337
million ounces total 2016 production
contractors Milling Capacity: 7,800t/d 2,600,000t/y
13.9% Chihuahua
Average ore grade in reserves: 245g/t Silver,
14.0%
1.72g/t Gold Mine Life: 5.9 years
Durango
(at 7,800t/d capacity) 2015: 5.2 years at 7,500t/d capacity
TOP NEW PROJECTS
REFINED SILVER
US$545.4
Industrias Peñoles and Grupo México are leading primary refined silver producers, with an estimated volume of 73 million ounces in 2016. Peñoles is second place worldwide behind Korea Zinc.
million total investment
Project Dolores (expansion) 2017
2018
2019 2020
La Colorada (expansion)
Company Pan American Silver
State
Production (Million ounces)
Investment (US$ million)
Chihuahua
4.5
N.D.
Zacatecas
6.9
164
San Rafael
Americas Silver Corp
Sinaloa
1.0
20
Rey de Plata
Industrias Peñoles
Guerrero
4.7
296
Pyrite Plant
Fresnillo
Juanicipio
Fresnillo-MAG Silver
San Sebastián (expansion)
Hecla Mining
La Ciénega (expansion)
Fresnillo
Terroneras
Endeavour Silver
Jalisco
1.9
65.4
Media Luna
Torex Gold
Guerrero
1.7
N.D.
Zacatecas
Durango
3.5 10.3 4.3
N.D.
1.3
111
VIEW FROM THE TOP
PIONEERING GUANAJUATO MINING ACTIVITIES ROBERT ARCHER Former President and CEO of Great Panther Silver
112
Q: To what does the company attribute its success, given
complex is made up of two mines: the main Guanajuato
its over 400 percent increase in operating earnings from
mine and the San Ignacio mine, which is a satellite operation
mining?
located 22km outside the city. Right now, we are expanding
A: Great Panther was extremely disciplined during the
the resource base at the San Ignacio mine and this is where
downturn. We managed to avoid significant staff redundancies
we are seeing most of our expansion and benefiting from
and emerged from this cycle in an extremely strong position.
higher gold grades and higher levels of production.
One of the biggest contributing factors was the exchange rate. The fact that the peso is weaker relative to the dollar
Q: What progress is being made on the Topia mine given
means our costs have gone down substantially relative to our
the fact that processing activities were halted in 2016?
revenues, which are dollar-denominated. We have also made
A: We shut the plant down to conduct some upgrades at the
some operational efficiencies at the mines. AISC declined by
processing plant and to change over the processing circuits
20 percent, which can be attributed to a reduction in cash
from what used to be wet tailings to dry stack tailings.
costs, in part because of the exchange rate but also because
Environmentally, this is a more favorable option and the
of the impact grade has on unit costs. We produced a record
topography in the region means dry stack tailings is a better
amount of gold last year and this is our main byproduct.
option for this project. It was a planned shutdown and will
Higher gold prices and significant gold production made a
last for around three to four months until the project is
huge contribution to decreased cash costs and decreased
completed. We continued operating the mines during this
AISC. We also reduced CAPEX. One of the strongest features
period and stockpiled the ore, meaning that when the plant
of our company right now is our balance sheet. We have
comes back online, we can process the stockpiled ore to
US$57 million in cash, US$67 million in working capital and
catch up on our yearly production guidance. This means
no debt. This puts us in a very good position to invest in new
that, although we lost production in December 2016, this
projects or to make a strategic acquisition.
will be added to 2017 totals, giving us 13 months of ore production this year.
Great Panther has US$57 million in cash, US$67 million in working capital and no debt, putting it in a very good position to invest in new projects or to make a strategic acquisition
Q: For 2018, what is the company’s main priority? A: Aside from expanding into Peru, we want to expand the resource base we currently have and get Topia back up and running after its renovations. Right now, we are at the point where AISC and cash costs are close to the lowest they can get so now we need to make sure we can keep them at a similar level. AISC will increase slightly because we are investing US$3-4 million in the Topia tailing sfacility, undertaking more drilling activity and investing in
Q: What are your plans for the Guanajuato mine?
operations to ensure continuity. In terms of regions we find
A: This mine equates to more than 75 percent of our
attractive, we have evaluated projects throughout Mexico,
production so it is very much our flagship project. The
mainly in central and northern Mexico, in states like Sonora, Chihuahua, Durango and Zacatecas. In the next five years, we would like to make another acquisition to inorganically
Great Panther Silver is a primary silver mining and exploration
continue to grow the company in Mexico. If we are able to
company listed on the TSX and on the NYSE MKT. Great Panther’s
expand the resource base at Guanajuato and San Ignacio,
current activities are focused on the mining of precious metals
it is possible we will be able to consider expansion of the
from its two wholly-owned operating mines in Mexico
processing plant in Guanajuato.
INSIGHT
CONSERVATIVE FINANCING STRATEGY PAYING DIVIDENDS FREDERICK DAVIDSON President and CEO of IMPACT Silver
Precious metals prices are subject to fluctuations as a result
mine in Guerrero is under care and maintenance and Veta
of geopolitical uncertainty, exchange-rate volatility and
Grande in Zacatecas was sold to Endeavour Silver in 2017.
supply-and-demand. Several notable operators have made
Both San Ramon and Cuchara-Oscar are undergoing further
attempts to insure their companies by using mechanisms
exploration, a strategy that has already paid off with the
like stock shorting and hedging. But Frederick Davidson,
discovery of San Ramon Deeps below the existing mine.
President and CEO of IMPACT Silver, does not believe in using artificial methods to buoy the company.
“The interesting thing about San Ramon is that we were mining it for 10 years and it contributed around 20 percent
“At IMPACT Silver we try simply to keep our costs as low as
to the mill feed,” says Davidson. When it looked like the
possible and let the investor predict the potential foreign
grade was dropping on the concession in early 2015,
exchange fluctuations,” he says. “That way, when they buy
IMPACT began condemnation drilling and discovered San
our stock, they know they are getting a pure silver deal
Ramon Deeps, which is a deposit that is substantially larger
that has not been affected by our own commodity price
than San Ramon but has never been explored. “This deposit
speculation. This is where we differentiate ourselves from a
looks like a different stope with grades that are comparable
lot of silver producers.” Upside on IMPACT stock per share,
to those of San Ramon,” he explains. “This tells us there are
he says, is much better than buying ounces of silver.
additional mines in the area that are yet to be discovered.” With the incorporation of San Ramon Deeps into IMPACT’s
Given the company’s strong financial performance in 2016
portfolio, Davidson believes this success can be replicated
and its subsequent incorporation into the list of top 100
elsewhere with the potential in this area to produce up to
performers on the TSXV, this strategy seems to be paying
4 million ounces.
off. Davidson believes IMPACT can maintain its momentum since the market is getting stronger for silver and investing
Traditionally in this area of Guerrero, there have been silver-
in commodities and that combination will help over the
lead-zinc deposits whose grade tails off when drilling to
next few years.
depths of 250-300m, and IMPACT has found an underlying gold-copper zone on three separate occasions. “It could be
The company was able to demonstrate impressive
that this is a completely separate district, which is interesting
growth, at one stage in 2016 even increasing its earnings
because the former deposits have been mined for 500 years
by 1,000 percent. “The mining industry last year was so
while the gold-copper deposits have not been exploited,” he
underappreciated that when the market started to recover,
says. “This makes it a very interesting property.” In several
investors began to seek quality stocks first and foremost,”
silver-lead-zinc projects that have been mined, such as
says Davidson. “Our stock was able to recover a great
Guadalupe and Nochebuena, there have been indications
deal because we are a company that has been in mining
of potential additional gold-copper deposits.
production for 10 years, starting at 130t/d and now we are at 600t/d. This has been financed primarily out of profits.”
Davidson does not rule out the possibility of adding a new asset to the IMPACT portfolio given the right opportunity.
As a result of its unique financing model, IMPACT was able
In 2016, IMPACT acquired about US$7 million in financing
to increase silver and gold production, increase revenue
and is producing positive cash flows. “We have solid
per ton sold and reduce direct costs per produced ton over
indications from some funds that they will support us if we
the course of one year from 2015 to 2016. The operator has
choose to make an acquisition and we are talking to a few
three producing assets: Mirasol, San Ramon and Cuchara-
companies we could acquire,” he says. “There are several
Oscar located in the Royal Mines of Zacaulpan district on
targets, including some in Mexico, but it will be a question
the border of the State of Mexico and Guerrero. The Capire
of identifying the right deal financed in the right way.”
113
ROUNDTABLE
WHAT DOES MEXICO NEED TO ENSURE ITS POSITION AS THE WORLD’S LEADING SILVER PRODUCER?
Mexico is a silver miner’s paradise, with enviable silver mineralization down its central belt, which is why it consistently ranks among the top silver producers globally. For Mexico to maintain its top spot, it is being put under more pressure to guarantee jurisdictional stability. Mexico may currently hold the crown as the world’s leading silver producer, followed by Peru and China, but the country has a way to go to maintain its position in the coming years amid the global race to attract FDI. Mexico Mining Review asked mining leaders and governmental authorities about their main concerns regarding Mexico’s silver production and the strategies they are using to face these obstacles.
114
The Ministry of Economy has implemented several actions to ease doing business in Mexico. It has reduced regulations to facilitate investment in sectors where FDI was previously restricted, such as telecommunications and energy. It has increased accessibility and transparency of the Public Registry of Commerce and Property. With Congress’ support, it has created a new corporate figure called Simplified Joint Stock Company, which allows an individual to open a business online, at no
ILDEFONSO GUAJARDO VILLARREAL Minister of Economy
cost, and at any time when its annual income remains below MX$5 million. Finally, it has encouraged the use of electronic platforms to ease processes concerning FDI registry, allowing access to the required national standardization procedures and applicable standards or technical regulations.
The first thing that the public sector needs to look at is reversing the change to the deductibility on exploration expenses. That is a simple modification that would spark further exploration activity in the country, which is of course the lifeblood of the industry. We also struggle with land right issues because of discrepancies between the mining and agrarian laws, so there needs to be greater clarity and consistency on that front.
MITCHELL KREBS President and CEO of Coeur Mining
We are happy with the level of support we have received from the state governments in Durango and Chihuahua, but the federal government is a different story. For example, VAT refunds are processed at a painfully slow rate by the Mexican Tax Authority (SAT).
Mexico is a leader in silver mining and has been for many years and projects like Fresnillo’s Juanicipio are set to keep levels high in the next few years. Mexico, North America’s largest producer and accounting for 79 percent of the regional total, had lower output last year but was still the world’s largest producer. The nation reported a 3 percent or 5.8-million-ounce year-on-year contraction, compared to modest gains in the US and Canada, respectively higher by 0.3
MICHAEL DIRIENZO Executive Director and Secretary of The Silver Institute
million ounces (10 tons) and 0.8 million ounces (25 tons). The fall in Mexico, the first since 2003, brings an end to 12 years of uninterrupted growth which delivered a remarkable Compound Annual Growth Rate (CAGR) of 8 percent. That said, many analysts still believe that Mexico will continue to be the leading producing country.
The attractiveness of future investment in Mexico’s mining sector should be the industry’s number one priority. There were some problems with the introduction of the royalty tax a few years ago that certainly impacted negatively on mining investment, admittedly at a time of falling metal prices. Now, with the latest introduction of an Ecological Tax imposed by the state of Zacatecas it sends a very mixed message to investors in the Mexico mining industry. Zacatecas is a traditional mining state within Mexico and there was very little notice and no prior discussion regarding the implementation of the tax, and the reasons for its imposition remain unclear.
CHRISTOPHER WARWICK Mexico Country Manager of Pan American Silver
115
For companies in the silver industry, there is no more favorable location in Latin America. Mexico is more modernized than other jurisdictions like Peru and one of the top five mining jurisdictions in the world. However, it is not perfect. Sometimes it can be challenging to do business for companies other than the big Mexican operators, and issues such as land ownership can become complicated and drawnout. We have a number of projects that we would like to develop but we cannot get a ruling on land ownership. But this is a very minor criticism. We have not had any security issues, and we have always had strong support from the local authorities.
DARREN BLASUTTI CEO of Americas Silver Corporation
Americas Silver Corporation is happy with Mexico as a jurisdiction and wants to grow its business in the area.
The biggest challenge is the lack of knowledge at an international level regarding Mexico’s mineral reserves. We have deep, well-established investment relationships with both the US and Canada and it is vital to keep fostering those relationships. But we need to do more business with other major global economies, with a specific focus on China and Australia. China is the largest consumer of commodities on the planet, while Australia is very similar to Canada in that its economy is geared toward support of the mining sector. We need to attract investment from both of these countries. We have started to build ties – there are already a number of Chinese companies working in the Mexican mining sector - and we are coming closer every year. It is our job, as a government banking institution, to promote the mining sector
ARMANDO PÉREZ Former Director General of the Mining Development Trust Fund (FIFOMI)
and ensure that everyone knows about the opportunities in Mexico.
Mining accounts for just over 4 percent of GDP, contributes to foreign collaboration, generates a significant number of direct and indirect jobs and brings economic prosperity to remote areas. Mining in Mexico has been and is crucial for the development of our country. Mexico is a world leader in silver production and is among the top 10 producers of 19 minerals. For this reason, in recent years, legislative analysis on the subject of mining in Mexico has generated intense debates and as a result, the Mining Commission was created. As for the short and long-term goals, we are in the penultimate year of the administration so we are making plans to standardize the commission, which will allow us to make more long-term plans. Another objective is to strengthen the links between state authorities, investors and executives in the sector in order to boost mining, standardize criteria and seek to prioritize the mining sector.
SUSANA CORELLA Federal Deputy for Sonora and Head of the Special Mining Commission for the Federal Government of Mexico
VIEW FROM THE TOP
WORLD-CLASS GRADES AT LAS CHISPAS PROPERTY ERIC FIER President and CEO of SilverCrest Metals
116
Q: How has the decision for First Majestic to acquire
A: The largest pool of silver bulls in the world is in the US.
SilverCrest Mines and create SilverCrest Metals turned out?
If a company is working in the silver space it is important
A: In 2015, we had US$30 million of free cash flow in the bank
to be listed on a US stock exchange. Historically, all the
and a deal with First Majestic was appealing for a number of
midsized Canadian miners working in Mexico, like Great
reasons. The deal was essentially a swap; we sold the Santa
Panther Silver and First Majestic Silver, have gradually
Elena mine and in return SilverCrest shareholders received
increased their exposure to the US, which has resulted
about 25 percent of First Majestic’s shares. SilverCrest Metals
in more liquidity and a noticeable bump in share prices.
was created as a spinoff vehicle, taking on five properties
This is a model that has demonstrated clear success and
from SilverCrest Mines, one from First Majestic and around
one we are looking to follow. Previously, we were listed
US$5 million in cash. We wanted to make sure that Santa
on the pink sheets but we moved that listing up to the
Elena was being placed in the right hands, while First
OTCQX because we wanted more exposure to the US silver
Majestic shares were trading low and it needed a mine that
investment community. We now have an improved platform
would generate free cash. The deal was successful for both
to better promote the company and its projects in the US
sides. First Majestic shares jumped from CA$4 to CA$24 in
and drive long-term value.
the space of just nine months, bringing returns for us as large shareholders. For First Majestic, Santa Elena has become the
Q: Why is the company focused on Mexico and what
company’s showcase mine and its biggest cash generator.
advantages and challenges does working in the country add? A: I have worked in over 30 countries, and I believe Mexico
Q: Why did the company begin trading over-the-counter
is the best mining jurisdiction in the world. I have been
stocks on the OTCQX in May 2017?
working in the country for over 20 years, so I understand the culture, the ejidos and the local communities. Over that time, I have built several strong relationships, I trust the people and I have few concerns from a safety
SILVERCREST: A NEW MODEL OF EXPLORATION COMPANY
standpoint. One of the most positive aspects of working in Mexico is that it is a mining-friendly jurisdiction and therefore projects can move forward quickly. The royalty
In October 2015, First Majestic Silver completed the
tax that was introduced in 2013 was higher than I was
acquisition of SilverCrest Mines. Under the terms of
expecting but I have already seen the funds being put
the agreement, First Majestic acquired all issued and
to use in mining communities around Sonora in various
outstanding shares and SilverCrest Mines shareholders
infrastructure projects. Within Mexico, I believe Sonora
received 0.2769 First Majestic shares and CA$0.0001
is the best state in which to operate. There are very few
for each share of SilverCrest held. These shareholders
mining districts in the world where a project can move
were also entitled to 0.1667 shares in the newly-
from discovery to production within four years but Sonora
formed SilverCrest Metals. SilverCrest Mines turned
is on that list.
over its Cruz de Mayo, Las Chispas, Angel de Plata, Huasabas and Estacion Llano exploration properties
Q: What inspired you to focus on developing the Las
located in northern Mexico, as well as CA$5.25 million
Chispas property?
in cash and certain other assets to SilverCrest Metals.
A: The Las Chispas property is only 25km from the Santa
First Majestic transferred its Guadalupe exploration
Elena mine and is easily accessible by road so we already
property located in Durango to SilverCrest Metals,
had extensive working knowledge of the region’s geology,
and took ownership of approximately 9.9 percent of
communities and government agencies. The property
SilverCrest Metals’ shares.
has a long, colorful history dating back to the 1640s
when it was initially discovered by a Spanish General. After passing through several hands, it was eventually turned into a small but profitable mine by a Swiss family in the late 1800s. Historically, approximately 100 million ounces of silver and 200,000 ounces of gold has been produced in the district, but the grade is particularly impressive at an estimated 15g/t gold and 1.7kg/t silver.
On the back of the Las Chispas discovery, the company share price shot up from CA$0.15 to CA$4 in 2016
When we started drilling, we found similar grades and this is why the project is so interesting. On the back of
the end of 2017 and Giovanni is a good start. A 12,000m
the Las Chispas discovery, the company share price shot
drill program is ongoing and we are looking for more
up from CA$0.15 to CA$4 in 2016, revealing the strong
high-grade mineralization in the region of 400-500g/t
reception that the project has received from the mining
silver equivalent.
investor community. Within five years, we hope that Las
117
Chispas becomes a strong, profitable mine in the same
Once we have reached our target of critical mass, we will
way Santa Elena has.
make a decision on the next steps whether that be producing ourselves, possible toll milling or seeking a buyer like we did
Q: How significant was the recent discovery of the
with Santa Elena. We will choose the path that works best for
Giovanni vein and what does this mean for the project
the company, the shareholders and the local communities.
going forward?
The proximity of Santa Elena and Premier Gold’s Mercedes
A: It gives us a better understanding of the deposit.
mine adds value to the project because there is local access
We are planning to follow the same path as we did for
to a processing plant, which might enable SilverCrest to kick-
Santa Elena, where we were constructing the mine just
start production when the time is right.
four years after making the initial discovery. At Santa Elena, we had initial resources of around 30 million ounces of silver equivalent when we went ahead with
SilverCrest Metals is a Canadian precious metals explorer
the construction and this is our initial target number at
focused on developing and de-risking mineral properties
Las Chispas. We do not have any official numbers yet –
in Mexico. The company’s flagship asset is the Las Chispas
we hope to release an initial resource estimate before
property in Sonora
INSIGHT
PERFECT TIMING FOR NEW SILVER EXPLORER GREG CROWE President, CEO and Director of Silver One Resources
118
In the good times, miners can afford to sit on a vast, diversified
For Crowe, the gold-silver ratio has been unbalanced by the
portfolio of assets, safe in the knowledge that the noncore
big banks short-selling the grey metal. This provides further
projects can be siphoned off at a good price if necessary. But
strength to the argument that the silver price will continue
with volatility continuing to plague international commodity
to rise. “The gold-silver ratio for the last several decades has
markets in 2017, companies of all sizes are forced to prioritize,
hovered around 1:40 or 1:50, and now this ratio is out of sync at
resulting in a swathe of promising concessions popping up
1:70 or 1:80,” he says. “Considering global economics and the
on the market. For companies like Silver One Resources,
manipulation of the silver markets, there has to be a correction
a newly formed explorer eager to make its name in the
and I expect that silver will end up outperforming gold.”
Mexican silver sector, this is a dream scenario. Of Silver One’s Mexican properties, the Peñasco Quemado “The assets that went into the company were acquired
project in Sonora is the most noteworthy. A 2006 drilling
through First Mining Finance, which had switched its focus
program outlined a historical measured and indicated
to target interesting gold assets in eastern Canada,” says
resource of 2.57 million tons at a grade of 117g/t for a silver
Greg Crowe, President, CEO and Director of Silver One
resource of 9.63 million ounces, with notable manganese,
Resources. “That left some strong nonproducing assets and
lead and zinc anomalies. But this was at a shallow strike
Silver One was created to start working on these projects.
length of 450m, and Crowe and his team have seen
Firstly, we will advance our current projects organically and
mineralization that hints at further deposits at greater
secondly, we will look at new acquisition opportunities.”
depth. Drilling will soon commence to determine how far the resource can be expanded.
Founded in mid-2016, Silver One Resources owns a 100 percent interest in three significant, but largely undeveloped,
“Recently completed soil surveys we carried out suggest
silver assets in Mexico. It operates independently of First
that the mineralization has a strike length of up to 3km,”
Mining Finance - although the mining bank is the largest
says Crowe. “There is also an entirely different soil anomaly
shareholder with a 7.3 percent stake - and wasted no time
over the west side of the property that is 3x2km and has
before filing an Independent Public Offering (IPO) on the
never been explored. We suspect there is a silver-zinc-lead
Toronto Venture Exchange (TSX.V). It quickly raised US$2.5
deposit at depth.”
million from the mining-friendly investor community in Canada and has set its sights on becoming the latest in a
To complement its Mexican properties, Silver One recently
long line of junior explorers to make the most of Mexico’s
acquired a 100 percent interest in the Candelaria project
estimated 37 billion tons of silver reserves.
in Nevada from Silver Standard Resources. But despite its foray into the US, the company’s main hopes seem
Simple supply-and-demand economics suggest that market
to hinge on Peñasco Quemado and its other properties
conditions are perfect for launching an early-stage silver
in Mexico. Crowe has extensive experience working in
developer. According to The Silver Institute, supply of the
mining jurisdictions throughout Central and South America,
grey metal dropped by 0.6 percent in 2016 to 885 million
and describes Mexico as “extremely favorable” to mining
ounces from 890 million ounces in 2015, the first decline
activity. Combine that with its world-renowned resources
in over 10 years. Mexico, the world’s largest producer,
and Crowe sees no reason to look elsewhere.
produced 186.2 million ounces, 6 million ounces less than the previous year as grades continue to fall and exploration
“Overall the authorities in Mexico have been extremely
rebounds slowly from the downturn. In contrast, the
helpful,” he says. “I find Mexico to be very favorable in
growing hunger for solar panels and electronics provides
comparison to any in Central America, and the only other
silver with strong demand fundamentals.
country in Latin America that is comparable is Peru.”
INSIGHT
DRILLING OLD VEINS TO FIND NEW PROFITS CARLOS RODRÍGUEZ COO of Avino Silver and Gold Mines
As an exploration company looking for the next project,
project will provide a further boost to the asset’s profitability.
revisiting past-producing assets is a tried and tested tactic
“Our production target for 2017 is 2.7 million silver equivalent
to identify new resources and drill targets that will drive
ounces,” says Rodriguez. “But once Circuit 4 is completed,
corporate value. In 1968, Avino Silver and Gold Mines
this figure should increase by at least 30 percent.”
was founded with the specific goal of reactivating and regenerating the historic Avino silver property in Durango.
While things are going well on the operational side, the company has run into an issue that affects many miners
The mine, with a history that dates back to the 1500s, was
in Mexico: community relations. Rodriguez describes
once described by Spanish conquistadores as a “mountain
negotiations over land usage as “the biggest challenge”
of silver” and was officially re-opened by Avino in 1974. After
of working in Mexico, a task that is more challenging by
27 years’ production, the mine was closed in 2001 because
the underwhelming impact of the royalty taxes slammed
of plummeting silver prices but again rose from the ashes
onto precious metal producers in 2013. “The population
to begin producing in 2016. Despite extensive on-and-off
is not entirely sold on the benefits of mining, so when we
extraction activities for over 500 years, the executive team
announce new plans, we encounter opposition from local
at Avino is convinced the property holds more undiscovered
groups,” he says. “The fact is that the royalty tax that miners
resources. The company drilled 14 diamond holes in 2016
in Mexico pay on precious metal production has had little
and will continue to explore the property in 2017.
to no effect on local communities, so I can understand why they are frustrated – the companies are too.”
“We secured a US$10 million bought deal financing in November 2016, and a significant portion of the proceeds
The Mining Trust Fund, administered by SEDATU to approve
will be put toward a drilling program in 2017,” says Carlos
and fund new projects in mining-heavy regions, has been
Rodriguez, COO of Avino Silver and Gold Mines. “We hope
slow to allocate resources and Rodriguez’s tolerance is
to drill at least 5,000m in 2017, mainly on the Avino vein
being tested. “We are told to be patient to see the results
but also at San Gonzalo.”
of the new taxes but the changes were made in 2013 and I believe that four years is enough time.”
Drilling is expensive but Avino moved from development mining into commercial production in 2H16, which has
The wider impact of this standoff is already being felt. The
significant ramifications for the company’s balance sheet.
Fraser Institute Annual Survey of Mining Companies, which
During the development phase, proceeds from the sale of
ranks jurisdictions on attractiveness based on a combination
concentrate are classified as a recovery of exploration and
of geology and mining policy, placed Mexico at number 50
evaluation expenses rather than revenue, Rodriguez says. With
in 2016. In 2012, the year before the taxes were introduced,
the mine now in commercial production, top-line revenue is
the country placed number 25.
soaring. Despite total production levels falling due to lower grades, the company registered US$8.1 million in total revenue
For now, Avino is committed to follow through on its
during 1Q17, an improvement of 306 percent year-on-year.
“aggressive” exploration program at its flagship property,
Avino’s cash holdings also jumped during the quarter by 65
and despite plans to re-open another past-producing asset
percent to US$7.6 million from US$4.6 million in 1Q16.
in British Columbia, Canada, the company will continue to build its business around Avino. But Rodriguez insists the
According to Rodriguez, alongside the drill program the
government must do more to promote the sector if it plans
company will also be expanding the mill to 2,500t/d by the
to attract further investors and re-emerge as a world-class
end of 2017, adding to the overall throughput capacity, while
destination for mining investment. This includes finding a
a positive Pre-Feasibility Study (PFS) for an oxide tailings
resolution to community disenchantment.
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MINE SPOTLIGHT
120
PALMAREJO Coeur Mining’s flagship underground Palmarejo mine is located 15km from the Temoris municipality in Chihuahua. The company owns and operates six producing mines: Kensington, Rochester and Wharf in the US, Palmarejo in Mexico, San BartolomÊ in Bolivia and Endeavor in Australia. Of these mines, Palmarejo remains the most productive asset in Coeur’s portfolio, having produced 4.4 million ounces of silver at a grade of 3.52oz/t and 73,913 ounces of gold at 0.048oz/t in 2016. In 2017, Coeur expects to double production from 2016 levels, processing 6.8 million ounces of silver and 115,000 ounces of gold at a rate of 3,800t/d. Palmarejo has already produced almost 3 million silver ounces and over 66,000 gold ounces in 1H17. The Palmarejo complex consists of 79 wholly owned mining concessions, covering approximately 45,535ha of land. The complex is located on the western flank of the eastern Sierra Madre, a mountain range that runs down the central spine of Mexico. The gold and silver deposits at the Palmarejo complex, typical of many of the other silver and gold deposits in Sierra Madre, are classified as epithermal deposits and hosted in multiple veins, breccias and fractures. The most important of the complex's mineralized zones to date is the Palmarejo zone in the north, which covers the old Palmarejo gold-silver mine formed at the intersection of the northwest-southeast trending La Prieta and La Blanca goldand-silver bearing structures. In addition to the Palmarejo zone, other mineralized vein and alteration systems in the district area have been identified. The most significant of these additional targets are Guadalupe, located about 8km southeast of the Palmarejo mine, Independencia, located 800m northeast of Guadalupe, and La Patria vein system in the southern part of the property. At the end of 2016, Palmarejo transitioned to a fully underground mine with a focus on the Guadalupe and Independencia deposits. As of 2017, the property contains proven and probable reserves of 40.8 million ounces of silver and 592,000 ounces of gold. Its measures and indicated resources amount to 17.3 million silver ounces and 237,000 gold ounces, while inferred resources equate to 20.5 million silver ounces and 258,000 gold ounces. At the end of 2016, Coeur announced plans to allocate the largest chunk of its exploration budget to the Chihuahua property. For 2017, Coeur expects 40-45 percent of its gold from Palmarejo to be sold to Franco Nevada, a company that owns a royalty stream on the project, at a price of US$800/oz compared to the US$416/ oz it paid on a previous stream.
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INSIGHT
SILVER EXPLORER READY FOR UPTURN BRUCE WINFIELD President and CEO of Defiance Silver
It is 2011. The price of an ounce of silver is at a record US$35
adding 8 million ounces to the 18 million ounces that are
and investors are queuing up to pour their money into grey-
fully NI 43-101 compliant. Winfield is hoping to reach an
metal deposits. A group of mining professionals forms
estimated 50 million ounces during the current drilling
Defiance Silver and immediately acquires the advanced-
program, an important figure that would allow the company
stage San Acacio project in the heart of the historic
to start considering a feasibility study and force the major
Zacatecas silver mining district. Just 2km to the west is
players to start taking note.
Capstone Mining’s Cozamin project and 60km to the north is the giant Fresnillo silver mine. All the conditions needed
But it is not all smooth sailing. The project benefits from
for San Acacio’s rapid development seem to have come
its location in mining-friendly Zacatecas, which Winfield
together. But the good times did not last.
admits makes “a world of difference,” but in late 2016 the state government introduced a controversial Ecological
“In 2012, uncertainty seemed to grip the market and metal
Tax on mining waste. Given that Defiance is not yet in the
prices collapsed,” says Bruce Winfield, President and CEO
production stage, this does not affect the company directly
of Defiance Silver. “As a result, people were not interested
but the junior is sensitive to anything that detracts from
in investing and they were selling their shares.”
investor interest in the region.
This was the beginning of a painful, four-year downward
Local operators, including Fresnillo and Industrias Peñoles,
spiral that saw the silver price sink to a low of US$14/oz in
openly opposed the reform when it was announced,
December 2015. Despite sitting on a resource with inferred
arguing that mining does as much if not more to protect
resources of 18 million ounces of silver equivalent, with no
the environment than other industries. Winfield agrees,
other assets on its books Defiance Silver was forced to
and acknowledges the support the mining community has
sit tight and wait for the tide to turn. This happened in
received from the “forward-thinking” local communities.
January 2016 when prices began a turnaround. The price
“Unlike other states, Zacatecas has moved on from the
has been on an upward curve ever since, a few short
idea of mining as an exploitative industry,” he says. “In the
blips notwithstanding. Now Winfield is understandably
past, miners released mercury tailings into the environment
buoyant and is looking forward to ramping up San Acacio’s
without thinking but that is not acceptable anymore and
development.
there is no reason for a modern tailings operation to contaminate the ecosystem. The locals understand that.”
“We had two lots of warrants exercised that contributed over US$1 million to the treasury and we are currently
Much like many junior explorers, Defiance Silver’s long-
considering other financing options in order to start
term vision is to be acquired by a larger company. Thanks
drilling again,” he says. “We have received a permit from
to strong infrastructure and proven mineralization,
SEMARNAT to drill up to 60,000m for 4.5 years. Given the
Winfield insists that San Acacio will be a “low-cost,
interest and excitement in the industry, it is a very positive
high-margin” asset when in production. If this does not
environment in which to be working.”
materialize, however, the company has a team of proven mine-builders in its ranks with plenty of experience in
His optimism is understandable. The San Acacio deposit
Mexico and would not hesitate to put the mine into
has historically produced around 100 million ounces of
production itself. For now, Winfield seems to be happy
silver but has only been exploited to around 200m, giving
sitting on a proven, silver-rich resource. Given the
the Defiance team confidence that the resource can be
industrial applications for silver, including in electronics
expanded with deeper drilling. Despite difficulties, the
and solar power, he is looking forward to watching the
company was active during the downturn, unofficially
market develop over the next few years.
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VIEW FROM THE TOP
OLD ELEMENT STILL RELEVANT TODAY MICHAEL DIRIENZO Executive Director and Secretary of The Silver Institute
124
Q: What value can silver offer investors looking to diversify
uses of silver, and to spread knowledge and understanding
their portfolio?
of the uses of silver. We also collect and publish statistics
A: Silver has been considered a precious element for 6,000
and other information about production, distribution and
years. It was first used as a currency in 700BC and has had
consumption of silver, aiming to develop methods for
a role as a trading metal in nearly every ancient and modern
improving the welfare of the silver industry.
culture. From the drachma of the ancient Greeks, which contained an eighth of an ounce of silver to the Roman
Q: What role does Mexico have within the context of the
denarius and the British pound sterling, which designated a
global silver industry?
specific weight amount of the element, silver has long held
A: Mexico is a leader in silver mining and has been for many
a special place as a store of value. Today, its intrinsic value
years and projects like Fresnillo’s Juanicipio are set to keep
persists. It is considered a secure and affordable investment
levels high in the next few years. Mexico, North America’s
and has earned a place in the portfolios of many different
largest producer and accounting for 79 percent of the
types of investors for that reason. For example, Individual
regional total, had lower output last year but was still the
Retirement Account (IRA) participants may choose to include
world’s largest producer. The nation reported a 3 percent
silver bullion coins and bars in their portfolio, provided that
or 5.8 milllion ounce year-on-year contraction, compared
they are of a fineness of at least 99.9 percent silver. Relatively
to modest gains in the US and Canada, respectively higher
insulated from the volatility of the markets, silver’s value has
by 0.3 million ounces (10 tons) and 0.8 million ounces (25
been proven as a precious metal and time-tested commodity.
tons). The fall in Mexico, the first since 2003, brings an end to 12 years of uninterrupted growth which delivered a
But there are regulatory issues that are facing the industry.
remarkable Compound Annual Growth Rate (CAGR) of 8
The London Bullion Market Association (LBMA) Silver Price,
percent. That said, many analysts still believe that Mexico
an important benchmark, is going through change with new
will continue to be the leading producing country.
administrators bidding to offer the services. Beyond that, the global economy is still sluggish, and we are hopeful that
Q: Given the ever-increasing demand for silver, what can
it starts to pick-up steam.
the industry do to avoid creating a global deficit? A: In 2016, there was a deficit of 147.5 million ounces of
Q: In what ways does The Silver Institute work alongside
silver. The physical balance recorded a deficit for the fourth
its members to develop the global silver market?
successive year, albeit a markedly smaller one of 20.7 million
A: The Silver Institute is a nonprofit international association
ounces (643 tons). Arguably the key reason for the smaller
that draws its membership from across the breadth of the
deficit was the softer offtake from retail investors of coins
silver industry. Established in 1971, the Institute serves as the
and bars after the record level of 2015.
industry’s voice in increasing public understanding of the many uses and values of silver. The goals of the institute are
Solar will remain strong and is important to silver demand.
to encourage the development and uses of silver and silver
Photovoltaic (PV) demand for silver totaled 76.6 million
products, help develop markets for silver, foster research
ounces in 2016, a 34 percent surge from the previous year.
and development related to the present and prospective
This marks the second consecutive year of increases in this sector, and was driven by a 49 percent increase in global solar panel installations. Investment should pick up and if
The Silver Institute is a nonprofit international organization
the global economy improves, so too will industrial demand.
that draws membership from across the breadth of the
Following a 4 percent fall in 2015, industrial fabricators
silver industry. The Institute serves as the industry's voice in
consumed 561.9 million ounces (17,478 tons) of silver last
increasing public understanding of the many uses of silver
year, a drop of just over 1 percent or 7.7 million ounces.
VIEW FROM THE TOP
SILVER STREAMER INTENSIFIES LATIN AMERICAN PERFORMANCE RANDY SMALLWOOD President and CEO of Wheaton Precious Metals (formerly Silver Wheaton)
Q: Given your company’s unique position as a precious-
the benefits of these projects ramping up. We also acquired
metal streaming company, how encouraged are you about
the Antamina stream at the end of 2015 so we got the full
the price of silver in 1Q17?
benefit of one year’s production at the facility. We added
A: Given the strength of the US dollar, having gold and silver
another 25 percent of the gold production from Salobo in
performing as well as they have is unprecedented. Since
August 2016 so all of that added up to very strong growth.
the last election in the US, there has been some strength
The strong performance at those mines also offset some
and growth in the US dollar. Holding the value positions
weaker performances at Peñasquito and San Dimas. At
us very well because at some point there will be a break
the latter, Primero is facing some challenges and we are
and the US dollar’s performance will slacken. When that
working with the company to try and resolve the issues.
happens, precious metals is where investors will look. Prices
With Peñasquito, an investment is now being made into
have not yet rallied much and yet the sense of optimism is
the asset to expand it so we expect stronger performance
much greater than what we saw a year ago. I think this is
from these assets in the future.
because precious metals have been able to hold its value against the US dollar. But the dollar strength cannot last
Q: How do you plan to reinvest the additional cash flow
forever - this is purely an emotional response - and we are
you have generated?
preparing ourselves for a good year.
A: We have a revolving credit facility that we can use for capacity and I feel it is more favorable to stay on the
Q: How do you feel Mexico compares to other mining
debt side. If our profits do not go into new opportunities
jurisdictions?
in the ground, they will go back to shareholders in the
A: Of all the countries I have visited, mining does not
form of dividends as our strategy does not involve
receive the same level of respect as it does in Mexico.
building up large cash reserves. We are comfortably
The government and the people understand that
generating around US$600 million of free cash flow
there is value in the industry and as long as it is done
per year, the allocation of which will be reinvestment
efficiently, it can only benefit the country. One of the
in mining assets. Mexico has always been a very active
main challenges we see in mining is that it is not always
space for us although we have not seen a great deal of
done in a responsible manner and we should continue
new developments recently. But it is a country we would
striving to do better and better. It is one of the reasons
be happy to further invest in.
why we initiated the partner CSR Program where we, even as a streaming company, supply capital to our
Over the last five years we have spent US$5.5 billion
partners to help fund community initiatives. We have
in upfront payments for new streams. Our company
funded a recreational initiative mainly focused on the
has a strong reputation for technical due diligence.
youth in the town of Tayoltita, near the San Dimas mine
This reputation has extended to the point where our
and an educational initiative in the community of Mazapil,
partners are now proud to have “the Silver Wheaton
near the Peñasquito mine. We are the first streaming and
stamp of approval.” Our portfolio of high-margin assets
royalty company to do so.
that continue to deliver strong results demonstrates the attention we pay to these details.
Q: What led to Silver Wheaton’ record quarterly production of 109,000 ounces in 3Q16? A: We made a few really strong acquisitions but we also
Wheaton Precious Metals is the world’s largest precious
saw some expansion. Some projects also came onstream.
metals streaming company. With a strong growth profile, Silver
The Constancia mine in Peru and Salobo in Brazil reached
Wheaton offers investors cost predictability, direct leverage to
their full production capacity in 2016 so we continue to see
increasing silver and gold prices and a high-quality asset base
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MINE SPOTLIGHT
126
SAN JULIÁN In August 2016, San Julián became the seventh mining operation in commercial production of the world’s largest primary silver producer, Fresnillo. The group spent a total of US$515 million to develop the silver-gold project, and CEO Octavio Alvidrez describes it as a “cornerstone” for Fresnillo’s 2018 production goals. “We feel that San Julián will become one of our flagship assets in the coming years,” he says. Straddling the Chihuahua-Durango border, San Julián is in an extremely isolated part of the country, something Alvidrez admits has been challenging from a logistical standpoint. But the company clearly feels the potential rewards outweigh the drawbacks. After Phase I began its ramp-up during 2H16, silver production reached 2.1 million ounces before the end of the year, and gold output was 31,400oz. In the first half of 2017, these figures increased to 2.9 million ounces and 41,000 ounces respectively, helped along by the completion of an on-site flotation plant. San Julián was the primary catalyst behind Fresnillo’s 11.2 percent rise in silver production to 28 million ounces during 1H17, which in turn helped to net the company an 87 percent YOY increase in profit for the first half of the year to over US$310 million. But there is much more to come from San Julián. Commercial production of Phase II was achieved in July 2017, on time and on budget, and by 2018 the mine should achieve throughput of 6,000t/d and produce 10.3 million oz/y silver and 63,700oz/y gold for a period of 12 years, with anticipated cash costs of US$4.9/oz silver. This would put San Julián straight into the top five largest silver mines in the country by production and help solidify Fresnillo’s – and Mexico’s – role as the world’s largest silver producer. There is additional ongoing exploration work in and around the mine. Alvídrez estimates that only 30 percent of the district has been explored and, with plans for a heavy exploration program during 2018 and beyond, it seems likely that the 12-year life of mine plan will be extended. “There is a lot of potential to increase resources,” he says. Alongside the advanced-stage exploration projects at Orisyvo, Juanicipio, Las Casas Rosario and Cluster Cebollitas and Centauro Deep, San Julián is primed to play a leading role in Fresnillo’s production pipeline for decades to come.
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Copper wire
COPPER, BASE METALS & INDUSTRIAL MINERALS
5
The past year has been a tale of steady improvement for base metals. After flatlining for much of 2016, copper shot up in October and finished the year on the LME trading at US$5,500/t. Then, thanks to a more solid forecast in Chinese economic growth, in July 2017 copper reached US$6,292/t, its highest level in two years. Zinc, which finished 2016 as the best-performing commodity on the LME after rising 60 percent to US$2,550/t, also benefited from China’s recovery and continued its rise by improving a further 7.8 percent during 1H17. Lead, meanwhile, jumped 13 percent during the first half of 2017. Mexico continues to play an important role in base metal production and is in the top 10 for global output of copper, zinc, lead and molybdenum. Thanks to the US$4 billion expansion of Grupo México’s Buenavista del Cobre mine, and a number of promising exploration projects, Mexico’s base metal production pipeline is in a strong place.
This chapter includes insights from Mexico’s leading base-metal producers and explorers, offering an insider’s perspective into the opportunities and challenges facing the sector today. Within the chapter, mine spotlights and detailed maps offer an in-depth view of the base metals arena in Mexico as well as its pipeline.
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CHAPTER 5: COPPER, BASE METALS & INDUSTRIAL MINERALS 132
ANALYSIS: Copper Reverses Course, Zinc Stumbles, Lithium Shines
134
VIEW FROM THE TOP: Oscar González, Americas Mining Corporation
135
VIEW FROM THE TOP: Fernando Alanís, Industrias Peñoles
136
MAP: Mexico's Main Base Metals Mines
138
VIEW FROM THE TOP: Manolo Espinoza, ArcelorMittal
139
BOX: Renato Aguilera, Aceros Fercom
140
VIEW FROM THE TOP: Darren Pylot, Capstone Mining
141
VIEW FROM THE TOP: Mike McAllister, Sierra Metals
142
MINE SPOTLIGHT: La Caridad
144
VIEW FROM THE TOP: Darren Blasutti, Americas Silver Corporation
146
MINE SPOTLIGHT: Naica
148
INSIGHT: Will Dix, Consolidated Zinc
149
INSIGHT: Gerardo Angulo, Timken Mexico
150
ROUNDTABLE: What Does Mexico Offer Base Metal Explorers and Producers?
152
INFOGRAPHIC: Industrial Minerals
131
ANALYSIS
COPPER REVERSES COURSE, ZINC STUMBLES, LITHIUM SHINES Base metals are on widely different trajectories. Lithium is
tons of copper scrap in comparison to refined
rising thanks to growing interest in EVs, while zinc did not
copper imports of 1.54 million tons as shown
benefit as expected from a possible supply deficit. Copper
by customs data.
may have hit a home run thanks to economic shifts in China The IMF in June 2017 also raised its GDP growth
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Behavior in base metals does not manifest itself in the
expectations for China to 6.7 percent for the year from
same way as gold, which is largely bolstered by its status
6.6 percent. Copper prices on the London Metal Exchange
as a safe haven in the midst of geopolitical uncertainty.
(LME) spiked to US$6,148/t after the announcement, a jump
Metals like copper and zinc, on the other hand, rise and
closer to the metal’s mid-May 2015 high of US$6,445/t.
fall with the vagaries of supply and demand economics.
In just five days, between July 20-25, prices increased 4
As the global economy - and manufacturing - gathered
percent to US$6,148 from US$5,929.
steam toward the end of 2016 and into 2017, base metals prices followed suit.
Another factor underpinning copper is a possible deficit in supply. The metal is a staple in sectors such as electronics,
Copper is a good example. The vast majority of global
infrastructure, industrial machinery and transportation.
demand for the brown metal – 45 percent – comes from
According to the International Copper Study Group (ICSG),
China. It is no surprise then that as China goes, so does
6.2 million tons of copper was produced globally between
copper. As 2016 rolled into view, investors fretted over
January and April 2017, a 3 percent drop from the 6.4
weak growth in the world’s second-largest economy, whose
million produced in the same period in 2016. Raul Jacob,
rapid growth had underpinned the metal for a decade. But
Vice President of Finance, Treasurer and CFO of Southern
the behemoth was slowing, and in January copper hit its
Copper Corporation (SCCO), stated in the company’s
lowest mark in more than six years. While the metal roller-
1Q17 earnings call that “after five years of copper price
coastered for much of the year, it kept above that low and
reductions, we see supply underperforming market needs
by year’s end was tracking strongly higher, buoyed by
in 2017.” He estimates a deficit of about 100,000 tons for
Chinese government stimulus plans and in the US, hopes
the year.
that President Donald Trump would follow through with a campaign pledge to build more infrastructure.
ZINC MOVEMENT LIMITED BY INVENTORIES The supply deficit helping copper has not done the
The brown metal reached its highest level in two years in
same for zinc, where the deficit has not been as severe
July 2017 thanks to a more positive forecast in Chinese
as expected. In 2016, zinc was the strongest performing
economic growth and a possible scrap metal import ban.
metal on the London Metals Exchange (LME) thanks to the
In the first half of 2017 alone, China imported 1.85 million
closures of major mines. This sparked a 60 percent rally
PARTICIPACIÓN NACIONAL DE COBRE POR COMPAÑÍA ENPRODUCTION 2016 MEXICO'S COPPER BY COMPANY 2016
to US$2,906/t from US$1,548/t at the beginning of 2016. Prices skyrocketed as the closures were projected to create a favorable imbalance in supply and demand. According to the International Lead and Zinc Study Group (ILZSG), global demand for refined zinc was expected to be greater than supply in 2017. But Claire Hassall of consultancy CHR
766,129
Limited said at the 2017 International Zinc Conference in London that the optimism may have been misplaced.
Tons
Despite the major mining closures, world zinc output still climbed 7.3 percent in the first four months of 2017 in comparison to 2016, attributed to a rise in mine production
76.6% Grupo México 76.6% Minera Mexico 4.5% Industrial Peñoles 4.5% Industrial Peñoles 3.0% NEMISA 3.0% Neg. Mra. Sta. Ma. 2.9% Cobre de Mayo de la Paz
Source: CAMIMEX 2.9% Cobre de
Mayo
2.4% Minera Frisco 1.9% Capstore Mining Source: CAMIMEX
2.4% Minera Frisco 1.9% Capstone Mining 5.7% Aurcana Corp 1.0% Carrizal Mining 0.1% Aurcana Corp 5.8% Carrizal Mining
to 4.27 million tons from 3.98 million tons, according to ILZSG. Robin Bhar, head of metals research at Societe Generale, forecasts that prices in 4Q17 will average US$2,520/t. “There is always a danger that the market will be capped by producer selling and that hidden inventories will seep out. That is a perennial problem,” he says.
In the first half of 2017, prices peaked in February at
home to the Electra project owned by Lithium Australia and
US$2,970/t and have gradually been decreasing. In June,
Alix Resources. Sonora Lithium still has a long way to go
the price reached a low for the year of US$2,434/t.
before it reaches commercial production but it already has a purchase agreement with Tesla. According to Vidal, “lithium
LITHIUM SHINES BRIGHT
will ultimately open an alliance between the automotive and
Heading in the other direction is lithium, boosted by the
mining industries in Mexico.”
unwavering trend toward sustainable production. “The growing demand for renewable-energy solutions will reflect
WHAT DOES THIS MEAN FOR MEXICO?
well on metal prices,” says Phil Hopwood, Global Mining
Copper is likely to continue its rise as the Chinese ban
Leader at Deloitte. “Lithium, cobalt, nickel and graphite are
on scrap metal and economic reforms continue to boost
all key components of batteries, which are emerging as
demand for the metal. Mexico produced 766,000 tons of
a popular alternative to diesel fuel.” The growing use of
copper in 2016, a 28.9 percent increase in comparison with
electric vehicles (EVs) is marking the beginning of a “white
the 593,000 tons that was produced in 2015, thanks mainly
petroleum” era. According to Fortune, given that pure
to the consolidation of two Grupo México plants. Globally,
EVs account for less than 1 percent of all vehicles on the
Mexico was the 10th largest producer of copper.
world’s roads, “the potential growth in demand for lithium is dizzying.” A 2016 Goldman Sachs report suggests that
Zinc prices will remain stable or drop further as output
demand could triple within 10 years to 570,000t/y.
minimizes the possibility of a supply deficit. Overall, world production of zinc totaled 13.2 million tons in 2016. Mexico
According to Joe Lowry, President of Global Lithium, a
sits only behind China, Peru, Australia and the US in global
company that provides advisory and consulting services
zinc production. The country registered a 16 percent drop
to lithium producers, lithium sales could even reach the
in zinc production in 2016 compared with 2015 at 661,000
US$5 billion mark before 2025. But, it is not all good news.
tons, according to CAMIMEX. Industrias Peñoles is the
“Despite the high level of interest and clear upside in
largest producer in Mexico thanks to its Velardeña mine,
demand for lithium chemicals over the next decade and
followed by Goldcorp with Peñasquito. The four major
beyond, lithium is still by any standard a very small global
national producers of the metal are Industrias Peñoles,
market,” adds Lowry. “Supply growth beyond 2017 is still a
Grupo México, Minera Frisco and Fresnillo, which cover 65
question mark.” Elon Musk, EV leader Tesla’s Co-Founder
percent of national zinc production.
and CEO, said at the opening of the company’s lithium Gigafactory in Reno, Nevada in March 2016 that, for Tesla to
Despite the market outlook, national companies continue to
meet its target of 500,000 cars a year, “we would basically
bet on zinc production. “Once Rey de Plata is operational,
need to absorb the entire world’s lithium-ion production.”
we will have a surplus of zinc concentrate and we will then become one of the few companies in the world to own both a
The commodity landscape is not in a strong position and
zinc mine and a zinc refinery,” states Fernando Alanís, Director
many mining companies lack the capital to fund innovative
General of Industrias Peñoles. These projects only represent
projects such as the extraction of lithium. As a result, few are
the tip of the iceberg in terms of Mexico’s zinc reserves. “There
choosing to plunge into the market. Technology companies
is a significant amount of unexplored lead and zinc in the sea
in the US and Asia are particularly concerned about a
basins of central Mexico’s Mesozoic region,” says Raúl Cruz,
possible shortage in battery supply and are creating strategic
Director General of the Mexican Geological Survey (SGM).
alliances and joint ventures with exploration companies to ensure a stable source. As a traditional mining country,
Green trends and technological advances will further
Mexico is unlikely to miss out on lithium opportunities.
increase demand for lithium but it is expected to remain a niche market in the medium term as exploration costs
According to Bacanora Minerals, one of the state’s only
and risks are high. In 2016, worldwide lithium production
lithium operators, “Sonora holds one of the world’s largest
increased 12 percent in response to the rise in demand for
lithium resources and benefits from being both high grade
battery applications. In 2016, global lithium consumption
and scalable.” The state has an indicated mineral resource
reached 212,719 tons of lithium carbonate equivalent, a 9.6
estimate of 4.5 million tons of lithium carbonate equivalent
percent rise from the 194,000 tons consumed in 2015.
and an inferred mineral resource of 2.7 million tons of lithium carbonate equivalent. Jorge Vidal, Minister of the
Going forward, the road ahead will likely prove to be
Economy for Sonora, says there is a consciousness of the
a winding one. According to Metal Bulletin Research:
fact that battery-powered automobiles from companies
“The path that lies ahead for the base metals is full of
like Tesla are making lithium increasingly attractive. Apart
uncertainties, risks and opportunities, the likes of which
from Bacanora’s Sonora Lithium project, Sonora is also
have rarely been seen in previous cycles.”
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VIEW FROM THE TOP
MEXICAN INSTITUTION SETS SIGHTS ON ZINC OSCAR GONZÁLEZ Executive President of Americas Mining Corporation
134
Q: How do you assess the impact of regulatory reforms
assets. For example, in 4Q16, copper production rose
for the mining industry in Mexico and what changes have
by 16 percent compared with the same period in 2015,
ensued?
helped by a rise of 57 percent in production at Buenavista
A: We have been paying a significant amount of tax since
del Cobre.
the mining royalties were introduced in Mexico in 2014, including MX$1.8 billion toward miners’ rights. From our
We have also begun to focus more on the base-metal
experience, the local governments in Cananea and Nacozari
sphere, particularly zinc. We acquired and reopened the
– the municipalities where our Buenavista del Cobre and
Aznalcollar zinc mine in southern Spain in 2015, and we
La Caridad mines are located respectively – are investing
have great hopes for this project because we are confident
the resources generated from the Mining Trust Fund into
that zinc is heading for a sustained period of strong price
projects that will have a lasting beneficial impact on local
performance. Zinc production rose by 20 percent in 4Q16,
populations. We are fully supportive of the fund and we
while we also reduced AISC across the board. Despite the
plan to continue allocating more resources for many years
lower price environment for copper, our high production
to come. An important part of our investment strategy is to
levels and low costs enabled the company to perform very
spend US$25 million on exploration, so we were delighted
well in 2016.
to see Sonora’s governor recommend to Congress a reduction in exploration costs in the state. This would be a
Q: Considering your extensive list of projects in the
positive development that would boost the mining sector
development and exploration phase across Latin America,
not only in Sonora but throughout the country.
where will you be focusing your efforts in 2018? A: We are planning to move forward with a number of
We are also optimistic about the long-term effect that the
projects in the next few years, and Mexico is a priority for
Energy Reform will have on Mexico’s mining sector. We are
our investment plan, holding a vital place in our portfolio. In
already using our gas and wind-based energy generators
2016, a total of 65 percent of metal and mineral production
to cover our in-house needs, as well as making a profit on
came from Mexico.
the surplus. This is a strategy that is bringing great rewards for the company and we are committed to continuing our
The primary focus is the San Martin deposit in Zacatecas,
work in the local energy sector.
which has enormous potential but has been in limbo for the past 10 years due to a senseless strike that has been
Q: How is your investment strategy evolving in light of
detrimental to workers, the state and the company alike. We
volatile international commodity markets?
are also preparing to move forward with the El Pilar, Pilares
A: Copper remains the most important commodity in
and Buenavista Zinc projects in Sonora, before turning our
our portfolio, representing 80 percent of sales in 2016.
focus onto the Angangueo and El Arco assets.
Naturally, the fall in price of the brown metal has had a damaging effect on the business. This effect has been
On the financial side, we are waiting for the macroeconomic
mitigated to an extent by our investment plan, which is
climate to improve in order to proceed with our plans to
designed to raise overall production levels across our
apply for an IPO for Americas Mining Corporation. Southern Copper has a dual-listing in Lima, Peru and New York, while Grupo México is listed on the BMV in Mexico City. We are
Americas Mining Corporation is Grupo México’s mining
convinced that an IPO will have a positive effect on the
subsidiary, overseeing Mexican operations, as well as those
Americas Mining Corporation investment profile, although
belonging to ASARCO and Southern Copper in the US, Peru
we are still evaluating where would be the best location
and Chile
for the company.
VIEW FROM THE TOP
MINING CAN FOLLOW AUTOMOTIVE EXAMPLE FERNANDO ALANÍS Director General of Industrias Peñoles
Q: What must Mexico do to become a more attractive
Q: How much of a boost was the Energy Reform for Peñoles
jurisdiction to the global investment community?
and how are you taking advantage of this opportunity?
A: Mexico has enormous potential. It is estimated that at
A: In 1999, we became concerned about the availability and
least 70 percent of the territory has not yet been explored.
cost of energy in Mexico and given that energy represented
States including Guerrero and Oaxaca have strong geology
around 40 percent of our expenses, we started to look for
but very little mining activity because there is no efficient
ways to lower costs. Industrias Peñoles made a strategic
policy in place to promote and support the sector. A few
decision to integrate our energy supply and start generating
years ago the country had a dream of becoming a global
our own electricity. In 2016, a total of 81 percent of the energy
automotive hub. The administration worked toward that
we consumed was generated in-house. Most of this comes
goal and now Mexico is the seventh most prolific car
from the petcoke thermal plant in San Luis Potosi, which
manufacturer in the world. We have to acknowledge the
generates 230MW, and the two wind plants in Oaxaca that
geological potential, the skilled workforce, the access to
generate over 40MW. We also have natural gas turbines in
industry-leading technologies present in the country to
Laguna del Rey, Coahuila and a steam generator in Torreon.
create the framework to capitalize on this opportunity. In April 2017, we will also be initiating a new wind project Q: Peñoles recently announced an investment plan of
with the Portuguese energy company, Energias de Portugal
US$1.1 billion for the coming years. How will these funds
Renovables, in Coahuila. The facility has an install capacity
be allocated?
of 200MW, which will cover our energy needs for the zinc
A: The Rey de Plata polymetallic mine in Guerrero is
refinery expansion in Torreon. There is a new energy law in
currently under construction and should achieve commercial
Mexico that will require companies to procure at least 30
production by the end of 2018. The investment will total
percent of their energy from sustainable sources by 2025.
US$387 million and it should be a very profitable asset that
Peñoles has already reached that landmark because we are
produces gold, silver, zinc, lead and copper.
convinced of the need for sustainable development.
We will also be investing a total of US$330 million to expand
Q: What strategies does Peñoles have in place to cement
the capacity of our zinc refinery in Torreon by 50 percent
its leadership role within the Mexican mining sector?
to 360,000t/y from 240,000t/y. When completed, this will
A: The future of our company is based on three key
make Peñoles the sixth-largest zinc producer in the world.
strategic areas. The first is sustainable development, which
Zinc is tremendously important for steel and therefore the
incorporates the economic, social and environmental
construction and automotive sectors but global inventories
spheres. The second is human capital; we will continue to
are going down both in terms of concentrate and finished
invest substantially to recruit, develop and retain the most
products. Unlike precious metals, the zinc price is essentially
talented people in Mexico. The third is technology. We have
determined by fundamental economics so given the
an internal R&D group made up of 35 full-time researchers
strong demand and supply shortage, I am very bullish
working at a specialized center in Torreon, and we are
on this commodity’s performance in the next few years.
always looking for innovative methods that can improve
Once Rey de Plata is operational, we will have a surplus
our practices.
of zinc concentrate and we will then become one of the few companies in the world to own both a zinc mine and a zinc refinery. Coupled with the fact that we are next to the
Industrias Peñoles is a 100 percent owned subsidiary of Grupo
US, which is a huge market with a substantial zinc deficit,
BAL. The group is the largest gold and lead producer in Latin
this will be an important asset for the company’s portfolio
America and through its subsidiary Fresnillo, the largest silver
going forward.
producer in the world
135
MEXICO'S MAIN BASE METALS MINES
9
3 4
10
5
6 7
11 136
13
12 1
14
2
15
8
16
17
18
World Class Deposits 19
20
Production Development 22 23
Exploration Number
Name
Company
Commodity
Stage
State
1
El Arco
Americas Mining Corporation
Copper
Development
Baja California
2
El Boleo
Korea Resources-Baja Mining
Copper
Development
Baja California Sur
3
María
Minera Frisco
Copper
Production
Sonora
4
Milpillas
Peñoles
Copper
Production
Sonora
5
Buenavista del Cobre
Americas Mining Corporation
Copper
Production
Sonora
6
Pilares
Americas Mining Corporation
Copper
Development
Sonora
7
La Caridad
Americas Mining Corporation
Copper
Production
Sonora
8
Piedras Verdes
Invecture Group
Copper
Production
Sonora
9
Bismark
Industrias Peñoles
Copper
Production
Chihuahua
10
Samalayuca
Samalayuca Cobre
Copper
Production
Chihuahua
11
Terrazas
War Eagle Mining Company
Copper
Development
Chihuahua
12
Santa Eulalia
Americas Mining Corporation
Lead, Zinc (Gold, Silver, Copper)
Production
Chihuahua
13
Las Cristinas
Cyprium Mining
Copper
Production
Chihuahua
Source: SGM, company websites
Number
Name
Company
Commodity
Stage
State
Naica
Industrias Peñoles
Lead, Zinc
Production
Chihuahua
15
Bolivar
Sierra Metals
Zinc, Copper
Production
Chihuahua
16
San Francisco del Oro
Minera Frisco
Lead, Zinc, Copper
Development
Chihuahua
17
Santa Barbara
Americas Mining Corporation
Copper
Production
Chihuahua
18
Tameapa
Mincore
Copper
Development
Sinaloa
19
El Herrero
Grupo Bacis
Copper
Production
Durango
20
Avino-Zaragoza
Avino Silver & Gold
Copper
Production
Durango
21
Tayahua
Minera Frisco
Zinc
Production
Zacatecas
22
Francisco I Madero
Industrias Peñoles
Zinc
Production
Zacatecas
23
Cozamin
Capstone Mining
Copper
Production
Zacatecas
24
San Nicolás
Teck Resources
Copper
Development
Zacatecas
25
Charcas
Americas Mining Corporation
Copper
Production
San Luis Potosi
26
Asientos
Minera Frisco
Copper
Production
Aguascalientes
27
Zimapan
Carrizal Mining
Copper
Production
Hidalgo
28
Angangueo
Americas Mining Corporation
Copper
Development
Michoacan
29
La Balsa
Minera Montoro
Copper
Production
Michoacan
Tizapa
Industrias Peñoles
Lead, Zinc, Copper
Production
State of Mexico
14
30 21
25 24 26
27
28 30 29
137
VIEW FROM THE TOP
BOOST EFFICIENCY TO COMBAT CHINESE OVERCAPACITY MANOLO ESPINOZA Mine Director of ArcelorMittal
138
Q: As the largest steel producer in the Americas, how much
A: The mining sector has always been a global industry and
of an unexpected boost was the 2016 iron ore rally?
one of the most important aspects of maintaining its ability
A: Although iron ore prices have shown strength this
to operate is remaining closely abreast of the constantly
year, the consensus view seems to be against a steep
changing geopolitical landscape. Variations in the prices
rally in prices. But Chinese steel production continues
of iron ore may affect the mining industry, as China’s
to rise, boosting iron ore prices. 2016 was a difficult year
overproduction continues to complicate the placement of
for the metals and mining sector in general and iron ore
products in different markets around the word.
in particular. Although there were small recoveries in Europe, Japan and the US, slowing demand from China
Cost reduction in our mining business will also continue,
and continued difficulties among emerging countries, the
although given the fact we reduced iron ore unit cash costs
industry ended up oversupplying most mined commodities
by 20 percent in 2015 and a further 10 percent last year, it
and suffered falling prices as a consequence. We understand
will be tough to materially improve costs further, and we
that China met reduced capacity, at a net level, by 65
are not setting an annual cost reduction target for this year.
million tons in 2016 but we must remember that China addressing its overcapacity is a long-term issue. There is
Q: Where does Mexico stand in the context of ArcelorMittal’s
still vast overcapacity in the Chinese market, and until it is
business strategy in Latin America and globally?
effectively addressed, the risk of volatility remains. This is
A: In Mexico, ArcelorMittal operates six facilities in three
why we continue to call for a comprehensive solution to
ports and maintains a corporate and sales office in Mexico
unfair trade practices.
City. With a steel production capacity of more than 6.5 million t/y and employing more than 8,000 individuals,
The complex scenario we encountered in 2015 and 2016
ArcelorMittal Mexico is the largest employer in Michoacan
due to market conditions and trends in worldwide steel
state and the Lazaro Cardenas municipality, where
demand has undermined our ability to compete in a market
its largest facilities are located. In 2015, ArcelorMittal
where importers are selling at subsidized prices below
Mexico produced more than 4 million tons of steel and
average production costs. In light of this, our company
invested over US$800,000 in these communities. In 2016
has implemented emergency measures to reduce costs
ArcelorMittal Mexico produced 3.11 million tons of steel.
and increase operational efficiency. These initiatives have
Mexico has faced significant challenges in sustainable
included plans to improve management and productivity,
development in recent years, in being a trusted user of air,
labor mobility and savings. In this regard, on February 5, our
land and water, finding more ways to use energy efficiently,
President Lakshmi Mittal presented the strategy known as
and ensuring we have the skills to continue to innovate
Action 2020, which is a compilation of actions for the next
with the next generation.
five years, resulting from a detailed analysis of our growth and improvement potential.
Production from our El Volcan mine in Mexico was unfortunately suspended in October 2015 because of the
Q: What impact does geopolitical volatility have on the
low price of iron ore. But we expect shipments to increase in
steel and iron ore segments?
2017 as we have now re-started production, which increases our capacity by 2 million tons. In comparison, production in the Ukraine decreased to reflect a revised mine plan
ArcelorMittal is the world’s leading steel and mining company.
following a delay in accessing new land for tailing facilities
Guided by a philosophy to produce safe, sustainable steel, it is
but these issues have now been resolved. Another factor
present in 60 countries as the leading supplier of quality steel
that impacted our production level was declining volumes
products in all major markets
at the existing Tokadeh mine in Liberia as it is approaching
the end of its life. We are transitioning to the nearby and
A: Historically, the global steel industry has been affected by
higher grade Gangra deposit which could potentially
both global and regional production overcapacity, as well as
support an operation of 5 million t/y for five years.
by fluctuations in imports and exports of steel and iron ore. This excess production is amplified in periods of economic
Q: Why reopen the Volcan mine after a year of activity and
weakness due to a lower demand for these inputs.
what impact will this have on production levels in Mexico? A: It is important to remember that since mid-2015 and in
Currently, these factors are directly related to the
order to face the complicated economic scenario facing
slowdown of the economy in China, the collapse of
the national and international steel industry, the company
Brazil’s economic bubble and the continued devaluation
implemented initiatives for cost reduction, increased
of the Russian ruble. China is transforming its economy,
productivity and operational efficiency, with the clear
reducing the weight of the manufacture of products and
objective of adjusting ourselves to the market and conditions
expanding the supply of services and consumption. This
that prevail today. As a result of these actions, and by
has meant that the prices of most raw materials, including
continually monitoring alternatives to keep us current in the
steel, fall to drastic lows.
139
market while promoting employment and economic activity in the country, a decision was made to resume operations
The high inventory resulting from increased growth and
in the state of Sonora. With this, the company reaffirms its
oversupply have caused this producer country to sell
long-term commitment to the country.
the metal at the lowest possible price to avoid further losses, which is seriously affecting the global steel
The reactivation brought along the recovery of more than
industry. China’s economic strategy has motivated the
500 direct jobs, 3,000 indirect ones, as well as of about
implementation of trade safeguards throughout the
15,000 sources of employment related to the mining value
global steel industry. In Mexico, these measures were
chains in the state. According to company estimates, the
first implemented in October 2015, expanded in April and
mine is expected to produce 2 million tons of iron ore
October 2016, and reaffirmed once again in April 2017.
concentrate, which is equivalent to more than 150 daily trips from the El Volcán mine to the concentrator plant in
At ArcelorMittal, we strongly believe that by maintaining
Ciudad Obregon.
these efforts, together with other companies in the sector and with the representation of the National
Q: Why was competition from China and Brazil labeled
Chamber of the Iron and Steel Industry (CANACERO),
“unfair” by ArcelorMittal’s Director General Victor Cairo and
we will be able to improve the prospects of our industry
what specific impact did this have on the domestic market?
throughout 2017.
Steel has evolved significantly in the last 70 years. In steel manufacturing, there is a trend toward lighter weight, higher flexibility and greater strength. Installing lighter materials on machinery in mines means lower fuel consumption, less energy waste, less vibration and over the lifetime of the equipment it will require less maintenance. And all steel-makers around the world are making concerted efforts to produce higher quality steel in more environmentally friendly ways. Renato Aguilera, General Manager of Aceros Fercom, explains that his company is doing all it can to tick all these boxes, while also providing a crucial differentiating factor. Rather than targeting mass distribution, Aceros Fercom prefers to focus on market niches. “More than selling kilos of steel, we try to sell our service and this gives us a better marginal contribution in our product sales,” says Aguilera. Often, clients are not consistent in their steel needs. “We can meet changing requirements because what we look for is client loyalty to our company,” he says. Aceros Fercom is present in the mining sector with anti-wear steel. “There is an evolutionary culture toward the adoption of this product, which is specifically designed for this sector,” says Aguilera. Previously in Mexico, more conventional materials were used but companies began to realize that, although the initial outlay was lower, the cost over the long term was far greater. “Our products require a greater initial investment but over the long term, it is a much more economical product,” he says. “And we are constantly trying to increase our participation within the mining sector.”
STEEL: LIGHTER WEIGHT, HIGHER FLEXIBILITY, GREATER STRENGTH
VIEW FROM THE TOP
CORPORATE RESTRUCTURING BOOSTS GROWING COPPER MINE DARREN PYLOT President and CEO of Capstone Mining
140
Q: How did the company generate positive net earnings
Valley and looking at the potential to extend the mine life
at its three mines?
at Minto. At Cozamin, we are looking forward to add more
A: In an agile response to the challenging copper price
zinc production as well as increasing zinc reserves during
environment, Capstone took action to reduce costs, including
this period of higher zinc prices.
reorganizations at our operations in 2015. In January 2016, we decreased corporate head office positions and recurring
We expect to mill fewer tons in 2017 than in 2016 but
general and administrative expenses by 20 percent. We were
with higher grade, with 80 percent of ore coming from
successful in beating our budget for consolidated all-in cost
the narrow vein Mala Noche Footwall Zone. All-in cost
per pound of payable copper for the year by US$0.07 at
guidance of US$1.90-2.00 includes the development costs
US$1.88, resulting from our site operating teams executing
reflective of the move from the main zone to the footwall
on key decisions to deliver more efficient operations.
zone as well as evaluating the potential to bring the existing zinc resource into the mine plan. The 2017 exploration
Q: What strategies is the company incorporating to achieve
program at Cozamin includes over 30,000m of primarily
its production guidance in 2017?
underground infill drilling aimed at increasing reserves in
A: Our 2017 operating plan and five-year outlook takes
the Mala Noche Footwall Zone and the San Rafael zinc zone.
a conservative stance on metal prices while focusing on ongoing cost-efficiencies at our existing operations. We
Q: What has been the key to your success at Cozamin?
are looking forward to advancing new opportunities this
A: The Cozamin mine commissioned operations in 2006
year, including building on the operating success at Pinto
with throughput of 1,000t/d and a three-year mine life. We were very successful in expanding the operation with the expansion of the initial Mala Noche zone and discovery of
Capstone Mining is a Canadian base-metals mining company,
the Mala Noche footwall zone. At the end of 2016, following
focused on copper. Its three producing mines are in Arizona,
10 years of mining, we are operating at 3,000t/d with
US, the Cozamin polymetallic mine in Zacatecas State, Mexico
another four years still ahead of us and further exploration
and the Minto copper mine in Yukon, Canada
targets.
VIEW FROM THE TOP
SURPRISE DISCOVERY ERASES CUSI MINE DOUBTS MIKE MCALLISTER VP Corporate Development at Sierra Metals
Q: How are Sierra Metals’ Mexico mines performing?
Our methodology is part of an overall industrial trend that
A: We recently discovered that our Cusi mine in Chihuahua
is pushing companies to be more selective about capital
is more than just an epithermal deposit with narrow veins of
expenditure. Operators are learning to save money during
approximately 200g/t silver. We were doubting its viability
bull periods to be better prepared during bear markets.
but then we found that the veins are larger at depth than
Mines can achieve the same amount of growth and results
we thought and that they have increased lead and zinc at
with fewer drill holes only through careful planning. It makes
depth. We have already started to ship some lead along
the industry more competitive.
with our silver production. Q: Why prioritize brownfield projects over greenfields, Following discussions with Sunshine Silver Mines, we made
considering the amount of mineral resources that are left
an exciting discovery that has plenty of room for expansion.
to explore in Mexico?
Sunshine Silver has a project named Los Gatos just south
A: The country has many opportunities to offer when it
of ours that is developing a facility to process 3,500t/d.
comes to greenfield exploration, even more than brownfield.
We reviewed the technical reports and we advised it to
But we are focused on brownfield because there is a lot of
investigate at greater depth. After studying the reports and
untapped potential close to the existing mines. Prior to
our own drill logs, we saw that between a space of 400m
the current management team joining the company, it had
and 700m there were eight drill holes with 350g/t silver
not spent much on exploration or looked much at hosted
with better quality veins that have an average width of
environments. We benefit more from brownfield exploration
5-6m. Our drilling programs continue to display positive
close to mine heads as these projects can generate mines
results and we expect to develop a large silver deposit
in less than a year. Bolivar has three exploration areas that
along a 1km strike length that is 500m deep in our property.
are within 1km of a mine, which allows Sierra Metals to
The area is particularly interesting as we still have 12km of
invest a small amount while delivering significant amounts
potential strike length to work.
of additional resources. The company focuses on both discovering and producing projects, and our discoveries
Q: Which financial tools does the company use to mitigate
are made with the intention of incorporating them into our
the risks associated with exploration?
pipeline within one year to boost our portfolio.
A: An efficient management of costs and capital is the most effective way to mitigate risks. Companies should not
Q: What are your main priorities in Mexico for the next
spend unnecessarily. With this strategy, our three properties
five years?
remained cash-flow positive, even during the downturn. We
A: Thanks to its established mining code, we are happy
took on some debt but only a reasonable amount that can
to do business in Mexico. The country has the benefit
be paid back quickly in more financially stable times or a
of having an easy permitting process and although we
better metal-price environment. Typically, we use credit
find that dealing with ejidos and land acquisition issues
facilities such as FIFOMI to help finance our projects but our
can be problematic, the environment remains very
cash flow funds most of our exploration work. This strategy
workable. Local and federal authorities need to be more
is feasible considering that metal prices have improved and
synchronized.
we are increasing our production and value per ton in our mills. We find governmental loans to be quite helpful as the rates are reasonable. It is an attractive feature that retains
Sierra Metals is a midtier base and precious metal producer
foreign investment and projects. We also increased our
operating in Latin America. The company has three operating
drilling programs at a quite manageable pace and in a way
mines: the 100 percent owned Bolivar and Cusi mines in Mexico
that allowed us to make quick discoveries.
and 82 percent of Yauricocha in Peru
141
MINE SPOTLIGHT
142
LA CARIDAD The dry, arid hills of Sonora are home to arguably the most mineral-rich region in northern Mexico. Four of the top 10 gold-producing mines in Mexico in 2016 are found in the state, including Fresnillo’s La Herradura, which sits at the top of the list. But while its precious metal deposits are strong, over the years Sonora has become famous for its copper production. Grupo México’s Buenavista del Cobre, 40km south of the Arizona border, recently completed a US$4 billion expansion plan and is comfortably the most productive copper mine in the country, and the fifthlargest in the world by capacity. But every star needs a sidekick, and for Grupo México, that role is played quietly but effectively by the nearby La Caridad mine. Situated to the northeast of the town of Nacozari, La Caridad was discovered in 1968 and started operations as a conventional, open-pit mine in 1979. It is consistently ranked as Mexico’s second-most prolific copper producer and production of the brown metal has been steadily rising, from 101,100 tons in 2014 to 103,900 tons in 2015 and 104,900 tons last year. According to the company’s 2015 annual report, the concentrator has a capacity of 94,500t/d ore and the deposit holds just shy of 9 million tons of copper in reserves. There is also an on-site refinery, smelter and rod plant. Alongside copper, the La Caridad deposit also holds gold, silver and molybdenum and the site has steadily expanded to diversify the production portfolio. A molybdenum plant was constructed in 1982 and La Caridad is now Grupo México’s top molybdenum producer with 9.9 million tons of output in 2016, 45 percent of the company’s total. The precious metals plant started operations in 1999, with a production capacity of 43,836oz/d silver and 247oz/d gold. There is ongoing exploration work at the site, with a 15km drilling program planned to develop the Bella Union mineral belt in 2017. On top of its strong reserves, a number of favorable geological and logistical factors have helped the La Caridad mine to continue to grow since its discovery 49 years ago. The deposit sits at the top of a mountain, facilitating waste drainage and tailings handling, while the mine is connected to the Guaymas international port by rail, making it easier for the company to transport its produce around the country and overseas. There is also a paved highway from the mine to the state capital, Hermosillo, and a landing strip less than 1km from the copper refinery.
143
VIEW FROM THE TOP
SILVER PRODUCER TURNS TO BASE METALS DARREN BLASUTTI President and CEO of Americas Silver Corporation
144
Q: How optimistic are you that the rally in commodity
to the listing, we traded around 82 percent of our shares
prices will continue throughout 2017?
in Canada and the remaining 18 percent were traded in
A: Our two main commodities are silver and zinc and
the US through our over-the-counter listing. When we
we believe both are well-positioned to perform strongly
looked at those 10 other companies on the NYSE, we
over the next few years. The base metal component is
realized they generate over 80 percent of their trading in
perhaps easier to predict and understand because it is
the US, despite the fact that most of them are Canadian
a simple supply and demand story, and thanks to our
companies with Mexican operations. Moreover, when we
work with Glencore I know that most industry insiders
assessed the empirical data, including price to cash flow
are bullish about the long-term prospects for zinc and
and price per ounce, the companies with dual listings were
lead over the next three years. Silver is more difficult to
performing better than us across practically all metrics. It
predict but for the last four to five years we have seen
became clear that the US institutional investor community
more demand than supply despite low silver prices. Silver
was a huge market that we were not tapping into and we
is often a byproduct of a base metal or gold operation,
knew that we had to file for a listing in New York.
and so if demand continues to increase, it is more difficult for supply to respond. I am confident that the
Although we made this decision in 2014, as a company we
precious metal prices will come back strong, based on
were fixing the assets and still losing money, so we decided
the macroeconomic climate but it is hard to predict when
to wait until January 2017 when we had a more compelling
this will happen.
story to tell. Our costs will soon be some of the lowest in the industry, our project pipeline is strong and we are the
As a CEO of a public commodity company, my job is to
only Canadian company of the 13 with a US asset in the
make money whatever the metals prices. Over the past
Idaho silver valley, so we should have strong appeal to US
five years, we have been focusing on reducing costs and
retail investors. We decided to list now to allow momentum
have managed to drop All-In Sustaining Costs (AISC) of
to build over the course of 2017 and into 2018. Our goal by
the two companies we acquired by 70 percent across the
the end of 2017 is to trade equally on both exchanges as
board. For example, we bought Scorpio Mining in 2014,
we build our brand in the US.
and have dropped its AISC from US$24/oz to US$9/oz in 2016. Next year, once the San Rafael project is fully online
Q: With commercial production to start at San Rafael
and operational, we expect this figure to drop to US$3/oz.
during 3Q17, what makes this project so exciting?
This progress will allow us to be ready for the run in silver
A: The company holds two primary types of ore bodies: a
prices when it comes.
high-grade silver with a lower-grade base-metal component, and a lower-grade silver with a high-grade base-metal
Q: Why list Americas Silver Corporation on the NYSE and
component. Our total reserves and resources across all
what impact will this have on the company going forward?
categories are approximately 120 million ounces of silver,
A: When we did our research in 2014, there were 13
1 billion pounds of lead and around 700 million pounds of
producing silver companies based in the US or Canada,
zinc. San Rafael is exciting because it has high-grade zinc
10 of which are listed on the NYSE as well as the TSX. Prior
and lead, and considering prices for these commodities are at close to historic highs, it balances our portfolio perfectly. This project will take our Mexican annual zinc
Americas Silver Corporation is a Canada-based junior silver
production up to approximately 50 million ounces of zinc
producer, with assets in the Americas. The company has two
and 20 million pounds of lead by 2018, for an investment of
established producing mines, a third in construction and an
just US$18 million. This will bring additional annual revenue
advanced stage exploration project
from Mexico of US$50 million, meaning that in effect we
Development of the San Rafael ramp, Cosala, Sinaloa
145
will have negative AISC on our 1 million plus ounces of silver
mutually beneficial partnership to develop the resource.
production. Depending on the results of exploration work
There still needs to be some geotechnical work completed
– we will be spending at least US$2 million on exploration
to evaluate how to extract the ore most profitably but we
in 2017 – we believe San Rafael will fill our existing mill for
are confident that San Felipe could turn into a real money-
at least the next 10 years. It represents a drastic change
maker for the company in the long run. We hope to start
in our earnings power and cost reduction and we expect
drilling later in the year and hopefully start production by
this project to drive the share price north as the project is
2020 at the latest.
delivered over the next six months. Q: How optimistic are you regarding the ongoing growth Of course, given our strong silver reserves, we have the
and competitiveness of the Mexican mining sector?
flexibility and ability to quickly switch our focus toward
A: For companies in the silver industry, there is no more
silver production if the price starts to shoot up. Our
favorable location in Latin America. Mexico is more
priority is, however, to produce more base metal ounces
modernized than other jurisdictions like Peru so for North
simply because in the current environment they are more
American companies it is easier to do business and I believe
profitable. They can build cash on our balance sheet to
that Mexico is in the top five mining jurisdictions in the
develop and produce our higher-grade silver ounces when
world. However, it is not perfect. Sometimes it can be
the silver price is higher.
challenging to do business for companies other than the big Mexican operators, and issues such as land ownership can
Q: What inspired the decision to acquire the San Felipe
become complicated and drawn-out. We have a number of
project from Santacruz Silver for US$15 million, and what
projects that we would like to develop but we cannot get a
are your plans for that project?
ruling on land ownership.
A: We have always liked the project and ever since we bought Scorpio Mining we have enjoyed a great relationship with
But this is a very minor criticism. We have not had any
Santacruz Silver. When the Veta Grande project became the
security issues, and we have always had strong support
main focus for Santacruz, the opportunity finally came to
from the local authorities. We are very happy with Mexico as
buy San Felipe. A lot of work has been done on the project,
a jurisdiction and we want to grow our business. Over time,
and we see similarities to San Rafael when we bought it in
we want to become more precious metal orientated – we
2014. Interestingly, the vein structure at San Felipe runs into
are not averse to developing gold deposits in the future –
Industrias Peñoles’ territory, and so we will be looking into
and eventually place ourselves on the radar for the majors.
acquiring the surrounding ground or forming some kind of
Mexico is central to this vision.
MINE SPOTLIGHT
146
NAICA Just 100km south of Mexico’s iconic Parral mining district in Chihuahua lies the world-class Naica mine. The project, also known as Maple, operated for 64 years. It was first acquired by Fresnillo in 1951 and in 1964 changed hands to become an official part of sister company Industrias Peñoles’ portfolio. With its own concentration plant, the mine was the country’s second-largest lead mine. In its final year of production – 2014 – its output equated to 21kg of gold, 57,585kg of silver, 19,694 tons of lead and 15,399 tons of zinc. In 2015, with declining production and a drop in base-metal demand, Industrias Peñoles decided to suspend operations at the Naica mine indefinitely. But beyond the precious metals and base minerals held within Naica, there are less typical reserves. In the year 2000, the Cueva de los Cristales, or Cave of Crystals was discovered by two Peñoles miners 290m below surface level, within the mine’s limestone host rock. The cave is home to selenite crystals that are five times larger than any ever discovered, measuring up to 13m and weighing more than 55 tons. Discovered more recently and closer to the surface, at a depth of approximately 120m is the Cueva de las Espadas, or Cave of Swords. The crystals held within this chamber are much smaller, at around 1m long due to the fact that they are much younger than those contained in the Cave of Swords. The recorded temperature in the Cave of Crystals is 45°C, with humidity levels of 80 percent, which makes it impossible to breathe and increases the risk of losing consciousness in less than 10 minutes. Researchers must wear oxygenated suits in order to be able to withstand 30 minutes of continued investigation. In fact, the cave is closed to the public for this reason. According to National Geographic, “the crystals are searing hot to touch; razor sharp but also soft like human fingernails.” The crystals require two conditions to grow: water immersion and heat in excess of 48°C, so scientists believe that conditions underwater must have been stable for hundreds of thousands of years. With the cessation of mining activities within the mountain, the water would be returned to the cave to once again stimulate growth. In March 2017, NASA scientists discovered microbes that had been dormant in the mine for between 10,000-50,000 years, which they believe demonstrates the ability of lifeforms to adapt to more hostile environments. This, they say, is a step forward in humans finding another habitable home within the solar system.
147
INSIGHT
JUNIOR EXPLORER BANKING ON BASE METALS GEM WILL DIX Managing Director of Consolidated Zinc
148
For a junior explorer, the quality of the asset is everything.
It has an inside-out knowledge of the local regulations,
With no revenue stream to fall back on, these companies
tax environment and supply chain, something that proved
have to make sure their project has all the ingredients to sell
vital during the early days in particular. “Land access is
itself to external investors. Strong geology is a prerequisite
always a challenging aspect of working in Mexico, but the
but for a project to attract sufficient financing it needs to
family has been so helpful,” says Dix. “When a company
be in a safe, reputable jurisdiction. For Consolidated Zinc,
enters a country cold, without knowing anyone, there is
a young base-metal focused outfit from Australia, the
always a minimum two-year learning curve. The family are
Plomosas project in Chihuahua ticked all the boxes.
a huge asset to us and the project, helping us to improve our connectivity to suppliers.”
“We were looking for a new asset to take on board and after talking to a number of corporate finance institutions,
Another asset for the company, as it is for every junior, is the
we were alerted to the Plomosas project,” says Will Dix,
turnaround in commodity prices. A high-grade deposit like
the company’s Managing Director. “I jumped on a plane to
Plomosas has the benefit of operational flexibility – it can
Mexico and the first time I went underground I was blown
be profitable even if the commodity price falls off. But when
away by the mineralization. When I found out that the
zinc outperformed all other metals on the London Metal
property had never been drilled, I was convinced of the
Exchange in 2016, the project became all the more viable.
potential scalability of the project.”
According to Dix, this perfect timing was not down to luck.
Dix immediately returned to Australia and completed a
“When we were looking for projects, we liked the base metal
deal for 51 percent ownership of Plomosas in April 2015. In
space,” he says. “I looked at some of the large Australian
December 2016 the company completed a Stage 1 mineral
zinc projects, and saw that they were getting old and tired
resource, which came in at just under 600,000 tons of 17
and would soon close. I felt that this would trigger a strong
percent combined zinc/lead. The company had dozens of
zinc run.”
projects on the table for consideration, but the sheer quality of the deposit at Plomosas proved the decisive factor for Dix.
He was right. Helped by a series of mine closures in
“It is one of the highest-grade base metal projects I have ever
Australia, Ireland and Peru, zinc rose 60 percent during
seen,” he says. “We have opened up more areas of the mine
the year to US$2,550/t from US$1,548/t. Buoyed by the
and uncovered further mineralization, so there is no doubt the
lofty prices, Consolidated Zinc decided to commission a
resource will grow. Eventually we hope to reach 2 million tons.”
scoping study in February 2017 to fast-track the project into production. The company aims to be mining and producing
Despite the strong geology, one potential sticking point for
concentrate by 1Q18 at the latest, using the cash-flow to
the deal was Consolidated Zinc’s lack of experience working in
continue expanding the resource. This would avoid the
Mexico. The country has well-documented issues with security
need to dilute shareholders by issuing more capital and
in particular but Dix believes the concerns are exaggerated
help generate long-term interest in the company.
by external media sources and hearsay. He describes the jurisdiction as “tremendously safe and transparent” and
“We would love to be self-sufficient and use the revenue we
Chihuahua itself as a “thriving, modern city.”
generate from mining to fund exploration work,” says Dix. “Even a low-scale operation of 75,000t/y would provide us
The company’s entry into Mexico was also helped by
with sufficient cash flow to continue exploring. We want to
some insider experience. The remaining 49 percent of the
grow the resource to the extent that we can justify building
Plomosas project is owned by a family in Chihuahua, which
a brand new standalone processing plant. That would
has been associated with the project since the early 1970s.
enable us to operate at between 250,000-300,000t/y.”
INSIGHT
BEARINGS MANUFACTURER SPOTS M&A OPPORTUNITIES GERARDO ANGULO Director General of Timken Mexico
When markets are down and business slow, companies
These split-to-the-shaft roller bearings certainly seem to
across the value chain have to be creative. No longer able
be popular in Mexico. Grupo México, Industrias Peñoles and
to rely on their traditional sources of revenue, executives
Minera Frisco are just three of the operators currently using
are forced out of their comfort zone in search of alternative
the product in Mexico to save time and boost productivity
methods for generating sustained growth. Some choose to
in their mineral processing and power transmission projects.
achieve this organically through internal restructuring and streamlining operations. Companies with greater liquidity and
Mexican mine operators are known to have their eyes on the
spending power can drive returns for investors inorganically
best deal, and that could cause challenges for a company
by entering the potentially lucrative M&A market.
like Timken whose products are not the cheapest option on the market. To convince potential buyers, Angulo explains
During the mining industry downturn of 2012-2016, Timken,
that the company highlights the technical and operational
a bearings and chain manufacturer with more than 15,000
benefits of its products, which will ultimately pay dividends.
employees worldwide, decided to use its global presence to diversify its portfolio through a series of strategic
“We always make sure to talk to the mechanics who have
acquisitions. Gerardo Angulo, Director General of Timken
experience using the machines and can therefore see the
Mexico, explains that the idea was to convert the company
advantages of our designs,” he says. “The mechanics can
into a one-stop shop for industrial parts and machinery.
then discuss with the decision-makers and convince them of the long-term economic benefits of our products.”
“A broader portfolio will help us improve our customer service and support,” he says. “We want to reach a point
Timken has several causes for optimism regarding the
where our clients can procure everything they need for
continued growth of its business in Mexico. Two of the
their processes directly through us without the need to
company’s traditionally strong sectors – rail infrastructure
talk to third parties.”
and automotive – are booming in Mexico, while the Energy Reform of 2014 should bring a swathe of new opportunities
Timken’s purchases during the past decade include the
in oil and gas, renewables and mining once the changes are
power transmission belt manufacturer Carlisle, gear-drive
fully implemented.
systems provider Philadelphia Gear and lubrication delivery systems manufacturer Interlube. These followed the
“It is still too early to feel the benefits of the Energy
acquisition of needle roller bearings specialist Torrington,
Reform,” says Angulo. “When private companies start to
for US$840 million in 2003.
take advantage of the new opportunities and begin to seek more advanced technology, we expect to see more projects
In September 2015, the company continued its acquisitions
for power transmission companies such as ourselves.”
with the purchase of UK-based split roller bearings manufacturer Revolvo, which has designed a product ideally
To prepare for those changes, Timken is continuing with its
suited to the mining industry, according to Angulo.
portfolio diversification policy in a bid to serve distributors and clients more comprehensively. The company acquired
“Revolvo’s key technology is a split-housed unit, which
Lovejoy in a US$66 million deal in June 2016, adding the
enables the user to dissemble the housed unit instead of
joint manufacturer’s renowned flexible couplings to its
the whole machine during the changeover of heavily loaded
portfolio. Then, in November Timken added stainless steel
applications,” he says. “The operator no longer needs to
ball bearings specialist EDT Corp, and Angulo is confident
access the shaft ends, meaning that a process that would
that this diversification drive will stand the company in
usually take up to 24 hours is now completed in 20 minutes.”
good stead for a strong year in 2017.
149
ROUNDTABLE
WHAT DOES MEXICO OFFER BASE METAL EXPLORERS AND PRODUCERS?
In 2016, Mexico ranked 10th on the list of copper producers, fifth for zinc, sixth for lead and 13th for steel. Following Grupo México’s US$4.5 billion expansion of Buenavista del Cobre, the asset is now the fourth-largest copper mine in the world by capacity, with a lifespan of around 80 years. Grupo México’s portfolio also includes the El Arco property in Baja California, which holds an estimated US$55.7 billion in copper reserves. Mexico Mining Review asked a selection of leading base metal producers and explorers what role Mexico plays in their portfolio and where the potential for growth lies in this core segment.
150
ArcelorMittal operates six facilities in three ports in Mexico. With a steel production capacity of more than 6.5 million t/y and employing more than 8,000 individuals, we are the largest employer in Michoacan state and the Lazaro Cardenas municipality. In 2016 ArcelorMittal Mexico produced 3.11 million tons of steel. Mexico has faced significant challenges in sustainable development in recent years, in being a trusted user of air, land and water, finding more ways to use energy efficiently, and ensuring
MANOLO ESPINOZA Mine Director of ArcelorMittal
we have the skills to continue to innovate with the next generation. Production from our Volcan mine in Mexico was unfortunately suspended in October 2015 because of the low iron ore price environment. But we expect shipments to increase in 2017 as we have now restarted production, which increases our capacity by 2 million tons.
Mexico has enormous potential. It is estimated that at least 70 percent of the territory has not yet been explored. States including Guerrero and Oaxaca have strong geology but very little mining activity because there is no efficient policy in place to promote and support the sector. Mining has the potential to be one of the most important economic activities in Mexico but the regulation needs to be established before that can happen. A few years ago, the country had a dream of becoming a
FERNANDO ALANÍS Director General of Industrias Peñoles
global automotive hub. The administration worked toward that goal and now Mexico is the seventh most prolific car manufacturer in the world. We have to acknowledge the geological potential, the skilled workforce, and the access to industry-leading technologies present in the country, and then create the framework to capitalize on this opportunity.
The country has many greenfield opportunities to offer but we are focused on brownfield because there is a lot of untapped potential close to the existing mines. We realized that there is a large amount of untapped potential within the shadow of the headframe and that the best dollars spent would be on organic growth. Thanks to its established mining code, we are happy to do business in Mexico. The country has the benefit of having an easy permitting process and although we find that dealing
MIKE MCALLISTER Vice President of Corporate Development at Sierra Metals
with ejidos and land acquisition issues can be problematic, the environment remains very workable. Local and federal authorities need to be more synchronized. At Bolivar, we foresee a potential for dramatic growth. We want to increase our production on a long-term basis depending on the results of our exploration program. The idea is to lower our AISC at the Bolivar mine to US$1.75/t of copper.
We are planning to move forward with a number of projects in the next few years, and Mexico is a priority for our investment plan, holding a vital place in our portfolio. In 2016, a total of 65 percent of metal and mineral production came from Mexico. The primary focus is the San Martin deposit in Zacatecas, which has enormous potential but has been in limbo for the past 10 years due to a senseless strike that has been detrimental to workers, the state and the company alike. We are also preparing to move forward with the El Pilar, Pilares and Buenavista Zinc projects in Sonora, before turning our focus onto the Angangueo and El Arco assets.
OSCAR GONZÁLEZ President and CEO of Americas Mining Corporation (AMC)
151
Due to our lack of experience of working in Mexico, we knew that there would be a steep learning curve. The country has well-documented issues with security but I believe the concerns are exaggerated by external media sources. Mexico is a tremendously safe and transparent jurisdiction in which to work, and Chihuahua is a thriving, modern city. Our Plomosas property is one of the highest-grade base metal projects I have ever seen. Our stage 1 mineral resource came in at just under 600,000 tons and we have opened up more areas of the mine and uncovered further mineralization, so there is no doubt the resource will grow. Eventually we hope to reach 2 million tons.
WILL DIX Managing Director of Consolidated Zinc
We are also constantly reviewing potential exploration and development opportunities in Mexico. The Cozamin mine commissioned operations in 2006 with throughput of 1,000t/d and a three-year mine life. We were very successful in expanding the operation with the expansion of the initial Mala Noche Zone and discovery of the Mala Noche Footwall Zone. At the end of 2016, following 10 years of mining, we are operating at 3,000t/d with another four years still ahead of us and further exploration targets. The 2017 exploration program at Cozamin includes over 30,000m of primarily underground infill drilling aimed at increasing reserves in the Mala Noche Footwall Zone and the San Rafael zinc zone.
DARREN PYLOT President and CEO of Capstone Mining
At the El Alacran site, we have been tremendously successful, having found two substantial deposits. Firstly, we discovered the Mesa de Plata silver deposit, which holds an estimated 26 million ounces of high-grade silver at surface. This deposit is easily treatable and we expect to have the Pre-Feasibility Study (PFS) completed during 1Q17. We recently discovered the Loma Bonita gold deposit, which lies just 300m from Mesa de Plata and outcrops. Grupo México’s Cananea copper mine is visible from the site just 12km to the north but although copper exploration has dominated the region in recent years, we have also found two significant precious metal deposits, which speaks volumes for the potential for mineral exploration in Mexico. Following these discoveries, the market capitalization of the company rose from around US$10 million to US$60 million between September 2015 and 2016.
TONY ROVIRA Managing Director of Azure Minerals
INFOGRAPHIC
INDUSTRIAL MINERALS Mexico is typically a silver country but with increasing
copper, zinc has eagerly stepped up to the plate.
industrial demand for metals, there is greater opportunity for
After a poor performance at the end of 2015,
the country’s base metals producers. Mexico plays a small role
zinc rallied to levels unseen in 2016, bolstered
in global base metal production but this could all change
by the supply deficit created by the low prices. Several mining companies have spotted this
152
The prices of copper and industrial metals are wholly
opportunity, including powerhouses Industrias Peñoles and
dependent on the construction and infrastructure industries.
Grupo México, and production plans going forward put zinc
Although copper prices have been stagnant for the last few
in the spotlight. Other alternative metals are also growing
years, a situation caused by dropping Chinese demand, new
in importance with new technological developments, like
legislation passed by the country’s government in mid-2017
the lithium used in cell phones and the cobalt needed to
that bans imports of scrap metal could be the start of a
manufacture electric vehicles. Only time will tell how these
new copper bull run. To fill the gap in the market caused by
metals will perform in the long term.
COPPER SHARE PER STATE
766,129 tons 85.6% Sonora Zacatecas 4.9%Sonora 3.9% San Luis Potosi Zacatecas 2.2% Chihuahua Others 3.4%San Luis Potosi
3.2%
Chihuahua Others
Mexico’s share in copper production is low compared to other minerals Mine
Company
State
316.0
La Caridad
Americas Mining Corporation
Sonora Sonora
104.9
NEMISA
NEMISA
San Luis Potosi
23.3
Cozamin
Capstone Mining
Zacatecas
14.3
expansion of Buenavista del
Tayahua
Minera Frisco
Zacatecas
12.7
Cobre
Zimapan
Carrizal Mining
Hidalgo
8.0
Bolivar
Sierra Metals
Chihuahua
7.8
Sabinas
Industrias Peñoles
Zacatecas
5.7
Charcas
Americas Mining Corporation
San Luis Potosi
3.6
Chihuahua
2.8
Buenavista del Cobre
Santa Barbara
Thousand tons
MAIN NEW PROJECTS Project
Company
State
Thousands tons
Start date
Media Luna
Torex Gold
Guerrero
23
2017
Rey de Plata
Industrias Peñoles
Oaxaca
7
2018
El Pilar
Americas Mining Corporation
Sonora
35
2019
Solid increase due to the
Consolidation is expected in El Boleo mine (Kores-Camrova Resources)
Nine countries are above Mexico; Chile is by far the top world copper producer
MINING-METAL (Thousands of tons) PRODUCTIONPRODUCTION SIZE 2006-2016 (THOUSAND OF TONS) 800
——Zinc ——Copper
700
——Lead ——Molybdenum
600 500 400 300 200 100 0
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
Zinc
153
Copper
Industrial nonferrous metals international prices
Mining-metal Laed value (MX$ thousand)
Molybdenum Product
2015
Lead Copper
2016
2016/2015%
2016 Average
6,005,124.8
5,573,020.6
-7.2
0.848570
42,149,900.0
44,598,986.6
5.8
2.205959
Zinc
13,861,587.7
15,282,652.3
10.3
0.948345
Bismuth
135,456.6
92,950.9
-31.4
172.955931
Cadmium
29,876.50
31,012.6
3.8
0.608384
Selenium
59,574.1
65,928.2
10.7
13.299750
2,582,836.50
3,154,168.3
22.1
6.420500
Molybdenum
TESLA’S GIGAFACTORY
SONORA IS TURNING TO LITHIUM
• US$5 billion project in Nevada by Tesla Motors and Panasonic • Will be the biggest lithium-ion battery
Lithium-
factory in the world
ion battery
• By 2020 will produce more cells in one year
market is
than global production in 2014
expected to soar from US$17.5 billion to US$70 billion by 2020; boosted by Tesla, the increasing demand of lithium is good news for Sonora
SONORA LITHIUM PROJECT • Bacanora Minerals and Rare Earth Minerals will supply lithium hydroxide • Imported batteries from Asia to be replaced by new Sonora production • Production facility with a lifespan of over 20 years
SONORA • Regarded as one of the world’s larger known clay lithium deposits • Mineral resource estimate of 4.5 million tons of lithium carbonate
TOP METAL PRODUCTS NATIONAL PRODUCTION 2016 (Tons) State
Lead
Copper
Zinc
Aguascalientes
6,500
1,096
25,674
0
Baja California
0
0
0
25,325
Baja California Sur
0
9,387
0
0
Coahuila
0
0
0
4,111,163 2,624,544
Colima Chihuahua Durango
Iron
0
0
0
42,358
17,030
117,935
453,971
27,113
5,049
108,105
1,844,438
Guerrero
0
0
0
52,000
Hidalgo
5,123
2,391
14,814
0 33,036
Jalisco State of Mexico Michoacan
485
0
453
9,867
2,343
45,590
0
0
1,284
0
2,945,182
Oaxaca
5,041
1,223
15,517
0
Queretaro
1,911
2,049
5,907
0 0
San Luis Potosi
2,208
29,581
33,152
Sinaloa
2,414
1,269
5,885
0
Sonora
0
655,807
0
23
Zacatecas
138,251
37,620
288,156
0
TOTAL
241,271
766,129
661,188
12,089,682
Miners working in a Grupo MĂŠxico mine
EXPLORATION
6
According to S&P Global Market Intelligence, world investment in exploration fell YOY by 28 percent to US$6.9 billion in 2016, the fourth-consecutive yearly fall. Following the 2015 fiscal reforms, companies are no longer able to deduct exploration expenses after a project’s first year; they now must wait 10 years to be reimbursed. The ruling provides a significant financial obstacle for cashshort junior exploration companies. But after falling to seventh place on the list of recipients for global exploration expenditures in 2015, Mexico climbed up one place to sixth in 2016 after attracting US$400.9 million in total. Buoyed by the improving price environment, the number of new exploration projects in Mexico increased to 55 last year, with a total value of US$130 million. This is compared to 44 new projects with a total value of US$103 million in 2015.
This chapter highlights the issues facing exploration companies operating in Mexico today, but also, by showcasing the leading projects, sheds light on the wealth of geological potential in the country. Junior explorers provide an insight into the regulatory and financial hurdles of operating in Mexico, while governmental agencies including the Mexican Geological Survey (SGM) underline the strategies in place to facilitate the long-term growth of this integral segment.
155
CHAPTER 6: EXPLORATION 158
ANALYSIS: Mining Concession Continuity Guarantees Exploration Future
160
EXPERT OPINION: Raúl Cruz, Mexican Geological Survey (SGM)
162
MAP: Mexico's Mineral Belts
164
VIEW FROM THE TOP: Alain Charest, Evrim Resources
165
INSIGHT: John-Mark Staude, Riverside Resources
166
TECHNOLOGY SPOTLIGHT: SGS Durango Chemical Analysis Facility: Trusted Expertise
168
VIEW FROM THE TOP: José Antonio Berlanga, Telson Resources
169
VIEW FROM THE TOP: Floyd Gray, US Geological Survey (USGS)
170
VIEW FROM THE TOP: Marc Kieler, Globexplore
174
INSIGHT: Kenneth Macleod, Sonoro Metals
175
INSIGHT: Luis Moya, Kootenay Silver
Gustavo Gallego, Kootenay Silver 176
ROUNDTABLE: What are The Main Challenges Faced by The Exploration Industry in Mexico?
178
VIEW FROM THE TOP: Mario Gutiérrez, Tauro Capital Partners
Javier Gutiérrez, Tauro Capital Partners
180
MINE SPOTLIGHT: Tahuehueto
182
VIEW FROM THE TOP: Tony Rovira, Azure Minerals
185
VIEW FROM THE TOP: Ben Pullinger, Excellon Resources
186
TECHNOLOGY SPOTLIGHT: Redefining Drill Core Data Analysis
188
INSIGHT: David Duncan, Oceanus Resources
189
INSIGHT: Ben Whiting, Orex Minerals
190
GEOLOGIST PROFILE: Joe Wilkins, Independent Exploration Consultant
191
VIEW FROM THE TOP: Thomas Atkins, Mammoth Resources
192
INSIGHT: Gregory Beischer, Millrock Resources
193
VIEW FROM THE TOP: Krassimir Iankov, SAP
194
TECHNOLOGY SPOTLIGHT: The Many Benefits of Lidar Technology
157
ANALYSIS
MINING CONCESSION CONTINUITY GUARANTEES EXPLORATION FUTURE Out of some 1,000 prospects, on average only one will become
APPLICATION DELAYS
a mine, according to CAMIMEX. Considering the risks and capital
Gregory Beischer, President and CEO
involved, mining jurisdictions are competing for investors and
of Millrock Resources, believes that the
companies to guarantee the future of the industry
mining concession process in Mexico can be incredibly long and complicated and that it
158
The future of the mining industry is largely regarded as
is greatly slowing down the development of exploration.
exploration. But a collection of factors in recent years
“The country needs a more organized system,” he says. “If
have combined to create the perfect storm and Mexico
land claims were more accessible and transparent, there
is no longer regarded as the attractive destination for
would be many points of interests toward which Millrock
investment it once was. CAMIMEX reports that, by the end
Resources would gladly direct exploration capital.”
of 2016, there were 25,652 active mining concessions in Mexico, representing a total of 22.1 million ha, compared
James McDonald, CEO of Kootenay Silver, adds that
to the 26,002 active concessions in 2013, equaling 29.8
the company is running into significant problems with
million hectares.
the process of application and granting of mining concessions by the government. He attributes this in
This reduction in allocations can be explained by a number
part to the Energy Reform, which has also drawn stark
of factors. Firstly, the 2014 fiscal reforms introduced a
comparisons between the importance placed on the
clause whereby pre-operative exploration expenses are
hydrocarbons and mining industries, despite the latter’s
no longer deductible in the same year they are made;
3.9 percent contribution to national GDP. “The new
instead operators must wait 10 years before they can
energy law placed a priority on hydrocarbons in Mexico
reclaim these expenses. Another contributory factor
over all other assets,” McDonald says. “This has created
that coincided with the reforms was the fall in metals
a barrier to mining in large areas across Mexico and
prices. Exploration budgets were the first expenses to
significant parts of the country that are not being tested
be slashed.
or utilized and because claim applications are not being granted, the government is missing out on taxes for these
Between 2001 and 2015, out of 33,791 concessions that were registered since the year 1900, 8,462 were canceled
concessions.” Mining concession holders have three main duties: pay fees, royalties and taxes accordingly, produce and file periodic reports and perform certain works on the mining concessions. Otherwise, the mining concession are at risk of cancelation. When this happens, according to Alain Charest, Exploration Vice President of Evrim Resources, the concessions effectively default and become tangled in a long bureaucratic process, remaining dormant until
But one of the industry’s biggest complaints is about the
the respective authorities free them and offer them to
delay in obtaining the mining concessions required to
the public.
carry out exploration work. As metals prices slowly work their way upward, appetite for investment is returning,
“Today, there are thousands of canceled mineral
but with the significant delays involved in obtaining the
concessions that have accumulated over the past 25 years
property rights, many explorers are beginning to set their
or so, an outrageous amount of mineral property that has
sights abroad.
not been made available for acquisition by the public,” says Charest. “Many of our exploration target areas are
According to Sergio Almazán, Director General of
discarded or put on hold because of the non-availability
Mexican mining chamber CAMIMEX, with a lack of
of mineral concessions.” Federal Auditor ASF states that
exploration, “there will be less investment in the country,
between 2001 and 2015, out of 33,791 concessions that
which will mean there are fewer mining operations that
were registered since the year 1900, 8,462 were canceled.
begin production. This in turn will mean fewer jobs and less money in taxes. There will be a cycle whereby the
The hurdles companies face in Mexico are making
negative impacts will continue worsening.”
companies like Riverside Resources consider diversifying
into other jurisdictions, such as Brazil. “We are
take a turn for the better, and if Mexico is to remain
driven by passion but sometimes the challenges feel
competitive and take advantage of the upturn, companies
insurmountable,” says John Mark Staude, President and
must be able to replenish their mining portfolios with new
CEO of exploration company Riverside Resources. He
exploration projects in Mexico through the acquisition of
says the lack of liberation of claims caused an outflow
mining concessions. The context is particularly urgent
of foreign capital from Mexico, which led Riverside to
considering the global deficit in mining projects and the
lose two-thirds of its partners, US$11 million in potential
growing demand of a projected global population of 9
alliance money and over US$200 million in potential JV
billion by 2050.
money in the last four years. “We had the money lined up and the commitment in place but the pace of permitting,
Despite the situation, companies like Millrock Resources
granting titles and liberations meant that, as the market
consider Mexico to have many areas of opportunities in
decelerated, the money went elsewhere,” says Staude.
terms of exploration and are eager to see the results of their investments. “Early stage exploration may have the
STRIDES TOWARD SIMPLIFICATION
highest risk but it also has the highest potential,” states
The government is well aware of the unrest related to
Beischer. And Mexico in particular holds great promise
mining concession delays, and operators even admit that
for several explorers. According to Ben Whiting, Vice
the General Coordination of Mining was overwhelmed and
President of Exploration at Orex Minerals, “Mexico is in the
understaffed for too long. But many hope that with the
top 10 in the world when it comes to the competitiveness
creation of the new mining Undersecretariat in December
of its mining sector.”
2016, the sector is finally receiving the resources it desperately needs to keep abreast of the concessioning
Mexico’s exploration investment dropped significantly to
process.
US$401 million in 2016, down US$90 million from 2015 and US$831 million less than in 2012. Now, it seems that
The Undersecretary himself, Mario Alfonso Cantú,
the government is taking steps to solve policy issues
acknowledges the shortcomings of the system and
that are seen contributing to the country’s reduced
has announced he will prioritize allocation of mining
attractiveness. “The mining law in Mexico is good, albeit
concessions in the remaining year of the administration.
a little outdated, but the most important thing is that
“In accordance with one of the primary objectives of the
we have committed, experienced public officials who are
Mining Development Program, we have been working to
passionate about the industry,” says Alberto Vazquez,
implement technological tools to reduce costs, streamline
Senior Partner at VHG Abogados.
service procedures and provide a more efficient service to users,” he says. “We are working on modernizing our technological platform and digitalizing all the concession process and cartography, meaning we will be able to reduce the number of days taken to issue a concession
EXPEDITED ALLOCATION TITLES AND SURFACE
Expedited allocation titles and surface 2013-2015
Thousands 26
30
25.5
25
title.” The Digital Government Integrated Platform will allow the government to accelerate procedures through faster digital reception of requests. Ildefonso Guajardo Villarreal, Mexico's Minister of Economy, adds that the Undersecretariat is equally
Millions
prioritizing key areas to promote the acceleration of concessions. These include the strengthening of human resources within his department, the re-engagement of Mexican Geological Survey (SGM) resources toward exploration activities and the reinforcement of the Inter-Institutional Mining Group, made up of federal government agencies involved in regulating the sector to modernize the country’s industry.
25
2013
——Concessions
2014
2015
20
——Surface in HA
EXPEDITED ALLOCATION TITLES
Expedited allocation title
2013 2014
SOLIDIFYING OBJECTIVES Mining jurisdictions around the world, and in Latin America especially, are actively competing to attract global capital. The mining cycle is finally beginning to
2015 700
825
950
Source: CAMIMEX, Ministry of Economy
1075
1200
159
EXPERT OPINION
RICH GEOLOGICAL HISTORY CREATES BRIGHT MINING FUTURE RAÚL CRUZ Director General of the Mexican Geological Survey (SGM)
160
Mexico is located in the central-northern part of the
restoration of nature in those communities and regions in
American continent, a block that evolved 250 million years
which mineral deposits are explored and exploited.
ago, detached from the super continent called Pangea. The history of mining in Mexico and Latin America has been The geological history of this emerging part of the planet has
more legendary than lucrative, at least in the early epoch,
been changing, although always following a line of evolution
up until industrial modernization and the evolution of
that gave rise to multiple landscapes and geo-forms. The
technology, which occurred well into the twentieth century.
associated resources are derived from the earliest phases
From Atacama and the Tarapaca and Antofagasta mountain
of continental drift. Most of these resources are related to
ranges, passing through Cusco-Tarija and arriving at Taxco-
magmatic processes - that is, those produced by the interaction
Pachuca-Zacatecas, the Spanish colonizers found that the
between the oceanic and continental tectonic plates.
natives knew how to work gold, silver and copper, which encouraged them to continue with colonization.
From the Mexican Republic to Patagonia at the southmost point of the continent, along the west coast of South
Chile, Mexico, and Peru suffered more pain than glory
America, over the last 180 million years, the phenomenon
throughout their mining histories, providing cheap labor
called subduction prevails. The oceanic tectonic plates of
to develop the industry, with almost zero social benefits
the Pacific collide and slide below those of North America,
throughout the time the colony prevailed. The evolution
Central America and South America, which gives the
through the nineteenth century was equally slow, but the
region surprising but dangerous mobility, characterized by
sector grew and expanded from the twentieth century
seismic zones, which is why millions of people living on the
onward, with communities demanding yields, and
coastline and within the continent are permanently at risk.
governments encourage producers to seek a tangible socio-economic benefit.
The settlement and historical evolution gave Mexico and the countries of Central America and South America -
Consequently, in real terms, it is important to promote
especially Ecuador, Colombia, Peru, Bolivia, Chile, Brazil
the relationship between countries that share not only a
and Argentina, to mention only a few - a privileged position
thousand-year tradition, but a geological evolution that left
in terms of precious, basic and non-metallic mineral
behind a legacy of resources that are and will continue to
deposits. Comparatively, Mexico, Peru and Chile compete
be useful for the survival of humanity.
amicably for the sustainable production of raw minerals, which is essential for supporting the industry. The three
Minerals do not exist as a by-product. There is always
countries have an important historical, economic and
a reason, a process or a circumstance that allows us to
social component associated with mining activities, even
associate them with a geological event. Geological sciences
predating the sixteenth century Spanish invasion.
have developed since the sixteenth century - when the De Re Metallica treatise was written by the German Georgius
As a result, each country is responsible for promoting
Agricola. This was drafted in such a way that not only allows
mining activities. Mexico covers almost 2 million km ; Peru
us to know more about the structure of the thin solid crust
1.2 billion km2 and Chile 756,000km2. Among the three
upon which mankind lives but also about non-renewable
countries, 41.2 percent of the world’s silver, 43.6 percent of
resources such as minerals, petroleum, uranium, coal and
copper and 9 percent of gold is produced, so it can be said
geothermal deposits.
2
that mining is one of the main catalysts for the country’s economic development. The activity is carried out with care
The knowledge of geological evolution is exciting and
for the environment, and respect for the preservation and
important because within this environment it is possible
to coexist and marvel at the perfection of nature which,
the support of satellite images that have a surprisingly
through an almost miraculous balance, has provided all
powerful resolution.
the raw materials that the human race has used since it appeared on the face of the earth.
As if this were not enough, to maintain our hard-fought position as the guiding institution in world-renowned
The concept of exploration has also appeared since time
geosciences, SGM adds regional aerial geophysics
immemorial, and of course the practice has been perfected
maps that cover 100 percent of the country, including
over time. All countries, governments and societies are
into international waters. It also offers high-resolution
concerned with continuing to provide the materials required
geophysical techniques combined with radiometric
to maintain the standard of living of today’s society. None
information on uranium, thorium and potassium channels,
of the habits or activities of man and woman would be
as well as aerial electromagnetic time-domain (TEM)
possible if not for raw materials to build the everyday tools
methodology, useful for detecting underground sulphide
of modernity. There is high demand, and that is why it is
concentrations to determine the geo-hydrological potential
essential to continue supplying those materials.
of basins in arid and semi-arid zones. 161
The different countries of the world are aware of the
To round off the country’s intrinsic geological appeal, SGM
responsibility of responding to internal and external
operates two research centers in which mineral contents are
demand, and have taken advantage of globalization by
characterized and assayed, and metallurgical tests are run
fostering business opportunities for themselves and for
to support mineral exploration and benefit decision making.
foreign actors. Each offers, first and foremost, a variety of
Our technology is capable of identifying 38 elements in
geological contexts conducive to rich mineral deposits, as
active stream sediment samples that are collected during
well as expectations for the location of more minerals that
geological surveys, and later are mapped in geochemical
will be discovered thanks to the application of increasingly
maps. This constitute an additional tool that helps the
sophisticated exploration techniques.
integral exploration of a region or of a district.
The Mexican Geological Survey (SGM) is the institution
Mexico’s landscape is varied, resulting from the geological
that has committed to disseminate and propagate the
evolution that gave rise to the formation of extensive
geological knowledge of Mexico to encourage investment
mountain ranges of volcanic or sedimentary origin, desert
and contribute to the development of the nation. SGM is
and semi-desert plains, mountain ranges with active
responsible for generating geological maps throughout
volcanoes, rock complexes and reliefs in the south and
the territory, surveyed to a scale of 1:250,000 and
calcareous platforms in the southeast of the country. The
1:50,000, the latter with sufficient detail to visualize
Gulf of Mexico’s coastal zones are wide, and their Pacific
zones and mineralized areas. SGM supplements this data
counterparts relatively narrow, which can be seen in the
with information on the major and local structures that
case of the Sierra Madre Occidental, the province of the
control mineralization, as well as on stratigraphy, with
world’s largest gold and silver epithermal deposits.
SGM offers a wide diversity of exploration services and advisory for the world’s mining companies. It welcomes interested parties to visit its offices, which are distributed across the country, or consult its website, where its pioneering GeoInfoMex platform can be found. This platform provides a wealth of geographical data for Mexico, divided into various categories such as mineral deposits, geochemistry, geology and natural protected areas. GeoInfoMex allows users to access extensive geoscientific information about Mexico’s terrain and make fast decisions, saving both time and money, and contributing to the efficiency and promotion of mining activity. The platform contains more than 80 layers of information, generated by more than seven decades of mining exploration in Mexico, as well as information derived from inter-institutional agreements. This pioneering platform is the first of its type to map Mexico’s mining concessions and offer the public reliable, up-to-date and quality information on a massive scale. The data can be sorted by category, identifying world-class deposits and important mining districts. This platform facilitates planning for the mining industry, allowing an agile interpretation of the information, presenting information in a comprehensive way and contributing to the most informed decision-making process.
SGM PROVIDES GEOLOGICAL MAPPING WITH GEOINFOMEX
MEXICO'S MINERAL BELTS
162
Mexico reported an 18 percent drop in exploration investment to US$401 million in 2016 from US$491 million in 2015 INDEX FOR GEOLOGICAL
INVESTMENT ATTRACTIVENESS INDEX 2016 100
2015 2016
91
80
60
60
20
50 37
45
43
39
36
49
43 34
29
40
0
Peru
Source: CAMIMEX
Source: ProMéxico Negocios
Colombia
Guyana
Mexico
Chile
11
11
17
20
25
36
40
40
71
80
2015 2016
28
100
INVESTMENT ATTRACTIVENESS INDEX BY COUNTRY/REGION
82
INDEX FOR GEOLOGICAL POTENTIAL IN LATIN AMERICA POTENTIAL IN LATIN AMERICA
0
Peru
Chile
Salta
Guyana
Mexico
Gold-Silver-Copper Copper-Molybdenum-Gold Zinc-Lead-Silver-Copper Massive Sulphides Iron
Coal Strontium Flourite Manganese Phosphates
67%
of projects funded with FDI in Mexico are in exploration
US$1.5
billion was received in LATAM for exploration investment
Source: CAMIMEX
VIEW FROM THE TOP
‘OUTRAGEOUS’ NUMBER OF MINERAL PROPERTIES REMAIN UNAVAILABLE ALAIN CHAREST Exploration Vice President, Mexico of Evrim Resources
164
Q: How does Mexico stand out from other mining countries?
would be more open to working in partnership with the
A: Mexico is an amazing country and differs greatly
smaller exploration companies. Sadly, we often find out
from other mining jurisdictions thanks to its long mining
that half or more of our selected target area is covered by
tradition dating back to the 1500s. Other countries such
canceled “untouchable” claims. Once the canceled mineral
as neighboring Guatemala have similar geological potential
concessions are freed and released for public tendering it
but no long-standing mining tradition, which makes it much
is still difficult for a junior mining company. The tendered
more difficult to carry out mineral exploration and mining.
mineral claims are granted through a lottery system where the more tickets bought, the better the chance of a win,
Evrim Resources spends more than 60 percent of its
giving a solid edge to the cash-rich, larger companies.
resources in Mexico. We have four active projects located in Sonora and Chihuahua. On the project-generation side,
Q: What strategies help ensure success and potential
Evrim focuses its exploration activities in northwestern
discoveries?
Mexico, mainly in the Sierra Madre Occidental’s volcanic belt
A: On the exploration side, it helps to have a broad network
where many high-potential mineral prospects can be found,
of contacts in the industry, including government officials,
explored and developed. The company is based on the
concession owners, surveyors and local prospectors from
project-generator model, which involves the participation
mine communities. Once a promising target has been
of a team of highly experienced exploration geologists in
selected and the legal status of the mineral concessions has
both Canada and Mexico.
been cleared, Evrim will conduct a field evaluation program including rock sampling and mapping. If the results are
Q: What would you consider to be the main challenges
positive, Evrim then starts a process of negotiation with the
that exploration companies face in Mexico?
claim owners to reach reasonable terms on a contract that
A: My biggest concern in doing exploration work is
includes the permission to explore the mineral concessions
related to the availability of mining concessions. Today,
and an option to buy the respective mineral rights.
there are thousands of canceled mineral concessions that have accumulated over the past 25 years or so, an
In late 2015, Evrim acquired the Cerro Cascaron project near
outrageous amount of mineral property that has not been
Morelos in Chihuahua through such a process. As of today,
made available for acquisition by the public. These mineral
the company has spent more than US$250,000 evaluating
concessions are tangled in a faulty, deficient bureaucratic
the project. Cerro Cascaron is now at a stage where it can
process and remain dormant until the respective authorities
be offered as a JV to larger mining companies that are
free them and offer them to the public.
looking for potential new mineral projects to develop.
Another impediment to exploration work is that a
Q: How can the Mexican mining industry boost its
considerable portion of prospective mineral concessions
production levels?
are owned and controlled by large companies, many of
A: Mexico should try to learn from the largest producer
which remain stagnant exploration-wise for many years.
of gold in the world today, China, which has only a few
These major mining companies would benefit if they
million-ounce-plus gold deposits; most of the country’s producing gold mines have only 200,000–300,000 ounces of reserves. Mexico has many million-ounce gold mines in
Evrim Resources is a Canadian exploration company listed on
production, and many more 200,000-300,000-ounce gold
the TSX and working in Mexico. It has four projects in Mexico:
deposits that are not being exploited. Mexico could become
Ermitaño and Cumobabi in Sonora, Llano del Nogal in Sonora
the global leader in gold production if it can find a way to
and Cerro Cascaron in Chihuahua
take advantage of this abundance of smaller gold deposits.
INSIGHT
MINING HEALTH THREATENED BY REGULATORY INEFFICIENCY JOHN-MARK STAUDE President and CEO of Riverside Resources
Since its inception in 2007 with its acquisition of the
stake in its Penmont JV, which included the Herradura,
Chapalota property in Sinaloa, Riverside Resources has
Soledad-Dipolos and Noche Buena properties, to Fresnillo
been a company dedicated to mineral exploration in Mexico
for US$450 million. On March 8, 2017, Newmont confirmed a
and its President and CEO John-Mark Staude is vocal about
US$39.5 million deal for an earn-in agreement at the Plateau
his love of the country. “My father is Mexican and I feel a
property in the Yukon in Canada.
real responsibility to the Mexican people – I want to make a difference for us,” he says.
“Mexico is losing and the money is going to Serbia, Colombia, Finland and Ecuador,” says Staude. “We have the
Riverside’s business model is relatively simple: it generates
expertise but it has been very difficult to attract partners.
alliances where majors contribute the money and Riverside
We cannot compete if the money is going to more favorable
offers the technical expertise. The company differentiates
jurisdictions.”
itself from other prospect generators in that it has been able to produce a profit from its JVs, alliances and sales
Although he admits that the government is understaffed
of its projects, meaning over the last decade it has kept a
and overwhelmed by the mammoth task of liberating the
tight share structure with only 44 million shares and US$5
concessions, he is adamant this must be prioritized to
million in cash.
ensure the future health of the sector. “The potential taxes on these properties would be millions of dollars,” he says.
But according to Staude, the number of hurdles companies
“With the US$20 million that Riverside could have brought
face in Mexico now is threatening the future of the sector.
in alone, a lot of civil servants could have been recruited.”
So much so that Riverside itself – a company that sees Mexico as its base in the Americas – is seriously considering
The first thing that needs to be done, says Staude, is to
diversifying to other jurisdictions like Brazil and has already
accelerate all cancellations and liberations of claims. “To
expanded to the US and Canada. “We are driven by passion
do this, the government does not even need the staff,
but sometimes the challenges feel insurmountable,” he says.
it can be outsourced to experienced contractors,” he
“Ejidos and security are two serious issues and tax regimes
suggests. “Or a governmental decree could be made to
make it difficult for mines to develop or operating mines to
officially cancel dormant claims.” He compares the system
continue to produce.”
to Quebec, where the claim release date is scheduled and on that date at 00:01 it becomes liberated and companies
For Staude, the main problem is the lack of liberation
can stake the claim. Some explorers in Canada own 5,000
of claims and the sheer amount of time taken for the
claim properties and make rapid deals, which is impossible
government to do so. He feels there has been an outflow
under the current Mexican system.
of foreign capital from Mexico and, as a result, Riverside has lost two-thirds of its partners and over US$20 million
Without any sign of new claims freeing up in 2017, Riverside’s
in potential JV money in the last four years. “Without the
attention will be focused on its priority Glor project with
titles, exploration is simply impossible,” he says. “We had
JV partner Centerra Gold. It also plans to advance with the
the money lined up and the commitment in place but the
early exploration of Cecilia and hopefully find a partner.
pace of permitting, granting titles and making liberations meant that, as the market decelerated, the money went
“We are still very interested in acquiring new properties in
elsewhere, namely to Canada.”
Mexico because the company has focused for many years on the country, particularly in Sonora,” says Staude. “But if
Staude cites Newmont Mining as an example. In 2014,
the process continues to be drawn out, we have to explore
Newmont cashed out of Mexico by selling its 44 percent
options of moving to other jurisdictions.”
165
TECHNOLOGY SPOTLIGHT
166
SGS DURANGO CHEMICAL ANALYSIS FACILITY: TRUSTED EXPERTISE Few international companies offer laboratory testing services within Mexico, preferring instead to send samples to laboratories located in Houston or Toronto. But SGS’s Durango laboratory offers clients a speedy turnaround and eliminates the customs burdens of shipping exploration cores to other countries. The SGS Minerals Services facility is located in the heart of Mexico’s mining hub to the north and offers a wide range of comprehensive sample preparation, analytical and metallurgical-testing services. It also acts as a gateway to SGS’s global network of analytical and metallurgical facilities. The lab is fully accredited under the international ISO/IEC 17025 standard, which reduces the need to ship samples out of the country and thus allows companies to have input into their projects while minimizing turnaround times. Analytical capabilities on-site include fire assay with atomic absorption spectrometry (AAS) and gravimetric analysis for gold and silver, aqua regia and cyanide BLEG leach analyses for gold (DIBK-AAS finish), ICP-AES multi-element packages, aqua regia, strong acid digestion and peroxide and borate fusions and classil methods for high-grade copper, lead and zinc concentrates In addition to these analyses, the Durango lab offers an increasing series of metallurgical-testing capabilities, including specific gravity or bulk density testing, granulometric analysis, gravimetric concentration (using Knelson and Wilfley concentrators), floatation, leaching testing and mill bond or SPI testing. Many companies choose to outsource their analytical requirements for exploration or production laboratory services to SGS since it applies the same principles, procedures and quality standards to its outsourced laboratories as it does to its commercial laboratories. Companies that allow SGS to design, staff and operate their laboratories will be guaranteed to have at their disposal a full scope of capabilities for the fast turnaround of accurate, reliable data needed to run and optimize their plant operations and confirm the value produced by their operations. SGS is now operating on-site laboratories for customers with mining operations in Guerrero, Sonora and Guanajuato states.
167
VIEW FROM THE TOP
MAKING THE JUMP FROM EXPLORATION TO PRODUCTION JOSÉ ANTONIO BERLANGA CEO of Telson Resources
168
Q: How has the exploration segment of the mining sector
mining sector perpetuated by the media and by the lack
in Mexico developed since the 2014 fiscal reforms?
of certainty in mining legislation. Although it has improved
A: The fiscal reforms certainly had an impact on exploration
greatly, we still have significant infrastructure, service and
in the country, especially the clause that established
safety deficiencies, which requires higher investment, costs
exploration expenses were not a cost and therefore were
and time to develop a project.
not tax deductible. Foreign companies in particular no longer view exploration as an investment but rather as an
Q: What impact will the CA$10.5 million credit line have
expense, with no guarantee of returns.
on the Tahuehueto project? A: Financing is a challenge for mining companies. Despite
Without overlooking its importance and good intention,
having a solid project, it is difficult to attract investment
the implementation of the Mining Fund also affected the
to the country. Locally, it is extremely difficult to get a
country’s exploration sector, since investment was made
bank to offer financing for exploration or development of
less competitive and attractive. Initially this fund was
a mining project. We secured a significant line of credit
created to support the specific communities where the
from our investors, which will allow us to continue with the
mines were situated but unfortunately it was decided that
development of Tahuehueto and bring it into production in
these funds would be assigned to the federation, state and
2017. The first resources from this credit line were used to
municipalities. This means that only a small percentage or
carry out a prefeasibility study (PFS) with an independent
none of these resources arrive in the communities with
company in accordance with the Canadian norm 43-101.
mining activities. These communities may be even more
We expect this study to be ready at the end of November.
affected since SEDATU, which is in charge of assigning the
We were also able to carry out an industrial test on 3,500
funds, has requested a percentage of the money for its
tons of mineral. We are about to conclude this stage with
operation.
excellent results in terms of the ore quality, the sales of which we expect to make us self-sustainable. We are in a
However, mining companies continue to invest in the
position to approve the construction of Tahuehueto and
country and strongly support the communities in which
take it into production.
we operate, independent of the obligations imposed on us. We recognize their importance and we have faith that
Q: How will you ensure the project continues to receive
the authorities will act to minimize the aforementioned
enough financing to bring it into production?
implications for the communities.
A: We are working with service and machinery providers, opening lines of credit to obtain equipment, work camps,
Q: What are the challenges you face as a Canadian junior
and all other components we will require. We are also about
mining company working in Mexico?
to close an agreement with an energy company, which will
A: The main challenge is in the excessive regulation, which
install and operate a generation plant for the project and
is becoming ever stricter, driving up prices and making
will provide us with energy at a competitive price.
exploration and development slower and slower. This is only exacerbated by the negative perception of the
We are fortunate enough to have a very high-quality project and an experienced team to develop and operate it, which has instilled our investors with confidence and has
Telson Resources is a Canadian junior mining company working
facilitated our financing. We are optimistic that Tahuehueto
in Durango. Its primary project, Tahuehueto, is at an advanced
will be in operation at the end of 2017, and we aim to
stage of development and is expected to enter commercial
produce 150,000 tons of mineral and more than 40,000
production by year-end 2017
gold equivalent ounces per year.
VIEW FROM THE TOP
GEOLOGY CREATES OPPORTUNITY FOR COOPERATION FLOYD GRAY Research Geologist at the US Geological Survey (USGS)
Q: What interest does USGS have in the Mexican mining
customarily called upon to review this part of the permitting
sector?
process after completion but now we are trying to get
A: We have a long-term interest in the Mexican mining
involved from the beginning of the characterization process
sector because it provides significant material input into
to act as advisors in developing basic scientific information
the hemisphere’s regional commodity flow, and particularly
needed to make workable engineering decisions and
in Sonora because it is very much a geological extension
systems that minimize environmental impacts. For example,
of what we work on in southern Arizona. We study the
we are planning on working closely with Resolution Mining,
Laramide porphyry copper belt, for example, and much
whose project will be 7,000 feet below ground.
of the adjacent epithermal systems in Mexico as well as in the US. I participated in a mapping and isotopic age-dating
Q: How is this information used by mining companies?
program to better define the age range of geologic units
A: As a federal entity, our assessments are available to
potentially relevant to mineralization episodes in northern
the public. We publish a worldwide estimate of mineral
Mexico. We were working jointly with Mexican scientists
resources as a tool that juniors as well as major mining
from SGM, the Geological Institute at UNAM and UNISON
companies compile internally. They potentially could
through an entity called the University of Arizona-USGS-
base their planning and activities including prospecting,
Mining Industry Mexico Consortium. This initiative was
targeting, and mineral concessions acquisitions on this
established in 1991 and supported by companies like Minera
estimate. We have developed our own version of it to use as
Kennecott and Cypress.
a public document for city planners, managers and perhaps junior exploration companies.
These efforts help us define the corresponding mineral belt on the US side, plus we can see different data and different
Q: How likely is the USGS to fund any Mexico-based
exposures. Some of the land in the US might be privately
research projects in the near future?
owned or park land, meaning it could be difficult to obtain
A: The USGS funds binational studies that involve
access, so it can be easier to come to Mexico to work on
developing or interpreting data from the Mexico side.
the same geological province. We have worked extensively
We are trying to develop studies on a project that may
over 60 years with SGM and we have carried out several
involve the San Pedro River in Mexico to examine the spill
joint projects defining areas of interest.
effects caused by unexpectedly intense monsoon storms. Specifically, we are examining the contaminant reservoir
Q: What projects are you working on and what practical
and remobilization potential. This proposed study would be
applications result from these ?
in cooperation with local public and private entities. I am
A: The most recent project we worked on was the mineral
currently examining a spill area in Arizona and comparing
resources assessment of Mexico, which was a joint study
its mineralogical aspects with an area in Colorado and we
with UNISON, UNAM and SGM. We had several joint
would like to include a part of the Sonora and San Pedro
exercises and we were given 36,000 analyses before they
Rivers to compare the effects on the soil. Such a study
were released to the public. We obtained the digital map
would be carried out in conjunction with the Mexican Civil
and carried out a three-part quantitative probabilistic
Protection Agency.
assessment in Mexico, where I led the portion looking at Laramide-age mineralization processes and their contained deposits and deposit potential.
USGS is a US government agency that provides data about the natural hazards that threaten lives and livelihoods; water,
We also work with mining companies that are starting up
energy, minerals and other natural resources; the health of
to help with the environmental characterization. USGS was
ecosystems and the impacts of climate and land-use change
169
VIEW FROM THE TOP
DRILLING COMPANY OFFERS INDUSTRY-LEADING TECHNOLOGY MARC KIELER President of Globexplore
170
Q: How has the market in Mexico reacted to this
on-site Mineralogy and Geochemistry analysis using
addition to your Core Logging Web Service, which uses
Hyperspectral and XRF technologies for real time sharing
Hyperspectral Imaging and XRF X ray fluorescence
of accurate consistency of core logging. Our partner
analysis?
Terracore is respected as a worldwide industry leader, and
A: The overwhelming majority of our clients have
its platform has been relied on by innovative companies
embraced the fact that this is the path of the future.
including Anglo Gold, Barrick Gold and The Swedish
However, we launched this during a severe economic
Geological Survey from the first core ever drilled to the
down turn with slashed budgets which has slowed the
last core drilled in their country. The Intellicore software
momentum of clients making the shift from old habits
platform is easy to use and focuses on a wide or narrow
to new technologies. It is certain that this service
search engine of spectral images, detected minerals
will generate consistencies with more accurate, non-
and alterations organized by depth and interpolating
destructive Geochemical and Mineralogical analysis with
additional values like geochemistry.
the cost savings of less delay and misinterpretation of human error.Â
Clients have chosen Terracore for many reasons, but I will share a few examples. The Intellicore software
Q: How does this product solve problems for your
platform is really easy to use with the ability to focus on
clients, and how does it differ from other data analysis
a wide or narrow search functionality of viewing spectral
software solutions on the market?
images, detected minerals and alterations organized by
A: In 2016, Globexplore teamed up with Terracore and
borehole, box, depth and integrating additional data such
Intellicore to create our Geosite Service, which provides
as geochemistry. This powerful platform manages all the
171
features required for any core logging and with precision
as its pathfinder. The geologists were first skeptical to
generates a comprehensive set of data products for the
try hyperspectral technology. After several months of
ease of sharing with corporate offices and third-party
frustration with traditional exploration analysis, they
software platforms such as Leap Frog, Vulca, MicroMine
analyzed a number of core boxes with Terracore as a
and similar programs.
test and discovered a crucial misinterpretation of mineral and alterations. With this correction, they were able to
In addition, our system can scan a complete core box
reset new pathfinders that made the correlation with the
in one pass whereas our competitors can only scan a
mineral values toward a very significant discovery that
10cm wide surface of one core sample at a time. This
was not previously evident.
gives our clients approximately 75 percent more data, 10 times faster and at a significantly lower cost. Also, only
Q: How are technological advancements in drilling
our system can scan RC chip samples. We are offering
helping to make exploration projects more viable?
this technology on site next to the drill or at the core
A: We ensure our drill fleet is up-to-date by replacing
shack as part of our Geosite services which in effect
each rig every five years, giving us the most modern
provides a mobile lab. We believe we are only drilling
fleet in Mexico. We purchase our rigs from the highest
company offering the service that allows geologists to
quality rig builders in Canada who specialize in the latest
take quick decisions to maximize their budgets and speed
safety technology rather than attempt to build our own
of exploration evaluation. This is a huge advantage when
rigs - as some of our competitors do - to save money.
compared to the traditional months or at best weeks of
For example, our Man Portable Drilling eliminates the
time to receive analytical information from a lab.Â
environmental impact and permits required for road and drill pad construction. We are working with one of our
Q: Could you provides a success story that demonstrates
rig builders to develop a high performance, single engine
the impact Core Logging service has on a client’s drilling
Man Portable Rig that is significantly more compact than
operations?
any other rig available on the market. Having a single
A: There are many success stories. For example, an
engine, rather than the typical three or four, decreases
exploration company made a greenfield discovery using
the drill pad size and reduces the risk of accident
traditional prospecting techniques. At the beginning of
during transportation. This reduces fuel consumption,
the exploration process, the company identified certain
maintenance costs and mechanical downtime. We can
minerals and alterations and then used this information
now move faster and safer yet maintain the power to
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reach 400m in HQ, 750m in NQ and 1,000m in BQ. Another innovation we are working on with our partners is a Man Portable RC rig that can reach depths of 200m. Both of these rigs do not have a single component that weighs more than 420lbs. Q: How is automation impacting the drilling segment and to what extent is Globexplore developing unmanned, automated solutions for its clients? A: The industry is not quite ready for unmanned drilling in the exploration area. Unmanned drilling is working for some large and repetitive types of drilling campaigns like the level plains in Australia. While Artificial Intelligence will eventually help the industry, current exploration needs flexibility to quickly react to a variety of ground conditions, which requires the experience of a well-trained driller at the controls. Globexplore has automated every function possible to remove the chances of human error. Our Globexplore Management System (GMS) is a custom software system we developed ourselves with experts in this field. It was a substantial investment but the increase to our overall efficiency and productivity levels has been incredible. The GMS gives us a highly detailed, real-time experience starting from the drill hole to procedures that automatically generate drill logs, invoices, productivity data and preventive maintenance for all drills and support equipment. The GMS, for example, automatically reorders and maintains our inventory levels in the field and alerts us when a driver exceeds the speed limit or drives outside set boundaries. It generates numerous productivity reports and gathers important information that helps us take our performance to a higher level that cannot be reached without such an automated, real-time monitoring system.
Globexplore is an exploration drilling company offering traditional diamond core, man portable, underground and reverse circulation drilling services as well as on-site mineralogy and geochemical analysis with core logging. The company is based in Hermosillo
173
INSIGHT
MAINTAINING FRUGALITY A PRUDENT COURSE KENNETH MACLEOD President and CEO of Sonoro Metals
174
Mining companies are now looking to the markets with
In December 2016, Sonoro itself sold its Chipriona
optimism after the US Fed’s interest rate hike in March
concession in Sonora to Agnico Eagle and, on top of the
2017 caused the dollar to falter and opened the door for
US$4 million offer, was able to retain a 1 percent smelter
gold and silver as traditional safe havens. However, Kenneth
royalty on the project. Due to Chipriona’s strategic position
MacLeod, President and CEO of gold explorer Sonoro
in the middle of Agnico’s 63,000ha in Mulatos, MacLeod
Metals, says his company is taking a different approach.
is confident the Canadian major will exercise its option to
While he admits that he would like gold prices to reach 2012
buy the royalty for US$1.5 million. Sonoro decided to divest
levels, he remains relatively conservative in his expectations.
the asset due to its relatively small size and the fact that it needed more exploration work. Its position between the
“Many people have predicted gold prices will go much further
La India open-pit and Tarachi deposit made its acquisition
than 2012 levels, even up to US$3,000,” he says. “Our company
an easy decision for exploration giant Agnico.
aims to make money at a gold price of US$1,200, meaning that anything above this amount would be a bonus.” He says that
As a result of the divestiture, Sonoro is able to focus its new
companies have worked hard in the last seven to eight years
cash flow on the exploration and development of its core
to downscale, keep expenditures low and reduce overheads,
San Marcial deposit, also located in Sonora. Having spent a
so it would be counterproductive for the industry to abandon
few years carrying out soil sampling, MacLeod is confident
this newfound frugality in the case of a prolonged upturn.
that based on the majority of the target areas, the property
“
The best place to find a mine is close to where miners in the 1800s already discovered one”
has the makings of a large-scale disseminated deposit with a length of 5km and a width of 1.5km. “We must bear in mind that the deposit has never been drilled to depth so it remains to be seen how the mineralization will occur,” he says. This year, he expects Sonoro’s drilling permit to be approved, at which point the explorer will carry out some shallow RC drilling to a depth of 200m to get a feel for the underlying geology.
As a junior company, Sonoro did not see the benefits in the
Another promising sign is that the property boasts two old
uptick in 1H16 to the extent that majors did. After a flat 2H16,
mines – Soledad on the southern end and San Marcial on
2017 started off strong, with gold rallying to US$1,256.90
the northern end. “The best place to find a mine is close to
on Feb. 24 up from US$1,128.30 on Dec. 22. After sinking
where miners in the 1800s already discovered one,” says
to US$1,200.80 on Mar. 9, gold once again picked up the
MacLeod. In between these old mines is a 5km stretch
pace to reach US$1,244.50 on Mar. 21.
of mineralized zones running in a southeast-northwest direction and he says its characteristics are very similar to
This gave a welcome jolt to the majors’ share prices and
the megashear. “We will continue to explore these zones
trading volumes. Although there has been no such reaction
where the soil sampling indicates a greater grade,” he says.
in the juniors’ share prices, MacLeod explains that an equally positive trend is emerging instead. “We are now
Even Sonoro’s name – a combination of “Sonora” and “oro,”
seeing deals of US$5-15 million being financed and this
the Spanish word for gold – demonstrates the company’s
was unheard of a few years ago,” he says. “The financial
dedication to the north of Mexico. “Mexico is a mining
sector is beginning to once again take a longer-term view
friendly jurisdiction,” MacLeod says. “Recent changes to the
of the mining sector and this is reflected in the levels of
tax code have complicated things for foreign companies but
exploration investment the juniors are attracting.”
the country is so mineral rich it simply cannot be ignored.”
INSIGHT
NEGOTIATING MINING CONCESSION DIFFICULTIES Luis Moya Chief Geologist at Kootenay Silver
Gustavo Gallego Geosciences Engineer at Kootenay Silver
Exploration companies are more efficient and cautious than
La Cigarra is one of Kootenay’s current projects in
ever as a result of the recent mining slump. Drilling is the
Chihuahua with favorable drilling results. “The last seven
most expensive part of the process and many are becoming
holes all showed silver presence,” says Moya. “Although
more selective in its application. “We used to have drill
the grades were not significantly high, we see it as a sign
programs of 10,000m or more and now we have programs
of potential and we are now working on restructuring the
to 3,000m,” states Gustavo Gallego, Geosciences Engineer
geology model to improve viability.” Companies are already
at Kootenay Silver. “The company cannot afford to waste
starting to visit the prospect, according to Gallego.
even 1m due to the costs that are involved.” Apart from ejido issues causing delays, Gallego says that To reduce risks, the company relies on a prospect generator
companies can struggle to acquire concessions as access
model based on fieldwork and using geologists and
can be sporadic and the process can take up to five years.
prospectors with experience and advanced knowledge
“Factors such as the Energy Reform and convoluted
of what to look for, sampling and mapping. According to
processes make it harder to obtain mining concessions,”
Luis Moya, Chief Geologist at the company, the crew can
says Gallego. “In certain areas, a company has to wait until
cover and interpret the terrain in half the time normally
PEMEX liberates the area to acquire mining rights.”
taken thanks to its strategic division of work between prospectors and geologists. “Many companies have
Kootenay has been engaged in negotiations with a
dropped traditional methods for new discoveries, using
concessionaire for the granting of the application, a
modern methods that are not always more efficient,” says
process that is now entering its third year. This is an
Moya. “We try to simplify the process and stick to what
especially pronounced problem for the company, which
works. Sometimes this implies more conventional methods
often generates projects from scratch and advances them
that were developed throughout the industry’s 500-year
until there is enough information to sell them or attract
history.” A successful example of this was the prospecting
joint ventures. “Large players normally opt for buying 100
discovery of the La Negra silver breccia where there is not
percent of the prospects but if they are unsure they can buy
any previous evidence of exploration.
a smaller share to test the waters,” says Gallego. “Then they can continue to buy the entire project or sell their share.”
Another defining factor in Kootenay’s strategy is its clear and open communication channels with property owners.
The process is eased by the fact that companies that
“Mining concessions require negotiations with the owners
are interested in purchasing prospects can choose from
and it is important to be consistent with the flow of the
various financial options. “We adapt to the needs of the
information from the outset,” adds Moya. “Sometimes the
company, having sold projects to companies of the caliber
owners or community members will say they understand
of Pan American Silver,” says Moya. Kootenay offered Pan
the project, when the reality is very different.”
American Silver 75 percent ownership of Promontorio-La Negra while Kootenay retained the remaining 25 percent,
The company has successfully established a healthy
carried to production interest. The deal consists of annual
relationship between the community and mining for
payments and a commitment from Pan American Silver to
projects like La Cigarra, Promontorio and La Negra.
invest a minimum amount of capital in exploration.
“At Cigarra, Kootenay managed to establish a 20-year contract with the ejido that permits production,” says the
“The mining sector is a little stagnant as investment
Geosciences engineer. “The company also owns 1,000ha
dropped in the last few years but it is starting to take a
in the area and part of it will be used for the development
favorable turn,” says Gallego. “It will continue to grow as
of the future mine.”
long as the government does not change the laws again.”
175
ROUNDTABLE
WHAT ARE THE MAIN CHALLENGES FACED BY THE EXPLORATION INDUSTRY IN MEXICO?
The mining slump caused many operators to prioritize cost reduction over exploration. Operators now find themselves with exclusive portfolios of mines nearing the end of their lifecycle and a lack of new projects to replace them. According to KPMG, CEOs from some of Canada’s largest companies stated that their main concern for 2016 is their ability to access and replace reserves. On top of this, Mexican mining companies struggle to stay afloat under Mexico’s changing legislation and its labyrinthine process to acquire mining concessions. Mexico Mining Review asked leading executives about the main challenges they are facing and the new strategies they are adopting.
176
Delays with the government releasing concessions mean there are huge swathes of the country that are not being tested or utilized and because claim applications are not being granted, the government is missing out on taxes for these concessions. Out of 2,000 showings, only one becomes a mine so drilling and testing is absolutely essential to advance the creation of mines. This has a huge trickle-down impact because without access to this land, no exploration can
JAMES MCDONALD President and CEO of Kootenay Silver
be carried out, no new discoveries can be made and ultimately, no new mines can come into production. This impacts not only the mining sector but the economy as a whole due to the industry’s role as an employment creator, revenue generator and huge contributor to the country’s GDP.
Mexico should try to learn from the largest producer of gold in the world today: China, a country that has been very successful in exploiting its territory’s mineral potential. China has only a few million-ounce-plus gold deposits. Most of the country’s producing gold mines have only 200,000–300,000 ounces of reserves. Mexico, on the other hand, has many million-ounce gold mines in production, and many more 200,000-300,000-ounce gold deposits that are not being exploited.
ALAIN CHAREST Exploration VP, Mexico at Evrim Resources
Mexico could eventually become the global leader in gold production if it can find a way to take advantage of this abundance of smaller gold deposits.
The management of the mining registry in Mexico has made substantial improvements and is now very efficient. Although foreign mining exploration investment in Mexico dropped slightly in 2015, that can be explained by the low gold prices and the royalty tax, which was imposed at the worst possible time. I support the additional taxes, as long as the funds go back into the communities as intended. Investment is returning and 2016 figures for exploration investment
ARTURO BONILLAS President and Director of Timmins Gold
should be much higher than the previous year. A lot of the credit for this must go to SGM, which does a fantastic job when it comes to prospecting, mapping and target identification. This undoubtedly helps attract foreign companies to the country, and this has a positive knock-on effect on the entire industry.
If we look at the production profile of a lot of companies over the next few years, especially given the fact a lot of companies over-leveraged themselves in the past decade, there is a real deficit in terms of production from 2019 beyond. That is most pronounced in the gold industry. When looking at countries like Mexico that have recent successes in exploration and in terms of projects that have been discovered from greenfields and brought through to production, it is clear there is a lot of mining entrepreneurship. The country is becoming an interesting place in which to operate and this period marks a turning point in Mexican exploration because it is becoming
BEN PULLINGER VP Geology at Excellon Resources
more innovative and advanced. Juanicipio is a great example of the kind of success that can be generated by digging a little further and applying sound geological theory in a geologically challenging environment.
177
The challenge is finding the time to assess all the potential projects that are available in Mexico. It is also vital to select the right execution partners. If we do not have the right geologists or drilling team working for us, we cannot be sure that our capital is protected. One way we protect our investments and ensure the accuracy and credibility of our data is by demanding that every study comes accompanied with an NI-43101 report. Without this certification, any geological or technical study to be used for institutional funding purposes is useless. On the financial side, the correct structures must be in place to allow capital to flow to the project. Irrespective of whether we own the mining concession or not, if the capital is not available to fund
MARIO GUTIÉRREZ, Managing Partner at Tauro Capital Partners
its exploration nobody wins so it is vital to establish a transparent, fair and efficient structure that works for all parties involved.
Mining operations are becoming more and more expensive in Mexico because of the weakness of the peso against the US dollar and the added tax pressure is negatively impacting the budget of local mining companies. This is affecting the entire value chain but especially companies working in exploration; junior exploration companies practically stopped operating in Mexico in the past couple of years. This is concerning because exploration is the future of the industry so it must be nurtured. Despite this trend, we are still seeing a number of new projects and developments springing up, which is a very encouraging sign. Several of the major miners in Mexico picked up the slack left by juniors and have begun aggressive exploration projects. The
MARCO BARRAGĂ N Minerals Business Manager Mexico of SGS
situation is not as bad as many make it out to be and we have to make the most of the available opportunities.
When the government labels an area as a reserve, it has the authority to approve the purpose it will hold, even if it has a mineral deposit. Therefore, companies must be careful and make sure that the area they wish to develop is free for mining before applying for a concession. Geological and seismic analysis are more complicated than simply looking at a map. They are in fact extremely necessary. Communication with geologists, prospectors and engineers is required to develop a map before choosing an area to apply for a concession to make sure it is not a reserved area or owned by someone else. This is one of the most difficult parts of the process, but following the correct steps makes it easier for mining companies to be successful in securing concessions.
JUAN TORRES-LANDA Partner at Hogan Lovells BSTL
VIEW FROM THE TOP
EXPLOITING THE VACUUM IN EARLY STAGE EXPLORATION Mario Gutiérrez Managing Partner at Tauro Capital Partners
178
Javier Gutiérrez Managing Director at Tauro Capital Partners
Q: What was the strategic thinking behind the creation of
knew we were entering at the highest risk-reward stage
Tauro Capital Partners in 2013?
of the industry. When investing in early stage exploration,
JG: Tauro Capital Partners operates in a selective niche
projects are not based or analyzed on a per-period
segment of the industry, which is funding early stage
cash-flow generation basis and so the business model is
private exploration opportunities. We believe there are
different from most private equity investments. We use
important mining projects waiting to be developed. After
private capital to build a portfolio of diversified proven
the financial crisis of 2008, the industry went through a
and probable reserves with a view to monetizing them at
period of transition and in Mexico, we saw a significant
some point down the road. Our expertise lies in sourcing
retreat of capital raised through the TSX and the TSX.V
and funding exploration projects with high potential and an
for exploration-stage mining projects. Large mining funds
acceptable risk profile. We know that not every investment
that owned several concessions were forced to selectively
will be a success – that is the nature of the segment we are
streamline their portfolio, while many juniors went out
in – but one profitable project that defines strong mineral
of business altogether. This highly volatile environment
reserves has the potential to deliver fantastic value to
created a vacuum of early stage exploration projects that
shareholders by itself.
are now being exploited by dedicated, specialized funds like Tauro Capital Partners.
Q: To what extent have you seen the M&A market in the mining sector recovering alongside the commodity prices?
Q: What have been the highlights since the company’s
MG: The mining industry overall is undergoing an inflection
inception?
point. The sector only accounts for around 2 percent of
MG: We have made a significant investment in a potentially
total corporate M&A activity, which is minimal considering
substantial exploration-stage base metal project in Mexico.
the size of the global mining industry, and this is because
It is too early to release more information but we are very
current conditions are not ideal for deals.
excited about its prospects and there should be more information available by 2018. It is important to remember
Typically, there are two main reasons for M&A activity in the
that in this business, for every 10 projects, only one will
mining sector. There are strategic divestitures prompted
probably yield a significant risk adjusted return so we must
by a need for liquidity to reduce balance-sheet leverage
be selective. Before we commit capital, we are careful to
or to rebalance portfolio exposure. Otherwise, a company
complete all the technical due diligence requirements, which
might simply receive an offer above perceived fair value of
typically includes geochemistry, induced polarization and
the asset. Either way, deals tend to get done when either
target core drilling. In addition to early stage exploration
the sector is reaching the top of a cycle or during a down
projects, we also operate a growing mining services
cycle consolidation play. There is not a great deal of M&A
division. We have a large crushing and conveying operation
activity now and that suggests investors want to keep
in Coahuila.
their projects because they are bullish on prices. From a valuation perspective, cash flow and reserves per ton
When we decided to set up a business focused on
typically doubles between mid-to-peak cycle but timing it
allocating private capital into early-stage exploration, we
right, as always, is the key. As a rule, M&A activity should pick up as metals supply scarcity perception increases, which tends to increase prices. In addition, declining ore
Tauro Capital Partners is a private investment firm that
grades, environmental factors and labor conflicts going
creates, develops and invests in companies with high-value
on in jurisdictions around the world are becoming supply
creation projects in Mexico. Its areas of interest include mining,
constraints that will continue to support an upward price
chemicals and infrastructure
trend. This could lead to more deals.
Q: To what extent does the regulatory environment in
Mexico. Canada has always had a very pro-mining financial
Mexico facilitate M&A deals in the mining sector?
community, and its investors know and welcome the risk
MG: Overall, the regulatory framework is very
involved in mining ventures. In Mexico, exploration is
accommodating to investors. The recent increase in a
controlled by the large companies with scalable budgets
specific mining cash flow targeted tax became a temporary
and mostly they reap the rewards.
investment restrain but I do not believe it will be a longterm overhang. It is important to take these changes in
But Mexico is a huge jurisdiction and even the big
the context of what Mexico is currently going through as
three Mexican mining companies cannot cover all the
a country. Mexico only collects around 13-15 percent of
opportunities by themselves, which is why there has been
GDP in taxes, which is well below the global average. The
such a strong influx of Canadian companies into the market
Energy Reform will be good for Mexico in the long run
in the past 10 years. In my opinion, the Mexican institutional
but with declining oil production and prices it has meant
and retail investor community deserves to have exposure
that the government is receiving around US$40-50 billion
to local mining projects. The Mexican government has
less in revenue per year. The mining sector was one of
already done a good job in providing a working regulatory
the targeted sectors within a broader tax diversification
framework to promote and develop mining projects.
strategy implemented by the current administration.
Providing an efficient public capital raising framework seems like the logical next step.
On the positive side, additional spending by the government on infrastructure will continue to benefit the Mexican
Q: What are the main goals for the company in the next
people, the economy and the mining sector as a supplier
two to three years?
of metals, services and jobs.
JG: We want to continue developing a diversified portfolio of proven and probable reserves in gold, copper and
Q: Do you think the Mexican Stock Exchange (BMV) should
other polymetallic ventures. We are also very interested
do more to help junior explorers operating in Mexico?
in expanding our mining services division where we have
MG: Of course I would rather see capital raised for Mexican
over 35 years of experience. We want to represent a viable
exploration by Mexican companies in Mexican pesos than
alternative to outsource crushing and conveying needs,
to see the transactions taking place in Toronto. Currently,
which will enable mining companies to focus their capital
Canadian markets offer conditions that are not available in
on exploration and metal reserves discovery and growth.
179
MINE SPOTLIGHT
27 mining concessions make
up Telson Rosources' Tahuehueto project in the eastern Sierra Madre
180
TAHUEHUETO The eastern Sierra Madre is home to some of the most prolific mines in the country. The mountain range dissects the country down the Sonora-Chihuahua border and continues through Sinaloa and Durango. Durango is home to three world-class deposits – La Ciénega, Guanaceví and San Dimas – and Telson Resources’ Tahuehueto project is nestled in the heart of this prestigious district. The Sierra Madre mineral belt, which hosts most of Mexico’s producing mines and active exploration and development projects, has geological similarities to epithermal deposits being exploited in nearby mining districts. 181
Consisting of 27 mining concessions grouped into five noncontiguous blocks that total approximately 7,492ha, the Tahuehueto project is in an advanced stage of development with mine construction planned during 2017 and commercial production scheduled for 1Q18. Telson Resources owns 100 percent of the project through a 99.9 percent share in its Mexican subsidiary company, Real de la Bufa S.A de C.V. The 2017 PFS at 500t/d showed promising results. Tahuehueto is expected to make an EBITDA of US$16.7 million. With a 36 percent IRR, the payback period is set at just three years, while total mine life is estimated at 21 years. According to the PFS, the average cost per ton will be US$191.26, while the average cost per ounce of gold equivalent will be US$494.95. Telson opted for a 12-year mine life with the increased tonnage throughput at 1,000t/d based on the recent acqusition of mill equipment. There is significant exploration upside both on the existing reserve/resource explored structures along strike and down dip of the known mineralization, which is open in all directions, as well as within numerous other mineralized but unexplored structures known to occur within the core 700ha concession area. Further exploration potential exists outside the core area where Telson controls approximately an additional 6,700ha of concessions. Telson’s concessions cover about 80 percent of the mineralized Tahuehueto district and there is a significant amount of prospective ground within its boundaries. Telson’s plan is to move the mine into production with the reserves outlined in the core 500ha area and continue to expand the reserves on structures where there are defined reserves and resources. As part of its expansion plan, Telson acquired the Campo Morado mine in the Guerrero gold belt in June 2017. The mine is made up of 12,495 ha and the plan is to initiate operations at 2000t/d in October 2017.
VIEW FROM THE TOP
READY TO TAKE THE LEAP INTO OPERATION TONY ROVIRA Managing Director of Azure Minerals
182
Q: What are the latest developments on the El Alacrán
When we acquired the El Alacrán property from Teck
project?
Resources, it was subject to a buy-back clause wherein
A: We have been exploring the El Alacrán project since
Teck had the right to re-acquire a 51 percent interest in
January 2015, spending a total US$5 million in that time.
the property by sole funding US$10 million in expenditures
We have also met our initial milestone commitment to the
over the next four years and making cash payments of
owner of the project, Teck Resources, which means that
US$500,000 to Azure. In December 2016, we were advised
we have 100 percent ownership of the project. Of course,
by Teck that it planned to exercise this right and, as of
Teck still has the option of buying back into the project if
July 2017, Teck has a 5,500m drill plan scheduled. Teck
it believes we have found a viable or attractive deposit.
Resources will complete follow-up drilling at Loma Bonita, Cerro San Simon, Cerro Enmedio, La Morita and Palo
The Mesa de Plata silver deposit holds an estimated 26 million silver ounces
Seco prospects, subject to securing the permits from the authorities. Q: Assuming the PFS reveals that the construction of a mine is a viable option, will Azure then start looking for a buyer? A: We are looking to take this project right through to production to become a mining operator ourselves. The
In the two years we have been exploring the site, we
members of the company’s executive board all have
have been tremendously successful, having found two
substantial experience not only in exploration but also
substantial deposits. Firstly, we discovered the Mesa de
in developing, building and operating mines, so we feel
Plata silver deposit, which holds an estimated 26 million
confident that we can transform Azure Minerals from being
ounces of high-grade silver at surface. This deposit is easily
a junior explorer into a producing company. If everything
treatable and we expect to have the Pre-Feasibility Study
goes according to plan, we anticipate that the mine could
(PFS) completed during 1Q17. We recently discovered the
be up and running before the end of 2018.
Loma Bonita gold deposit, which lies just 300m from Mesa de Plata and outcrops.
The Loma Bonita discovery was the final confirmation we needed that we were exploring an area of high potential.
What is really exciting about these two deposits is that
On its own, Mesa de Plata is an attractive, modest-sized,
they are both high grade and they are found at surface
high-grade and potentially lucrative mining operation that
on top of a hill. Moreover, Grupo México’s Cananea
would have a mine life of three to five years. However,
copper mine is visible from the site just 12km to the north.
the discovery of the Loma Bonita gold deposit changed
Although copper exploration has dominated the region
the scope of the overall project entirely, doubling the
in recent years, we have found two significant precious
tonnage and extending the life to up to 10 years. With the
metal deposits, which speaks volumes for the potential
exploration potential in the area, there is nothing to say that
for mineral exploration in Mexico.
more deposits will not be discovered in the future. Q: Will the proximity of the Buenavista del Cobre mine be
Azure Minerals is Australia's leading mineral exploration
a bonus to the project in terms of infrastructure?
company in Mexico. It has two projects in progress: El
A: Very much so because the Cananea district is one of
Alacrán, which it is developing alongside Teck Resources, and
the busiest mining districts in Mexico. Not only is there a
Promontorio
lot of mining and exploration in the area but there is a big
push on infrastructure projects, with new highways, power
This is exciting because the two main deposits that we have
lines and water supplies constantly being installed. It is
already discovered – La Cascada and Promontorio – are
hard to think of a place better-suited to mine construction
modest-sized deposits that would not attract a company
in Mexico. The town of Cananea has a population of over
the size of Rio Tinto. However, with the new copper
30,000 and the community is supportive of mining given
porphyry body, coupled with some of the other targets we
the long history of operations in the area. This provides
have identified in the area, we expect that a large mining
us with a ready-made workforce. We hope that once the
company could see enough mineral potential to build a
mine is in operation it will be mutually beneficial for both
sizeable mine. Rio Tinto, with its long history of copper
Azure Minerals and the municipality of Cananea.
production, could be that company.
Q: How have the discoveries of Mesa de Plata and Loma
Q: How valuable has the experience of Rio Tinto been to
Bonita affected the company’s stock price?
the project?
A: The market capitalization of the company rose
A: Rio Tinto is an impressive exploration organization,
from around US$10 million to US$60 million between
with highly qualified and knowledgeable geochemists
September 2015 and September 2016. We have also
and geophysicists who bring to the table state-of-the-
distributed a fair number of shares to fund our activities,
art analysis techniques and practices. We have learned a
and that explains why the share price on the ASX has only
tremendous amount from them and we hope to replicate
gone up fourfold. We have raised more than US$15 million
their modus operandi on our other projects. On the financial
from Australia, North America and Europe, which shows
side, Rio Tinto has also been vital. A junior company like
how much interest our projects are attracting around the
Azure Minerals does not always have the cash to fund
world. In fact, 25 percent of our shares are now owned in
extensive drilling and exploration work, especially when
North America and we are investigating the possibility of
prices are depressed as they were in the past few years, so
making a listing on the TSX. This would make us a dual-
having a large JV partner with more liquidity like Rio Tinto
listed company and allow us to attract even more interest
is a real boost for the project.
from North America. We plan to use the extra funds to complete the feasibility study and develop the mine.
Q: What are the main challenges you have encountered as an Australian exploration company operating in Mexico?
Q: What are the latest developments on the JV with Rio
A: The main challenge on the corporate side is explaining to
Tinto at Promontorio?
the Australian investment community the benefits of working
A: As part of the deal we agreed with Rio Tinto, it has
in Mexico and the country’s vast mineral potential. We have
to spend US$45 million to earn an 80 percent interest in
just discovered a good silver deposit but Australia does not
the project. In the first year, the focus was on geophysical
have a big history in silver so we have had to educate the
and geochemical studies, while the second year the
market about the grey metal’s many advantages. This is
main goal was to complete drilling. We completed nine
one of the reasons why we want to transfer the company to
holes totaling 9,000m and we successfully identified
Toronto with a dual listing, because the Canadian investment
a large, strong, porphyry body that contains copper
community is vastly more experienced in both Mexican
mineralization.
operations and silver extraction.
183
184
La Platosa, Durango, Excellon Resources
VIEW FROM THE TOP
OPERATOR GAINS CONFIDENCE OF EQUITY MARKETS BEN PULLINGER VP Geology at Excellon Resources
Q: How would you assess the prospects for the global
Q: What strategies does Excellon use to raise funds?
mining industry and where does Mexico fit into that?
A: We see a live interest in the retail silver market and
A: If we look at the production profile of a lot of companies
some US ETFs. The silver space is quite small but quite
over the next few years, especially given the fact a lot of
well-monitored and, in terms of being able to raise that
companies over-leveraged themselves in the past decade,
capital, we go to investors with detailed plans that show
there is a real deficit in terms of production from 2019 and
what we can do with the funds. We are at the point where
beyond. That is most pronounced in the gold industry.
we have raised more capital to see us through the slump. In
When looking at countries like Mexico that have had
the context of the Platosa ore body, every 10x10m block of
recent successes in exploration and in terms of projects
mineralization contains approximately US$1 million worth
that have been discovered from greenfields and brought
of metal due to the density and the grade. Therefore,
through to production, it is clear there is a lot of mining
for every drill hole on the project that defines additional
entrepreneurship. The country is becoming an interesting
mineralization, the return on exploration investment is
place in which to operate and this period marks a turning
significant.
point in Mexican exploration because it is becoming more innovative and advanced.
Q: How are you planning to double production and halve costs this year?
Q: What strategies helped to drive the share price up by
A: This philosophy is actually quite simple. The biggest
more than 500 percent in 1H16?
constraint on our production historically has been that there
A: Firstly, the company has been evolving constantly
is a lot of water in the mine. This does not impede mining
since 2012 and before that there was a lot of turnover in
but we use a lot more grouting and the process is a lot
management, making it tough for the company to stay
more manual and time consuming. In 2015, we developed
well-funded. A new CEO, Brendan Cahill, took over in
a simple engineering solution to more efficiently dewater
2012. Since then, the company has developed a strategy
the mine and we are in the final stages of implementing this
to significantly turn around operations that would see a
optimization plan. With us being able to more effectively
doubling of production and more than halving of costs in
manage this water, we can develop five times faster, we can
2H17. We were able to take advantage of improved equity
cut our maintenance costs and become a lot more efficient
markets and raise US$25 million in a nine-month period,
in terms of electricity use.
which attracted our largest holder, Eric Sprott, who now owns 19 percent of the company.
We are mining around 150t/d and we think that doubling this to 300t/d is just the first milestone. We think in 2018
More importantly, this capital allowed us to recommence
there will be more room for optimizing that and at that
exploration for near-term mineable resources and to
point the only bottleneck would be our mill, which we
follow up on previous discoveries of skarn mineralization
can upgrade to a capacity of 500t/d. All the numbers
on the project. We have already had early success in the
and figures we have used are on the conservative end
program. We are probably about 6,000m through that
of the scale. So we believe that a goal of 300t/d is very
program and in 4Q16 we announced results in which we
achievable.
intersected significant mineralization. One of those was an underground hole in which we intersected 13m of 1,800g/t silver equivalent. This also brought forward production and
Excellon Resources is a precious metals producer based in
gave us an extra 25m of mineralization. The mineralization
Toronto. Its 100 percent-owned Platosa mine in Durango has
that we are exploiting on the permit to date is indicative of
been Mexico’s highest-grade silver mine since production
a larger system that we will continue to explore.
commenced in 2005
185
TECHNOLOGY SPOTLIGHT
186
REDEFINING DRILL CORE DATA ANALYSIS Many geologists are familiar with the process of waiting weeks or months for structural data collected in the field. The situation worsens when there are doubts about the integrity of the data being relied upon for significant mine planning and modeling decisions. Currently, collecting structural measurements on drill core is a time-consuming, manual task, where errors can easily occur. The laborious process of collecting data in the field for many has not yet caught up with the available digital processes that now make this process simple and that mitigate all those challenges and risks that sow doubt about the data’s validity. The processing and plotting of the data is a separate, backoffice process, which is also manual and time-consuming and may occur weeks or even months after the readings are collected. But what if this now became a real-time instant process that could save time and money? REFLEX identified this need and developed an end-to-end solution for structural logging and the REFLEX IQ-LOGGER is an important component of this solution. The IQ-LOGGER fundamentally changes the approach to drill-core analysis. This new device has had an overwhelmingly positive market response as trial units were rolled-out across the globe. The goal of the new technology is to change ingrained habits of how geologists collect structural readings. Facilitating what was once a timely and onerous task, the IQ-LOGGER’s laser protractor allows the user to collect structural readings from diamond drill core without it having to leave the core tray. In essence, the new IQ-LOGGER negates the excessive time required for logging, while the digital transfer of logging data provides a reliable digital audit train. The real-time QA capability via immediate Stereonet projection, ensures readings are accurate and reliable. The tremendous market response to the IG-LOGGER has spurred the creator behind REFLEX’s products, Imdex, to fast-track development of the prototype product. With this technology, Michelle Carey, Global Manager of Integrated Solutions for REFLEX, is expecting geologists to start asking more questions about the quality of critical orientation data. She has already run a webinar on “The Future of Structural Data Collection and Interpretation” and expects demand for the seminar to grow.
187
INSIGHT
REPUTATION PRECEDES JUNIOR MINER DAVID DUNCAN VP Exploration at Oceanus Resources
188
In mining exploration, reputation is key. Having worked
with these similar characteristics. In 2015, the companies
in the Arctic and in the US and Canada, David Duncan
announced the closing of a deal in which Oceanus would
and his team at Oceanus Resources have a great deal of
acquire the company and the property.
expertise in exploration. While in West Africa, the team discovered and built four major mines in four different
“The property was investigated for its silver potential but
countries. “When it came time to enter Mexico, people
when we analyzed the deposit, we thought it could be like
knew who we were,” he says.
Pinos Altos, which hides a lot more gold than silver,” he says. “For the last year or so we have been working on the
Traditionally, his homeland of Halifax, Nova Scotia is not
project with the goal of developing 1 million ounces of gold
well-known as a mining center but many exploration greats
as a starting benchmark for an open-pit.”
originate from there. Notably, Brad Langille and his team at GoGold Resources have a number of discoveries under their
Because El Tigre Silver already obtained all the concessions
belt, including Minera Frisco’s Ocampo mine and Mulatos
in the eight years it owned the mine, Oceanus’ project is
operated by Alamos Gold. GoGold has also just built its
quickly advancing and Duncan warns that progress will
first mine in Chihuahua’s legendary Parral district. Today,
be made rapidly. “Over the next year, we will make some
says Duncan, the company’s Vice President Exploration,
big announcements,” he says. “Right now, we are working
most investors look at the people involved and not just
toward producing a prefeasibility study and this is expected
the projects. “Upon entering Mexico, we were a tiny little
to be ready in 2017. El Tigre’s first resource documents will
company but we had over 100 years of experience in
then be ready by 3Q17 and a feasibility study is anticipated
discovery and building mines,” he says.
for 1Q18. This speed is unusual in the area surrounding the
“
At the beginning of next year, we will start thinking about construction of the mine”
Sierra Madre mountains due to the topography and the high costs normally involved with these kinds of areas. The key, says Duncan, is to remain focused. “The environment requires a clear plan for finding a viable investment asset,” he says. “While there is a variety of components that can pull an explorer off-course, most of these would never have the potential to become a mine.” As a result of this philosophy, Oceanus abandoned its first
From all his time spent working across different continents
target of Durango. “Although there were very high potential
and in the north of Mexico, Duncan maintains that Sonora is
gold projects, it would be very complex to try to build a
his favorite place to work. “Sonora is particularly favorable
mine out in the mountains,” explains Duncan. “When the
due to its exceptional mineral deposits, friendly mining
money supply starts contracting, the more expensive
environment and breadth of experienced technical staff
locations unfortunately become less attractive to investors.”
across the industry,” he says. But Duncan is confident that El Tigre holds the potential to Mexico is characterized as a predominantly silver country
attract investors to spend the required hundreds of millions
but Duncan shares that when the outskirts of those silver
of dollars to build the mine when the time comes. And this
mines is examined, there is a great deal of gold potential
could be just around the corner. “At the beginning of next
and still a lot to be explored. Soon after arriving in the
year, we will be at a serious tipping point where we will
country, Oceanus stumbled across a company called El
need larger investment and we will start thinking about
Tigre Silver that owned a 120-year-old silver concession
construction of the mine,” he says.
INSIGHT
FINDING THE HEART OF THE DEPOSIT BEN WHITING VP of Exploration at Orex Minerals
The success of any exploration project boils down to one
years, having previously been available after one – Mexico
factor: the quality of the deposit. When Orex Minerals, a
suffered more than most. In 2015 the jurisdiction fell from
Canadian junior with one foot firmly in Mexico, entered
fourth to seventh place on the global list of exploration
into an option agreement with Canasil Resources to
destinations, overtaken by China, Peru and Chile.
develop the Sandra Escobar project in Durango, it was the familiar geological trends that intrigued the company’s
Despite this trend, Whiting refuses to focus on the
management team.
negatives. At Sandra Escobar, Orex recently made a silver discovery called the Boleras Deposit and commissioned a
“I see Sandra Escobar as an analog of Silver Standard’s La
resource estimate,. The inferred resource currently stands
Pitarrilla, which is a giant deposit lying 75km to the east,”
at 9.8 million tons, grading 106 g/t silver, for a total of 33.3
says Ben Whiting, Vice President of Exploration at Orex
million ounces of silver.
Minerals. “The goal is to find the heart of the deposit. Once we locate the sulphide deposit, we will know how significant
Ensuring that all its Mexican eggs do not fall into the Sandra
a resource Sandra Escobar can become.”
Escobar basket, Orex also owns a 45 percent share in the Coneto silver-gold project. Also located in Durango, Coneto
Spurred on by the geological potential, in September
is a traditional intermediate sulfidation vein system where
2015 Orex took up the option of spending US$2 million in
at least 50 veins have already been discovered. Fresnillo,
fieldwork and paying Canasil US$500,000 cash in return for
the world’s largest primary silver producer and Mexico´s
55 percent of the project. This milestone has been reached
largest gold producer in 2016, is currently the operator and
and in 2017 a formal JV is being formed, leaving Orex to
is carrying out a drilling program.
continue running the technical side and obliging Canasil to finance 45 percent of the project. The two enterprises will
The management team at Orex is part of the Belcarra Group,
work in unison to find the all-important mineral epicenter
which has recently set up an entirely new corporation, Silver
at Sandra Escobar, at which point it will be offered to an
Viper Minerals, designed to expand its Mexican portfolio.
established production level company.
Silver Viper’s first project will be the Clemente project in Sonora, on which it has an option with Riverside Resources.
“Typically, a major company is looking for a deposit in the
“We will be launching an IPO for Silver Viper in March and
range of 2 million gold ounces or 100 million silver ounces,”
we have already seen strong interest,” says Whiting. “We
says Whiting. “Once you reach about half that number, the
hope to raise around US$10 million, enough to continue
big names start circling.”
taking on new projects in Mexico.”
It may sound simple but in reality, exploration companies
When stripped down to the bare bones, Orex’s business
like Orex are all faced by the same challenge in that they
strategy is remarkably simple: it creates shareholder value
have no consistent stream of revenue. Regardless of the
by making discoveries, and sells the projects to large
strength of the deposit, the board’s hands are tied if there
miners in return for a mixture of cash, warrants and shares
is no cash to fund pricy drilling programs and geological
in the buying party. Given that all key employees have
tests. Investment in exploration is by nature a risky business,
stock options, each new discovery represents a mutually
and raising funds becomes even more challenging as metals
beneficial situation for all involved.
prices stagnate. In the midst of the downturn in 2015, global exploration investment fell by 19.3 percent to US$9.2
“Our raison d’étre is exploration. We want to find the next
billion. Thanks to a controversial change to exploration tax
deposit, so we are constantly drilling,” says Whiting. “There
regulation – expenses are now only tax-deductible after 10
is no better place to look than Mexico.”
189
GEOLOGIST PROFILE
WHOLESALE CHANGES OVER HALF A CENTURY JOE WILKINS Independent Exploration Consultant
190
For someone who has been involved in minerals exploration
eight targets, the last three of which formed the discovery
since the 1960s, the last five decades have brought about
holes for what is now a PeĂąoles mine. This was all done
breathtaking changes in the sector. Since 1967, I have worked
prior to the existence of mineral-belt patterns. Until five
as an exploration consultant both inside and out of Mexico
years ago, in fact, nobody had taken the time to really
and I have seen a complete restructuring. Previously, there
map these deposits. When academics began to study the
were a great number of small organizations with almost no
Mojave-Sonora shear, a boundary was drawn and patterns
Mexican companies. Now, Mexico has finally opened itself
emerged of significant copper and gold deposits.
up to outside influence and is much more welcoming to international companies. Mexican companies now see the
It can be difficult to find steady employment in exploration
value of hiring expertise and no longer confine themselves
due to the constant market consolidation caused by the
to insular groups.
cyclical nature of mining. I believe geologists should enter the job with this reality in mind, equipped with flexibility
The most interesting case I worked on was the El Humo
and the right preparation to survive the environment. To
project in Sonora, mapping the entire mountain range for
work in this industry, a geologist should be upbeat, patient
a US company called Magma, which was later taken over
and optimistic that someone will eventually see the value
by BHP Billiton. During this project, I laid out eight holes for
in his or her discovery.
VIEW FROM THE TOP
MEXICO MUST FOLLOW CANADIAN MODEL THOMAS ATKINS President and CEO of Mammoth Resources
Q: What do you think the government and private sector
A: Relative to Canada, it seems like the whole process is like
can do to make Mexico more attractive for exploration
a game. In Canada, there is an annual deadline, taxes are filed
investment?
by that deadline and a return is made promptly. In Mexico,
A: The heart and soul of mining is exploration and there
we are required to make expenditure on the property and
is a lot of entrepreneurship in this subsector. I think the
the eligible expenditures are only those that are recognized
government needs to recognize the cyclical nature of the
with VAT. We want to hire Mexican contractors and support
industry and the challenges faced by these early stage
the local economy but this means that we do not receive
companies. Because of the cycles, returns on investment
credit for these expenditures because these local purchases
are not linear, yet the taxes and expenses rise on a linear
and commitments do not attach VAT. We have now gone
basis so I think there should be some recognition of the
four years without a VAT refund from the government.
stages where the exploration sector needs help. In Mexico, it is possible to apply for a three-year relief period on the
The refund system is so onerous that any third party that
capital commitments and, had it not been for this provision,
takes on the responsibility of filing for the refund requires 25
we would not still own our property. I understand that taxes
percent of the amount that might be recovered, this being
are important but I think the cyclical versus linear periods
someone separate from our regular Mexican accountant.
should be taken into account to show that the government
This means that companies are offering us services without
really values the mining industry. Anything that can be
VAT because they know we will not receive a refund on
done to assist the exploration companies during cyclically
this expense. This is so unfortunate because it should be a
challenging periods through reduced taxes, prompt VAT
mechanical process and it taints everyone’s perspective of
refunds and a continuation, even a brief extension to the
doing business in the country.
project expenditure requirement, would help the exploration companies considerably.
Q: How does Mammoth plan to allocate the US$226,000 private placement it raised recently?
Canada has a scheme designed to foster the development
A: There are some property taxes to pay and then we hope
of its mineral resources, which renders investment in
to advance a program that will segue into drilling on the
exploration by a company deductible against income
Tenoriba project. With this recent financing, we will build
and taxes on income. As many exploration companies
road access to the drill sites, excavate and sample some
do not produce any revenue nor income, the Canadian
trenches which we hope will support and lead into our
government has allowed this deduction against income to
drilling program, in which we plan to drill approximately
pass through to investors in that company. I think Mexico
15 holes for a total of 2,500m. We have not yet drilled on
could distinguish itself from other mining jurisdictions if it
this project but we have mapped, sampled and performed
were to offer a similar incentive. This would also have the
a ground geophysics survey over half the property. We
potential to develop Mexico’s capital markets for mining
have expanded what we believe is the potential attractive
where such tax deductibility on exploration expenditures
mineralized areas of the project three times larger than
would flow through to Mexican investors in exploration and
what had been understood at the time of the predecessor’s
enhance the amount of money spent on exploring mineral
drill program.
properties in Mexico. Perhaps with NAFTA, this tax incentive could even be structured into some sort of reciprocal tax scheme between the countries.
Mammoth Resources is a junior exploration company that is focused on acquiring and defining precious metal resources
Q: What issues have you experienced with the Mexican
in Mexico. It has 100 percent ownership of the early-stage
Tax Authority (SAT) and the times taken for VAT refunds?
Tenoriba project in Chihuahua
191
INSIGHT
REDUCING EXPOSURE IN MINING EXPLORATION GREGORY BEISCHER President and CEO of Millrock Resources
192
The exploration segment is largely over-exposed to
acquire more partners. “Early stage exploration may have
risk and highly underdeveloped. It is one of the most
the highest risk but it also has the highest potential. We
important phases of any mining project, where geologists
are optimistic about the years to come as we await the
have the opportunity to make a world-class discovery,
rewards for the risks we took by acquiring property in a new
but the high costs involved are often prohibitive without
country,” he says. Millrock also refuses to enter exploration
solid financial backing. Millrock Resources differentiates
without a partner as a way to mitigate risk in the most
itself from other exploration companies by using a unique
expensive part of the phase and directs shareholder money
financial scheme that strategically mitigates risk for the
towards less delicate areas of the prospect model.
company, partners and shareholders in both favorable and not so favorable markets.
Its effective team and well-established projects in areas with strong rule of law have been key factors in attaining a
“Exploration is similar to a roulette game,” says Gregory
stable base of shareholders and investors. Equipped with a
Beischer, President and CEO of Millrock Resources.
strong financial structure, Millrock has successfully created
“Geologists, upon identifying drilling potential, take a
its reputation of delivering results as pure exploration and
gamble and hope for the best. Between maintaining a
early stage discovery specialists.
wide portfolio of projects across Canada and the US and Millrock’s recent acquisition of 12 properties with its
Beischer considers Mexico to be a favorable jurisdiction
purchase of Pembrook Mexico Holdings, the company
in which to invest as the country has a strong rule of law
increases its probability of successful discovery.” The
and a community that is used to the mining sector in
company considers drilling holes to be risky but always
states like Sonora. However, he considers the country to
an opportunity to make new mineral deposit discoveries
have some areas of opportunity when it comes to land
that can significantly increase share prices. It also has the
claims and concessions. “It can be an incredibly long and
advantage of requiring less time than production projects.
complicated process that is greatly slowing down the development of exploration,” he says. “The country needs
Millrock Resources was named by The OTC Markets Group
to have a more organized system. If land claims were
as a top performing company last year. It ranked top 10
more accessible and transparent, there are many points
with a 2016 total return of 118 percent. “Our company
of interests that Millrock Resources would gladly direct
plans on continuing to grow its shareholder value and will
exploration capital towards.”
continue to do so even if a discovery is not achieved as planned,” Beischer says. “Investors trust the company and
Centerra Gold is Millrock’s first partner in Mexico on the
its track record. Improved results are expected on the trade
Los Cuarentas and Los Chinos copper projects located
market for 2017.” Millrock also takes care of shareholder
in Sonora. Of these, the former is the one with the most
investments by only using capital provided by partners to
potential, Beischer shares. “Unfortunately, results for Los
fund the most expensive phases of a drilling project and
Chinos were not as positive as expected and we are in the
shareholder equity in less risky exploration assessment.
process of reconsidering its continuation,” he says.
Millrock was able to stay afloat during turbulent times with
Entering Mexico may have been a gamble but it is betting
successful financial management. During the slump, its
that results will be found among its wide project portfolio.
focus revolved around acquiring properties and reducing
The company is also grateful for the great team that it
expenses. Now that the market is turning around, the
gained upon purchasing Pembroke Mexico Holdings.
company is preparing to execute more exploration and
Millrock Resources is in the process of acquiring more
expects to have a discovery in the coming year and
partners, including Mexican companies like Fresnillo.
VIEW FROM THE TOP
AIRBORNE AND MOBILE LASER TECHNOLOGIES FOR MINING PROJECTS KRASSIMIR IANKOV Director General of Sistemas Avanzados y Proyectos (SAP)
Q: What significant projects has SAP completed and what
surface temperature of a given area to detect a gas leak. Other
is the company currently working on?
relevant services we provide are karstic maps, sustainability
A: A few years ago, we were part of a large project of over
appraisal, land-use maps and archaeological prospection.
200km in the Oaxaca state for an important Canadian
All these give us an important edge over competitors using
company with a subsidiary in Miami. That has been our most
less sophisticated technology. Simple drones used in mining
significant mining project thus far. Today, we are engaged
projects are equipped with commercial image sensors from
mostly in a number of projects with less extension area for
providers such as Nikon and Sony. Although quality cameras,
mining companies around the country, including Industrias
these are not photogrammetric and lack the same level of
Peñoles in Chihuahua. Fortunately, our technology is
precision we offer. The most important factor for companies
applicable to a wide range of markets so we do not operate
working in the mapping and modeling segment is accuracy,
exclusively in the mining sector. We have also worked with
and SAP offers very accurate final products.
2
well-known transnational companies from Canada, the US, Spain, Italy and Brazil for large-scale projects, including
Q: In which ways do you work with public institutions like
pipelines, power lines, highways and roads. Summarizing,
SGM to improve geological mapping tools and databases?
our company has completed work on over more than
A: The service provided by SGM is slightly different. While
30,000km of large-scale corridor projects, and more than
we offer LiDAR technology for high-density modeling, SGM
500,000km2 of different scales for polygon projects.
is using small-scale maps and DTM/DEM from the local Public Geographic Institute. We would be delighted to work
Q: How is SAP incorporating new technologies into its
with SGM to help boost mapping facilities in Mexico, but
portfolio?
we have not seen any published bid from this government
A: Our current hardware and software installation includes
agency for which our deliverables would be appropriate.
integration of first-class laser and image sensors from different manufacturers to inertial systems (GPS/IMU)
Q: How can your products and services help companies to
installed over a single engine Cessna aircraft (Applanix and
reduce operating costs throughout the mining lifecycle?
SPAN Inertial Systems to RIEGL laser sensors and large-
A: As far as I know there is no other company in the region
format geosystem pushbroom sensors); small, accurate
that can offer the same accuracy (RMS 2.5-3cm) with
systems integrated for UAV such as Velodyne and STIM-
airborne technology. Our goal – one aerial pass, complete
IGM-S1; state-of-the-art dual mobile laser system LMX-1HA
survey work plus additional studies – are extremely cost-
integrated with Applanix; and the LadyBug 360° image
effective and accurate. We offer different services for open
sensor with five cameras. These integrations include the
sky areas, as well as mobile systems for underground and
most upgraded software, such as TopoFlight, POSPac,
tunnels. Since the Energy Reform in 2014, several Mexican
Inertial Explorer and Terrasolid, as well as our own software
mining companies have been exploring the possibility of
to coordinate transformation of the points cloud from UTM
entering the energy sector through electricity generation
to a local survey system.
and building their own power lines. SAP can help them make this move. We are offering quick mobilization and a short
We have also incorporated infrared cameras and LiDAR
delivery time for projects around the world.
advanced photogrammetry technology into our designs, which offer highly accurate georeferenced images, but we will add hyperspectral and thermal imaging technologies to
Sistemas Avanzados y Proyectos (SAP) is a pioneer in the use of
our portfolio as soon as possible. These techniques will help us
digital photogrammetry and LiDAR airborne technology, with
consolidate our position as leaders in digital elevation model
broad applications in civil engineering, mining, architecture
generation, and will also help our customers measure the
and urban development
193
TECHNOLOGY SPOTLIGHT
WWW.SAP.MX
194
LiDAR
NIR RGB
IMU GPS
PERFORMANCE DURING GNSS OUTAGES Outage Duration
0.5
Positioning Mode
POSITION ACCURACY (M) RMS Horizontal (X,Y)
ATTITUDE ACCURACY (DEGREES) RMS
Vertical (Z)
Roll
Pitch
Heading
RTK
0.02
0.03
0.010
0.010
0.020
SP
1.00
0.60
0.010
0.010
0.020
PP
0.01
0.02
0.005
0.005
0.007
Camera
THE MANY BENEFITS OF LIDAR TECHNOLOGY Topographical surveying. Environmental impact studies. Archaeological prospecting. Monitoring of electrical installations for oil or gas pipelines. These are generally slow, expensive and inaccurate procedures that require humans to go into areas that are difficult to access or that lack infrastructure. Some providers offer these procedures through photogrammetric drones, which are often equipped with simple commercial-level image sensors. This is always counterproductive because these low-quality devices offer less precision in position and height, as well as serious errors in calculation volumes. Light Detection and Ranging (LiDAR) technology determines the distance from a transmitter to an object or surface through laser-beam pulsations. This is determined by measuring the delay time between the transmitter of the pulse and the detection of its reflected signal, which allows the collection of a cluster
LiDAR mobile terrestrial
of points on the terrain. Usually this is done through an airborne laser scanner. By combining the data provided by the LiDAR device with those of GPS devices and inertial navigation systems (INS), information is obtained which, once processed, is of great value for the analysis of varying magnitudes of terrain. Highly accurate topography can be obtained with special studies such as karstic maps, biomass calculations and vegetation status, fragmentation analysis, land-use maps and archaeological prospecting. Different aircraft, including unmanned aerial vehicles (UAVs), may be used depending on the extent of the terrain and the types of studies required, provided they have inertial navigation systems, LiDAR devices and high-quality image sensors. Just as important is that the information emitted from this high-precision equipment is processed by experienced and
UAV
highly trained personnel for its capture and subsequent processing. Thus, a single flight allows the collection of between 60-70 percent of the information necessary for a complete feasibility study, as well as the additional studies mentioned, in a much faster way, without sending ground personnel and with precision margins of 1-2cm. In exploration projects, periodic flights can be carried out
LiDAR GPS/IMU HDD PC
to help provide better control of the work, dramatically increasing the accuracy of the records. LiDAR can also detect the presence of slopes and predict landslides, improving the safety of personnel and civil protection. Other uses are the extraction of data that allow the development of geometric projects remotely and without additional field movements for land routes, pipelines and electric power lines.
195
Drilling jumbo
DRILLING & PROSPECTION
7
As the first stage of geological analysis, prospection plays an essential role in the mining industry. With the arrival of the digital revolution, geologists and prospectors have access to far more detailed geophysical information and analytical data than ever before, and companies can now predict the mineralization of an ore body with a greater degree of accuracy. Thanks to improved prospecting techniques, the financial risk associated with drilling programs is greatly reduced. But drill manufacturers still face challenges, particularly given the increasing pressure – both from within and outside the industry - to reduce environmental impact of their machines.
This chapter introduces the service providers of the mining industry. Technology companies showcase the 3D modeling techniques and core sample analysis machines helping to improve geological prospecting processes, while drillrig designers discuss their approach to the challenge of making drilling – by definition an activity that affects the environment – more sustainable.
197
CHAPTER 7: DRILLING & PROSPECTION 200
ANALYSIS: Drillers Going Dry to Address Water Usage
201
VIEW FROM THE TOP: Jesús Herrera, Detector Exploraciones
203
VIEW FROM THE TOP: Rob Ferguson, Leapfrog
204
VIEW FROM THE TOP: Jorge Gastelum, Globexplore
Armando Lucero, Globexplore
Víctor Díaz, Globexplore
Marc Kieler, Globexplore
206
INSIGHT: Frederick Davidson, Energold Drilling
207
VIEW FROM THE TOP: Daniel Nofrietta, Tecmin
208
INSIGHT: Luc Paquet, Fordia
209
INSIGHT: Dino Lombardi, G4 Drilling
210
VIEW FROM THE TOP: María Fernández, RNP
212
TECHNOLOGY SPOTLIGHT: The Industry’s First In-Line Knife Gate Valve
214
INSIGHT: Rafael Gutiérrez, Itzcoatl Drilling
215
INSIGHT: Jorge Cirett, Gambusino Prospector
216
MINE SPOTLIGHT: La Preciosa
218
ROUNDTABLE: How Are Modern Drilling and Modeling Techniques Helping Make New Projects
More Viable?
220
VIEW FROM THE TOP: Paul Linton, Terracore
221
VIEW FROM THE TOP: Paul St. Onge, REFLEX
222
INSIGHT: Chris Drielsma, DGI Geoscience
Riaz Tejani, DGI Geoscience 223
INSIGHT: Marcelo Mott, PANalytical
199
ANALYSIS
DRILLERS GOING DRY TO ADDRESS WATER USAGE The mining community is under more pressure than ever to
“We are striving to make drills that use less and
make its activities more sustainable throughout the project
less water through better cooling systems that
lifecycle, with drilling coming under a particularly harsh
are smaller and lighter, because water scarcity
spotlight due to their use of water
is a big issue especially in some of the remote locations in which we work,” says Nofrietta.
An integral part of any mining project, drilling is by nature
“We move machines using skid mounts but one thing I have
a process that interferes with the landscape to some
been advocating is to focus on using tracks to mitigate
degree. It is also one of the greediest activities on a mine
the impact on the land. This is hopefully something we will
site when it comes to water usage. Drill manufacturers
achieve by the end of 2017.”
are therefore charged with coming up with designs that
200
are more sustainable, without compromising results. “Not
While Tecmin is focused on improving conventional
only does new drilling equipment have to be accurate and
drilling methods, Fordia has developed an innovative new
reliable but it also has to be environmentally friendly,”
water-treatment system (WTS) that minimizes usage by
says Luc Paquet, President of Fordia, a Canadian diamond
separating and cleaning the water in sludge and feeding
drilling company. “For an activity that by definition alters
it back into the application. By recycling the cuttings, the
the world’s landscape, this is no easy task.”
quantity of waste is greatly reduced, generating a positive impact on both surrounding communities and ecosystems.
Water consumption is a particularly urgent issue in Mexico.
The WTS is more lightweight than traditional solutions,
According to the National Water Program, 13 of Mexico’s
making it easier to transport and operate, and it can be
32 states lack access to basic water services. Among the
applied to both underground and surface mining projects.
worst affected is Guerrero, a concern given that the state
All of this translates to savings for the user.
plays host to a number of exciting gold projects, including Timmins Gold’s Ana Paula and Torex Gold’s Media Luna,
“The residue needs to be disposed of because it can be
that will be launching commercial production in the next
harmful to the environment and the responsibility rests
few years. To sustainably meet the national demand for
on the shoulders of drilling companies,” says Paquet. “Our
water, the Water Commission estimates that infrastructure
system minimizes the consumption of water during diamond
projects require in the region of MX$306 billion in
drilling. It is an innovative solution to environmental
investment by 2030.
problems that is easy to use.”
While many urban areas in Mexico suffer from lack of
CHANGING PERSPECTIVE
access to water, it is primarily the rural communities that
By developing more efficient techniques, the drilling
bear the brunt of this shortfall. According to the Mexican
community is not only helping to protect the environment;
Center for Environmental Rights (CEMDA), of the 9 million
it is also doing itself a favor. Energy expenses typically
people living without access to potable water in Mexico, 5
account for anything between 30-45 percent of the
million are in rural areas. With mining projects almost always
total costs of running a mine in Mexico, and so operators
situated in remote corners of the country, the extraction
welcome any new technology that saves on fuel, water or
sector, and particularly drilling, is putting an extra strain on
electricity consumption.
water provision that rural communities could do without. Moreover, greener drilling practices will help to appease
DRIER DRILLING
communities in Mexico’s mining regions, many of whom
But the industry is aware of this challenge and is
remain ambivalent to mineral extraction. According to
responding. Traditional drilling techniques are so water-
Frederick Davidson, President and CEO of Energold Drilling,
intensive because water must constantly run through the
having the support of local residents is vital to the success
rig to ensure the drill bit remains cool and lubricated.
- or otherwise - of drilling projects and so it is vital that the
Tecmin, a Zacatecas-based drill manufacturer and
companies do what they can to get communities on side.
contractor, is prioritizing its R&D efforts on making its rigs more water-efficient through more compact designs
“It is important to leave a lasting benefit in the communities,”
that require less cooling. According to company Director
he says. “Even something as small as a hand pump to provide
General Daniel Nofrietta, lighter drill rigs also help to ease
water to communities can make a significant impact and pave
the stress on the land.
the road for future exploration companies in the country.”
VIEW FROM THE TOP
UNDERSECRETARY OFFERS RANGE OF OPPORTUNITIES FOR SERVICE PROVIDERS JESĂšS HERRERA Director General of Detector Exploraciones
Q: How have changes in commodity prices in 2016 and the
Q: Given the wide range of services that Detector
early part of 2017 impacted service suppliers like Detector
Exploraciones provides, which does your Mexican client
Exploraciones?
base demand most?
A: For service providers like ourselves, the rise in prices
A: We have particular expertise in exploration. The company
has been a great boost because operators and explorers
makes considerable investments in drone technology as
alike are starting to ramp up drilling programs to increase
well as training for geologists, engineers and mechanics.
reserves. We are seeing a lot more contracts on the table
Our drone technology was used by Goldcorp at the
and more jobs on offer for workers across the value chain.
PeĂąasquito mine in Zacatecas. We managed to complete
For the past three years we have been working mainly
an exploration program, which would usually take one year,
with operators such as McEwen Mining at the El Gallo
in just four months. We completed a 70km flight, scanning
complex in Sinaloa.
all the local terrain, borders and infrastructure, in just three days. This enabled the client to gain accurate geo-
Major mining companies will not consider developing a
referential information about the surrounding area and to
deposit smaller than 1 million gold ounces and they must
make the necessary payment arrangements immediately.
constantly work to increase the reserves and mine life of their operations. Our technology can provide accurate
We are also proud of the extensive training we offer
3D models and other geological data that mine operators
our workers to ensure that we are using state-of-the-art
use to explore around a producing asset so we have been
technology. Otherwise we will not be able to compete with
delighted to see confidence return to the sector.
other mining jurisdictions.
Between 2015 and 2016, the company managed to
Q: As a service provider, what are the most pertinent
increase the total meters drilled by 30 percent. With
challenges facing your business at the moment?
more and more exploration projects being launched on a
A: Aside from security, which is a huge issue for the entire
consistent basis, we hope to further increase this number
country, the most pertinent challenge we face is the delay
by 20 percent to 200,000m in 2017.
in receiving drilling permits in certain parts of the country. There have been many cases where we have identified a
Q: What changes do you expect to see following the
strong deposit, we have the equipment and the contract to
creation of the Undersecretariat of Mining?
commence work but it can take months or sometimes years
A: The change was made with the best interests of the
to obtain all the necessary legal and environmental permits
Mexican mining sector at heart. The new Undersecretary
required to start operating. Then, once the permits have been
for Mining should open a whole range of opportunities
obtained, often the external circumstances have changed
to service providers but the whole community has a
and the project is no longer viable. Another area that can
duty to work together to resolve the issues that affect
be improved is land ownership. Since the Energy Reform,
us all. The public sector of course influences the industry
electricity companies and other power generators have clear
and plays an important role in attracting investment
guidelines on how to use land and work with ejidos but the
and facilitating the operational business environment
mining sector is still stuck in the past.
but the responsibility for solving the problems of mining companies is on the shoulders of the companies themselves. It is fantastic that the federal government is
Detector Exploraciones is a Mexican company, founded in
placing more importance on the mining sector but it does
1997, providing geology, geomatics and other exploration
not mean that all of the industry’s issues will disappear
services to both mining companies and the public sector
overnight.
throughout the country
201
202
VIEW FROM THE TOP
MEDICAL TECHNOLOGY ADAPTED TO MINING ROB FERGUSON Director of Production Strategy at Leapfrog
Q: What was the gap in the market that you saw that
could be created from this. In the case of an amputee that
inspired you to launch Leapfrog in 2003?
needed a prosthesis, the shape of the limb would have to
A: We wanted to change geological modeling from a very
be scanned to create a proper bond for the prosthesis. A
manual and intensive process to something that was more
geologist then came across the technology and adapted
automated and customizable. It was about redefining
it for geological modeling. Our main differentiator is this
the workflow of building boundaries around any type of
algorithm and the speed at which our technology works.
geological data. Since the group was launched, we have gone in a short period of time from an unknown company
Initially, the technology was more focused on explorers
to becoming one of the mainstream, standard reference
because it helped map and discover the structure of the
companies in the industry. Our biggest milestone has been
deposit. In the last few years, we have integrated more
the acceptance of our technology in the industry. We now
functionality in the software and it has become more
have a presence in Brazil, Chile and Peru and Mexico.
applicable to operators so we are having more success at the operational level.
The perception of data is changing. Tools now allow geoscientists to visualize in 3D. We have been told many
Q: How can you measure the impact of your technology
times that our software helps geologists see features that
on the sector?
were not visible before. The tool is made for geologists and
A: We receive a great deal of feedback about our
requires a deep understanding of the science to be used. It
software. Normally we are approached when geologists
is not meant to replace geologists.
become frustrated at the amount of time it takes to build and update geological models. After our software
Q: Where does Mexico fit into your global strategy and
is installed and the team is trained on how to use it,
what are your plans for the country?
this time frame can be reduced to weeks. The way the
A: Industrias PeĂąoles was one of our early clients and it
system is set up is dynamic so there is a link between the
began using the software in 2006. Together with Fresnillo,
model and the drill holes, meaning any change in drill
it has reached over 130 mining users. Recently we decided
holes is reflected automatically. Leapfrog uses implicit
to enter Mexico aggressively with a full team of people and
modeling, which creates a model directly from the data
with an office in Hermosillo, Sonora. Around 70 percent
and eliminates the need to explicitly draw the lines. The
of mining companies working in Mexico are Canadian so
software eliminates unecessary work and allows the
we have a liaison working with the Canadian companies
operator to see deposits in a new way, which allows users
while a counterpart works on the ground in Mexico to foster
to better follow the geology of the deposit, try different
relationships with the Mexican majors. We now work with
scenarios and evaluate the effectiveness of each scenario.
the majority of the mining operators in Mexico including PeĂąoles, Fresnillo, First Majestic Silver, Primero Mining,
We are starting to look at cloud technologies to examine
Coeur Mining and Alamos Gold.
the future of geological modeling. The company is already developing a cloud version of Leapfrog Central,
Q: What technology does Leapfrog use and how is it
a project management tool.
different from other options on the market at the moment? A: Some mathematicians at the University of Canterbury in Christchurch, New Zealand, developed a radio basis
Leapfrog is the leading 3D geological modeling software
function (RBF) algorithm to create 3D objects from point
for the mining, exploration, civil engineering, groundwater
data. The first application was in scans for the medical
contamination and geothermal energy industries. It focuses on
industry, wherein wounds were scanned and 3D shapes
geological modeling, model management and visualization
203
VIEW FROM THE TOP
DRILLER DIVERSIFYING TO MEET CLIENT NEEDS
204
Q: To what extent have you seen demand for your services
two others are more than 50 percent complete. We are in
pick up in 2016 and 2017 as commodity prices have turned
discussions for two more 100,000m contracts with multiple
a corner?
clients. These are very large contracts; one is in complicated
A: While the market still appears to be at the bottom end of
ground conditions with large caverns and open voids. The
the curve, during the first half of 2017 the majority of drillers
majority of holes are deeper than 1,000m with many to
received up to 50 percent more bid requests compared to
1,400m. We are now expanding the program to 2,000m
the previous year. The average amount of the total rigs on
depths. This project is in a location that suffers from security
contract in Mexico has moved up from its lowest point of 25
issues so we operate with a low-profile camp-to-rig set-up.
percent during the downturn to its current level of around 45
We have completed over 180,000m at this project with zero
percent. We are pleased that at our lowest point during this
accidents and completed every hole on target, comfortably
lengthy downturn, which was 2014, Globexplore still had 75
ahead of schedule.
percent of our rigs on contract. In 2015 we had 83 percent, in 2016 we reached 86 percent and we are now at 95 percent
The second large contract is in a remote area where we
of our fleet on contract. This high rate of rig utilization is
are operating a wide variety of specialized drilling types
remarkable considering we increased the size of our fleet by
simultaneously. We are running standard surface core drilling
30 percent from mid-2015 to the beginning of 2017 to meet
along with a large campaign of man portable rigs, RC drilling
our clients’ demand for additional man portable and deep
and underground core drilling. This contract is at the halfway
hole core rigs. The current political and economic environment
point, ahead of schedule and with zero accidents. We also
makes it challenging to predict what lies ahead but we feel
have several smaller, 1,000m contracts with junior exploration
optimistic about the future and our prospects for expansion
companies and larger producers doing both greenfield and
when the market finally recovers.
brownfield exploration. It is important to always give the same respect and quality to any size of contract. The larger
Q: What are the largest greenfield and brownfield exploration
contracts always start with the first drill hole and many of our
projects the company is working on in Mexico?
larger contracts were won because of our performance on
A: Over the last 24 months we have won three separate
that first, small program.
100,000m contracts. One is already completed and the Q: What are the biggest trends impacting the drilling industry in 2017 and how does Globexplore fit into that context? A: The first major trend is that successful exploration companies are measuring pricing with performance and this is having a direct impact on drill program results. There are two types of clients in our industry; one that simply selects the lowest priced contractor and another that takes the professional responsibility of verifying the reputation and track record of a potential contractor. The client that selects the lowest price more often than not ends up paying more to complete their drill campaign due to various delays, missed targets and poor sample recovery. The client will often need to replace this failed contractor and restart the campaign entirely. The more experienced client calculates the true cost of the price per meter at the end of the program with all variables as an accurate comparison to other contractors in the past. These companies recognize that taking the time to analyze historical performance makes a huge difference in their true cost per meter. Drilling is no different than other services in that reliable quality results often cost more. The second trend is that exploration and mining companies need a contractor that can provide a full spectrum of
Jorge Gastelum, CFO; Armando Lucero, Director of Operations; VĂctor DĂaz, Director; Marc Kieler, President of Globexplore 205
options. We are currently on contracts with a wide range
one contractor who can quickly adapt from an initial reverse
of specialized drilling techniques from large diameter
circulation reconnaissance drill program to a deep hole core
PQ diamond core to deep holes exceeding 2,000m, Man
rig or remote man portable exploration rig. We have earned
Portable, Underground and RC. Our clients trust us because
over 35 letters of recommendation and testimonials to prove
they know we have the proven track record and reputation
that we are exceeding our clients’ expectations in each of
for excellence in each of the four types of drilling we provide.
these four specialty drilling types. We never offer a service
They know that we have invested in experienced human
unless we are certain that we will be the best at it.
capital along with the latest technologies and modern drill fleets that give our clients the flexibility to hit their targets
Our Diamond Drill fleet offers traditional core rigs mounted on
with the best option of their choice.
tracks, skids, trucks and deep hole core rigs that reach targets beyond 2,000m along with the most modern Man Portable
Q: How does the company plan to position itself to retain is
Drill rig fleet operating in Mexico. Our RC drill rigs are close
reputation as a leader in drilling innovation and client service?
to 50 percent more compact than what is commonly found
A: While we are very proud of our reputation as a leader in
in the industry with remote compressors that can be run up
the high-quality performance of the four types of specialty
to 150m away from the rig, giving our clients flexibility and
drilling we provide to our clients, we have a strong corporate
generating savings on drill pad size and construction.
value of constant improvement. Every member of our team operates with this mentality and as managers we encourage,
Q: How is the company planning to expand its business
motivate and reward new ideas and solutions. We have a
throughout Mexico and on an international scale?
consistent model of successfully completing every contract
A: We are currently in the final stages of researching the
we commit to with our clients, and we complete every hole on
markets of South and North America. We have clients in
schedule. We have never left a contract early without seeing
Mexico that have asked us to provide services in both Peru
it through to the requirements of our clients, and every single
and the US, so these markets are the natural next destinations.
company that has hired us would do so again and recommend
We hope to make significant progress on this goal during 2018
our performance.
and 2019. We have been responsible and patient about this next step until we are certain that we can provide the same
Q: How does Globexplore differentiate itself from the
high level of quality before we enter a new market. We have
numerous other drilling companies around the country?
earned a strong reputation in Mexico and will only move when
A: While our Headquarters is in Hermosillo we currently have
we know we can continue that in the next country. We have
five satellite facilities that include full logistical support with
our systems, policies, corporate culture and most importantly
maintenance shops, administrative offices and extensive
the management in place. With our client partnerships getting
inventory warehouses throughout Mexico. Our clients often
stronger every year, it is an exciting time for Globexplore.
comment that they choose Globexplore because they consider us experts in the four different types of drilling services we provide. We are experts in all the important drilling
Globexplore is an exploration drilling company offering traditional
techniques, including Traditional Core, Man Portable Core,
diamond core, man portable, underground and reverse circulation
Underground Core and Reverse Circulation. Our clients like
drilling services as well as on-site mineralogy and geochemical
the fact that as their drill program progresses they can rely on
analysis with core logging. The company is based in Hermosillo
INSIGHT
ENGAGE COMMUNITIES, REDUCE ENVIRONMENTAL IMPACTS FREDERICK DAVIDSON President and CEO of Energold Drilling
206
Though necessary, drilling is not traditionally seen as an
However, one of the problems Davidson has encountered
environmentally friendly sector of the mining industry.
while working in communities is related to the Mining
Among the companies working to change this perception
Trust Fund and metals prices that are recovering, but still
and ensure community engagement is Energold, which has
relatively depressed compared to 2011 levels. Expectations,
partnered with the Canadian Development Corporation on a
he says, are often very high and the low prices over the last
range of studies in Latin America to document social impact
few years are not always taken into consideration. “The
programs the drilling company implements in the region.
revenues paid in tax go to the federal government and are not really repaid to local communities,” he says. “We try to
Although Energold drills in Africa with NGOs such as the
contribute something but it is a tough situation because
World Bank and Oxfam, company President and CEO
the industry has been losing money for years.”
Frederick Davidson admits this kind of collaboration in Mexico has been somewhat limited. “It is difficult in
The service industry was one of the worst hit when
Mexico because the government has financial issues, so
commodity prices dropped in 2012 because drilling is seen
its priorities are based on balancing budgets and building
as an elective expenditure and is often the first to be cut
social infrastructure like hospitals,” he says. “Sadly, this
from the budget. Davidson was happy when confidence in
means that drilling water wells in rural communities falls
commodities, especially in minerals, was bolstered by the
to the bottom of the agenda.” As a result, requests to work
geopolitical instability of 2016.
with the government on these kinds of heavily discounted drilling programs are often overlooked.
This year, Davidson says, the company has experienced a partial recovery and in February 2017, five rigs were under
The philosophy of the company to minimize environmental
contract. “The market seems to have bought into the idea
impact also extends to its equipment. Davidson explains
that energy and commodities are starting to improve, which
that the majority of Energold’s rigs are designed to be easily
is only good news for us,” he says. Energold's 30 West
disassembled and reassembled onsite, with the heaviest
Africa rigs are also drilling again and Davidson anticipates
component weighing only 185kg. “We can transport the
a market recovery, coming just in time to alleviate the stress
pieces of equipment in a variety of innovative ways to
service companies have been put under the last few years.
the mine sites, including using manpower, mules, barges, helicopters, or small trucks,” he says. “Normally this
As a country that generates 40 percent of all Energold
eliminates the need to build roads so the disturbance to
revenues – amounting to around US$25 million in 2016 – the
the environment is minimal.” While a traditional drill would
company sees the promise in Mexico and wants to expand
require a 5-10km road for transportation, Energold rigs only
and diversify. “We are looking to take advantage of the
require a 20m x 20m space for the drill pad.
opportunities brought about by the Energy Reform,” he says. “We know Mexico very well from the minerals side
The company also heavily incorporates local communities
and we have the technical capabilities of a North American
into its drilling programs, with the majority of employees
company so we are poised to enter the oil sector.”
being Mexican. “Ninety percent of exploration is unsuccessful so a company may only be in a community
This expansion will require an increased investment and
for one year before it leaves,” Davidson explains. “This is
Energold has completed a debt refinancing with New
why we feel it is important to leave a lasting benefit. Even
York-based investment advisory firm Extract Advisors. The
something as small as a hand pump to provide water to
US$20 million provided by the investor will be used to pay
communities can make a significant impact and pave the
off a convertible debenture that is coming due and to clear
road for future exploration companies in the country.”
out some debt, reducing borrowing costs by 3 percent.
VIEW FROM THE TOP
STANDARDIZED COMPONENTS FOR GREATER AVAILABILITY DANIEL NOFRIETTA Director General of Tecmin
Q: How did the industry’s downturn impact Tecmin’s overall
diversify to service the many other mining companies with
strategy?
a presence in Mexico.
A: Four years ago, the sector went through a rough patch and this marked the first year we did not experience any
Q: How do your designs help users bring down costs and
growth in terms of meters drilled. That in a sense enabled
make projects more sustainable?
us to begin to think ahead, increase our areas of influence
A: In our first year in business, one of the things that
and optimize our services. We diversified from being a
concerned us was the downtime created by the market’s
purely diamond-drilling company to one that could provide
conventional drills. Our competitors would use well-
services like cabling and hauling for underground mines.
known brands but the parts would typically be difficult
This worked very well for us as it opened up a new market
to access and there could be days of downtime spent
with existing clients.
waiting for an engineer to come from another country to fix a problem. As a result, we began to explore the
We have clients that are well-positioned in the market,
option of making our own drills using easily accessible
meaning the downturn did not affect them as much as other
parts and we were able to achieve this with the TEC series
companies. But in a sense the downturn was a way for us
of drills. It uses standardized components - 80 percent
to put into motion diversification plans that we had been
of the components required by our drills can be found
developing for a long time. Our competition also began
in any midsized city.
looking to these new markets so we had to stay ahead of the curve and become more competitive.
Another benefit of standardizing these components is that it helps with stock availability. We can always have a great
We also used this opportunity to incorporate into our
number of components in stock to increase availability
team some experienced professionals who had been left
because many of the drills use similar components.
without employment due to the downturn. Now we have
This means that as soon as a machine breaks down, we
geologists, engineers and topographers and we can offer
can immediately replace it and either repair the faulty
geological services. We started by offering complementary
component in our workshop or buy a new piece.
services to what we already did like core sampling and we have developed to incorporate cutting-edge geological
Even though our drills are not overly automated, they still
technology like drones into our portfolio. This is a profitable
outperform any other drill. For example, at the Fresnillo
market in that it will lead to us getting more diamond-
concession on which we are working there is a neighboring
drilling contracts.
concession using a high-tech drill from a major drilling supplier. But we are able to produce 10-15 percent more
Q: What are the biggest projects you are working on at
than that company, which speaks to the value of the
the moment?
simplicity of our drills. The person who designs and builds
A: Our long-term clients include the Grupo BAL companies
our drills was our best driller for a number of years so he
Industrias Peñoles and Fresnillo. We also have a relationship
knows the intricacies involved with the process and the
with Grupo México and we have started working with Minera
requirements from an insider’s perspective.
Frisco. Our goal is to service the big, stable companies but even though we have been in the market for over 20 years, there are a lot of people that are unfamiliar with
Tecmin offers services in diamond drilling with surface core
our brand. With that in mind, we are trying to increase or
recovery and mine interior, service boreholes, construction and
market presence. We have continuous growth thanks to the
sale of drilling machines, rental of drilling equipment, and sale
strength of our current clients but now we are looking to
of spare parts and consumables for drilling
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INSIGHT
MEETING THE CHALLENGES OF A RISING POPULATION LUC PAQUET President of Fordia
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Like all industries, mining is dictated by supply and demand.
year, but there is a deficit in mines that will be put into
The more the global population needs metals and minerals,
production due to the lack of exploration. The industry is
the more it will have to pay for them as reserves become
not currently prepared to satisfy the needs of the increasing
stretched. For Luc Paquet, President of diamond drilling
global population.”
company Fordia, the combination of global population growth and economic development in consumer markets
But with existing mines reaching the point of exhaustion
like India and China points to skyrocketing demand for both
and grades falling around the world, locating major new
precious and base metals for decades to come.
deposits is becoming increasingly challenging. Drilling is a vital part of any greenfield exploration project, and
“By 2050, the planet will hold 9 billion people and an equally
so companies like Fordia have to consistently seek new
inflated middle class ready to consume,” he says. “We are
technologies to enable geologists and mine engineers
expecting the next 500 million people to be removed from
to discover and build the mines of the future. With the
poverty in the next 10 years, and these numbers imply a
issue of sustainability an increasingly dominant topic of
large need for minerals and metals to build houses, cars
conversation for mining companies, not only does new
and electrical devices. In 24 years, we will need to double
drilling equipment have to be accurate and reliable, but it
the amount of copper that is produced now.”
also has to be environmentally friendly.
According to a 2013 report published by consultancy firm
For an activity that by definition alters the world’s
EY, by 2030 a total of 50 percent of the world’s population
landscape, this is no easy task. But Fordia has developed
will be in the middle class (earning between US$10-
an innovative system that helps significantly reduce
US$100/d). The report suggests that no less than 1 billion
companies’ environmental footprint during the drilling
of that figure will be Chinese. India, whose economy the
phase. Its technology can efficiently manage the sludge
World Bank predicts to grow at 7.2 percent in 2018, will
that comes out of drill holes, separating the clean water and
account for 200 million.
recycling it. In Mexico, where many mines are operating in deserts or similarly arid conditions, any economization of
But while the largest developing economies of China and India
water usage has a positive impact on both the surrounding
will be the driving forces of global consumption, Mexico will
ecosystems and company balance sheets.
also be an important contributor. A 2016 study released by PwC notes that Mexico’s middle class grew by 12 percent
“The residue needs to be disposed of as it can be harmful
between 1995-2010, the third fastest rate in Latin America,
to the environment, and the responsibility rests upon the
and estimates that the country’s working population (ages
shoulders of drilling companies,” says Paquet. “Our system
15-59) will increase by 20 percent by 2050. This will help drive
minimizes the consumption of water during diamond
10 percent year-on-year increase in household consumption
drilling, which requires large quantities to cool the bit. It
until 2020. The vast majority of these consumers will need a
is an innovative solution to environmental problems that
mobile phone, and many will require laptops, tablets, cars and
is easy to use.”
houses. This places a huge responsibility on the global mining sector to provide the raw materials needed for these devices.
The mining sector could in fact benefit from the sustainability turn that global industry is taking, according to Paquet. The
“In the end, civilization is based on metals, because
increasing demand for electric cars, for example, will have
most objects are either metallic or transformed by these
a positive impact on demand for lithium, cobalt, nickel and
minerals,” says Paquet. “To meet the demand, the industry
copper, while silver is a vital component in the photovoltaic
needs to open between two and three major mines every
panels used in the solar energy industry.
INSIGHT
CANADIAN EXPERIENCE BROUGHT TO MEXICO DINO LOMBARDI Vice President of Development for G4 Drilling
The mining downturn had a global impact but according
that are becoming available. But Lombardi believes the
to Dino Lombardi, Vice President of Development at G4
expertise G4 Drilling has accumulated in Canada will
Drilling, the tough years affected operations in Mexico much
stand the company in good stead. “We have a great deal
more than Canada. “A few years ago, Mexico represented
of experience in Canada in deep drilling and in difficult
almost 80 percent of our revenues but in the last few years
ground so we have developed quite a knowledge base,” he
we have made a much greater push toward Canadian
says. These are the kinds of projects in which the company
clients,” he says.
can specialize in Mexico, working on technically challenging sectors in difficult terrain and high-risk areas.
In terms of exploration investment, Mexico dropped to seventh place globally in 2015 with US$491 million, ranking
Alongside these isolated areas in which G4 Drilling can
behind Canada, Australia, the US, Chile, Peru and China.
bring unique experience is the challenge of access to water.
G4 Drilling’s market share in Mexico subsequently waned
Drilling is naturally water intensive since every diamond drill
in 2016 to just 30-35 percent. Now that the industry is
must run water through the system to ensure the drill bit
showing signs of recovery, Lombardi wants to increase that
remains cool and lubricated. According to the Commission
to 50 percent.
for Environmental Cooperation (CEC), 30 percent of the rural population in Mexico does not even have access to
He says that diversification is key to surviving in a cyclical
drinking water, so accessing the precious resource for
industry like mining. And the company has not only
drilling can be challenging.
diversified in terms of location, but also in terms of its technology as it sets its sights on rolling out a drilling and
In response, G4 Drilling has developed systems whereby it
blasting division for open-pit operations in Mexico. “In
recycles a large percentage of the water it uses for drilling,
Canada, we already have 25 percussion machines and an
which not only benefits the environment but also reduces
engineering department taking care of drilling and blasting
costs and the need for manual labor. “Along with the
in mainly lithium and iron ore mines,” says Lombardi. “We
positive environmental impact comes segregation of the
want to diversify from exclusively exploration activities and
drill cutting so it can be managed better onsite or offsite,”
move more toward mine operations.” The general rule in
Lombardi says. There is also less of a need for water to
mining is, when prices drop, the first expense to be cut is
be trucked in, therefore cutting CO2 emissions from fuel
drilling and exploration, so diversification demonstrates G4
consumption on projects.
Drilling’s long-term view of a cyclical market. But there is one challenge Lombardi has seen in Canadian The company also has a wide range of services, offering
operations that has not yet reached Mexico. He warns that,
everything from diamond drilling for exploration and
depending on the sector’s growth, human capital could
subsurface diamond drilling. Although for the last few
soon become an issue. “In Canada, we have difficulty in
years the highest demand was seen in portable machines,
sourcing sufficiently qualified manpower,” he says. “Because
conventional diamond drilling has made a comeback in
there was such a long slump, the workforce we require is
the last year, which is a sure sign the exploration sector is
no longer available.”
picking up speed. “In fact, portable machines only account for 5 percent of our machines in the field in Mexico right
As a consequence, inexperienced staff is employed, meaning
now,” says Lombardi.
higher costs and less production. These costs are inevitably passed on to exploration companies. “If the upward trend
The uptick is forcing drilling companies to differentiate
continues in Mexico, the industry could face the same
themselves so that they can win the all-important contracts
problem unless it is proactively addressed,” says Lombardi.
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VIEW FROM THE TOP
MOVING FROM PNEUMATIC TO HYDRAULIC MARÍA FERNÁNDEZ Director General of Refacciones Neumaticas La Paz (RNP)
Q: How has RNP’s business progressed in the last 12
many markets, some of which are receiving investment
months and what have been the highlights for the Mexico
from major mining companies on a global scale.
office? 210
A: In the national market, we have consolidated the
Q: How do RNP’s Computer Numeric Control (CNC)
commercial relationship with all of our customers, which
machines help drive productivity and efficiency for mine
is reflected in the sales of drilling equipment to the main
operators?
mining groups across the country. Unfortunately, the
A: For mine operators, it is very important to have
national operation is still being affected by insecurity and
reliable equipment, not only to achieve productivity but
tax policies.
to avoid accidents inside the mine. With CNC machines manufacturing all the metal components we sell, we can
The limitations we have had with the national industry
assure customers the parts they are buying are consistent
are the social problems such as ongoing strikes. We keep
in terms of quality, providing them the confidence they
expanding our list of customers abroad, as they represent
need to keep their production working in the most efficient
our growing source. We are conscious that national mine
manner. Preventing downtime increases operational
production is being affected by several factors but the
efficiency. Right now, CNC machines are the best
market has enormous potential to grow. In the international
alternative to guarantee a high standard across the whole
market, our growth trajectory remains on track as foreign
production value chain.
markets are extending working hours and using more drills and spare parts as a consequence.
Q: How does RNP’s approach to pneumatic and hydraulic drill manufacturing differ from other companies in the
The use of hydraulic drills represents some advantages, such as lower production costs, because they are more efficient and safer for employees
segment? A: Our manufacturing perspective is based on having a diversity of products to offer to our customers. While our competitors are only manufacturing their own designs, we always have some other options because we manufacture different models of both pneumatic and hydraulic rockdrills and spare parts. With the black market being one big issue for miners, customers look for different models to avoid this problem. By offering clients a diverse product portfolio we are motivating them to continue working with us. Q: How does the company work to provide stronger
Unfortunately, growth in the national market has been
aftersales support to its Mexican clients?
restricted by damaging political, economic and monetary
A: After installing a drill, our technical service department
policies. With next year’s election approaching, uncertainty
carries out continuous monitoring so we can keep track of
is causing foreign investors to look to other countries that
the most imwportant parameters and provide information
have more stability. Tax policies are also affecting mining
to the customer about the performance of the drill and
companies as new taxes are being applied and some
its spare parts. This information is also important for
activities, such as pre-operative exploration expenses,
programming maintenance to ensure the drill is always
have become nontax deductible, causing mines to be less
in proper working order. If the technician detects a
profitable. Fortunately, our activities are diversified across
need to train personnel, we arrange this service with the
customer at no extra cost. The training can be onsite or at our facilities. Q: How do you expect the pneumatic drill space to evolve in the next few years and what role will RNP play in that? A: In the last few years, the number of pneumatic drills in operation is decreasing greatly, so eventually they will be scarce in the mining industry. The trend is toward automatization, which means the use of hydraulic drills instead of pneumatic drills. With this in mind, we do not see a great deal of improvement or much R&D focus on pneumatic drills. The use of hydraulic drills represents some advantages, such as lower production costs, because they are more efficient and safer for employees. But we will continue manufacturing pneumatic drills as long as it is profitable, at which point we will follow the trend toward hydraulics. Q: How are plans progressing to build new offices in the US, Canada and South America? A: Right now, we are focusing on working in the Latin American market because it is growing and represents strong sales for the company. We have strengthened our relationship with our customers abroad and we continue attracting new clients. Our offices in South America are doing a good job at increasing our market share and positioning our brand with our customers. Our next office, including a warehouse and a repair shop, will be opened in Antofagasta, Chile, to support the main office we have in Santiago. All our efforts are focused on developing the office in Chile, which is a highly demanding market in terms of quality and service. It is a market in which automatization has taken a strong foothold so there is little room for any flaws. It is a very big market, representing 35 percent of global copper production and 28 percent of copper reserves. There is huge potential for growth. Q: What do you hope to achieve in the next five years? A: We are working to consolidate our business across the Americas as the best option in drilling equipment. At the same time, we will continue to take care of our customers from around the world. We will increase our global presence through the mining shows we attend in different countries, providing potential clients with the information they require and competitive prices for those markets.
RNP is an expert in hydraulic and pneumatic drill and component manufacturing. The company headquarters is in San Luis Potosi, Mexico, with satellite offices in Bolivia, Peru and Chile
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TECHNOLOGY SPOTLIGHT
US$41.04 million can be saved in
total annual downtime costs with the Series 795 Knife Gate Valve
THE INDUSTRY’S FIRST IN-LINE KNIFE GATE VALVE Even as metals prices rebound, operators are still focusing on four main points for process optimization: safety, productivity, inventory and capital. Victaulic has developed the Series 795 Knife Gate Valve (KGV), which can address all these concerns. This Series 795 is the industry’s first KGV that does not need to be removed from the piping system for servicing. All the wear parts are contained in a single cartridge kit and can be replaced in-line in just minutes. The benefits are fourfold. Firstly, in terms of safety, there are no more chains, pulleys or ropes during maintenance for this valve and reduced rigging during maintenance protects crew from hazards. Only simple hand tools are needed to get the job done. Secondly, this valve can be maintained up to 95 percent faster when compared to competitor gate valves, saving hours of labor by eliminating the need to secure and tear out the entire valve from the pipeline. Thirdly, this valve will not burden the operator’s boneyard because it never needs to be removed from the pipeline. The only wear parts on this valve are enclosed in a single cartridge kit and after scheduled maintenance shutdowns, all that is sent away is the old kit. That equates to a fraction of the shelf space and dead weight when compared to the whole valve that would normally be dragged around. Finally, and perhaps most importantly, there is no need to send capital straight to the boneyard. The fact that only the seat cartridge kit rather than the whole valve needs to be replaced during shutdown saves at least 60 percent in annual maintenance costs. Another key feature is the valve’s one-piece replacement cartridge, which eliminates the need for a second maintenance valve while reducing inventory costs. The valve’s bolt pad to bolt pad assembly valve is installationready with no loose parts. The positioning bolts provide a full 360° rotation and Victaulic's grooved ends design does not require flanges or welding to install. Using the example of a facility operating with 80 valves, Victaulic’s Series 795 KGVs would require just a fraction of the downtime and manpower of replaced flange valves. At an hourly rate of US$80, downtime and labor costs would equate to just US$32 compared to US$1,344 using replaced flange valves. Considering the maintenance costs per valve, the total yearly maintenance costs would drop by over 60 percent, to US$122,560 from US$307,520. Total annual downtime costs are slashed, to US$2.16 million from US$43.2 million.
213
INSIGHT
CONTINUOUS STRATEGY DEVELOPMENT ENSURES SUCCESS RAFAEL GUTIÉRREZ General Manager of Itzcoatl Drilling
214
When precious metals prices drop, exploration is inevitably
function on 5x5m drilling pads, whereas many exploration
one of the first expenses to be cut from company budgets.
drills available on the market can only fit on 10x15m pads.
The search for new reserves lies at the heart of all mining
This versatility helps mining companies acquire the
projects but it is also one of the most expensive and riskiest
necessary environmental permits for new projects.”
parts of the process. The strategy certainly seems to be paying off. At the start For Itzcoatl Drilling, a family-owned company that specializes
of 2015 Itzcoatl had around 50 percent of its equipment
in the provision of exploration-drilling equipment, downturns
out in the field. By the end of the year that figure was
such as the one the mining industry experienced from 2012 to
up to 100 percent. Boosted by the rise in gold and silver
2016 present a host of challenges. To keep winning contracts
prices, the demand for drill rigs continued in 2016 and
and maintain the cash inflow required to generate growth,
Itzcoatl Drilling was contracted by Agnico Eagle to
management must diversify its portfolio and adapt to the
develop exploration targets at the Pinos Altos and La
changing needs of its clients, says Rafael Gutiérrez, Itzcoatl
India mines and by Grupo México to complete a project in
Drilling’s General Manager, explaining how the company’s
Baja California. The company also worked with Fresnillo
business strategy evolved during the lean years.
on a 60,000m drilling operation and recently fended off stiff competition to win a contract for further exploration
“During the last two years of the downturn, as exploration
of the site.
budgets continued to shrink, demand from the mining sector was alarmingly slow,” he says. “We therefore assessed the
For Gutiérrez, a key factor to this success is the
market conditions, considered how we felt exploration would
attention Itzcoatl Drilling pays to client service and
develop over the next two years and tweaked our drill-rig
continuous strategy development. Rather than focusing
portfolio accordingly.”
on fast growth with regard to equipment and assets, the company focuses on developing a strong organizational
As Itzcoatl does not design or manufacture its drills from
structure and long-term relationship with its clients, a
scratch, it has an in-house engineering team that modifies the
philosophy that Gutiérrez believes will pay dividends for
rigs to adapt them to specific projects. Recently the focus has
years to come.
been on providing remote-controlled, compact track-set drill solutions to clients seeking greater versatility and improved
“As a drilling company, we work on short-term contracts
safety in the face of increasingly stringent environmental
so it is essential to build a good relationship with the
regulations.
exploration company or mine operator to be considered for the next project,” he says. “This means not only
The compact, remote-controlled Drill Rig Zinex A5 is one
catering to the client’s needs during the project, but also
such solution. The rig, which can drill up to 1,350m when
following up with them to ensure that they are satisfied
fitted with an NQ tube, is entirely unmanned when it is being
with the long-term results. Communication and flexibility
transported between drill pads and rough terrains, granting
are vital assets.”
the user supreme maneuverability on complicated access roads and increased safety for the operating team. Compact
To provide an exceptional client service, a specific internal
drills also have a more muted impact on the environment,
culture must be bred throughout the organization. While
helping mining companies scale regulatory hurdles.
its machines were all in operation throughout most of 2015 and 2016, Itzcoatl Drilling focused on developing
“Our drills can be operated on all roads, pads and
its corporate structure and training staff on its working
infrastructure,” says Gutiérrez. “They can be shrunk to
philosophy known as Value Added Drilling (VAD).
INSIGHT
TARGETING PROGRAM GIVES EXPLORER AN EDGE JORGE CIRETT Director of Gambusino Prospector
One of the biggest challenges for exploration companies
On one hand, says Cirett, Mexico is an extremely favorable
is access to funding. Many find a solution in listing publicly
environment for exploration since there is a rich history
on a stock exchange to raise capital – whether the TSX or
in mining, a great mineral resource potential and a
BMV. Gambusino Prospector prefers to enter into mutually
wide breadth of information freely available for public
beneficial JV deals. The company offers the expertise,
consumption. However, one drawback of working in
targeting and exploration work while its partner supplies
Mexico is that it is lagging far behind in managing mining
the financial backing.
concessions. “Once a concession has been canceled or dropped, it can take decades before it becomes available
“Right now, we are only carrying out friendly, small-scale
again for no apparent reason,” he says.
JV projects with some friends of ours,” says Jorge Cirett, the company’s Director. “We are identifying the best open-
Another issue he identifies is the increasing mining
ground targets in Sonora.”
regulations, especially in jurisdictions like Zacatecas. “That is a sure-fire way to kill industries,” he says. “Politicians
This type of targeting is what characterizes the company and
do not seem to grasp the significance of the policies they
as a result it has compiled one of the most comprehensive
implement and the impact they will have on the longevity
exploration databases in Mexico. The Gambusino database is
of the industry and the wellbeing of the Mexican people.”
unique in that it has been created by exploration geologists for exploration geologists. “The majority of our database
Mexico is becoming an increasingly complex market but
comes from free public information but the government
with over 30 years of experience in the industry, Cirett
does not tend to lay it out in a way that is easily interpreted
believes Gambusino is uniquely positioned to capitalize
by geologists,” Cirett says. “The databases available are
on opportunities due to its in-depth knowledge of the
designed by engineers rather than geologists, which means
geology and mineral deposits present in the domestic
there is an over-saturation of information.”
market. “We have worked both for major companies and more recently with juniors,” he says. “We have learned to
Gambusino takes this public information, converts it into a
negotiate the nuances of the industry and we have found
favorable layout and adds any relevant details based on its
that one way to reduce costs is to be selective about the
extensive field experience. “There are a lot of things I would
projects we take on.”
like to add but we lack the resources and time to process that information,” Cirett says.
Cirett also stresses the importance of treating each project like a fingerprint: no two are the same. “The same work
The biggest challenge in exploration, he says, is having the
is never carried out on any two projects,” he says. “The
time to carry out the required field checking of identified
highest cost in exploration is drilling, so care must be taken
targets. In fact the downturn has proven to be favorable for
in regards to which projects to drill. Once the targets have
Gambusino, since the company has had much more time to
been established, the asset must be defined and precision
focus on reinforcing the database and identifying targets.
is essential in the location of each hole.”
Cirett now plans to commercialize these results. “With this database, we have carried out robust targeting exercises
In spite of the challenges, Cirett sees a great deal of
for Sonora and Sinaloa and we are now working in Durango
opportunity and concedes that the environment is slowly
and will follow up with Chihuahua,” he says. “We intend
improving. “I see a lot of similarities between this year and
to attract partners to fund the grassroots exploration on
2002,” he says. “During the last cycle, this is when activity
already defined targets with the explicit goal of making
started picking up and the environment began to improve. But
discoveries.”
it was not until 2004 that the industry really picked up speed.”
215
MINE SPOTLIGHT
216
LA PRECIOSA In early 2013, Coeur Mining acquired Orko Silver, which was then incorporated into the US company to become Coeur La Preciosa Silver. With this acquisition came the La Preciosa silver-gold exploration project located approximately 60km northeast of the city of Durango in the Panuco municipality. The mine now belongs 100 percent to Coeur Mining. The project is at prefeasibility stage, with measured and indicated resources of 115.4 million ounces of silver and 197,000 of gold. The property has a further 3.2 million inferred silver ounces and 5,000 inferred gold ounces. The veins at the La Preciosa project have been classified as low to-intermediate sulfidation type. Two major vein and vein breccia systems are exposed on hills and ridges on either side of an approximately 800m wide valley, including the Martha, Abundancia, Gloria, Pica, Luz Elena, Sur, and Nueva veins. In 2016, the company produced a new geological model and subsequently completed 603m of conversion drilling. Drilling began again in January 2017 and the company expects to complete US$3.8 million of exploration, primarily for conversion drilling in 2017. Once the economic feasibility studies are concluded for the La Preciosa project, Coeur expects to be able to justify starting an operation similar to that of the company’s alreadyproducing Palmarejo silver mine in Chihuahua. An estimated investment of more than US$300 million is planned and 1,600 jobs should be created during the construction phase. During the life of the mine, Coeur estimates it will provide 400 well-paid and fixed direct-employment contracts, as well as a greater number of indirect positions stemming from the supply chain. As well as paying the municipal, state and federal taxes related to the Mining Fund, which will be invested in Panuco and in the state of Durango, the company wants to reinvest the profits from La Preciosa in the development of other Mexico-based projects. Coeur’s President and CEO Mitchell Krebs explained in February 2017 that the company had re-evaluated its approach to La Preciosa over the preceding 18 months. “We have re-assayed and resampled the old drill core and have come up with an entirely different geological interpretation for the deposit. We plan to spend over US$3 million on drilling to validate this new interpretation, with a view to completing a new Preliminary Economic Assessment (PEA) of our new mine plan at prices even lower than they are today. While we still have a good amount of work and analysis to do, I am encouraged by the new possibilities that we are exploring,” he said.
217
ROUNDTABLE
HOW ARE MODERN DRILLING AND MODELING TECHNIQUES HELPING MAKE NEW PROJECTS MORE VIABLE?
With a history dating back over 500 years, mining is one of the oldest industrial activities in Mexico. Many of the country’s largest mineral deposits have already been discovered and exploited, making the challenge of finding the next mine more challenging with every passing year. Thankfully, technological developments in drilling techniques, geological mapping and core analysis are helping to give Mexico’s community of exploration geologists an edge over their predecessors. Mexico Mining Review spoke to leading executives to find out which specific techniques are being used in Mexico to help both greenfield and brownfield exploration projects get off the ground.
Some mathematicians at the University of Canterbury in Christchurch, New Zealand,
218
developed a radio basis function (RBF) algorithm to create 3D objects from point data. The first application was in scans for the medical industry, wherein wounds were scanned and 3D shapes could be created. A geologist then came across the technology and adapted it for geological modeling. The main differentiator is this algorithm and the speed at which our technology works. Initially, the technology was more focused
ROB FERGUSON Director of Product Strategy at Leapfrog
on explorers because it helped map and discover the structure of the deposit. In the last few years, we have integrated more functionality in the software and it has become more applicable to operators so we are having more success at the operational level. We now work with the majority of the mining operators in Mexico including Industrias Peñoles, Fresnillo, First Majestic Silver, Primero Mining, Coeur Mining and Alamos Gold.
A new science called geometallurgy, or resource engineering, is helping operators determine how a rock will react to extraction and blasts. It is no longer enough to simply discover resources and companies need to be more strategic about the costs of extraction and processing. We have found cases where processing an area with 1g/t was more viable than another with 3g/t due to the location and extraction costs. Making assumptions about the costs of a project without an accurate financial model
PAUL LINTON Chief Business Development Officer at Terracore
can be dangerous to a company’s budget. The industry cannot afford to make these kinds of guesses. Eventually, these systems will become normalized in the industry and we will be able to shift away from physical sampling and more toward creating databases and analyses to help mining companies grow. We hope that the segment continues to expand with more companies offering these services.
In our first year in business, one of the things that concerned us was the downtime created by the market’s conventional drills. Our competitors would use well-known brands but the parts would typically be difficult to access and there could be days of downtime spent waiting for an engineer to come from another country to fix a problem with a drill. We began to explore the option of making our own drills using easily accessible parts and we were able to achieve this with the TEC series of drills.
DANIEL NOFRIETTA Director General of Tecmin
It uses standardized components which helps with stock availability; as soon as a machine breaks down, we can immediately replace it. At the Fresnillo concession on which we are working there is a neighboring concession using a high-tech drill from a major drilling supplier. But we are able to produce 10-15 percent more than that company, which speaks to the value of the simplicity of our drills.
Our drone technology was used by Goldcorp at the Peñasquito mine in Zacatecas. We managed to complete an exploration program, which would usually take one year, in just four months. We completed a 70km flight, scanning all the local terrain, borders and infrastructure, in just three days. This enabled the client to gain accurate georeferential information about the surrounding area and to make the necessary payment arrangements immediately. The initial investment required to acquire the technology is more expensive than conventional options but the time savings more than compensate. Major mining companies will not consider developing a deposit smaller than 1 million gold ounces and they must constantly work to increase the reserves and mine life of their
JESÚS HERRERA Director General of Detector Exploraciones
operations. We can help in this because our technology can provide accurate 3D models and other geological data that mine operators use to explore around a producing asset.
The minerals edition of Aeris is PANalytical’s X-ray diffractometer (XRD) for everyone
219
in the mining industry. The heart of the Aeris design is its simplicity - its user-friendly interface makes it accessible to everyone from experienced geologists to budding life-sciences students. It has a built-in touch screen that displays sample results quickly through a series of graphs and charts, providing accurate mineral monitoring for hydrometallurgical models. The user can then transfer the data to anywhere on the network, obtain a clear picture of the deposit and asses the economic viability of further exploratory work. The four available models – metals, cement, research and minerals – make the Aeris applicable to various industrial production control
MARCELO MOTT Regional Manager for Latin America at PANalytical
systems but it can add particular value to mineral exploration programs.
Currently, our range of downhole instruments are gaining a lot of traction. The REFLEX EZ-TRAC is the most popular device due to its ease of use, accuracy and reliability. The geologists use the information provided to correlate the direction of the bore hole with the core samples that are extracted. One of the additional advantages is that it saves time and money by re-engineering the workflow so an on-site technician for drillhole surveying is not required. We believe the future of mining is about automation, collaboration and real-time information. Our vision is to be the leading provider of real-time subsurface intelligence solutions to the global
PAUL ST. ONGE Mexico Manager of REFLEX
mining industry.
The compact, remote-controlled Drill Rig Zinex A5 provides remote-controlled, compact track-set drill solutions to clients seeking greater versatility in the face of increasingly stringent environmental regulations. The rig, which can drill up to 1,350m when fitted with an NQ tube, is entirely unmanned when it is being transported between drill pads and rough terrains, granting the user supreme maneuverability on complicated access roads and increased safety for the operating team. Compact drills also have a more muted impact on the environment, helping mining companies scale regulatory hurdles. The drills can be shrunk to function on 5x5m drilling pads, whereas many exploration drills available on the market can only fit on 10x15m pads. This versatility helps mining companies acquire the necessary environmental permits for new projects.
RAFAEL GUTIÉRREZ General Manager of Itzcoatl Drilling
VIEW FROM THE TOP
LESS SAMPLING, MORE DATA FOR COMPANY GROWTH PAUL LINTON Chief Business Development Officer at Terracore
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Q: How will geospectral technology and databases impact
In the future, we will be able to shift away from physical
the future of the industry?
sampling and more toward creating databases and analyses
A: There is a significant amount of historical core-drilling
to help mining companies grow. There are only two main
information that is scattered and not being used properly.
companies in the market that offer these type of products:
By unifying the data into a single system, companies can
Corescan and ourselves, along with a small number of
get a better idea of the distribution of the world’s resources.
additional initiatives.
We were part of a Swedish project, where we got the opportunity to analyze the first core samples on the planet.
Q: Have you experienced any resistance to new
The company has been fortunate enough to image and
technologies?
incorporate core samples that are over 70 years old into
A: The country is no different than any other market
our database. All this data is valuable information that is
in the world. Geologists in general tend to resist new
widely underused.
technology but we are entering the Big Data era so change is inevitable. Mining engineers tend to be the most
Q: What is the product or service that companies demand
progressive and geologists are the slowest to pick up
the most from you?
these new trends. We are trying to digitalize information
A: Exploration is in strong demand but we feel that
and bring it closer to the geological community.
the information and models we provide about rock properties will continue to see growth. A new science
It can be difficult to prove the value proposition of our
called geometallurgy, or resource engineering, is helping
technology to company managers. The US is our most
operators determine how a rock will react to extraction and
difficult market and the most resistant to change. These
blasts. It is no longer enough to simply discover resources
companies need to understand that they could be even
and companies need to be more strategic about the costs
more successful with new technology. It is not easy to
of extraction and processing. We have found cases where
prove how a new set of information can fit into existing
processing an area with 1g/t was more viable than another
work models and impact efficiency. We try not to be a
with 3g/t due to the location and extraction costs. Making
service company but as the understanding of geospectral
assumptions about the costs of a project without an
imaging is minimal, we have to sit down and map out a
accurate financial model can be dangerous to a company’s
company’s needs. We recently sat down with Fresnillo
budget. The industry cannot afford to make these kinds
to identify its exact needs and to make sure that we can
of guesses.
produce what it requires.
At the moment, we have a team that goes into the field
Q: Where would you like to be positioned in Mexico?
to carry out the sampling and analysis. But our company
A: The company hopes to continue analyzing the relationship
only plans to offer these services temporarily while
between rock properties and information to strengthen
more and more operators get used to handling this type
geometallurgy as a science. We realize that few companies
of technology. Eventually, these systems will become
have the knowledge to develop these areas but our team can
normalized in the industry.
help close these gaps. We are strengthening the foundation of our business by spreading our technology and software. Analysis of drilled holes that used to take several weeks now
Terracore comprises a world-class group of geologists,
only take 48 hours. Our delivery services are progressing
mathematicians, software developers and image processors.
quickly and companies cannot afford to waste time and
The international Terracore team develops and applies
they need instant information. The idea is to help exploration
captured hyperspectral image data and processing solutions
companies make better use of their budget and targets.
VIEW FROM THE TOP
REAL-TIME DATA DRIVING IMPROVED CORE-LOGGING PAUL ST. ONGE Mexico Manager of REFLEX
Q: What role does the Mexican mining sector play within
Q: How does REFLEX’s cloud-based system differ from
your global business strategy?
others in the market?
A: Mexico is one of the leaders in precious metal resources
A: All of our key solutions, including Downhole Navigation,
and a significant market for Imdex, our parent company,
Structural Geology, Infield Geo-analysis, Driller Operable
which strives to provide services and technology to this
Geophysics and Drilling Optimization, have the award-
ever-changing and growing market. The country is mining
winning cloud-based IMDEXHUB-IQ at the heart of the
friendly and always looking to improve operations with the
solution offering real-time secure data access to field data.
latest technology. We are positioned well to meet these
Clients benefits from an enhanced chain of custody, quality
demands within Mexico.
data, timeliness of information and streamlined processes. We have not seen anyone offering this connectivity between
Our company provides end-to-end solutions across the complete mining cycle including exploration, development and mining. We are an established global business operating in all of the key mining regions of the world and our technologies help clients achieve operational efficiencies. Imdex would like to meet the needs of the market and expand its presence as the country grows. Q: What is the next product to be released and what impact will it have on the local mining sector? A: Our most popular product is our range of downhole
“
devices across such an array of markets.
The future of mining is about automation, collaboration and real-time information”
Q: Where do you see the future of mining technology heading?
instruments. The REFLEX EZ-TRAC is the most popular
A: The future of mining is about automation, collaboration
device due to its ease of use, accuracy and reliability. The
and real-time information. Imdex continued to invest in its
geologists use the information provided to correlate the
technology development throughout the downturns and this
direction of the bore hole with the core samples that are
helped it retain its front-runner advantage. We have moved
extracted. One of the additional advantages is that it saves
from the past of being focused on providing equipment and
time and money by re-engineering the workflow so an
fluids to offering end-to-end solutions. This will continue to
on-site technician for drillhole surveying is not required.
play a key part in the future of mining operations in areas of exploration through to mine processing operations. Our
We have an exciting pipeline of new technologies that
vision is to be the leading provider of real-time subsurface
are focused on enhancing the efficiency of our clients’
intelligence solutions to the global mining industry including
operations. We have had an overwhelmingly positive
the Mexican industry. We will continue to focus on enhancing
market response to the introduction of the REFLEX
our end-to-end solutions for drilling optimization, down-hole
IQ-LOGGER, which fundamentally changes approaches
navigation, structural geology, in-field re-analysis and driller-
to drill-core analysis. The release of the IQ-LOGGER
operable geophysics.
prototypes into the market in 2017 brought a swift reaction from geologists who applied the new system to vital drill-core structural and orientation readings. One
REFLEX is
client from Terralogic Exploration said it allowed them
intelligence solutions and analytical software for geological
to collect 10 times the structural data over traditional
modeling. It forms part of IMDEX Limited, a leading mining-
measurement systems and at a much higher quality.
technology company
a
global
supplier
of
advanced
subsurface
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INSIGHT
ASSURING SUCCESS IN CORE DRILLING THROUGH DIGITALIZATION Chris Drielsma CEO of DGI Geoscience
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Riaz Tejani Director of Sales & Business Development at DGI Geoscience
The mining industry is moving swiftly toward the digitalization
“The mining industry has a lot of data but does not maximize
of its processes, including drilling and prospecting, thanks
the value. DGI employs Big Data techniques to rapidly find
to the efficiency of new technologies and their impact on
areas of interest from geochemistry or geophysics. We
cost reduction. An example of this is combining Reverse
have assisted many clients to discover new zones or drill
Circulation (RC) drilling with Optical Televiewer (OTV)
targets based on their already existing data,” says Chris
borehole surveying, which significantly increases the speed
Drielsma, the company’s CEO. Tejani continues: “As an
of drilling while reducing the cost. As an added benefit the
example, we increased the value of the OTV by combining
results are oriented, meaning they reveal true strike and dip
it with geology, alteration and geophysics that our clients
of contact, veins and foliation, among other characteristics
have already to assist with higher grade mining or ore body
that are not available from core.
discoveries. Other providers tend to just collect data and stop their work there. The strength of DGI results from our
Geologists often struggle with not having core on every hole
data analytics team working closely with our field services
but this does not need to be the case. An infill, delineation
team and the client to understand the goals.”
or exploration program consisting of RC, OTV along with XRF can deliver superior results while saving costs, adding
Whether the company’s field services team is collecting
drill holes in less time with the same budget. Core drilling
borehole geophysics, structural or geotechnical data, its
and assays can be done on a minority of drill holes or on
data analytics team is constantly looking at methods to
separate drill campaigns.
extract useful information and convey it in a simple manner to mining or exploration geologists and engineers.
“Clients in Central and South America are opting for RC over diamond drilling because it costs approximately
DGI is one of the largest borehole surveyors in the Americas
half the price and is four times as fast,” says Riaz Tejani,
for collecting geological, structural and geotechnical
Director of Sales and Business Development of DGI
data from boreholes. It services operating open-pit and
Geoscience Inc (DGI). “In-situ surveying produces a ‘virtual
underground mines that are looking to increase the
core,’ which is a high-definition continuous-oriented 360°
accuracy of geological and geotechnical models and mineral
image of the borehole wall. Using software, geologists
resource estimates. DGI also services exploration juniors,
can see downhole features of importance, connect and
municipalities, geotechnical engineering departments and
interact with these features and have a comprehensive
environmental assessment consultancies. Where and when
model with true strike and dip during the drilling program.
possible, DGI’s analytics team works with clients to extract
Furthermore, it is easy to share with colleagues or
further value from multiple datasets such as geochemistry,
consultants in other locations.”
geological, geophysical, geometallurgical, geotechnical and hydrogeological data for mining, exploration, infrastructure
Due to growing pressure from investors, management is
and environmental applications. It connects these datasets
evaluating processes that can save money or time while
to provide a clearer big-picture view of the overall project.
delivering more value. Digitalization of everything is on the table for review and discussion. Data analytics companies
Mexico is an important part of DGI’s growth strategy for 2017
that specialize in the collection of mining data and
because it has many successful operating mines and investor-
transform it into useful information are beginning to arise
supported exploration programs. DGI has long been active in
more frequently in the market. While some may fall short
Mexico, primarily for international miners operating here. In
when it comes to creating useful and practical business
2016, DGI focused on educating Mexican mining companies,
intelligence with its data, DGI stands out from the crowd
exploration departments, engineering firms and third-party
with its analytical capabilities.
suppliers on the value of its field and analytical services.
INSIGHT
WORLD’S FIRST FULLY AUTOMATED BENCHTOP XRD MARCELO MOTT Regional Manager for Latin America at PANalytical
According to the Mexican Mining Chamber (CAMIMEX),
to mineral exploration programs. The unique set-up of
around 70 percent of Mexico is yet to be geologically
the product means that it is also the world’s first fully
explored at depth, suggesting that there are numerous
automated benchtop XRD instrument.
mineral deposits waiting to be discovered. But for
223
prospectors and explorers to locate and understand the
“We are very optimistic that this technology will increase
mineralogy of a resource, they need access to efficient,
our business by 15-20 percent in 2017 because it is
reliable and highly sophisticated sample-analysis equipment.
ideally suited to the mining sector,” Mott explains. “It can complement other analytical techniques, it is easy to install
PANalytical, a Dutch scientific instrumentation and
and guarantees low running costs.”
software supplier, manufactures X-ray diffraction solutions specifically designed to help geologists analyze elemental
Since its launch in late 2016, a number of Aeris units have
structures during the initial stages of exploration projects.
been sold in Brazil and the first model arrived in Mexico
The company’s portfolio boasts an expansive range of
in June 2017. It will be installed at the company’s in-house
sample preparation instruments and X-ray software that
laboratory for the purpose of demonstrations. The company
can be applied to several industries but it recently launched
will also offer technical advisory and support to both
a new product – the Aeris – that it hopes will help expand
existing and potential customers. Although PANalytical’s
its business in the mining sector.
Mexican head office is in Monterrey, Mott and his team will be focusing their marketing efforts on the mining districts
“The minerals edition of Aeris is PANalytical’s X-ray
in Zacatecas. The historic mining region is still the second-
diffractometer (XRD) for everyone in the mining industry,”
highest producer of metals and minerals in the country, and
says Marcelo Mott, the company’s Regional Manager for
new discoveries – like MAG Silver’s Juanicipio project – are
Latin America. “It can make mining projects more viable
made all the time. Following a sharp increase in interest
because it provides supremely accurate geological data and
from Zacatecas-based mining groups in 2016, PANalytical
it is more robust and precise than other designs available
organized a seminar in the city in May 2017. In a bid to tap
on the market.”
into this substantial market, mining companies from around the country, as well as students, were invited to learn about
The heart of the Aeris design is its simplicity. It incorporates
the Aeris and its benefits from in-house specialists.
many high-end technologies that are already in operation on existing PANalytical XRDs, including superior resolution
But Mott harbors concerns about the way that Aeris might
and short measurement times but its user-friendly interface
be received in Mexico. Despite his belief in the design and
makes it accessible to everyone from experienced
the impact it could have on Mexican mining operations,
geologists to budding life-sciences students. It has a built-
he believes the country is still lagging behind other
in touch screen that displays sample results quickly through
jurisdictions, including his native Brazil, in terms of adapting
a series of graphs and charts, providing accurate mineral
to and welcoming disruptive automated technology. “We
monitoring for hydrometallurgical models. The user can
know Brazil is in one of the worst economic crises of its
then transfer the data to anywhere on the network, obtain
history but the numbers show that automation can be a
a clear picture of the deposit and asseses the economic
solution even in times of crisis. It helps increase productivity
viability of further exploratory work.
and decrease costs,” he says. “The market for industrial automation and robotics has huge potential in Mexico,
The four available models – metals, cement, research and
especially in mining. Local industry leaders must recognize
minerals – make the Aeris applicable to various industrial
the benefits of automating some stages of the process and
production control systems but it can add particular value
see the long-term results.”
A Goldcorp truck working in PeĂąasquito, Zacatecas
PLANNING & CONSTRUCTION
8
Once an ore body has been identified, drilling results have proven sufficient resources and reserves, and a feasibility study has ensured the viability of building a mine, operators must begin the process of planning and construction. This phase includes acquiring all the legal and environmental permits, the design of the mine itself and finally the build. The capital expenditure required during this phase of the mine cycle typically runs into the hundreds of millions of dollars, and the timespan can be several years, and so operators are always looking for any new technology or approach from their network of service providers that can save time and money.
This chapter covers all the latest innovation that is helping operators in Mexico boost the efficiency of mine planning and construction. From automated heavy machinery to groundbreaking volumetric technology, leading engineers and software designers from around the world explain precisely how their solutions are changing the industry in Mexico. Distributors and contractors, meanwhile, detail the unique value they can add to mining operations.
225
226
CHAPTER 8: PLANNING & CONSTRUCTION 228
ANALYSIS: Going Underground: The Evolution of Mining
229
VIEW FROM THE TOP: Peter Megaw, MAG Silver
230
VIEW FROM THE TOP: Gary Nash, Yokohama Tire Mexico
227
José García, Yokohama Tire Mexico
231
VIEW FROM THE TOP: Juan Manuel Grimaldi, Grimaldi
232
TECHNOLOGY SPOTLIGHT: Optimizing Production Through Geosynthetics
234
VIEW FROM THE TOP: Thomas Gramling, Takraf USA And Takraf Mexico
235
VIEW FROM THE TOP: Alicia Barnetche, Kepler
237
INSIGHT: Antonio Longoria, Skysset
Guillermo Sauza, Skysset 238
ROUNDTABLE: How Can Planning and Construction in The Mining Industry Be Optimized?
239
INSIGHT: Gunther Barajas, Dassault Systèmes
240
VIEW FROM THE TOP: Luis Estrada, Maple
241
VIEW FROM THE TOP: Ludwig Fasching, Doka Mexico
242
VIEW FROM THE TOP: Julio Díaz, TDM
243
VIEW FROM THE TOP: Jorge González, DSI Underground Mexico
244
TECHNOLOGY SPOTLIGHT: Takraf Spreader Boosts Safety, Efficiency
ANALYSIS
GOING UNDERGROUND: THE EVOLUTION OF MINING Open-pit mines may require much lower construction
larger than San Ramon but has never been
expenditure than underground mines but the latter may
explored,” says Frederick Davidson, President
become the future of the industry due to the need to avoid
and CEO of IMPACT Silver. San Ramon Deeps
environmental damage
houses high-grade silver zones of over 200g/t and has been the main source of IMPACT’s
In Mexico, open-pit mines dominate the industry because
increase in average overall mined silver grade ever since.
they are simpler to develop and require lower initial
228
investment than underground mines. David Noort, an
HIGHER GRADE, LOWER IMPACT
underground contract-mining specialist and Manager
Underground mines can even go as far as saving
of Pybar Mining Services Business Development and
environmental and social headaches for operators. In
Operations, told Australian Mining that “open-pit mines
early 2017, Philippine Environment Minister Roy Cimatu
have been economically the most viable, due to relatively
placed a ban on open-pit mines as part of an anti-pollution
near surface expressions.”
crackdown and other countries could well follow suit. Open-pit mining is increasingly falling out of favor in
But the balance is slowly shifting since most higher-grade
Europe thanks to environmental considerations and the
surface ore bodies have already been discovered, leaving
scarring of surface structures, according to Christopher
companies to search deeper for ore. Instead of launching
Warwick, Mexico Country Manager of Pan American Silver.
new greenfield exploration programs, operators are looking
“Most open-pits lend themselves to going underground
closer to home for their next discovery. “The best place to
if feasible,” he says. Pan American’s Dolores mine in
find a mine is close to where other miners already discovered
Chihuahua commenced development on an underground
one,” says Kenneth MacLeod, President and CEO of Sonoro
extension and the operation, slated to reach production in
Metals. But they do not need to look far. As IMPACT Silver
2018, will run alongside its open-pit counterpart.
proved with its San Ramon Deeps discovery, an operator’s next big find could be right under the existing property.
Yet, some operators are reluctant to turn to underground mining due to safety hazards such as collapses and floods.
DIGGING DEEPER
Not only are underground mines more prone to accidents
Underground mine construction is often questioned because
but they are also vulnerable to operating issues that may
the processes involved are more complex, expensive and
be far more complex to repair as a result of limited access.
dangerous than open-pit mining. But, as underground
In 2016, Endeavour Silver’s Guanaceví mine in Durango
mining involves a lower social and environmental impact
broke into an area of hot water and did not have sufficient
and access to higher grade deposits, it is starting to catch
pumping, ventilation and electrical capacity to handle the
the attention of operators. In fact, Rio Tinto forecasted in
hot water. “We started a recovery plan last year to expand
a 2010 seminar that by 2025 underground operations will
our pumping, ventilation and electrical capacities and it
account for 40 percent of global copper production.
should be complete this year so that the mine can return to plan by year-end,” says Bradford Cooke, Endeavour’s CEO.
Those that have taken the plunge are reaping benefits from
Although Endeavour remains confident in the long-term
their underground expansions. In Chihuahua, the Palmarejo
potential at Guanaceví, the incident caused the project to
mine transitioned into a completely underground operation
fall significantly behind on production.
at the end of 2016, focusing on the promising Guadalupe and Independencia deposits. “Production is expected to
A NEW ERA
increase over 50 percent in 2017 and based on reserves,
There is no denying the impacts of the drawbacks in
it now has a seven-year expected mine life,” says Mitchell
terms of safety and access issues in underground mining.
Krebs, President and CEO of Coeur Mining. “Importantly,
But mining new deposits under an existing mine is
grade and recovery rates have also improved and overall
understandably attractive for operators. No new property
costs continue to trend lower.”
has to be purchased, there is no need for new negotiations with landowners and the probability of striking a deposit
Similarly, after 10 years of mining, IMPACT Silver’s San
is increased tenfold. Moreover, underground grades
Ramon mine was experiencing a drop in its grade in early
tend to be higher and operators can mine underground
2015. “We began condemnation drilling and discovered what
while simultaneously operating their open-pit, more than
we call san Ramon Deeps, a deposit that is substantially
doubling profits and production levels.
VIEW FROM THE TOP
JUANICIPIO GEARS UP FOR HIGH-GRADE PRODUCTION PETER MEGAW Chief Exploration Officer of MAG Silver
Q: Why was production at Juanicipio pushed back from
It leaves the Cerro Rico de Potosi district in Bolivia in the
2018 to 2019?
dust. We hope to continue exploring the district for many
A: The delay in production was for all the right reasons.
years to come.
Our JV partner on the project, Fresnillo, is conservative and wants to be sure to meet the guidelines that are set out.
Q: How do you plan to invest the added cash flow from the
We delayed because we will no longer be building the mine
Juanicipio project once it goes into production?
at 2,650t/d throughput as originally planned, but rather
A: Some of it will go back into the ground to explore further
it will be built at 4,000t/d. That is almost a 50 percent
exploration targets, and depending on the success of those
increase in throughput, so inevitably this requires changes
efforts we might be building more mining units. We are
to the construction and mine design but thankfully it will
constantly looking for new projects around the world, as
not require a substantial increase in capital expenditure
long as the deposit is high grade and big enough to survive
given that the mill is already in place.
at least one market cycle.
Another reason for the delay is because we recognized
We will also consider paying dividends, but we only want
that the deeper part of the vein is volumetrically and
to go down that route when the company is in a strong
compositionally very significant. When we were drilling
enough financial position to do so. We have always tried to
in 2015 we thought we had reached the bottom of the
be financially disciplined, only raising money through equity
“bonanza zone” but we discovered that the vein increased
and at opportune times for our shareholders. We have set
in width from 7m to 25m and the grade increased. To
aside US$140 million to build the mine at 2,650t/d, but now
reach this deeper deposit, we are planning to build a mine
that we will be increasing that to 4,000t/d we may require
beneath the one we had originally planned. This means that
a little more capital expenditure.
we have to be careful not to underbuild the first operation. Q: What can the market expect to see from MAG Silver in Q: How will the partnership with Fresnillo evolve once the
the next few years?
mine moves into construction and operation?
A: The focus for the next two years will be to continue
A: Given the history of the JV to date, I do not anticipate
advancing the Juanicipio project. During 2017 we will
exploration slowing down once the mine is producing. The
be issuing a new technical report, a new resource and a
JV property extends for 20km to the south and 8km to the
production go-ahead decision. And we will continue to
west and there seem to be several structures parallel to the
pursue an aggressive exploration program on the property.
one we are currently developing and that Fresnillo is exploring
We are in the silver business, and 25 percent of all the
on their side of the boundary. Geologically it is highly unlikely
silver mined in history has come from Mexico. There are 15
that some of these veins do not continue into the JV property,
deposits worldwide that have produced in excess of 1 billion
and so the upside for ongoing discovery is high.
ounces of silver, eight of which are in Mexico and four of those eight are in the Fresnillo Silver Trend. It is the most
The Fresnillo district is rapidly emerging as the world’s
sought-after real estate in the silver business, so it is clear
biggest silver epithermal vein camp. A total of 850 million
that we will be focusing our efforts in Zacatecas.
ounces of silver has been added since 2010 with the discovery of Juanicipio and the Valdecañas vein, on top of the deposits that were already being mined and the 1 billion
MAG Silver is focused on advancing and exploring high-
ounces that has been produced historically. The district now
grade silver projects in Mexico’s Fresnillo district. The much-
has combined production and reserves of 3.2 billion ounces,
anticipated Juanicipio JV with Fresnillo is under construction
which is larger than any other silver district in the world.
and is expected to start production in 2019
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VIEW FROM THE TOP
DURABLE TIRES FOR LONG-TERM STRATEGIES Gary Nash President of Yokohama Tire Mexico
230
JosĂŠ GarcĂa National OTR Sales Manager of Yokohama Tire Mexico
Q: How does Yokohama contribute to the long-term
GN: There are always challenges when entering a country.
strategies of companies?
We overcome this issue by offering mining companies
JG: The mining industry likes to plan ahead with yearly
packages that are paired with engineering services. We are
quotes and contracts. With the downturn the market
out to sell small numbers that are high in quality to ensure
has gone through over the past years, a huge number of
that customers return time and time again. We want to
operations and projects have slowed down or even stopped
build a network of trusting customers so that when the
altogether, particularly in open-pit mines that require bigger
prices drop they continue to buy our products because
tires. Coal, for example, is almost nonexistent in Mexico now.
they know that we can help them lower their tire expenses.
The prices of minerals dictate production levels in Mexican
This is a strategy that we believe will pay off in the long-
mines. Mining companies are always looking to lower their
term. We only sell tires to customers that can benefit from
expenses and increase their production rates.
the solutions we can offer them. We also have a channel of distributors in Mexico that we hand pick to make sure
Yokohama has introduced three new radial tire sizes for underground mines in Mexico during the past 12 months
they represent our brand well. We continue to perceive Mexico as having huge potential for us as it is an important part of the global mining industry. The prices of metals are improving and mining companies are continuing to upgrade their production levels. In Mexico, we are focused on growing at a cautious pace as the quality
We continue to excel in underground mines and ports,
and performance of our products are essential. Our tires
where our products perform particularly well, and these
have proven to be a high-quality product. We want to be
segments are currently the main focus for the group in
very careful to introduce products that will be functional and
Mexico. We have introduced three new radial tire sizes
long-lasting by taking careful steps in the market. It can be
for these markets in Mexico during the past 12 months.
frustrating to operate at such a slow pace but we have to
Considering the tough landscape, companies cannot afford
be careful considering the tough spot the industry is now
to be left without products and are keen to find the best
emerging from.
price. Mining companies like long-term strategies. We have an engineering team that supports the sale of the product
Q: What are the company accomplishments in the last 12
and we are conscious of how our tires perform. Our main
months?
focus, above increasing sales, is to make sure our customers
GN: Over the past 12 months we have been helping customers
are aware of proper tire management and accessories. They
improve their production rates per hour. We also introduced
can tell the difference with a better-managed tire because
new products for underground operations, with three new
it lowers tire expenses.
sizes for underground mine tires. We plan to introduce underground radial mining tires that can bear larger loads
Q: How does Yokohama overcome the fact that Mexican
and withstand longer distances but this product is not in the
companies tend to choose cheaper services and products?
Mexican market yet. We believe that there is a customer for every type of tire. We like to focus on targeted niches and penetrate markets that require the specific tires we offer. We
Yokohama Tire Mexico, launched in 2013, is a fully incorporated
have had great success with our bias tires in the past, and
subsidiary of the Japanese tire-manufacturing giant Yokohama
we still produce top-quality bias tires but we are now placing
Rubber Company. The company offers a wide variety of
more of our focus on radial tires because we believe therein
premium brand tires
lies the greater demand.
VIEW FROM THE TOP
COMBINING PREMIUM AND BASIC FOR BETTER SERVICE JUAN MANUEL GRIMALDI Director General of Grimaldi
Q: Why should companies prioritize tire maintenance and
Q: What role does the mining industry play in your business
repair in their projects?
strategy?
A: Tires can represent a large chunk of a project’s budget.
A: We offer a specialized set of services to the mining
For example, in transportation, tires are the fourth largest
industry because it is quite a rough segment with long
element in the budget after equipment, oil and salaries.
hours. Grimaldi guarantees durability throughout the year.
In mining, tires also represent a similar portion of the
Considering that operations run without stopping, we
budget, representing one of the top five expenses of the
cannot just install a tire and check it in 15 days. It takes
total value of the operation. It makes sense considering that
constant supervision and maintenance to ensure safety
this industry runs 24 hours a day all year long. This makes
and efficiency. We serve both open-pit and underground
maintenance an essential part of the sector that can help
mines. Open pit mines require bigger and heavier tires as
mines save a great deal of money and time. Massive tire
loaders and trucks are extremely large. Some tires even
service can take a few hours and it is beneficial for mines
weigh 3 tons or more. On the other hand, underground
to carefully plan tire maintenance to avoid any accidents
mines are lighter and range up to 900kg. No matter what
that could affect the mine’s productivity. Operators can
kind of mine we serve, our priority is always the operator’s
take advantage of our services since we collaborate with
safety. We find that the mining industry tends to prefer long
the mines to improve their driving habits and help them
term alliances with trustworthy providers to ensure high
optimize their equipment’s loading, which is one of the key
quality service for these companies. We prove to operators
factors in material handling. We work hard to maintain our
that they can trust us by providing positive results at a fair
position in the market by staying ahead of the pack and
cost with more productivity. We have relationships with
investing in innovation and development.
operators such as Goldcorp, Coeur Mining, Don David Gold, Nukay, Nyrstar and Aranzazú Holding.
Q: What added value does Grimaldi provide to the market? A: The market has many tire and accessory distributors but
Q: How is the company adapting to the Internet of Things
we stand out by offering a total package service. Our goal is
(IoT) and digitalization?
not to merely supply companies with our products but also
A: Digitalization and IoT are creating important waves in
to achieve maximum efficiency for an operator by meeting
the Mexican market. Software allows clients to manage and
additional needs such as tire care and maintenance. Our
register information about the efficiency of the tires and
success lies in our ability to combine high-quality and
their lifecycle, helping companies make smarter decisions,
basic products with an efficient provision of services. We
optimize and reduce costs. Gathering information about tires
used to only offer premium tires but we realized that not
and their performance allows us to measure and improve our
all industries prioritize quality over cost. Grimaldi found
services as well. We work hard to always be up to date with
that the right number of additional services can make
technology and look for the best in the market. For example,
both premium and basic products equally effective. We
TIRE SENS technology allows us to place sensors inside
adapted to the needs of the industry by expanding our
tires and constantly track their pressure and temperature,
portfolio and offering low-cost bias ply tires in addition to
whereas ESTUDIOS DE VBOX software provides us with
Michelin products. The key is knowing when and how to use
reliable information, enabling mines to use tires efficiently.
premium and basic products. The price of the tire can also vary greatly among sectors. In infrastructure, the market is still dominated by lower cost products over quality while
Grimaldi has 32 years of experience as a supplier of high-
mining is quite specialized and is willing to pay more for
quality tires. It is specialized in the service of administration
a product that can provide a fair balance between cost,
and maintenance of the vehicles to contribute to the safety
quality, performance and safety.
and increase the productivity of the equipment
231
TECHNOLOGY SPOTLIGHT
232
OPTIMIZING PRODUCTION THROUGH GEOSYNTHETICS The typical mining operation moves thousands of tons of material every day of the year on a 24-hour basis until the end of its lifecycle. Considering the amount of material and capital at risk in these sites, operators are prioritizing the maintenance and optimization of every detail including haul roads and leaching pads. This is where the technology and services that TDM Mexico offers come most into play. The company strives to optimize production and efficiency through technology based around geosynthetics including geomembranes and geogrids. Geosynthetic products can be used to install waterproof systems within leaching pits and tailings dams. More specifically, geomembranes use geotechnical material to control fluids within projects and structures. The main benefits of the material are its resistance to water, erosion, UV rays and bacteria. When it comes to installation, TDM Mexico starts by laying out the geomembrane in strategic areas, followed by the use of an anchoring system to ensure durability. The company uses various tests to control the quality of the installation process, including air pressure tests, vacuum tests, a trial for extrusion wielding and tests for electric sparks. Mining projects also face a vulnerability to rockfalls and landslides. Vegetation is critical for long-term grounderosion control and for stabilizing the surrounding areas during mining closures, which can be achieved through hydroseeding. The technology works by spraying a mixture of seeds, mulches, soil stabilizers, fertilizers and other elements onto the soil. It combats erosion on slopes and surfaces with its biodegradable material, composed of 100 percent recycled wood. When it is sprayed on the ground, it works as a protective cover, creating a porous and absorbent layer, improving germination and plant growth. TDM also offers solutions for haul roads through geogrid technology, a reinforcement for soft soil. The technology is characterized by its rigidity, thanks to its high resistance to deformations in the ground and its open geometry based on strong joints that laterally confine the material used to fill haul roads. Geogrids can be used to reinforce haul roads and platforms where loads in mine sites are transferred. TDM follows strict codes and guidelines laid out by international benchmarks such as the Canadian Standard Association (CSA) and its technology helps companies save money as it minimizes the amount of materials like asphalt required in the roads and increases durability.
233
VIEW FROM THE TOP
MEXICO THRIVING OFF POLITICAL STABILITY AND RICH GEOLOGY THOMAS GRAMLING President of TAKRAF USA and TAKRAF Mexico
Q: What role does the Mexican mining industry play in your
product portfolio complementary to TAKRAF’s, the group can
business strategy?
now provide a wider range of equipment specialized to smaller
A: We started to focus on the mining industry in Latin America
capacity volumes and integrated in-plant conveyor solutions.
in the 1990s when traditional markets in Eastern Europe broke 234
down due to economic shifts. The company realized that Latin
Q: What are the biggest challenges you face when it comes
America had the fastest-growing copper markets, particularly
to entering the Mexican market with innovative technology?
in Mexico. Today, we have a presence in all the major mining
A: One of the biggest issues we face is acceptance of new
countries around the world, including Mexico, Chile, Peru,
technology, although we have succeeded in introducing state
Canada and the US.
of the art equipment on some recent projects in Mexico. I am encouraged that our clients in Mexico trust that our
In comparison to other mining economies, Mexico has
equipment can help them overcome challenging situations.
substantial advantages. Countries like Australia have depleting
Mexico is an ideal candidate for introducing products such as
resources while others such as Indonesia have political problems.
our overland conveyors, spreaders and mobile stackers and
Mexico on the other hand, has an abundance of resources yet
availing of TAKRAF’s wide range of services from conceptual
to be explored and the potential to be a mining powerhouse.
studies. Considering the complexity and sophistication of the
Mexico is a major player today in the global mining industry,
equipment, TAKRAF provides installation support as well as
with 1,172 opportunities identified across all commodities and
emergency calls. TAKRAF specialists can get to any site in
in all stages of development. We are interested in 717 that are
Mexico within a day.
in early stages of development. Q: What kind of logistical challenges do you face in Mexico We have completed many successful projects in Mexico
when it comes to shipping and processing?
including a high-capacity conveying system installed in
A: As in many places around the world, Mexico has challenges
Buenavista del Cobre for Grupo México, and a shiploader for
when it comes to safe and efficient transportation of goods.
limestone in Quintana Roo. We continuously strive to be at
The country is improving the situation by further developing
the forefront of new technology so that we can best serve our
its bridges and roads to facilitate transportation to its industrial
clients in Mexico and elsewhere in their pursuit of delivering
sites. The two-lane highway to Cananea, Sonora from Arizona
ore and concentrates at competitive prices.
is still quite dangerous even after improvements that have taken over three years to complete. Improving the efficiency of
Q: What role do mergers and acquisitions play within your
logistics will require continued investment in its transportation
business strategy and ability to innovate?
infrastructure, but this is vital in Mexico because moving goods
A: We search for companies that are well respected in the
and equipment safely and effectively remains an issue for our
industry and have excellent long-term relationships with their
clients in the country.
clients, but that also possess the ambition for developing technology that can impact the industry. TAKRAF recently
Q: What plans do you have to further establish the company’s
acquired FMC Technologies’ material-handling business
brands in Mexico?
(Material Handling Systems) based in Pennsylvania. With a
A: TAKRAF will continue to invest in its offices in Santa Fe, Mexico City and Cananea, increasing resources as needed to advance the TAKRAF, DELKOR and TAT brands. We predict
Tenova Takraf is a German industrial company that supplies
that mineral prices will be at high levels again by 2020 and
equipment for open-pit mining and bulk material handling.
Mexico will be one of the main beneficiaries. So it is essential
The company is based in Leipzig and has operations around
that we continue to improve our presence in the country,
the world
maintain our client relationships and find new partners.
VIEW FROM THE TOP
EXCELLENCE IN REPLICATING SUCCESS ALICIA BARNETCHE President of Kepler
Q: How does Kepler differentiate itself among an
due to broad experience and a great deal of practice. This
increasingly competitive and international market in
is part of Kepler business strategy and staff training. We
Mexico?
want to do things right from the outset, which is the basis
A: Due to our specialized work, over the course of our 42
for completing a project on time, on budget and with the
years we have always had international clients. The final
highest quality possible. Another important principle for
clients might be a federal institution, such as PEMEX or
us is teamwork. These are values that, when repeatedly
CFE, but we participate a great deal directly with the
practiced, save money, satisfy the client and create prestige.
private sector. We are internationally known in the steel, power generation, mining and petrochemical industries. Our clients may change but our policies and ethics remain the same. Q: What unique value does Kepler offer the Mexican market?
Since 2002, Kepler’s entire range of operations has been certified at the ISO 9001:2015 standard
A: We are a basic-infrastructure, heavy construction company that responds to market requirements; that is to
Q: How important is the mining industry for Kepler?
say, we are a services construction company. Kepler was
A: Mining is within the scope of our core business. Mexico
born in the steel industry, at a time when the main area of
has enormous potential in mining resources all across the
opportunity was in the northern part of Mexico, specifically
country and the industry has significantly grown in the last
in the states of Coahuila and Nuevo Leon. Later, it played an
15-20 years. There are many international mining operators
important part in the other big steel pillar that developed in
and clients, as well as national clients, with whom we have
Lazaro Cardenas. As the demands of the energy-generation
collaborated both in Mexico and abroad. The many different
sector began to grow, so did Kepler’s participation in it.
processes needed in a mining development require high-
One of our main added values as a Mexican construction
quality skills like those found in the electricity, steel and
company lies in the wide spectrum of services we offer.
petrochemical industries. Due to the complexity and extent
From the very start of a project, we provide civil works,
of mining projects, the construction alone may take several
mechanical, erection and electrical services, as well as
years to complete. One of the challenges in these industries
oversight and the most highly qualified labor. We can
is working in remote areas, often in extreme climates, where
contribute to a project all the way to its startup phase.
everything has to be provided, from electricity, water
Another added value is the level of quality and safety
and communications systems to human resources and
we offer to our clients and workers. Since 2002, Kepler’s
procurement. We negotiate with and support surrounding
entire range of operations has been certified at the ISO
communities and help operators negotiate with them. We
9001-2015 standard. We also hold ASME certifications and
may be on site for a few years but our clients will remain
we work according to international standards in safety
there for much longer. At the moment, we are working in
and environmental impact. The fact that national and
the state of Colima and in the central part of Mexico in the
international clients return for repeat projects is proof of
important mining state of Zacatecas.
a job well done. Q: How do you guarantee that projects are completed on
Kepler is a 100 percent Mexican company that began in the
time, on budget and of high quality?
steel industry, developing national projects. Over time, Kepler
A: There is a saying: “We are what we repeatedly do.” If
has demonstrated its ability in other areas, including corporate
this is true, excellence does not happen by chance but
construction, hotels, shopping malls and self-service stores
235
A Skysset drone flight over Grupo Emmont de México and GEMSA, Nuevo Leon
236
INSIGHT
STARTUP COVERS NICHE AREA WITH INNOVATIVE SOFTWARE, DRONES Antonio Longoria CTO and Co-Founder of Skysset
Guillermo Sauza Co-Founder of Skysset
According to a 2010 study carried out in Queensland,
One challenge in working with mining companies is that
Australia, skill-based human error was found to be the
often locations are remote, so it is not conducive to send
most common unsafe act carried out in mines, costing
engineers to each worksite. “Initially, we would visit the site,
operators dearly in terms of time, money and safety.
make the drone flight, process all the images and make the
Mining companies are increasingly seeing more value in
reports,” says Guillermo Sauza, the company’s COO and Co-
automation to reduce these errors but now innovative
Founder. “We needed to find a way to make the operation
startups are emerging to bridge niche markets that major
more scalable, so we began outsourcing the flights using
service providers often overlook. For example, integrated
commercial drones.”
systems are being created to minimize downtime during production but afterward, the lack of solutions to document
This allowed Skysset to focus on increasing the services
inventory means this task is often performed manually.
it could offer to its clients. The startup has developed its Honeybee app for iOS so that the flights can be completely
Companies like Skysset and its Groundhog volumetric
automated. “We give the drone and app to the operator,
technology are helping address these needs. The company
a button is pressed on the app and the drone flight is
uses drones and a process called photogrammetry, which
automated,” says Sauza. “We are then sent the photos and
overlaps a series of 2D images and converts them into
we can process the images and present the results in a
a 3D map, to offer greater precision when recording inventory levels for mining operators. “All this 3D data then has to be processed and converted into relevant information so we created software called Zephyrus that can identify a stockpile, filter excess data, run it through a floor estimation algorithm and extract accurate volumetric estimates,” says Antonio Longoria, CTO and Co-Founder of the young company. Skysset then measures the volumes of the same stock belt from one month to the next, giving it the comparative data that operators need to record the flow of stock more quickly
“
much faster turnaround time.”
When the process is carried out manually, it is easy for employees to overlook a measurement” Antonio Longoria, CTO and Co-Founder of Skysset
and accurately. By measuring production performance in
The company says the technology has far-reaching benefits.
monthly increments, the company can detect unexpected
“This technology is transformational because providing
anomalies. Skysset then compiles a report for every
measurements for all factors across such complex operations
stockpile that includes its volume, location on the map and
helps companies optimize,” says Longoria. “Once inventories
density of its contents.
can be accurately measured, diesel consumption for trucks and energy consumption for conveyor belts can be optimized.”
“These operations are complex, ongoing and hard to keep track of,” says Longoria. “When the process is carried
The industry is waking up to the technology. “When we first
out manually, it is easy for employees to overlook a
started out, there was a sense of disbelief that this could be
measurement and going back to find accurate records can
done,” says Sauza. Now that companies know this technology
be tough.” For increased accuracy, all of Skysset’s 3D data is
exists – and is used by world-class companies – they are
geolocated, meaning that not only volumes but positioning
becoming more willing to try it. “If we can only penetrate
can be compared so in the event of a discrepancy it is easier
the market with this new technology, the possibilities over
to identify the root cause.
the next few years will be limitless,” Sauza says.
237
ROUNDTABLE
HOW CAN PLANNING AND CONSTRUCTION IN THE MINING INDUSTRY BE OPTIMIZED?
Planning and construction is one of the most important parts of a mine’s lifecycle. A well-planned project ensures healthy relationships with authorities and the surrounding community as well as facilitates the operational process and production. As many companies are barely starting to bounce back from the price slump of 2012, operators are on the hunt for the best solutions in the market that can both optimize production levels and reduce costs. Mexico Mining Review asked leading technology providers, solution providers and operators about the strategies they are using to optimize and innovate the planning and construction of a mine and the challenges behind this phase.
There is an endless series of bottlenecks that need to be negotiated when moving 238
a project from the development phase into construction and production. To reach commercial production at El Limon-Guajes, we first needed to ensure that the grinding circuit was functioning efficiently, which we managed without too much difficulty. Then we needed to test the leach circuit and figure out how to deal with the large quantity of copper in the deposit. We are now working on the final major obstacle, which is the
FRED STANFORD President and CEO of Torex Gold
tailings filtration circuit. We have installed the biggest tailings filtration circuit in the world at the plant and the system not only enables us to recycle all the water we use but also eliminates the risk of any tailings spilling into the Balsas River and increases the efficiency of our land usage. But it is a complex mechanism so we have been working through a number of details to ensure that the operation works to its full capacity.
Due to the complexity and extent of mining projects, the construction alone may take several years to complete. One of the challenges in these industries is working in remote areas, often in extreme climates, where everything has to be provided, from electricity, water and communications systems to human resources and procurement. We negotiate with and support surrounding communities and help operators negotiate with them. We may be on site for a few years but our clients will remain
ALICIA BARNETCHE President of Kepler
there for much longer. One of our main added values as a Mexican construction company lies in the wide spectrum of services we offer. From the very start of a project, we provide civil works, mechanical, construction and electrical services, as well as the most highly-qualified labor and oversight. The fact that national and international clients return for repeat projects is proof of a job well done.
Financing is a significant challenge for mining companies. Despite having a solid project, it is difficult to attract investment to the country. Locally, it is extremely difficult to get a bank to offer financing for exploration or development of a mining project. We had the opportunity to obtain a significant line of credit from our investors, which has been guaranteed by our assets and will allow us to continue with the development of Tahuehueto and bring it into production in 2017. The
JOSÉ ANTONIO BERLANGA CEO of Telson Resources
first resources from this credit line were used to carry out a prefeasibility study (PFS). We were also able to carry out an industrial test on 3,500 tons of mineral. With the results of this test and the PFS, we will be in a position to approve the construction of Tahuehueto and to obtain additional resources to take it into production in 2017.
INSIGHT
VIRTUAL MINE MANAGEMENT: NO MORE AIR MILES GUNTHER BARAJAS Vice President Mexico of Dassault Systèmes
Senior mining companies are all faced with one common
“But the aerospace industry is a leader in the use of
challenge: how to keep a close eye on an ever-expanding
simulation technology to minimize risk. We know the impact
portfolio of global operations at once.
digitalization and virtual software can have on industrial operations, and we are bringing this technology into the
From exploration strategy and mine design to mineral
mining sector.”
processing and project closure, mine operations require a mind-boggling amount of planning and monitoring.
The technology has been particularly popular for senior
The decisions facing project managers multiply when
miners with projects around the world. According to
overseeing a number of operations in varying jurisdictions.
Barajas, large companies are attracted to the 3D Experience
In previous years, the job required endless trips to remote
because it allows project managers to keep an eye on global
mine sites around the world. But thanks to digitalization,
operations when they cannot be physically present on-site.
those hours spent on airplanes and helicopters to reach
One of Dassault’s main clients in Mexico is the Canadian
far-flung projects in the Mexican desert or Canadian tundra
gold giant Agnico Eagle, for whom it created a virtual mine
could soon be a thing of the past.
map to help site managers prevent accidents and downtime and combat falling profits in its mines in Mexico, Canada
“One of our clients has 15 mines throughout Latin America,
and Finland.
including Mexico, and the company is expanding,” says Gunther Barajas, Vice President for Mexico at software
Unlike many competitive solutions, Dassault's simulation
designer Dassault Systèmes. “The challenge it faces is
technology can be used throughout the mineral extraction
managing this rapid expansion across several jurisdictions
process, from exploration strategy and sample analysis
and ensuring that each asset is operating to its maximum
right through to mine operations and shutdown. The
potential. Thanks to our platform, the manager can now
program can be used to design processing plants,
monitor all his assets from one centralized program.”
storage facilities and tunneling systems. It can also assess environmental factors, helping companies to devise
Founded in France in 1981, Dassault Systèmes has grown
sustainable mine closure plans that restore and protect
into a multinational corporation manufacturing virtual
the local ecosystem.
project lifecycle management tools for companies in sectors as diverse as finance, construction and transportation. Its
For Dassault Systèmes, Mexico is a vital strategic market.
flagship platform for the mining industry, known as the
The group works alongside the Mexican Geological
3D Experience, embraces the digital revolution with open
Survey (SGM) to develop systems and ensure that mining
arms to provide intelligence, analysis and simulation that
companies have access to state-of-the-art technology to
maximize efficiency and increase profit margins.
guide their decision-making. The goal is to contribute to a profitable, safe and environmentally responsible mining
The premise is simple. The technology aims to provide a
sector. Helped by external factors including the weak
user-friendly interface that site managers and other decision-
peso and strong US dollar, Mexico registered the second-
makers can use to keep track of all their operations in real
highest growth rate for the company in 2016 and Barajas
time, and centralize the data via an online cloud. The company
is confident for the future.
takes the lessons learnt from experiences working in a variety of sectors to design solutions applicable to mining projects.
“Mexico is becoming a very attractive jurisdiction in which to work,” he says. “Operating costs are falling, profit
“The automotive sector is adept at maximizing finite
margins are widening and the country represents a great
resources, such as machinery and staff,” explains Barajas.
opportunity for foreign investment.”
239
VIEW FROM THE TOP
15,000 CONTINUOUS FUNCTIONING HOURS TO REDUCE DOWNTIME LUIS ESTRADA Director General of Maple
240
Q: How are improved metal prices benefiting the company?
machines are capable of transferring data to computers. Our
A: Maple is a family-owned company that expanded quickly
equipment can function for up to 15,000 continuous hours.
in the mining industry. We began our work in 2007 with only
Large companies such as Komatsu and Caterpillar choose
four people and we now have a staff of 400. We were growing
Maple as a representative for their machines because of the
strongly until 2013, when the metals prices dropped, which
excellent services we can offer to customers. We ensure our
impacted the demand for our machines and the number of
clients receive the services and maintenance they need to
projects we were participating in. The market is turning around
avoid downtime during operations and all our satisfied clients
thanks to the uncertainty caused by the recent US election.
are proof of the quality we provide. We have clients such as
Many operators that were waiting for prices to rise again are
Pan American Silver and Grupo MĂŠxico. When it comes to
more open to investing in mining projects. Essentially, we
our business strategy, 95 percent of it is dedicated to being a
benefited from the US electoral results.
mining contractor. We cover the entire mining lifecycle.
Q: How do your machines differ from those provided by
Q: What are your main interests and goals in the short to
your competitors?
medium term?
A: We are on the cutting edge of one of the biggest trends
A: We are planning to expand our branches in Hermosillo in
of the industry: digitalization. Maple updated all its machines
the short term as well as our fleet across the country. We
to include technology that others lack, such as alarms and
already have presence in areas like Cananea and Ensenada.
air conditioners, making the equipment much safer. All of our
We are interested in expanding the number of projects we
equipment is based on the Internet of Things (IoT) and the
participate in and consolidating the company in Panama and Colombia. We have a growing and qualified team of experts but we make sure that our growth does not inhibit our ability
Maple is a company that seeks the satisfaction of its customers
to offer excellent customer service. Maple has a team of
through an integral service, offering not only equipment rental
engineers and supervisors that can help a wide variety of
of the newest models but also highly qualified personnel for
mining projects be more productive and efficient. Customers
operation, supervision and maintenance
appreciate the attention to detail we offer.
VIEW FROM THE TOP
BRINGING STABILITY TO MINE CONSTRUCTION LUDWIG FASCHING Director General of Doka Mexico
Q: What challenges do companies face when building a
of accident prevention. Right now, this kind of measuring
mine and how do you solve these problems for clients?
relies heavily on guesswork and there are certain variables
A: When building a mine, there is a huge material
that can influence the outcome such as varying climates.
requirement for a short time period, especially during
Construction in the middle of the desert in Dubai differs
construction. Due to Doka’s international-standard logistics
greatly from building in the rainforest in Brazil. All these
systems, we can provide a great deal of materials within a
influences can be taken into account by Doka’s technology.
short time. Our engineering solutions adhere to the highest level of safety requirements and follow European and US
Concremote was designed by a company in the Netherlands
standards. Our products are tested for the loads required
and, after a few years working in collaboration, we acquired
and the customer can have full confidence that the safest
this company on Jan. 1, 2017. The equipment requires
product is available at the worksite.
synergy across all sections of the construction process, which is where the difficulties sometimes lie. But for
Q: How do your mining solutions differ from those of your
projects with significant amounts of concrete like shopping
competition?
centers, we want to promote this solution. Doka is also
A: First, we have the most advanced equipment that is
founding a consulting company that will focus exclusively
tested at a global level and supported by an engineering
on providing advice across the entire project, from concrete
department that evaluates, develops and is present from
quality and handling to planning and organizing the jobsite.
the beginning of the project. In terms of wall frameworks, we can provide Framax products, which are galvanized
Q: What are your plans for Mexico in the next two to three
metal frames that can be lifted by crane and are ideal for
years?
quality finishes and supporting a great deal of pressure
A: We want to further promote our technology. Right now,
from concrete. The Xlife dashboard is resistant and can be
Doka is building two of the biggest water power plants in
used more than 200 times. This makes the difference in
Canada and the Concremote solution is being used at one
comparison to the plywood solutions our competitors use
of these plants. But leaders in Mexico have been taken by
that must be changed after 40 uses. Our Staxo 100 slab
surprise by these advancements because, although there
solutions are load-bearing towers that are incomparable
are similar measuring tools in the industry, Doka’s solution is
globally in terms of safety certifications and these provide
unique. There is a tangible impact on construction times as
the perfect load-bearing solution for very heavy slabs with
we can reduce this by 20-25 percent and for these players,
a width of 2m that are common in major mining projects.
time is money. It also optimizes the concrete quality, the strengthening period and the forming period, which are
Q: How has the mining sector reacted to automated
added advantages. We need to clearly show the operators
solutions like MyDoka and Concremote?
how this works and ensure they follow our guidance so that
A: We want to launch Concremote this year but bringing
the system can be used in the most effective way possible.
it into the market is not easy. A certain level of maturity is
The technology still has not been used in a mining operation
required. It provides real-time monitoring of the strength
in Latin America, but I can guarantee that when it is adopted
of the concrete at any given time so an informed estimate
it will provide huge benefits in terms of time, quality and costs.
of the renewal time can be made and construction periods can be accurately planned. Inside the formworks, it is possible to perfectly monitor the progress, meaning there
Doka is the world leader in the development, manufacture and
will be fewer cracks when using Doka’s technology. The
distribution of formwork systems for all sectors of construction.
lifetime of the concrete is also extended and this monitoring
With more than 160 sales and logistics centers in more than 70
obviously provides a great deal of safety benefits in terms
countries, the Doka Group has a powerful distribution network
241
VIEW FROM THE TOP
USING SOUTH AMERICAN EXPERIENCE FOR OPTIMAL MEXICAN GROWTH JULIO DÍAZ Mexico Mining Manager of TDM
242
Q: How would you compare the attractiveness of Mexico as
company. We certainly have competitors that have been
a mining jurisdiction to others you have worked in?
positioned in Mexico for many years so they have this
A: Our growth as a company has been sustained by the
competitive advantage. But our product is of the highest
mining industry in South America – primarily Peru and
quality, we have global certifications, we have certified
Chile. We have been involved in projects in Chile with
laboratories and we have some of the most modern and
Grupo México and in Peru with Hudbay Minerals, Cerro
sophisticated plants in Latin America. Our background in
Verde, Newmont Mining and major companies like Barrick
South America indicates that we will experience optimal
Gold, Sierra Gorda and Lumina Copper. Our business is in
growth in Mexico. We manufacture our own products so
geomembranes that are used for leaching pads and tailings
we do not have the input of a third party in our design and
dams. We also stock a geo grid, which we use to reinforce
production process. That means we can guarantee the quality
the roads for the heavy machinery they have to bear. This
and reduce costs. As a young company, there is a certain
provides road improvement and less need for maintenance,
expectation about what our new technologies are able to do.
which equates to a cost saving. In South America we have worked with extremely important Q: What do you predict for metals prices in the next few
mining companies like Grupo México in Peru, giving us a
years and how do you plan to take advantage of these
strategic alliance with the company here in Mexico. We have
opportunities?
participated in projects like Yanacocha in Peru, which at
A: The improvement in the metals prices is interesting
one point was one of the biggest gold mines in the world.
for us. Obviously, the rise in the prices of gold, silver and
We were one of the exclusive suppliers for the company so
copper in Mexico benefits us as part of the supply chain and
we have a great deal of expertise in the market. This year
gives us greater opportunities with clients. Our product is
alone, we expect to be present in one or two significant
not one that is dependent on commodity prices because it
mining operations in Mexico. We are already initiating
is used for mine expansions and projects that are starting
operations with Goldcorp in a possible mine expansion and
up. It is not subject so much to fluctuations in commodity
we are participating with Grupo México. We have strong
prices but the prices remain important. We are working
relationships with Industrias Peñoles and Minera Autlan,
on an expansion project for Industrias Peñoles and metals
among other companies.
prices do factor into the negotiations because high metals prices will allow operators more feasibility when choosing
Q: What other services do you offer the mining industry?
whether to expand their operations.
A: We can take care of the engineering across the lifecycle of leaching pits and tailings dams. We also use our
Q: What challenges has TDM faced on its entry into Mexico
technology to reinforce roads and we can carry out slope
and how have you overcome these?
stabilization to minimize the chance of a landslide. All of our
A: During our time initiating our mining activities in Mexico,
engineers have background that qualify them specifically
we have had a great opportunity to get to know different
for the projects on which they work, along with my 29-year
companies. We are a strong company in South America,
experience in the industry.
with 25 years’ experience, but in Mexico we are still a young We are most involved with projects at expansion stages or mine closures but we want to be more involved from The TDM Group is a leader in Latin America in engineering
the early stages of projects. There is a new open-pit gold
solutions, supply and installation of construction products
project in Durango that is in its early stages and we are
for infrastructure, mining, energy and hydrocarbon projects,
entering into negotiations with this operator to install its
sanitation and agriculture
tailings facility and leaching pit.
VIEW FROM THE TOP
INTERNATIONAL INFLUENCE IMPROVES SAFETY JORGE GONZÁLEZ General Manager of DSI Underground Mexico
Conformity to international safety standards is something
and as a result of the deal, we have expanded our mining
that has only recently crept into the Mexican mining industry.
business by 30 percent in the country,” González says.
Rockwalls – the technology used to secure underground mines and prevent rockfalls – is not a requirement in Mexican
With this deal, DSI was able to cement an almost 15-year
legislation. Until a few years ago, this measure was only taken
cycle of solid growth. Dywidag Systems – DSI Underground’s
in the event of a fatal rockfall as a reactive measure to secure
parent company – was established in 1865 in Germany and
that part of the mine. Jorge González, General Manager of
has been broadening its expertise and international presence
ground support company DSI Underground, says that now,
ever since. The DSI Underground division was incorporated
operators in Mexico take safety much more seriously.
into Dywidag Systems in 2000 and González says that, with the exception of 2013, the company has experienced
“There used to be only 15 mines operating in Mexico and
significant year-on-year growth due to increasing safety
these belonged to the major Mexican companies,” he says.
standards. “One large mine used to purchase 5,000 bolts
“Now with the entry of Canadian mining companies and
per month. This has risen to 30,000 per month,” he says.
higher safety standards, most mines adhere to international standards.” Although it is not required by law in Mexico,
Of course, with the higher demand has come more
operators like Grupo México and Industrias Peñoles now
competition, both locally and internationally. In the late 1990s,
refuse to excavate more than 1m ahead without securing
international suppliers began entering Mexico and many more
the entire structure.
local companies began to emerge, located strategically close to companies in Zacatecas and Chihuahua. This is where they
These international standards are becoming increasingly
have the advantage, according to González, because although
important for mining companies and this is where
DSI has a storage facility in Chihuahua, its plant is located in
González believes DSI’s main competitive advantage
Guadalajara, which is not a traditional mining city.
lies. “Suppliers in Mexico are typically not aware of international standards or steel properties,” he says. “This
This has not prevented the company from supplying some
means they look competitive in terms of pricing but in
of the largest mining companies in the country. Among its
reality, the quality is not as high as what we provide.”
clients, DSI counts Coeur Mining at its Palmarejo property
With no Mexican legislation overseeing this segment,
and Agnico Eagle’s Pinos Altos project – both in Chihuahua
DSI purchases its raw materials and manufactures in
– Primero Mining’s San Dimas mine in Durango and Premier
accordance with standards laid out by the American
Gold’s Mercedes property in Sonora, previously owned by
Standards and Testing Methods (ASTM).
Yamana Gold. According to González, until this point, there has been more than enough market share to go around,
As a result of this competitive advantage, DSI forged a
which is evidenced by DSI’s growth.
strong presence globally, with the only lagging market being its US division. Within this market, competitor Jennmar was
González also has his eyes on industries outside of mining
the number one supplier in US coal mines, with 70 percent
in Mexico. “We see potential in all sectors with tunneling,
of the market share in the country. González explains that
like the Mexico City sewage system and trains such as
DSI’s market share in the US was small but globally DSI’s
the Toluca-Mexico City interurban train,” he says. DSI
market share dwarfed that of Jennmar. In February 2016,
Underground already has a presence in the new highway
both companies reached a mutually beneficial agreement
from Guadalajara to Puerto Vallarta, and in various tunnel
whereby DSI acquired Jennmar’s mining business outside
projects in Acapulco. “Mining represents almost all our
the US and DSI’s US mining business was sold to Jennmar.
business but we believe now is the time for us to diversify
“Jennmar had three or four strong mining clients in Mexico
into different sectors.”
243
TECHNOLOGY SPOTLIGHT
244
TAKRAF SPREADER BOOSTS SAFETY, EFFICIENCY This spreader designed and supplied by Tenova TAKRAF at a waste-rock facility in Mexico forms part of a larger system, comprising overland conveyors and a mobile tripper car, which was constructed and commissioned entirely by TAKRAF. This is a world-class system, able to handle 12,000t/h of material – the equivalent of one 200-ton haul truck every minute. This system substitutes dozens of mining trucks that would otherwise be hauling material for several miles, burning diesel and emitting greenhouse gases 24 hours a day, seven days a week. From a maintenance point of view, the savings are significant since a conveyor system is more reliable than a trucking operation and the vast majority of servicing is conducted during pre-scheduled shutdowns. As a result, there is little impact on the mine’s planned production. The outreach of the spreader’s slewing and luffing discharge boom is 50m, which not only confirms the operation runs efficiently at a large block size but, more importantly, that it runs safely. The superstructure of the machine has been laid out in the typical TAKRAF compact design, having a center of gravity suitably low for seismic conditions. With a ground pressure of only 125kPa, the forces impacting the pile are very low, contributing further to the safety of the system. With such low pressures combined with the large distance between equipment and the crest of the pile, caving or the sliding of material does not occur. This double-designed protection favors production but, more importantly, the safety of the operators and equipment. Only one operator is required to operate this system. As the material is fed through the conveyors, the spreader receives material by means of a crawler-mounted tripper car to which it is directly connected. The operator controls the movement of the spreader as well as the direction in which the boom is pointed. The stopping sequence of the equipment is such that even in the event of a power failure, no overflow of the chutes will occur. The spreader has been in operation for the past four years and has demonstrated both exceptional reliability and efficiency; in fact, the system is so flexible that it has even catered to slight changes in operation in comparison to the original design of the dump site. The client has been able to improve its bottom line, from significant savings – diesel fuel, maintenance and operation of mine trucks, shovels, and push dozers – to increased production and efficiency. This has all been achieved with increased levels of safety.
245
Skysset drone view of furnace scrap transportation
MINE OPERATIONS
9
247
The mine is now fully operational but this brings with it a host of new challenges, none more pressing than safety. Technological improvements have reduced the number of Lost Time Incidents (LTIs) and fatalities dramatically for both openpit and underground mines, but the practice remains fraught with danger. Heavy machinery manufacturers are developing autonomous and more fuel-efficient dozers, shovels and loaders that protect both the workforce and the surrounding environment.
Underground
mining
equipment
is
becoming
increasingly
mechanized and man-free, and simulation technology is helping to improve operator skills from the outset. All the while, mining companies must be careful to continue creating attractive jobs to appeal to the next generation of talent.
This chapter showcases all of the latest designs that are boosting the efficiency, safety and profitability of modern mines in Mexico. Global heavyweights compare technical approaches, machinery distributors explain the value of their services, and modular building designers reveal the contribution they are making to mine sustainability.
CHAPTER 9: MINE OPERATIONS 250
ANALYSIS: Tech Advances Help to Make Mining in Mexico Safer
251
VIEW FROM THE TOP: Carlos Caicedo, Atlas Copco
252
INSIGHT: René Valle, Maclean Engineering
253
VIEW FROM THE TOP: Gregorio Castruita, Resemin Mexico
254
VIEW FROM THE TOP: Alejandro Medellín, Caterpillar
255
VIEW FROM THE TOP: Héctor Torres, Sitsa
256
INSIGHT: Independent Contractor Offers Alternative for Mine Operators
258
INSIGHT: Harmen Van Kamp, GACW
259
INSIGHT: Pedro Pacheco, Kal Tire
260
VIEW FROM THE TOP: José Luis Durón, Immersive Technologies
261
INSIGHT: Ryan Siggelkow, Hard-Line
262
VIEW FROM THE TOP: Javier Prados, Normet Mexico
263
INSIGHT: Mike Kasaba, Artisan Vehicle Systems
265
INSIGHT: Álvaro Madero, ALCHISA
266
VIEW FROM THE TOP: Héctor Quezada, Victaulic
267
VIEW FROM THE TOP: William Delano, Chesterton Mexicana
Arturo Meléndez, Chesterton Mexicana
268
VIEW FROM THE TOP: Miguel Guerrero, Proesmma
269
VIEW FROM THE TOP: Alejandro Olivas, Rorisa
270
INSIGHT: Eduardo Zarza, Espaciomovil
271
VIEW FROM THE TOP: Jerzy Sasiada, Williams Scotsman
273
INSIGHT: Greg Lanz, Modular Mining Systems
274
ROUNTABLE: How Do You Generate Consistent Growth in a Volatile Economic Climate?
249
ANALYSIS
TECH ADVANCES HELP TO MAKE MINING IN MEXICO SAFER Mining is by nature a dangerous activity, and companies in the
Among those leading the push toward diesel-
past have been guilty of prioritizing production levels over safety
free mines is Swedish heavy-machinery giant
protocols. But technological advances and a shift in corporate
Atlas Copco, whose new SmartRoc CL drill
culture are helping to improve conditions in Mexican mines
rig was designed specifically to lower fuel consumption. The design is fitted with a
Life in an underground mine is fraught with danger. At
clutch system that disengages the compressor when air
any point during a shift a worker might be exposed to
is not required, drastically reducing energy usage. “This
an electrical fire, poisonous gas leak, collapsed tunnel,
system, coupled with exceptionally fuel-efficient hydraulic
power outage and countless other threats. But although
and control-system design, enables the SmartRoc
accidents are inevitable over the course of a mine life,
CL to use up to 45 percent less fuel than competitive
technological advances enable mine managers to minimize
technologies,” says Carlos Caicedo, the company’s former
risks and stricter corporate practices are helping to make
Mexico Managing Director.
mining in Mexico far safer than in previous years. 250
The design is also fully automated, which has added “The industry is moving in the right direction,” says
benefits by enabling workers to remain at the surface
Gregorio Castruita, General Manager of Resemin Mexico, a
and operate the machine from a remote, safe location.
manufacturer of underground-drilling equipment. “It took
“We hope to carry out testing on our electrical, battery-
many years of hard work but we have finally reached a
powered loaders for underground mines soon,” says
situation in Mexico where, for the majority of enterprises,
Caicedo. “Our goal is to have a full line of automated
worker safety is equally as important as productivity and
equipment by 2020.”
ore extraction levels. It is a priority for everyone.”
AUTOMATION VS MECHANIZATION The strategy is clearly bearing fruit. According to the
But while Atlas Copco and others are placing their faith in
Mexican Mining Chamber (CAMIMEX), there were a total
automation and the concept of man-free mines, Resemin
of 73 fatal accidents in Mexican mines in 2012; that number
is following a different path toward safety improvement.
has dropped every year since, falling to 35 in 2015. The
The Peruvian drill rig manufacturer is actively seeking
CAMIMEX “Incident Level” report ranks industry safety
to simplify its new models through mechanization,
standards according to statistics from the Social Security
which eases the physical human input, rather than
Institute (IMSS) on a scale of 0-5, where the lower the
complicate them through automation, which removes
number, the fewer the incidents recorded. According to
human judgement altogether. While Castruita accepts
the 2016 Incident Level report, the mining sector incident
that the industry “owes a lot” to automation and robotic
rate dropped to 2.1 from 2.3 in 2015 and below the average
machinery, he is yet to be convinced that the long-term
rate of 2.17. This is enough to make the extraction industry
reliability of the new technology is superior to simpler,
the fifth-safest industrial activity in Mexico.
mechanical designs that put performance, rather than untested technology involving complicated electronic
MOVING AWAY FROM DIESEL
systems, first.
The use of diesel in underground mines has long been a source of controversy in the industry. In an enclosed
“In an underground mine, machinery is subjected to
space like a tunnel, toxic fumes emitted by diesel
extreme conditions including temperature, dust, water and
consumption can do irreparable damage to lungs and
harmful gas leaks and the more electronic networks are
eyes. Several equipment manufacturers, therefore, are
in use, the higher the chance of a short circuit or failure,”
focusing their efforts on making alternatives like battery-
says Castruita. “We focus on designing relatively simple
powered vehicles more viable. As a result, diesel-powered
but highly productive machinery that has a minimal chance
vehicles underground could soon be a thing of the past.
of costing the user through downtime.”
“We will look back in 10 years’ time and be amazed that
This policy has brought great rewards. In 1H17, Resemin
a poisonous element such as diesel was ever used in
sold 20 new machines in Mexico and added precious-
underground mines,” says Mike Kasaba, CEO of Artisan
metals giant Fresnillo to its growing client network. “We
Vehicle Systems, a US designer of electric motors and
see little cause to change our policy at this stage,” says
battery packs for the underground mining industry.
Castruita.
VIEW FROM THE TOP
AUTOMATION GAINS TRACTION IN MEXICO CARLOS CAICEDO General Manager, Mining of Atlas Copco Brazil (Former Managing Director of Atlas Copco Mexico)
Q: What benefits does the new drill rig SmartRoc CL offer
being tested. Our goal is to have a full line of automated
your clients?
equipment by 2020.
A: One of the key design features of the SmartRoc was to substantially lower fuel consumption, so we designed
Q: How much of an impact has the new facility in Zacatecas
a clutch system to disengage the compressor when air
had on Atlas Copco’s business in Mexico?
is not required. This system, coupled with exceptionally
A: We decided to build the plant because we recognized
fuel-efficient hydraulic and control-system design, enables
that much of the fleet in the market was coming to the first
the SmartRoc CL to use up to 45 percent less fuel than
overhaul and the former plant did not have the enough
competing technologies. The SmartROC CL is efficient,
capacity to handle the increasing number of overhauls.
productive and an outstanding solution for quarrying
The new facilities started operations in September 2015
and surface mining. It is a drill rig that combines the high
and it has been a vital addition to our Mexican operations,
penetration rates of tophammer drilling with the superior
enabling us to improve our client support throughout the
hole quality of down-the-hole drilling.
country and especially in the Zacatecas region. This facility has been particularly useful in improving our delivery time
The most important aspect of the SmartRoc CL is that it
through a state-of-the-art system that receives and ships
continues our drive toward automation, which has been
parts and consumables efficiently. The training center is
steadily gathering pace. All of our machines were designed
being developed to increase the competences of customers,
with the same control system, which can be updated to
students and our personnel by using simulators that are a
handle automatic operations. One of the largest operators
replica of the real operating cab of different rigs.
in Mexico has already purchased and installed a number of our retrofit kits for semi-automatic and remote operation,
Q: What are the company’s primary objectives for Mexico
and we hope that the next step will be to move into fully
in 2017?
automated machines like the PV 275 CA, which is the first
A: Our focus will be to stay at the forefront of technological
fully autonomous and cabless Pit Viper blasthole drill.
development. We believe our remote-monitoring systems, which can measure all the working parameters of each
Q: How do underground mines differ from open-pit
machine and track performance to the finest detail, will be
operations when it comes to automated machinery design?
particularly valuable to our customers going forward. These
A: Designing solutions for open-pit projects is slightly easier
devices are easily installed, require only a reliable wireless
than underground, where wireless networks are not only
network to function and dramatically reduce machine
difficult to install but also require much more advanced
downtime.
software to function efficiently. In an open-pit mine everything is visible and there are fewer communication difficulties.
We hope to carry out testing on our electrical, batterypowered loaders for underground mines, which will not only
Mexico is relatively advanced in terms of autonomous
bring environmental benefits but also safety advantages. We
technology. It is one of the biggest consumers of
already have developed a 7-ton loader; our next step is to
our remote-control systems, the first step toward
go to a higher capacity rig.
automation. In the future, mines will be several kilometers underground, conditions for workers will be more challenging and so automation is inevitable. We already
Atlas
have several underground drills working with different
manufactures and designs heavy machinery. It provides
levels of automation and we have developed prototypes
compressors, air treatment systems, construction equipment
for fully automated underground loaders and shovels
and other services to the mining industry
Copco is
a
Swedish
industryial
company
that
251
INSIGHT
ADAPTING TO BREAK INTO NEW MARKETS RENÉ VALLE General Manager, Mexico and Central America of MacLean Engineering
252
Canadian companies control 70 percent of gold production
want to keep strengthening our existing relationships
in Mexico and many more are present in other metals - not
with Canadian mining companies that are in Mexico
to mention the supply chain - due to Mexico’s proximity
because our value proposition of hard-rock equipment
and favorable conditions. But the Mexican way of doing
performance, reliability and innovation is already known
business is unique and these Canadian companies must
to them,” says Valle. For MacLean, Canadian operators
have a deep understanding of the country and its culture
have become attractive clients because there are fewer
to ensure success when entering this market. The idea is
barriers to overcome.
to adapt and respect the needs of the region to better anticipate and introduce new products, says Rene Valle,
Valle also sees a meeting of minds when it comes to
General Manager in Mexico and Central America of
sustainable practices, even if the Mexican side is more
Canadian heavy machinery supplier MacLean Engineering.
hesitant to accept change. The industry is starting to
“
We are preparing products for the future of diesel-free mines”
The best way to introduce new products to Mexico,
move away from diesel-powered engines, for example, and into more green technologies that use battery-powered engines. “We are preparing products for the future of diesel-free mines,” he says. “Mexico is slowly embracing this mindset and I predict the trend will quickly grow in the country. But transforming its rigid mentality will be a challenge. Canada has already shown itself to be in favor of this technology.”
Valle says, is to constantly exhibit the machines in demonstrations and trade shows across the country.
To promote use of more high-tech equipment and
“The key to breaking resistance is allowing end users to
strengthen the industry’s supply chain, Valle believes the
become familiar with the machines,” he says. “Companies
government and the Mexican Tax Authority (SAT) could be
only purchase equipment that they feel comfortable with
supporting the industry more efficiently by implementing
and that can bring benefits to their mining process.”
policies that do not dramatically impact company budgets. “The extra mining royalties and taxes in the country were
Mexico is known for being a stubborn market that does
adopted at one of the worst times,” he says. “Relaxing
not adapt to change easily. But the mining industry in the
these fiscal obligations would allow companies more cash
country is starting to crank its gears again after a less
flow to invest in optimization and high-tech methods,
than favorable year in 2015. It is a good time to restart
providing greater cash flow for the country.”
mining projects in Mexico and companies are beginning to buy more equipment, an area of opportunity for
Despite this context, Maclean saw surprisingly high sales
MacLean.
in 2016 that far surpassed the company’s expectations thanks to the improved landscape for metal prices. “Our
“One of the main issues with this approach is that Mexican
company has already sold approximately 100 machines
operators do not often attend international shows,” says
in our time in Mexico,” says Valle. “In 2016 alone, we sold
Valle. “In effect, they are kept in bubbles, away from new
approximately 20 machines to companies like Fresnillo.”
technological trends and best practices that can improve
Valle emphasizes the need to differentiate to guarantee
efficiency and productivity. Another problem is that few
this kind of success. MacLean stands out by offering its
engineers in the mining industry speak English.” MacLean
clients heavy-duty machines that have between one-
strives to build its existing relationships with large Mexican
year and seven-year guarantees, is a unique offer in the
companies and to provide more solutions for them. “We
market.
VIEW FROM THE TOP
UNDERGROUND MINING: KEEP IT SIMPLE GREGORIO CASTRUITA General Manager of Resemin Mexico
Q: How is Resemin working to incorporate new
as important as productivity and ore extraction levels. It is a
technologies into its portfolio?
priority for everyone and it is imperative that this continues
A: Unlike many mining equipment manufacturers, we are
to be the case.
not focused on designing automated solutions. It is not that we do not believe in the benefits of automated or
Q: What new products is the company releasing in 2017?
robotic machinery – the mining industry owes a lot to this
A: We have released two products to complement the launch
type of innovation – but this misses the primary function
of the Mini Jumbo in 2017. The first was the Suri Scissor Lift,
of our machines, which is to ensure long-term reliability. In
a heavy-duty utility vehicle with various functions including
an underground mine, machinery is subjected to extreme
tube and ventilator fitting and fortification works. The
conditions including temperature, dust, water and harmful
most recent is the Scalemin scaling rig, a hydraulic diesel
gas leaks, and the more electronic networks are in use the
tunnel scaler used to mechanically remove rocks following
higher the chance of a short circuit or failure. We focus on
a controlled explosion. Previously, this dangerous work
designing relatively simple but highly-productive machinery
was carried out manually but we now offer a mechanical
that has a minimal chance of costing the user through
solution. This is different to automation as no electronics
downtime. This policy toward technology has been popular
are involved; we prefer the term mechanization.
and successful in Mexico. Before the end of 2018, we will also begin manufacturing Q: To what extent has the rise in metal prices had a
scoop tramps for the first time. We have always been
beneficial impact on Resemin’s business?
focused on drilling equipment but our clients have made
A: During 1H17, we sold a total of 20 machines to various
it clear to us that there is a need for underground loaders.
clients, including four new customers, so we have been
This is the next important project for Resemin and our first
delighted to see the recovery of the sector and the impact it
scoop tramps should be available during 2018. This will
has had on our business. Word of mouth is still an important
enable us to provide equipment for the entire life span of
method of communication in Mexico so the fact that we
the mine, from bore-hole drilling to material movement.
are attracting new clients is an encouraging sign because it suggests the technology is selling itself through the
Q: How satisfied has the company been since its formal
quality of its performance. In 2016, we launched the Muki
entry into Mexico four years ago?
FF and Muki LHP products that are designed to work in
A: We are pleased but we recognize that there is still work
narrow veins, which has performed very well and has helped
to be done. The market in Mexico is large and therwe are
attract new business. Two of the new clients are contractors
significant areas to cover but we know that patience and
working with Fresnillo. This is a significant development
a long-term vision is crucial in mining. We are confident
for the company because Fresnillo is the biggest primary
that we will continue to attract new clients in Mexico. The
silver producer in the world, and we are delighted to have
company aims to be working with all the major mining
our machines operating in their mines.
companies in the country on their largest underground projects. Our goal is to ensure that Resemin becomes
Q: What needs to be done to bring down the number of
known around the world for the quality of its personnel.
worker fatalities in Mexico’s underground mines? A: The policies that have been implemented by both foreign and national companies in Mexico show that the industry
Resemin designs
is moving in the right direction. It took many years of hard
tunnel scalers and other underground drilling equipment.
work but we have finally reached a situation in Mexico
Headquartered in Peru, the company’s Mexico base is in
where, for the majority of enterprises, worker safety is just
Zacatecas
and
manufactures
bolters,
jumbos,
253
VIEW FROM THE TOP
CONNECTIVITY, TECHNOLOGY AND INNOVATION ALEJANDRO MEDELLÍN Resource Industries Aftermarket Solutions Territory Manager for Mexico, Panama, Dominican Republic and Ecuador at Caterpillar
Q: Why was the Global Aftermarket Solutions Division
prepare for service events before the customer may even
(GASD) created at Caterpillar?
be aware there is an issue. We put a lot of effort into
A: GASD was formed in early 2016 to better serve our
researching ways to improve performance, durability and
customers around the world. By bringing together all
the safety components of our designs.
our aftermarket experts and regional teams into one 254
organization, we can provide a more complete service
Q: Which of your designs are leading the way in terms of
to our customers and better understand and respond to
innovation in the mining industry?
their needs. We are represented by three dealers in Mexico:
A: Caterpillar is delivering the first 794AC Trucks in
MATCO, with headquarters in Sonora; MADISA in Monterrey;
Mexico, a 320 ton-capacity electric off-highway truck.
and TRACSA in Guadalajara. My role is to promote sales
This incorporates safety, serviceability and performance,
and help deliver value to Caterpillar customers in Mexico,
with state-of-the-art High Voltage Insulated Gate Bipolar
Panama, Dominican Republic and Ecuador. We provide
Transistors (HV-IGBT) for maximum AC efficiency, among
unparalleled support to our customers through our dealer
other technical benefits. We also have the new Hydraulic
network, which was built on worldwide standards of
Mining Shovel 6090. This is known as the Ultra Class of
excellence and has been in place and growing for over
hydraulic mining shovels and is the world’s largest shovel in
100 years. Our beliefs and behaviors are guided by a
this category. It offers a standard bucket of 52m3, available
common set of core values: to bring our customers the
in diesel or electric drive.
right products, with the best level of service; to build longstanding relationships; and customer success. Our dealer
Q: What is Caterpillar’s approach to sustainability?
network is our primary strength and no competitor can
A: Sustainable development for Caterpillar means
offer the same level of service to the Mexican market.
leveraging technology and innovation to increase efficiency and productivity with less impact on the environment and
Q: How is Caterpillar incorporating new technology into
helping our customers do the same. By providing products,
its designs?
services and solutions that use resources more efficiently,
A: Technology has always been a key point of focus for
we enable our customers to become more productive and
Caterpillar and is a vital component of this new age of
efficient. We begin with our own operations and continue
equipment operation. All of our aftermarket support
all the way to our products operating in the field, to bring
team, including dealers and Caterpillar technicians, is
sustainable solutions to our customers. Our new generation
equipped with the latest digital tools to help provide the
engines impose limits on the quantity of diesel used and
best service to our customer right at the mine site. We are
we are constantly seeking out new ways to limit the CO2
also incorporating automation technology and Equipment
output of our designs by replacing diesel-powered trucks
Management Solutions (EMS) into our machinery. Through
with electric trucks, for example.
our connectivity solutions, the machines are connected to the dealers’ remote systems via antenna and we can
We also support community programs and reforestation
monitor the performance of their fleet on a constant basis.
plans because we believe it is vital to close the gap
This allows us to service their fleet more proactively and
between the mining companies and local communities. We offer extensive training programs to the operators and we support dealers and mining customers to develop and recruit
Caterpillar is the world’s largest manufacturer of construction
local community members if possible. Through educating
machinery, diesel and natural gas engines, industrial turbines
communities, we hope to change the global image of mining
and diesel-electric locomotives. It is also the leading provider
as an exploitative industry and I believe that major companies
of financial services through Caterpillar Financial Services
like Caterpillar can have a big part to play in this process.
VIEW FROM THE TOP
WIDER PRODUCT RANGE FOR EFFECTIVE DISTRIBUTION HÉCTOR TORRES Director of Sitsa
Q: What has been the key to the company’s success over
During 2H17, we will also be constructing an office – our
the past 10 years?
eighth in total – in Hermosillo, specifically to reach out to
A: When Sitsa was formed in 2007, the global economy
the mining sector. We believe that this sector represents
crashed so persistence and long-term commitment has
the best opportunity for the growth of our company in
been the key to our success. Although the mining industry
the short to-medium term, and to effectively tap into this
enjoyed prolonged success until 2012, our portfolio at
market we decided we had to have a base in Hermosillo.
that time was not geared toward the sector and only 15
We already have offices in both Durango and Chihuahua
percent of our revenue was generated by the extraction
but the new location will serve clients in Sonora, Sinaloa
industries. Thankfully, we realized from day one that
and Baja California, where there are a lot of new mining
diversification would be crucial for our success and to
projects starting up.
hedge our bets we have always worked in a number of industries, including oil and gas, infrastructure and
Q: What are the main products you provide for the mining
agriculture. This has allowed us to continue growing
sector and what value do you add for your clients?
despite the turbulence in various sectors.
A: Our primary products are Grove and National cranes, Schwing Bioset piston pumps and tires from a variety of
Given the current global economic picture, we are now
brands including Yokohama, Michelin and Pirelli. We do
doubling our efforts to expand our portfolio and gear
not provide any heavy machinery. The main reason why
it more toward the mining sector. According to most
these international corporations choose to outsource
predictions, the cycle of the metals and minerals industries
their distribution to Sitsa is our knowledge of the market
is now on an upward curve again with gold, iron ore and
and our expertise in doing business in Mexico. Our
silver prices rising. We see a lot of opportunities to grow
first client was Metso and we managed to secure that
our business in the sector, whereas other sectors in Mexico
contract because we convinced the company we would
like infrastructure are stagnant. We have a long-standing
represent the Metso brand across Mexico in a professional
relationship with a number of the major mining companies
and passionate manner. We continue to work with this
in Mexico, in particular Minera Frisco, for whom we provide
company 10 years later.
tires and a range of technical support. We hope to increase our participation in the coming months and years.
Q: What do you look for when deciding to represent a new brand?
Q: How do you plan to expand your client base in the
A: First and foremost, we have to be sure that we will be
mining sector?
able to form a strong, mutually beneficial partnership. Both
A: As a distributor, the way to expand is to offer a wider
parties must show commitment to the product and to the
range of products. In 2017, we signed a contract to start
objective and be willing to compromise to achieve success.
representing Afex, which is a US-based manufacturer
We are the first point of contact with the clients and we
with 45 years of experience in fire-suppression systems
cannot provide the level of service required if we do not
for installation on loaders, bulldozers and excavators.
have the complete support and trust of our partners. After
The technology works by detecting any abnormal rise in
that, of course the quality of the product is paramount.
temperature on the vehicle and automatically activates an extinguishing mechanism. It is highly regulated and wellrespected throughout the industry and is a vital safety
Sitsa is a Mexican heavy machinery distributor in the
component for modern mines. This is the newest contract
construction, mining and agricultural industries. Founded in
we have secured and it will complement our existing tire
1974, it offers sale and rental of new and used machinery. The
distribution network perfectly.
company will open its eighth branch in Hermosillo in 2017
255
INSIGHT
INDEPENDENT CONTRACTOR OFFERS ALTERNATIVE FOR MINE OPERATORS
256
As the global mining industry endured one of its most
corporation and counts mining operations in Colombia,
painful downturns from 2012-2016, businesses throughout
Sierra Leone and Mexico among its extensive portfolio.
the value chain turned their backs on investment
To complement its expertise in both underground and
and innovation in favor of short-term, cost-efficient
open-pit mining, PEAL has added a number of civil works
alternatives. In a bid to keep balance sheets in check and
projects to its portfolio. This includes motorway works in
eke out a profit, however slim, operators around the world
Poland and Portugal as well as a series of airport, seaport
reassessed every detail of each project and pounced on
and other logistics infrastructure projects throughout the
any opportunity to bring expenses down.
Spanish territory.
This trend certainly did not benefit the entire community,
Inevitably such projects require a heavy use of
but one particular type of enterprise thrived in this
natural resources, and at the heart of PEAL’s business
environment: the mining contractors. PEAL, a Spanish
philosophy is responsible environmental practice. Before
group with over 50 years’ experience in the industry, is
commencing work on any new contract, the company
an independent contractor that offers a cost-efficient
draws up an Environmental Management Plan (EMP).
alternative to the world’s mine operators, whatever the
As well as placing responsible waste management and
size of the project. By overseeing the day-to-day running
preservation of natural resources at the forefront of
of the operation – from negotiations with suppliers and
the project, the EMP ensures any local environmental
labor recruitment to mine planning and restoration –
protection and legal standards are met from the first
PEAL enables its clients to focus on developing of other
day until the last.
projects and assets, in the knowledge that the mine itself is in safe hands.
The success of PEAL’s business model in Mexico is reflected in its history of working on some of the country’s
From its origins in northwestern Spain’s coal region, the
most prestigious mining projects. Handling everything
family-owned company has grown into a multinational
from its office in Hermosillo, PEAL worked as an operator
for Cobre del Mayo's Piedras Verdes copper project in Sonora and for Goldcorp on its Peñasquito gold-silver project in Zacatecas. Today the group works on three mining operations in the country; Timmins Gold’s San Francisco mine in Sonora (a project it has managed since 2005), Marlin Gold’s Trinidad mine in Sinaloa and Pan American Silver’s Dolores project in Chihuahua. More than capable of managing a mine by themselves, the world’s largest mine operators require an incentive to make them delegate the everyday running of their
The success of PEAL’s business model is reflected in its history of working on some of the country’s most prestigious, and vital mining projects
projects to an independent contractor. PEAL’s value proposition is enhanced by the fact it has a technical
Of course, companies such as PEAL do not offer a clear-
office in Spain, which offers mine feasibility studies,
cut path to success. Despite the numerous potential
cartography, geological analysis, metallurgical testing
benefits of outsourcing via independent contractors,
and environmental impact studies to complement its
many mine owners will always prefer to keep full control
expertise in local project management.
of all aspects of their mine. However, as the sector looks set to continue its steady recovery in 2017, junior
The experience and relationships built over the course
companies with still-limited access to capital should see
of half a century working in the industry mean that few
contractors like PEAL as an attractive, economically-
are better equipped than PEAL to hash out a deal with
viable method of fast-tracking projects into operation
a supplier or local government authority. This not only
and meeting production targets in a timely and efficient
results in lower operating costs for the mine owner, but
manner. Meanwhile, larger operators should continue to
usually greater productivity to boot as PEAL can acquire
be attracted to independent contractors like PEAL that
state-of-the-art technology as soon as it is released onto
can streamline costs and remove many of the headaches
the market.
that running a full-scale mine can bring.
257
INSIGHT
REINVENTING THE WHEEL HARMEN VAN KAMP Global Sales Director at Global Air Cylinder Wheels (GACW)
258
The mining industry is in a constant state of evolution.
for the user quickly rise into the millions. “Although the
From fleet management systems and digitalized data-
initial investment is between two to four times greater than
handling tools to unmanned drill rigs and automated heavy
rubber tires, within a year the system will have paid for
machinery, technological developments have developed at
itself,” he says. “It is also environmentally friendly because
breakneck speed, allowing miners to maximize profitability
there is no waste – the design is 100 percent recyclable.”
at every corner of the mine site. But according to Harmen van Kamp, Global Sales Director at Global Air Cylinder
While rubber tires lose air through miniscule perforations
Wheels (GACW), one area has made limited progress over
with every rotation, the cylinders installed on the ASW
the years: tires. Spotting a gap in the market, GACW has
compress and decompress as the wheel is running, ensuring
developed a groundbreaking design that could revolutionize
marginal energy is wasted. “When the operator brakes, the
the way mining companies approach their tire usage.
energy is stored back in the wheel,” says van Kamp. “This has generated calculated theoretical diesel savings of up to
“We remove conventional tires, replacing them with a steel
15 percent, which is huge for mining organizations.”
frame and 12 air cylinders that have the inner rim suspended within the outer drum,” he says. “The concept is so simple
The ASW has only been on the market since July 2016 but
but it is going to disrupt the market.”
GACW has wasted no time in spreading the word. Van Kamp is based in Mexico but there are representative offices
The Air Suspension Wheel (ASW) is the brainchild of Zoltan
in the US, Canada and Argentina, as well as a network of
Kemeny, a Hungarian inventor and harmonic structural
collaborators throughout Africa. But although the product
dynamics engineer with over 260 patents on his resumé.
has been fully tested on a mine, with strong results, the
Kemeny was approached by an engineering firm, reporting
company is still waiting for its first client. According to van
that its clients often complained about low reliability and
Kamp, one of the main sticking points is the sheer size of
performance of the tires installed on heavy vehicles. He
the initial investment – to convert just one large truck from
realized that the majority of tire problems were related to
rubber to ASW would cost US$1 million – but he explains
the air component; rubber can easily get overheated and
a key difference in the way it operates financially to a
overstretched, leading to dangerous and costly blowouts.
conventional rubber tire.
He swapped the perishable rubber for a stronger steel frame, surrounded it with bolt-on hard polyurethane treads
“A rubber tire is a consumable and it is eventually disposed
and installed air cylinders to give suspension.
of after purchase,” he says. “Our wheel is equipment, so it is classified as a capital asset on the balance sheet. An
The design offers a number of benefits. From a safety
expense is converted into a capital asset, so the company
perspective, the ASW’s air-compression system removes the
value is instantaneously increased. With our air suspension
risk of pressure losses and therefore dramatically reduces
lifetime wheels, that US$1 million investment results in
the number of Lost Time Incidents (LTIs) on mine sites.
US$20 million savings during the maximum 20-year lifetime
Thanks to the metal component, the outer polyurethane
of that truck. Waste-to-asset conversion doubles value.”
tracks and inner steel rim are much less susceptible to wear and tear. While a traditional rubber tire lasts around 1,500
So why the delay in contracts? According to van Kamp,
work hours (four months) on a traditional underground
internal bureaucracy in the major organizations is the culprit.
mining operation, according to van Kamp the ASW lasts
But this is a hurdle GACW is confident of overcoming. “We
up to 10 years. Given that one hour of downtime for a truck
are very close to closing our first client,” he says. “There are
can cost US$25,000 on a large operation, with each tire
a handful of big mines seriously interested in the project,
change typically taking at least four hours, the savings
so it is just a matter of time.”
INSIGHT
FLEXIBLE FINANCING PROVIDES ACCESS TO QUALITY PEDRO PACHECO Vice President of Latin America Operations at Kal Tire
Retreading is incredibly valuable for mine operators. A
“This relieves some of the pressure on the client’s balance
standard heavy-duty, underground mine tire will have
sheet in the short-term and generates significant savings
100mm of rubber when it is sent to the site but even if
over the long-term,” he says. “We have found such flexibility
the tire is properly maintained and the casing is protected
has been vital to our success in Mexico.”
with high-quality equipment, it will eventually wear down. Retread the tire and a company can not only save money
In 2014 Kal Tire completed a deal to have Multillantas
but also limit the use of natural resources and energy,
Grimaldi be its distributor in Mexico. As a result it now
says Pedro Pacheco, Vice President of Latin America
stands as the biggest tire-service company within the
Operations at Kal Tire.
mining industry in the country. “In the last six years, our presence in Mexico has more than doubled and we can
“Instead of scrapping the tire when it is down to 20mm,
now provide a wider range of products and services to
we can retread it by adding a further 80mm of rubber,”
our clients than we could previously,” says Pacheco. At this
Pacheco says. “The client then has what is effectively a
point Kal Tire does not have a retread manufacturing facility
brand-new tire, without having to purchase a new product.”
in Mexico but expects to build its sixth plant in Mexico to serve its mining clients near Cananea, Sonora, which should
Mining companies around the world are looking for productivity and efficiency but in Mexico price is a particularly big factor in decision-making. Pacheco says this has been challenging for Kal Tire because there are cheaper products on the market. “We have had to be innovative with our business model to secure new business,” he says. “In Mexico, there are a large number of small and mediumsized mining companies, which is unlike other countries such as Chile that are dominated by a small number of large companies. While these smaller companies represent an exciting market for us, their spending power tends to be more limited than that of our clients in other countries so we have adapted to the conditions in a variety of ways.”
“
be completed during 2017.
In the last six years, our presence in Mexico has more than doubled”
According to Pacheco, this was a strategic location for Kal Tire’s new plant. “Cananea is the biggest mine in Mexico and one of the biggest copper mines in the world, so we see plenty of business opportunities with the project operator, Grupo México,” he says. “Moreover, it is perfectly located to sell tires not only to the US market but also to the Mexican
Providing a range of financing options is among the
mining heartlands in Durango, Chihuahua and Zacatecas.”
company’s responses to Mexico’s peculiar market environment. A standard tire life with Kal Tire services is
The retread plant began construction in the final quarter
around 10 months, Pacheco says, and usually the client will
of 2016. When completed, it will be a modern, world-class
have to pay the full fee in 30 or 60 days. This is appropriate
facility with new equipment that will help bring prices down
for larger companies but it can be challenging for smaller
and increase productivity for Kal Tire’s clients, Pacheco
enterprises that have limited liquidity.
says. Much of the equipment is medium-sized, between 90 and 120-ton haul trucks, because Mexico is the largest
“Smaller companies generally choose the cheaper option,
market for medium-sized equipment in Latin America. “The
despite the fact that they knew it would be up to 50 percent
plant will allow us to provide our complete range of services
less productive, simply because they did not have the cash
in Mexico,” says Pacheco. It will begin by manufacturing
to pay the full amount upfront,” says Pacheco. To help them
49-51in tires but he hopes to start providing 797 retread
out, Kal Tire offers installments over a 10-12-month period.
tires for big trucks within three to four years.
259
VIEW FROM THE TOP
BRIDGING THE TRAINING GAP WITH SIMULATION JOSÉ LUIS DURÓN Regional Manager for Mexico, Central America and the Caribbean at Immersive Technologies
Q: What were the main achievements for Immersive
mining, with full HD resolution and a large, integrated,
Technologies’ business in Mexico in 2016?
rear screen that provides the most realism on the market.
A: The company grew by 50 percent and we are
260
continuing to expand particularly in the underground
Q: What role do higher education facilities like universities
sphere. In Mexico, we have traditionally focused on open-
have in preparing the next generation of mining
pit operations due to our exclusive alliance with OEMs,
professionals for the digital world?
including Komatsu, Hitachi and Caterpillar, but given
A: We are working on a couple of projects that will be
the number of underground mines in Mexico we have
run jointly by the private sector and universities and this
launched more products designed for these projects.
could be a vital step for the development of the sector in Mexico because a lot of experienced operators lack the
We can now cover far-flung corners of the region with
skills required to operate heavy machinery in a safe and
our larger simulator deployment capacity and we are
efficient manner. There is still no school that is focused on
constantly hiring more staff to provide a more complete
training new mine operators on safety protocol but tools
service to our growing client base. Fortunately, our
like our simulators can help companies monitor operator
business is well-positioned because training services can
performance and work toward correcting bad habits that
benefit our clients in terms of productivity and efficiency
affect efficiency.
regardless of commodity prices so the risk is mitigated. Q: What is behind Immersive Technologies’ success in
Immersive Technologies grew by 50 percent in Mexico in 2016
Mexico? A: Mexico is a unique marketplace for Immersive Technologies. The company has been in operation for 23 years now but in many jurisdictions like Canada, the US and even Chile, our technology is well-established. In that sense, Mexico is not yet a mature market and so there is a lot of
Q: Has the company launched any new products
scope for growth because we offer something completely
recently?
new. Many mining companies in Mexico are not fully aware
A: During MINExpo in Las Vegas, we unveiled two new
of the benefits that our simulators can offer, so we have a
simulators: the PRO4 and the LX3. The LX3 combines the
very large potential client base to work with. We have always
training capabilities of the original lite simulator with a
had strong relationships with Tier 1 companies and we are
new, modernized and more ergonomic design. Its layout
now expanding our reach to contractors and junior outfits.
and upgraded screens provide enhanced realism and expanded field of view. Its smaller footprint is ideal for
The challenge we have is convincing new customers of
machine and site familiarization, emergency response
the advantages of our technology. To overcome this issue,
training and greater use of existing simulator modules
when we start working with a company we measure the
at an affordable price. The PRO4 is the most advanced
performance of a mine site over a specific period of time
simulator on the market. It has been optimized for surface
and design a training program based on the results. We then take another performance measurement after the training program has been in place for a few months and
Immersive Technologies works in equipment simulators and
in that way, we can measure our own impact. We are
learning systems. It has deployed solutions in 40 countries and
optimistic that our level of growth can be sustained and
works to solve industry problems in areas of safety, productivity,
if everything goes well, we could reach 100 percent growth
reactive maintenance and the availability of skilled personnel
in Mexico by the end of 2018.
INSIGHT
REMOTE TECH BOOSTS SAFETY, LOWERS COSTS RYAN SIGGELKOW Senior Vice President of Operations for Hard-Line
Safety has become one of the magic words in mining. Along
Tele-Op system is essentially an extension of the safety
with cost-savings, efficiency, accuracy and adaptability.
mechanisms the Hard-Line RRC can provide. “The Hard-
safety drives development as companies race to meet
Line RRC is a hand-held joystick unit that is put on the
industry demands. “As a result of market needs, our product
technician’s shoulder or mounted on a remote stand, and is
development transitioned to surface and distant operation
used to remotely enter blast-zones that are too dangerous
so technicians are no longer exposed to precarious
for miners,” explains Siggelkow. However, this system still
underground environments,” says Ryan Siggelkow, Senior
requires a worker to be underground or in line of sight of
Vice President of Operations for Hard-Line, referencing the
the machine, albeit with an extended line of sight with Hard-
emphasis miners now place on safety and security.
Line’s Farsight Video System.
The remote-control systems provider specializes in
The Tele-Op allows the operation of heavy machinery from
underground hard-rock mining and Siggelkow says that
a distant and safe location, such as on surface, and does not
product development is at the heart of its business plan.
require operator line of sight. “This means the operator can
“Underground mines are hazardous environments and
manage the machine for as long as necessary, saving huge
any device that removes the need for human entry into
amounts of time in shift changes and other variables,” he
a mine is attractive,” he says. “The driver for our products
says. “Moreover, the operator does not need to be highly
is safety.” Addressing a gap in the industry, Hard-Line
skilled and trained in underground mine environments.”
launched operations by offering turnkey services. “When
Siggelkow says that this is Hard-Line’s flagship product
we started as a company, we realized that the market lacked
and the biggest driver of the company’s automation
a total solutions provider for remote-control systems,” he
business, although it has seen relatively slow adoption in
says. “There were products on the market but we strived
Mexico despite the enormous savings it can offer mining
to bring prices down and make the solutions more robust
companies. Productivity is the main focus for the entire
and available to everyone.”
industry and Siggelkow says Hard-Line machines can reduce downtime. According to Siggelkow, client feedback
Hard-Line’s first radio remote-control system for
suggests that if Hard-Line’s system is running for a week,
underground LHD machines, the Hard-Line Radio Remote
they make a full return on their investment.
Control (RRC), was released in 1997 and it has become the company’s most popular product. “It is adaptable to
Going further, the company has just released a new product
any type of heavy machinery,” says Siggelkow. “It can be
called Tele-Op Auto, which is the automatic upgrade to
installed on all dozers, rock breakers, drills, excavators,
Hard-Line’s Teleop System and allows the driving functions
loaders, or any other device. This adaptability is unlike the
of the machine to operate autonomously. “This allows
majority of competitive systems on the market, many of
vehicles to move faster and avoids human driving errors
which are brand or machine specific.”
that can damage the equipment,” says Siggelkow. “The design lasts longer and requires less maintenance. It will
The company’s Tele-Op system removes the need to halt
be the company's first fully autonomous vehicle.”
operations for two to three hours during shift changes or in the case of blasts that take several hours to complete.
Hard-Line is now working on a further upgrade to Teleop
The system allows continuous operation in underground
called AutoX. “This will be essentially the holy grail of remote
and open-pit mines from the comfort of an office. “With
systems that will clear the path for a human-free mine,” says
the current market situation, in which operators’ margins
Siggelkow. “We are already developing the technology to
are narrowing, an extra four to six hours of production
make this a possibility but mine operators will have to be
time per day makes a massive difference,” he says. The
willing to make complete changes to their operations.”
261
VIEW FROM THE TOP
EQUIPMENT SUPPLIER TAKES ROOT IN ZACATECAS JAVIER PRADOS Managing Director of Normet Mexico
262
Q: What have been the major recent developments for
If we arrive onsite with a complex design fitted with too
Normet’s Mexico business?
many automated controls and electronic devices, it will not
A: We have only had a formal presence in Mexico since
be well-received in Mexico because it is difficult to operate
2012, so it took a few years to develop our contact base
and maintain and the operators simply do not have the
and for the domestic market to get to know us. Previously,
required skills to do the job. So we focus on designing
we had been working in Mexico via a network of dealers
simple machines that are easy to monitor, while at the
but we were encouraged by the size of the market and
same time training operators in Mexico to handle the more
decided to set up a formal base to reach more customers.
complicated equipment. The Alpha 20 is available at a
We are pleased to be based in Zacatecas, not only because
reasonable price, it is easy to operate and maintain and it
we are in the middle of the country, allowing us to reach
is a relatively simple design compared to other machines,
our growing client base in the north but also because it is
so this explains why it has appealed so much to the market
an incredibly rich silver district with a lot of underground
in Latin America.
mining activity planned for decades to come. We believe Q: What efforts are you making to remove the safety risk
we are well-positioned to take advantage of this.
associated with diesel emissions in underground mines? In the past few years we have diversified our product
A: We have a complete portfolio of machines in operation
offering. Our flagship product is the Alpha 20 concrete
around the world, some of which are diesel-powered, some
sprayer, which is used to sustain underground tunnels at
battery-powered and some dual. Our R&D efforts at the
mines and is the leading spraying technology in Mexico.
moment are focused on designing machines that comply
But to complement our expertise in this area and diversify
with Tier 4 emission standards, as well as installing more
our portfolio, in 2014 we decided to start locally producing
on-board power packs to ensure that the vehicles can run
chemicals used in concrete manufacturing, including
for longer periods of time diesel-free. Mining companies
plasticizers, retarders, water reducers and accelerators. We
need to become more sustainable and offering productive,
do not produce the concrete but we produce the admixtures
diesel-free machines is a way for us to help our clients in
needed for making concrete and we offer technical advice
this process.
to support our clients in the handling, transportation and Q: What is your strategy for continuing to expand your
spraying process.
business in Mexico? Q: What challenges does the underground mining sector
A: At first it was tough to establish the brand locally and
in Mexico bring for service providers like Normet?
although we are now well-known throughout the country,
A: The needs of the Latin American market differ greatly
there is still more work to do. We arrived in Mexico in the
from those in Europe, where the company originally grew
middle of the industry downturn, so the first few years
and where the majority of the manufacturing takes place,
were slow but now the sector is rebounding and we need
and so we are in the process of defining precisely how
to take advantage of the increase in spending on behalf
to provide the best machines and service possible to our
of the operators. This means several trips to mine sites to
clients in this part of the world.
speak to managers and demonstrate our wide portfolio of scalers, chargers, sprayers, lifters, underground logistics products and concrete admixtures. We have a large service the
team in the country now and this means that we now
underground mining community. With over 11,000 built-for-
offer the full range of services. Our mission is to offer
purpose underground machines in over 28 countries, Normet
continuous improvement to our underground mining and
has become one of the market leaders in its product segments
tunneling partners.
Normet provides
tunnel
construction
services
for
INSIGHT
“
GREATER SAFETY, LOWER COST, LESS SPACE
We will look back in 10 years’ time and be amazed that a poisonous element such as diesel was ever used in underground mines” Mike Kasaba, CEO of Artisan Vehicle Systems
“To get to it, it would have had to sink additional ventilation shafts at an expense of around US$100 million,” says Kasaba. “Although our battery systems are still expensive, they came nowhere close to the capital expenditure of the offset ventilation expenditures.” Today, Kirkland Lake Gold’s operations rely on battery power. It is extremely rare for new technology to arrive that can make mines safer while radically impacting the core metrics of a company in a positive manner and in this way Kasaba believes Artisan’s technology is truly transformative. “We will look back in 10 years’ time and be amazed that a poisonous element such as diesel was ever used in
According to many, mine operators have three main
underground mines,” he says. Artisan primarily works in
objectives at the moment. The first is analyzing the ore
Canada but now has a mine that is using its equipment in
they can process per year and finding strategies to increase
the US and Kasaba hopes the Central and South America
the quality. The second is reducing costs and the third is the
markets will receive the equipment just as favorably.
pressure to boost production. These are compounded by the fact that the creation of a safe working environment can
It would be difficult for companies in Mexico to overlook the
distance companies from their objectives because it can
benefits. Compared to diesel machines, Artisan equipment
mean further costs and slower production speed. Batteries
has three times the power in the same size class due to
can provide a solution, says Mike Kasaba, CEO of Artisan
the density of the powertrain system. An electric motor is
Vehicle Systems.
relatively small and is able to power the entire machine while a diesel motor must be significantly larger to reach a similar
The manufacturer produces an electric battery system that
capacity. “The machine is 2m shorter than a similar diesel
creates a safer and healthier work environment because
machine, which is important given that these machines
there are no poisonous diesel fumes. This technology,
operate in narrow vein operations,” says Kasaba. “Not only
Kasaba says, can also have an impact on the operators’
does the machine have more horsepower but it also has
wallets. “Without the battery pack, Artisan’s machines
greater torque. Diesel machines are less maneuverable in
cost about the same as a comparable diesel unit. When
small spaces while our machine has a much tighter turning
spreading the cost of the battery pack over time, it
radius for better handling in tight spaces.”
compares favorably to the operational expense of diesel fuel. Our ultimate goal is to come close to the cost of a
Kasaba says that several benefits offered by Artisan
diesel machine and we are not far off,” he says.
equipment are often overlooked by competitors. “Many of Artisan’s competitors include a torque convertor in their
With Artisan technology, new developments require fewer
designs, which was necessary for diesel engines, but is
ventilation shafts because battery-powered machines do
not for electric motors,” he says. “Torque converters make
not release diesel fumes. “Ventilation can raise operating
a powertrain about 30 percent less efficient and waste
costs by millions of dollars,” he says. “Deep mines are also
valuable battery power.”
hot and require cooling plants on the surface. Studies show that the cost of cooling plants, the installation of
Battery packs are costly and he says it is important to
which alone can reach millions of dollars, can be reduced
efficiently use every kilowatt-hour in the battery pack
by as much as 40 percent when using battery-powered
and to minimize heat creation. “We also have noticed
machines.”
that some competing machines use lower voltage,” he continues. “The lower the voltage, the higher the current
Kasaba maintains that Artisan machines are designed for
needed to reach the necessary power. This creates
maximum efficiency and the savings go right into the pocket
electrical inefficiency and substantially reduces overall
of the mining companies. He uses the example of a project
performance.” According to Kasaba, companies need
Artisan carried out with Kirkland Lake Gold, which needed
machines with low current and high voltage to achieve
to reach a mineral reserve that was adjacent to its ore body.
high power and the best performance.
263
264
INSIGHT
CHIHUAHUA STAYS ON TOP IN DIFFICULT MARKET ÁLVARO MADERO CEO of ALCHISA
Following the federal government’s fiscal reforms in 2014,
operators in Chihuahua to ensure each mine receives the
metal and mineral exploration expenses in Mexico were
right product for its particular processing system. To this
made tax deductible only after a period of at least 10
end, ALCHISA works in close quarters with technicians
years. Previously, companies had received the deduction
at ExxonMobil’s Center for Technological Investigation in
after the first year of the project. This added pressure took
Kansas, while it has also set up a series of laboratories within
some of the shine off Mexico’s viability as an exploration
the mines themselves. “We use these facilities to collect oil
destination. In 2015 Mexico dropped from fourth to seventh
samples, analyze performance and give recommendations
on the global list for exploration investment, falling behind
to the operators,” says Madero. “We invest alongside our
China as well as regional rivals Chile and Peru.
clients to guarantee that they receive the best quality lubricant at the most competitive price.”
“The fact that exploration activities are nontax deductible after the first year explains why the local mining sector
But the private sector alone cannot guarantee the long-term
did not have the exceptional year that many predicted in
prosperity of the state. The Chihuahua state government
2016,” says Alvaro Madero, CEO of ALCHISA, the exclusive
has a responsibility to boost economic development, create
distributor for ExxonMobil oil lubricant in the state of
jobs and promote sustainable practices. The mining fund,
Chihuahua. “We know that there is interest in exploration
which was set up in 2014 to support local communities
from Mexican, Canadian and even Chinese companies but
in mining regions, can play a big part in this. Although
they are put off by the new tax regulations.”
the initial results were less than spectacular, Madero is confident that the recent change in administration could
Despite investment on a national level being shackled by the
yield dividends. “I believe that we will soon see money from
change, the historic mining region of Chihuahua has strong
the mining fund make a difference in Chihuahua, at least
fundamentals that have ensured the continued success of
on a local level,” he says. “The funds should be used to
the sector locally. The state ranks in the top three in Mexico
generate employment, rather than to provide cash for large-
in terms of gold, silver, lead and zinc production, and its
scale public-sector projects that have little impact on the
strong all-round economy helps attract foreign and Mexican
daily lives of people in mining communities.”
companies in equal measure. ALCHISA counts Industrias Peñoles, Minera Frisco and Coeur Mining among its clients
Given that ExxonMobil works through a network of
in Chihuahua, while it also has a special arrangement to
distributors in Mexico, each with clearly defined areas in
supply Goldcorp’s Peñasquito operation in Zacatecas. As a
which to work, ALCHISA’s expansion plan is focused on
key part of the local supply chain, Madero sees the potential
strengthening its position in Chihuahua and continuing to
within Chihuahua and is encouraged by the strong role the
improve the state’s appeal for investment. The company is
state continues to play for the Mexican mining sector.
conscious of the fact that its business has a direct impact on the surrounding environment and local population. The
“Chihuahua is an exporting state and the local
ALCHISA Verde program was set up to foster a culture of
manufacturing businesses are helped greatly by the peso
social awareness internally while the company organizes
weakening against the dollar,” says Madero. “The highly
events such as city cleaning days and educational programs
developed infrastructure gives us confidence that new
in an effort to do what it can to help.
mining investment will continue to flow into the state.” “We have a long-standing agreement with the National School ALCHISA’s business model goes far beyond the simple
of Professional Technical Education (CONALEP) in Mazapil,
distribution of ExxonMobil oil lubricants to clients
Zacatecas,” says Madero. “Through this initiative, we invite
throughout the state. The company works closely with
students to practice their skills in our laboratory at Peñasquito.”
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VIEW FROM THE TOP
PIPING SUPPLIER ADVISES CAUTION IN AN UNPREDICTABLE ENVIRONMENT HÉCTOR QUEZADA Director, Mexico of Victaulic
266
Q: What kind of transformation is the Mexican mining
requires a significant initial outlay. Through continual
industry experiencing?
demonstrations of the product, clients were assured of
A: The mining industry is seeing a spike in prices that is
the benefits. We are working toward promoting products
promoting investment in new projects. Projects might even
that are cheaper and simpler. Automated technology can
double in number in 2017 thanks to high expectations for
improve the productivity and efficiency of most mines as
metals prices. We remain cautious about the year ahead
normal tasks will require fewer hands. But autonomous
because the economy is unpredictable at the moment
mines are still far from becoming a reality and will become
so we cannot predict whether there will be growth or a
a more realistic concept perhaps 30 years from now.
contraction in the mining industry. Q: How does Victaulic incorporate and promote R&D in The trends in other industries in Mexico could also impact
its business?
the mining sector. The construction industry will hopefully
A: We make sure to request yearly feedback from our
continue to grow but it is being dragged down by reductions
customer base to continue perfecting the services and
in governmental investment in infrastructure. As Victaulic
products we offer. Victaulic also hosts regular roundtables
participates in every industry from oil and gas to mining, we
with key players that form part of the company’s R&D.
believe the country is going through a deep transformation
Next year, we are planning to host six to seven roundtables
thanks to the reforms. For this reason, we do not foresee
among the different industries with a combination of
a dramatic change in business anytime soon because the
engineers and end users to discuss the main challenges
landscape needs to be more concrete.
they each face. The idea is to find more innovative ways to support their work. The main feedback we receive is related
Q: What products does Victaulic offer to improve safety
to productivity and framing the labor force. There is a lot
of operations?
of rotation in mining that in effect creates a continual need
A: We have products that are designed to save the lives of
for training. Some companies struggle with finding people
people in mines, such as our line of fire-protection systems
who are prepared to fill the vacancy and its requirements.
that can be applied in different parts of an operation.
We provide training to companies as a way to close this
New products like Vortex, a water-based solution, is
breach but it is definitely a challenge.
revolutionizing the industry by not only making the product safer but also easier to operate. When it comes to our
Q: What are your short-term and long-term goals in
product line, we have an advantage as far as design and
Mexico?
productivity. Our company ensures innovation by investing
A: We have experience working with all mining companies
a large amount of capital in R&D.
of every size in Mexico. Our clients come in the form of small, medium and large companies, such as Grupo México
We release new products every year, the most recent being
and Industrias Peñoles. But in the short term, our main focus
the knife gate valve. Like most new products in Mexico, it
is to continue growing. To do so, we have to overcome the
was introduced into a hesitant market. We worked hard
challenge of dealing with hesitant clients by continuing to
to prove its value and worth to the industry because it
prove the quality and cost-effectiveness of our products, moving away from initial costs and focusing more on total costs. We are working toward creating a shift in paradigms
Victaulic works across more than 140 countries providing
in Mexico and motivating people to use new and more
mechanical pipe-joining solutions and grooved pipe-joining
efficient systems. We also plan to expand the company’s
systems. Its client base extends into the construction,
commercial team. We are now a team of 12 and we are
commercial, industrial and mining industries
planning to hire two more staff members by 2018.
VIEW FROM THE TOP
PROVIDING STRENGTH, RELIABILITY AND LIFE EXTENSION William Delano General Manager of Chesterton Mexicana
Arturo MelĂŠndez Sales Manager, Central America and the Caribbean of Chesterton Mexicana
Q: How has the company performed in 2017 as metal prices
WD: The market in Mexico has responded positively to
started to improve?
the Chesterton Superset, which is a total sealing solution
WD: There has certainly been growth, although it has been
designed to improve pump efficiency at processing plants.
relatively slow because there is still some resistance to
The Superset’s value has been boosted by the release
change. Operators have more cash flow now that prices are
of the 2211 DualPac, because the two complement each
rebounding but they continue to be preoccupied with prices
other perfectly. The DualPac was designed in the US and
and so we are trying to offer our customers a complete
is a mechanical packing solution made up of a soft and
solution. Instead of focusing on the initial investment, we
hard side yarn that does not damage the pump sleeve,
encourage prospective buyers to see us as a knowledge
giving the operation a far longer life. Mining companies
provider that can offer creative solutions that bring long-
are always looking for solutions that will lessen downtime
term savings at the end of the year.
and maintenance costs while increasing meantime between failures, which is the focus of all the in-house research and
We recently completed a successful project focused on
development efforts. Like the Superset seals, the DualPac
equipment reliability with an important mining group
can operate in extremely harsh and demanding applications
that allowed us to offer an integrated solution through
and our engineers have designed this product to be
our broad product portfolio. During this project, we
perfectly suited to mining conditions in Mexico.
participated directly at the mine site and worked with the client at the corporate, executive level. It is crucial
AM: We are also excited about the ARC Efficiency Coatings
to speak to the decision-makers because they truly
available. Our ARC products have been designed with
understand long-term investing and can see the value
state-of-the-art engineering and are applicable to all high-
Chesterton offers. Although we entered the local mining
demand applications, like storage tanks, containment
sector late, this strategy is beginning to bear fruit and
areas, flotation cells and other processes where erosion,
we are now working with a number of the biggest mining
abrasion or chemical corrosion are common issues in mining
companies in the country.
operations. A number of logistical and safety challenges arise when handling fragile and complex chemicals but the
Q: How is the mindset of operators changing as the
ARC coating range allows our customers to invest in a long-
market evolves?
term solution to help users manage these hard chemicals or
WD: There is a clear difference in the way the purchasing
abrasive materials over a much longer period of time than
department tends to approach new technology
is available via competitive solutions.
compared to the way the maintenance area sees things. The purchasing teams are still hunting for the cheapest
This solution has been finalized following a long period of
solution but maintenance teams do not want to spend
testing. It is now installed at various mine sites around the
too much on repairs and so are generally more receptive
country and we are on the verge of closing a big contract
to new technology, which invariably requires a larger
with a well-known miner in Sonora. Given that it is a
initial investment. The individuals at the executive level
specialized product, we are always careful to ensure that
understand the value of investing in innovative solutions
the product is the right fit for each customer.
that will generate savings at the end of the year. Their challenge is to communicate this strategy across the various business lines within their company.
Chesterton Mexicana was established in 1953 as a subsidiary of
Chesterton,
a
sealings
solution
specialist
based
in
Q: What new products has the company released that will
Massachusetts. The company works in the energy, processing,
have a big impact on local industry?
manufacturing and resources sectors
267
VIEW FROM THE TOP
SUPPLIER REAPS REWARDS OF LONG-TERM VISION MIGUEL GUERRERO Director General of Proesmma
268
Q: What changes have you felt in the industry and what
A: It is something that we have to prepare for and the
impact has this had on Proesmma?
federal government should be ready to negotiate but it
A: We know that the mining industry is extremely volatile so
is important to remember that NAFTA works three ways.
we designed the business to be flexible enough to adapt to
There are some clauses that benefit the US and not Mexico
ever-changing market conditions. There was undoubtedly an
or Canada, and vice versa, and so we have to remember
increase in confidence within the community in 2016, which
what our strengths in Mexico are. Not only are production
boosts every player, including suppliers. As a company, we
costs in Mexico low, something that has been helped by
made a conscious decision to participate in the market when
the depreciation of the peso against the dollar, but there is
prices were at their lowest, understanding that at the time
a tremendous amount of high-quality labor available in the
there was a need to do more with less. Essentially, we were
country, which is not easy to find. This is especially true in
betting on the recovery of the mining industry, while many of
the state of Chihuahua, which has been a mining state ever
our competitors chose to hold back and wait until the prices
since the colonial days. As the mining sector recovers, we
improved. Our strategy has paid off because as operators
need to take advantage of the fantastic infrastructure and
begin to invest more in equipment, they remember that we
human capital we have and be prepared to invest more
were with them during the downturn. Companies trust us
to create more high-quality well-paid jobs. We want to
because we had the strength and the capacity to support
convert Chihuahua into a one-stop shop where foreign
them through tough times. In such a close-knit community
companies can come with the knowledge that there is
such as mining, loyalty is a vital asset, the importance of
a wealth of opportunities for them. As a country, we
which cannot be underestimated.
need to stop depending on external markets, which is challenging because many of the extracted minerals are
Proesmma now works with a total of 52 mining groups across Mexico and is expanding into South America
commercialized abroad. Q: How do you make sure you remain competitive against overseas suppliers? A: One thing that is a big help is the willingness we have seen from both foreign and Mexican mining companies to support the local supply chain where possible. Of
We now work with a total of 52 mining groups across the
course, this is easier to do in mining states like Chihuahua
country and we are expanding into Central and South
and Sonora but we have seen that even in states where
America as well as the US. We have also been investing
mining is not such an established sector, like Oaxaca
heavily toward expanding the capacity of our production
and Jalisco, foreign companies actively try to develop
plants in Mexico, increasing our presence in the domestic
the local industry. This is very encouraging because it
market and focusing on exports.
provides a welcome boost to the national economy in the long-term, which in turn helps the country become
Q: How do you see the renegotiation of NAFTA impacting
more self-sufficient. In Chihuahua, there are large mining
the Mexican mining market?
corporations whose supply chain is 60 percent Mexican, which is unheard of in other mining countries. These companies have thrived because they recognized and
Proesmma is a manufacturer of cast and forged steel balls and
tapped into the potential in Mexico. Proesmma has been
high value components for the mining, oil and gas, automotive
the recipient of much of this support and we are truly
and aerospace industries. The company is based in Chihuahua
grateful for the belief our customers have shown in us
with a presence throughout the Americas
over the years.
VIEW FROM THE TOP
FAMILY-OWNED DISTRIBUTOR TO EXPAND OPERATIONS ALEJANDRO OLIVAS Operations Manager of Rorisa
Q: What was the gap in the market that inspired the
Q: What are the main strengths of Rorisa’s extensive
creation of Rorisa?
product portfolio?
A: The company was formed more than 30 years ago with
A: We have always been strong on the power transmission
the aim of meeting the power transmission needs of local
side and we represent world-famous brands in this segment,
industries in Chihuahua. My father created Rorisa with a
including SKF and Gates. This market is relatively saturated
number of outside partners but the company has now
with competition from large, international enterprises,
become a fully family-owned business, now in its second
so we have started branching out and offering a greater
generation. We have managed to continue growing on a
variety of products and services. Our entry into the mining
yearly basis and now work in several industries including
sector has been a great help in this regard because a mine
manufacturing, cement, automotive, aerospace and
is essentially a miniature city that needs everything from
ceramics. In 2005, we recruited someone with extensive
valves and ball-bearings to sprockets, bolts and cables. We
experience in the mining sector and this decision, combined
still do not provide any large products because we focus
with the construction of a branch in Parral, Chihuahua,
primarily on smaller equipment but we have learned the
enabled us to start expanding our presence in the mining
importance of diversification and flexibility. We listen to
industry. Given the boom that this sector has experienced
our clients’ needs, and try to offer them everything they
in the past 10 years, it is rapidly becoming a key contributor
require to make their mining operations more efficient
to our business representing 40 percent of our sales.
and productive. This strategy of putting the client first has served us well over the years and has enabled us to
Hopefully the change in presidency in Mexico in 2018 will
differentiate ourselves from our competition.
not affect the upward trajectory the local mining sector has been enjoying recently. Traditionally, when a new president
Q: How do you plan to continue improving and generating
takes office in Mexico there are many changes to regulation
growth for the company?
and policy. This creates uncertainty and discourages
A: We want to keep expanding our portfolio of products
foreigners from investing in the country, putting a strain
and improving the service we provide our clients. We do
on local businesses. It is vital that the new presidential
not get involved in the innovation or design element of
administration provides the stability that will allow and
the process but rather we strive to be the best partners for
encourage businesses to grow.
the manufacturers and engineers and provide a platform for them to launch their new products. We will also be
Q: To what extent have you seen the global upturn in metal
building more satellite offices to add to the four we have
prices reflected in interest in your business?
in Chihuahua, Parral, Queretaro and Ciudad Juarez. We have
A: The past 12 months have been quite volatile. Although
found a location in Cuauhtemoc and hired a new team for
we lost one of our most important contracts in 2012 when
our fifth branch. The Mennonite community in Cuauhtemoc
the Ocampo mine was sold by AuRico Gold, we have
has a thriving metal-mechanic and manufacturing industry
started working with the new owner, Minera Frisco, and
at the moment and we want to tap into that market. Looking
this has helped cushion the blow. Our sales figures are
further down the line, we want to expand into Sonora
rising again. The company and its products have been
because we see a lot of potential clients in that state.
growing and gaining recognition within the mining sector but the biggest challenge we face is financial. Many of our clients have slow cash flow and this has a damaging knock-
Rorisa is an equipment supplier with offices in Chihuahua and
on effect on our business. We are forced to finance our
Queretaro that distributes products from major brands like
operations independently while we await payments, which
SKF bearings and housings, Gates industrial bands and Martin
is an unsustainable way to run a business.
sprockets and gears
269
INSIGHT
INNOVATIVE, ADAPTABLE AND ENVIRONMENTALLY-FRIENDLY SOLUTIONS EDUARDO ZARZA Mining Manager of Espaciomovil
As mining companies become increasingly conscious
business and something that is of utmost importance for
of environmental impacts, this spirit extends not only
customers.
to operations within the mine but also to temporary
270
facilities installed for office space and workers’ quarters.
One of the reasons Espaciomovil Movil can offer this level
These buildings must be easy and fast to install in remote
of service is because it is a company that puts innovation
locations and, importantly, leave little trace after they have
first. The company created a patented development unit
been removed. This is where modular buildings are seeing
that allowed the replacement of components onsite, and
a surge in popularity.
developed a mechanism whereby it was easy to replace the
“
Our modular units allow more people to fit inside even though they take up less space”
components such as doors and windows. “There is a great deal of options that we offer that a traditional unit may not,” explains Zarza. “Our modular units allow more people to fit inside even though it takes up less space simply as a result of the design of the furniture, which is customized to the particular unit.” With its patented and innovative technology, Espaciomovil
According to Eduardo Zarza, Mining Manager of modular
has managed to emerge from the downturn relatively
solutions provider Espaciomovil, usable space often
unscathed and Zarza is now beginning to see the benefits
comes at a premium on mine sites but one of the biggest
of a recovery in prices. He says that the last 12 months have
advantages of his products is that they are easily adapted
been a marked improvement after four years of difficulty.
to fit any location. “We recognize the need to build a deep
Mining still represents around 15-20 percent of the company’s
knowledge of the area and its geology before starting a
business since other sectors grew more in the last few years.
project and work together with the client to develop a
But with the higher metals prices, Zarza is confident that
solution that will meet his or her particular needs,” he
contracts will flow in and, by next year, Espaciomovil’s market
says. Speed is also a crucial aspect of Espaciomovil’s
share in mining should grow exponentially.
VIEW FROM THE TOP
ANTICIPATE, THEN MEET, CUSTOMER REQUIREMENTS JERZY SASIADA Mexico Area Manager and Managing Director of Williams Scotsman
Q: Where does Mexico and the mining sector fit into
to be housed. Two years ago, we introduced ASFlex,
Williams Scotsman’s global business strategy?
which has had a warm reception in México because it is
A: Algeco Scotsman is aware of the importance of the
completely adaptable onsite – panels and windows can
Mexican market and around 15 years ago the company
be added and removed at will, it can have up to three
decided to establish one of its firms in the country. For
floors and can be used for dining rooms, dorm rooms,
us, the mining sector has been a priority from the outset
administrative offices, training rooms, conference rooms
because we are conscious of the difficulties that our
and bathrooms.
customers experience in sites near to mines. We know that the sector is in a period of recovery, which has been a long and slow process, but that has not stopped our customers and our company. In Zacatecas, we provide high-quality space solutions with great designs. Q: To what extent have you noticed more business given the uptick in mining activity? A: We have started talking to our customers that have a
Williams Scotsman designs based on specific requirements, including the land, the location and the number of workers that need to be housed
real interest in mining, to offer them a complete overview of our products, benefits, advantages and safety procedures.
Q: How do you develop the solution with clients?
We have been learning from customers who are eager
A: Williams Scotsman México is not only a space provider
to participate with us and we offer an insight into their
but a solutions provider. Often our customers have a
projects and future plans. Williams Scotsman México
clear idea of what they need and we help them prepare
embodies high quality, speed, service and innovation
a design with the specifications they request. We have
and we are committed to anticipating and meeting our
a conversation about the general details of the project,
customer requirements. We believe that the mining sector
including headcount and special requirements, so we can
has a bright future and we are ready to start working in
design the right space that meet all the needs for housing,
alliance with our customers.
working space, entertainment spaces, storage facilities, locker rooms and bathrooms. .
Q: What solutions are most popular in the mining sector? A: In our portfolio, we have a full range of products
Q: What are your long-term goals for your Mexico business?
including mobile offices, containers, modular buildings in
A: Loyalty the best long-term strategy - it not only boosts
one floor (Rediplex) and modular buildings that can have
order numbers but also enhances word of mouth, which
more than one floor (ASFlex). The popularity of our space
can give us the opportunity to work with other possible
solutions is entirely dependent on the stage of the mining
loyal customers. We want to increase the business in Mexico
project. Mining is an especially good example of how our
but we want it to grow sustainably. We are not looking
products can be used by our customers because normally
for lucrative one-off deals; we want to gain partners and
these projects are long-term and in remote locations.
establish ourselves as a trusted solutions provider.
When the exploration phase ends, the mine will then go into development and then production and the lifespan of a mine can last for several decades.
Algeco Scotsman provides mobile and modular space solutions for the mining, construction, education and oil
We design based on specific requirements, including the
and gas sectors globally. In North America, it operates as
land, the location and the number of workers that need
Williams Scotsman
271
Mining team at Grupo México's Charcas mine, San Luis Potosí
272
INSIGHT
DISPATCH: A FLEET MANAGEMENT REVOLUTION GREG LANZ General Manager, North America of Modular Mining Systems
A visit to a modern mine site is not complete without a
Today, 18 of the 20 largest mine sites in the world run
visit to the control room. From these bastions, all the vital
DISPATCH and the company now employs over 650
day-to-day operational decisions are taken: which loading
workers in 10 offices around the world. Determined to stay
trucks need refueling, which crushing systems need oiling
at the forefront of technology, Modular Mining Systems
and which drill rigs need replacing. But this was not
recently released its sixth-generational model – DISPATCH
always the case. Just 35 years ago, mine site decisions
6 – which gives the user access to a new integrated
were taken on an individual basis, judged according to the
platform and updated database.
performance of each vehicle and operator at that particular moment. The result was an incomplete, ineffective and
Like all good ideas, there have been attempts to replicate
unreliable operating system that cost millions of dollars
Modular’s design, and there are now a host of fleet
and countless hours over the course of a 20-year mine life.
management solutions on the market, with variations on user interface and database management. But Lanz
Modular Mining Systems, a mine management solutions
insists that the DISPATCH is still the best option. It is
provider based in Tuscon, Arizona, can take the credit for
scalable, meaning that it can be used on mine operations
transforming the industry’s approach to mine operations.
of all sizes, and has the benefit of decades of experience.
Its DISPATCH fleet management system, released in 1980,
“What really sets the DISPATCH model apart from the
was the first mine-specific automated product to gather
competition is the unrivalled optimization algorithm,” he
hard data from a site and turn it into useful information.
says. “We have been managing fleet, crew and materials for 35 years, and we have the largest customer base that
“We truly believe that this product changed the industry,”
drives our product roadmaps.”
says Greg Lanz, the company’s General Manager for North America. “Prior to DISPATCH, mines were not operating
Not content to sit back and reap the rewards of DISPATCH,
at their full potential. Although computer technology
the company has designed a number of complementary
was available and in use on mine sites as a means of
products that diversify its portfolio and help offer a more
communication, it was not used as a tool to make decisions
complete fleet management service to its clients. One is
for fleet management.”
MineAlert, a unique collision awareness system that only informs the operator when there is a real, imminent danger
Thanks to this innovative, practical use of data, the
that requires action. “The other solutions on the market
original DISPATCH model could monitor performance
send warnings whenever anything happens, which creates
and automate the optimization of truck assignment
a lot of distractions,” says Lanz.
from loading to dumping, enabling mine managers to make real-time decisions based on hard facts. This may
Although Modular Mining Systems does not have an office
seem like common sense to the modern day, tech-savvy
in Mexico, it has access to the largest mines in the country
observer drowning in mobile apps to simplify life’s daily
through its headquarters in Tucson, Arizona and deployed
decisions but at the time DISPATCH was a revolutionary
its first DISPATCH model in the country in 1989. While there
idea. Miners using the system immediately noticed
are no concrete plans to build a satellite office in Mexico in
improvements in haulage fleet productivity and efficiency.
the short-term, this could change if the momentum in the
They have not looked back since. “New mining operations
local mining sector continues to build. “We are committed
are designed with a fleet management system factored
to the Mexico market because we see a lot of potential,
into the cost model – it is unthinkable for medium to
activity and foreign investment in the country,” says Lanz.
large-sized producers to open a new mine without one,”
“Mexico is a big focus for our growth strategy and we see
says Lanz.
many long-term opportunities.”
273
ROUNDTABLE
HOW DO YOU GENERATE CONSISTENT GROWTH IN A VOLATILE ECONOMIC CLIMATE?
Although the five-year downturn in commodity prices finally came to an end in 2015, the performance of metals and minerals on the global markets continues to be volatile as economic and political uncertainty wreak havoc with investment strategy. Against this challenging backdrop, mine operators must continue to drive shareholder value, explorers must prioritize their key projects and manufacturers must continue to invest in the innovation that will drive the sector forward in the long-run. Mexico Mining Review spoke to leading executives from across the value chain to see how they have adapted business plans to maintain performance levels in such unpredictable times.
In 1999, we became concerned about the availability and cost of energy in Mexico and given that energy represents around 40 percent of our expenses, we started to look 274
at how we could lower costs. We made a strategic decision to integrate our energy supply and start generating our own electricity. In 2016, a total of 81 percent of the energy we consumed was generated in-house. Most of this comes from the petcoke thermal plant in San Luis Potosi, which generates 230MW, and the two wind plants
FERNANDO ALANĂ?S Director General of Industrias PeĂąoles
in Oaxaca that generate over 40MW. We also have natural gas turbines in Laguna del Rey, Coahuila and a steam generator in Torreon. There is a new energy law in Mexico that will require companies to procure at least 30 percent of their energy from sustainable sources by 2025. PeĂąoles has already reached that landmark, because we are convinced of the need for sustainable development.
Before we decide to pursue an opportunity, it must meet rigid criteria anchored to a healthy rate of return. I believe this is true across the industry. While the increased optimism is noticeable, so is the persistent conservatism and tempered risk appetite. Our costs used to be among the highest in the industry but since 2013, we have reduced our costs by approximately 30 percent on an all-in sustaining basis. While we benefited from several external factors such as a more favorable peso exchange
MITCHELL KREBS President and CEO of Coeur Mining
rate and lower diesel prices, most of these cost reductions were internally generated through operational efficiencies, higher recovery rates and rationalization of outside services. This makes our cost reductions sustainable over the long-run.
The biggest constraint on our production historically has been that there is a lot of water in the mine. This does not impede mining but we use a lot more grouting and the process is a lot more manual and time consuming. In 2015, we developed a simple engineering solution to more efficiently dewater the mine and are in the final stages of implementing this optimization plan. With us being able to more effectively manage this water, we can develop five times faster, cut our maintenance costs and
BEN PULLINGER VP Geology of Excellon Resources
become a lot more efficient in terms of electricity use. As the water level drops we will dry out two additional mantos: one that contains 1,800g/t silver equivalent and another with 1,600g/t silver equivalent. This would double the availability of working phases on our mine.
Over the last 15 years FLSmidth has been acquiring many companies with specific products that add value to our portfolio. Depending on the product it may be more beneficial to buy another company and integrate that into the FLSmidth Group product flow sheet than to develop an existing product design in-house. We constantly have to evaluate our needs and decide what will bring results to our clients and returns for our investors. In September 2016, we announced a JV with the state-owned Chinese heavy machinery manufacturer Northern Heavy Industries Group (NHI). The new JV will operate under the name NHI-Fuller and will be launched in 1Q17, providing the mining industry with mid-market crushing equipment. China
RICHARDT FANGEL Director General of FLSmidth Mexico
will be the initial focus for the venture, but in time it will incorporate other markets including Mexico.
Evrim has survived the last five years by being more selective with the projects it evaluates. A funny thing is that market slumps are also important opportunities to 275
acquire mineral projects at low prices but few junior companies took advantage of this. Investment expenditures in mineral exploration in Mexico have dropped more than 70 percent over the last five years, the worst slump I have ever witnessed in my career. But I remain confident that in the next five to 10 years, the industry will recover. Since early 2016, we have begun to see a growing interest in the exploration segment. It is a favorable time for junior companies to pick up new mineral projects and bring them to an exploration stage where they can be of interest to the major
ALAIN CHAREST VP Exploration Mexico at Evrim Resources
mining companies.
To survive the last five-year bear market in metal prices, Endeavour Silver had to incorporate several strategies to reduce our cash operating and all-in sustaining costs. We reduced our work force and retrained our remaining employees to use newer and more efficient mining equipment and methods. We also reduced our exploration and capital budgets. The falling peso was another important factor that contributed to lower costs. Last year, when metal prices started to increase, we raised some equity capital to invest in growth. In 2017 we plan to raise some debt financing as well as to build one of our new mines. Our healthy cash flows are now
BRADFORD COOKE CEO of Endeavour Silver
helping us become one of the fastest-growing silver mining companies in the world. The company is planning to develop three new mines in the coming three years to increase our production by 50 percent.
There is still vast overcapacity in the Chinese market, and until it is effectively addressed, the risk of volatility remains. The complex scenario we encountered in 2015 and 2016 due to market conditions and trends in worldwide steel demand has undermined our ability to compete in a market where importers are selling at subsidized prices below average production costs. In light of this, our company has implemented emergency measures to reduce costs and increase operational efficiency. These initiatives have included plans to improve management and productivity, labor mobility and savings. Our President Lakshmi Mittal presented the strategy known as Action 2020, which is a compilation of actions for the next five years, resulting from a detailed analysis of our growth and improvement potential.
MANOLO ESPINOZA Mine Director of ArcelorMittal
Grinding mill at PeĂąasquito
MINERAL PROCESSING
10
Once the ore has been extracted, operators face the challenge of processing the mineral and converting it into a product that can be sold on the market. The chemicals used in this process, including sodium cyanide, are extremely toxic and can have devastating effects on the surrounding environment if handled incorrectly. As a result, new techniques like biomining are slowly but surely appearing as viable alternatives. Both operators and service providers are constantly striving to improve safety protocols during this phase of the mine life, while also finding time to trial new approaches in a bid to boost productivity, profit margins and ore recovery levels.
In this chapter, the spotlight falls on leading engineering firms that are pioneering innovative ore processing and mineral handling solutions and revolutionizing the sector in Mexico. From novel sizing and crushing techniques to groundbreaking fluid control and separation methods, mine operators in Mexico have never had such a wide choice of world-class processing technology available to them.
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CHAPTER 10: MINERAL PROCESSING 280
ANALYSIS: The Hunt for Safer Processing Solutions
281
VIEW FROM THE TOP: Carlos Flores, Cyanco
Leonardo Martínez, Cyanco
282
VIEW FROM THE TOP: Guillermo Álvarez, Aplicaciones Científicas del Norte
283
VIEW FROM THE TOP: Luis Rebollar, The Chemours Company
285
VIEW FROM THE TOP: Andrés Ceballos, Lagsom Química
286
INSIGHT: Javier Schmal, Martin Engineering
287
VIEW FROM THE TOP: Richard Booth, MMD
288
INSIGHT: Leif Lindholm, Metso
289
VIEW FROM THE TOP: Enrique Maldonado, Grupo Calidra
291
VIEW FROM THE TOP: Richardt Fangel, FLSmidth Mexico
292
INSIGHT: Greg Rasmussen, Gekko Systems
293
INSIGHT: Ben Hiltl, Fluid Systems
294
VIEW FROM THE TOP: Joel Ramírez, Cribas y Productos Metálicos
296
VIEW FROM THE TOP: Juan Carlos Morena, Flowserve
297
INSIGHT: Valentin Kaufmann, Depreux, COBRA Group
298
VIEW FROM THE TOP: Martín Subiria, Weir Minerals
299
INSIGHT: Thomas Riedel, Grupo ASM
300
ROUNDTABLE: What Does The Future Hold for Sodium Cyanide?
301
VIEW FROM THE TOP: Jason Reiner, Des-Case
279
ANALYSIS
THE HUNT FOR SAFER PROCESSING SOLUTIONS Once ore has been successfully extracted from the deposit,
“As the manufacturer, we feel that it is our
operators are faced with one of the most technically
responsibility to take the lead and contribute
challenging aspects of the mining process: transporting the
to developing safer and more robust standards
material. Here, the key concept is safety
to transport and deliver our products to customers,” says Luis Rebollar, Global Business
The entire mining process is fraught with hazards but ore
and Strategy Director of The Chemours Company, the
processing is particularly precarious. Powerful crushers use
world’s largest producer of solid sodium cyanide. “We carry
razor-sharp teeth to size the rocks, conveyor belts must
out regular mine audits to reduce the risk of accidents.”
transport the material overland without spillage and fragile
280
chemicals like sodium cyanide are mixed into the solution to
While sodium cyanide can place workers in jeopardy,
produce the final product. If any of the machinery used in
heavy metals such as lead or arsenic, often extracted as
these processes fails, it could have disastrous consequences
a byproduct of precious metal mining, can cause great
for both workers onsite and the surrounding environment.
damage to the environment. If mishandled, these elements
It is no surprise, then, that service providers in this segment
can release toxic residue that contaminates water or soil. To
do everything to ensure the safety performance of new
counter this threat, calcium-rich substances like lime can be
designs above all else.
used to refine, rebalance and condition metal ores. Enrique Maldonado, Regional Director in North America of Grupo
“Our number one priority is the safety of our clients,”
Calidra, a Mexican supplier of lime and lime byproducts,
says Valentin Kaufmann, Sales Manager for Mexico and
recognizes the vital role his company plays in minimizing
Central America at COBRA Group, a specialist in conveyor
environmental risk during ore processing.
belt manufacturing for mineral transportation industries. “Conveyor belts are particularly vulnerable to fire-starting
“Our company has a strong commitment to the
so we always have to ensure that our belts exceed the
environment,” he says. “Hazardous materials are combined
standards required by the different safety norms.”
with calcium oxide to create a harmless substance, which reduces the environmental impact by preventing the toxic
CAUTION: HARMFUL CHEMICALS
metal reaching underground water sources.”
The use of dangerous substances in mining has been a thorn in the side of mining companies for centuries. Sodium
SAFE CRUSHING
cyanide became famous for all the wrong reasons when
While mineral processing will always have a substantial
used as a lethal weapon in Nazi Germany. The substance
risk profile, technology is advancing all the time to reduce
is so toxic that it can be fatal at the consumption of just
this threat. Manufacturers of mineral-sizing equipment,
5 percent of a teaspoon, according to research from US
for example, must find a safe way to successfully crush
chemical manufacturer Sigma-Aldrich. But its unique
large quantities of hard rock. The technology is supremely
composition makes it essential in the processing, separation
powerful and dynamic and operators, often working at
and purification of gold.
heights in remote areas with limited first-aid support, must be sure to follow all safety recommendations. Any fault
Scientists have been seeking an alternative to the
could mean precious time lost during maintenance and
substance for decades. In recent years, significant
repair work, or worse, an injury to one or several workers.
developments have emerged in trials for biomining, a technique that uses micro-organisms during separation
Metso, a global industrial equipment provider that has a
instead of cyanide, but the technology is still in its
wide range of crushers on its portfolio, has developed an
infancy and is not yet an economically viable option for
intelligent cone crusher that can save users up to 20 percent
large-scale operations. With the short-term future of
in productivity gains by minimizing the risk of system failure.
the business secure, the challenge for sodium cyanide
“The Symon cone crusher has a remote setting feature that
manufacturers is to make the handling of the substance
facilitates adjustments and diminishes maintenance time
as risk-free as possible. To achieve this, companies
during bowl removal and installation,” says Leif Lindholm,
must not only stay abreast of new handling solutions
the company’s Vice President for Mexico, Central America
and trends but they must also ensure that the end-user
and the Caribbean. “Crusher upgrades have the ability to
has sufficiently trained its personnel on how to receive,
breathe new life into operations by making them more
unload and use the substance.
productive, cost efficient and safer.”
VIEW FROM THE TOP
LOWER GRADES CREATE MARKET OPPORTUNITY Carlos Flores Vice President, Latin America of Cyanco
Leonardo Martínez Business Development Manager of Cyanco
Q: With prices on an upward curve in 2016, how has that
company. We manage customer tank levels via telemetry
affected the demand for your products?
and make continuous shipments 24/7/365.
CF: The NAFTA region has continued to experience steady sodium cyanide demand growth and remains a significant
Q: How can your products and services benefit mining
net importer, despite the drop in mining activity. Over
companies?
the last several years, Asian suppliers have increasingly
CF: Many large mines that consume large amounts of
supplemented supplies from NAFTA producers to meet
sodium cyanide, upwards of 3,000t/y, have been using
growing regional demand. Sales volume is growing despite
sodium cyanide packed in a box that holds only 1 ton of
there being fewer operating mines in existence. In the
material. This requires extensive handling of material and
future, as the gold price improves and mining companies
hazardous waste-box disposal. It is also time consuming
become more efficient, the Americas region will continue
for mining personnel. We have designed stainless steel
to expand even more rapidly.
containers that can hold up to 18 tons and can be offloaded safely and more efficiently.
Q: What role does Mexico play in the global demand for sodium cyanide?
LM: This alternative may require a slightly higher capital
LM: Mexico is the second-largest consumer of cyanide in
investment but it saves the user the need to dedicate
the world. According to the Ministry of Economy’s website,
human resources and assets to dissolving 1 ton of sodium
Mexico transitioned from importing 83,000 tons five years
cyanide briquettes at a time. It completely eliminates the
ago, to an annualized rate of almost 135,000 tons in 2016.
generation of hazardous waste containing sodium cyanide.
In a short amount of time, demand for sodium cyanide has steadily increased while gold production has only grown
CF: We want to help our clients use cyanide more efficiently
slightly over the same period. Even though there are fewer
and safely, even if that means they buy less product from
producing mines in the world, Mexico’s need for sodium
us. This is the goal of our applied technology group: to
cyanide has bridged the gap in demand. If tomorrow
maximize the efficacy of the cyanide used and to reduce
the gold price returned to 2011 highs and mines starting
cyanide waste. The first step was to introduce product
reopening and new projects were developed, I would not
(solution) and packaging (ISO containers) that were both
be surprised to see cyanide shortages in the market.
more efficient and safer than the current offering in Mexico. The second step in our expansion strategy is to bring our
CF: There are a few factors that have helped our company
clients the Sodium Cyanide Control System (CCS). The
remain a global leader in a changing market. For instance,
system will give our users better control of cyanide dosing
lower grade ores; for a company to continue producing
by taking real-time samples and continuously adjusting
the same amount of gold with lower grade ore, it needs
up or down automatically as needed. This reduces under-
to increase its ore processing and cyanide intensity.
dosing, which results in loss of gold recovery or overdosing,
Our company focuses on bringing the cyanide supply-
which results in wasted cyanide and possibly leaching
replenishment point closer to the customer and we are
unwanted metals. We want to help our customers use the
willing to invest in active mining districts to accomplish
right amount of cyanide.
this goal. We started in Winnemucca, Nevada, where we built a world-class manufacturing facility near the heart of the Carlin Trend, shortening transit time and reducing
Cyanco is the world’s largest producer of sodium cyanide.
transportation costs. In this area, we deliver a 30 percent
Founded in 1988 in Winnemucca, Nevada, the company offers
sodium cyanide solution that is ready to use and requires
innovative cyanide solutions to increase safety and reduce
no human contact for processing/dissolving by the mining
costs in mines
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VIEW FROM THE TOP
INNOVATIVE CHEMICAL PROCESSES FOR HIGHER EXTRACTION RATES GUILLERMO ÁLVAREZ Director General of Aplicaciones Científicas del Norte
282
Q: What was the strategic thinking behind the creation of
A: The mining industry is coming under increasing pressure
Aplicaciones Cientificas del Norte in 2002?
to reduce its impact on the environment and ecosystem
A: We are based in the industrial heartland of Nuevo Leon
and for that reason there are a number of alternative
and the company was born out of a desire to provide
technologies that are being developed to replace sodium
chemical products to the numerous industrial enterprises
cyanide. In Mexico, the Canadian companies are the most
operating in the area. We were originally focused locally but
open to trying new solutions. For example, Sandioss is
over the years we have expanded and now have a strong
an alternative to sodium cyanide that is environmentally
presence throughout Mexico. We specialize in chemical
friendly and we are in the process of analyzing this product
research and investigation and we began looking closely
to assess how efficient it can be in comparison to sodium
at the mining sector in 2010 because of the wide range
cyanide. With the help of nanotechnology, biomining is also
of uses for chemical products in the mineral extraction
becoming more and more viable and, in a few years, it could
industry. It has become a vital sector for our business, now
have a great effect on the mining sector by making it far
representing about 60 percent of total sales.
more sustainable. However, these technologies are relatively new in Mexico and it will take some time before they are
Although we provide our clients with a host of chemical
ready to enter the market.
products, including lead acetate and copper sulfate, the main substance we offer the mining industry is sodium
For now, as a sodium cyanide distributor we have a
cyanide. We have a deal with the Chinese producer Hebei
responsibility to handle our produce in a responsible
Chengxin, the world’s second-largest sodium cyanide
manner that reduces the risk factor as much as possible.
manufacturer, to import its produce and distribute it to
We use recyclable containers where possible and we
medium-sized mines around Mexico. A small portion of our
try to avoid associating ourselves with any project that
portfolio, including silver sulfate, is also produced in-house
does not place environmental protection at the top of
for the pharmaceutical industry.
its list of priorities. Our investigation strategy is focused on solving specific problems for our clients. If a mining
Q: In what ways do your products help users extract and
company has issues with the level of grease produced by
produce minerals with greater efficiency?
its processes, for example, we can come in and design a
A: The chemical products help companies to extract more
solution to solve that issue. We also work with ITESM’s
ore in less time. We are always careful to choose the highest
Entrepreneur Hub to certify the safety standards of new
quality products to add to our portfolio but it is the quality
projects and initiatives.
of our customer service that makes us stand out from the competition. If the client so requires, we can carry out
Q: What have been the main challenges the company has
chemical analysis, testing and certification, which are services
had to overcome during its 15 years of operation?
that other chemical distribution companies do not offer.
A: It can be tough to find and retain talent. There is only a limited amount of human capital in Mexico with the
Q: Given its environmental and health risks, to what extent
necessary skills to work in the industrial chemicals business
is the market moving away from the use of sodium cyanide?
and often the most qualified individuals are offered more money to join larger, international companies so it is sometimes challenging to attract the people we need to
Aplicaciones Científicas del Norte is a research company
build the business. On the sales side, it can be tricky to
based in Monterrey. It imports specific or rare chemicals
access the decision-makers in mining companies so we
from all over the world, operating in the chemical, mining,
always try to be present at conventions and other events
pharmaceutical, food and clinical research industries
where we know we can make important contacts.
VIEW FROM THE TOP
SODIUM CYANIDE EXPERT BUILDING MEXICO BUSINESS LUIS REBOLLAR Global Business and Strategy Director of Chemical Solutions Business of The Chemours Company
Q: What was the strategic thinking behind the branding
convert it into green energy that could then be distributed
change to mining solutions?
to surrounding communities.
A: The mining solutions division has become a strategic business unit for The Chemours Company and as such we
Safety is a big issue for sodium cyanide users. We ensure
wanted to expand its scope. We went from being a leading
that all our employees and clients are well-trained in how
sodium cyanide producer to an industry leader with a broader
to handle the solution in a safe and responsible manner
scope to serve the variety of needs in the mining industry. One
to reduce the risk of accidents. As the manufacturer,
of our core values is to be a customer-oriented company. We
we feel that it is our responsibility to take the lead and
will always ensure we are the safest and most reliable supplier
contribute to developing safer and more robust standards
of sodium cyanide but we will also aim to find new solutions
for transporting and delivering our products to customers.
for some of the most relevant environmental and safety
We carry out regular mine audits, which involve sending our
challenges mining companies face. We focus on distributing
staff to the site and monitoring how the delivery trucks are
sodium cyanide in the safest and most reliable way but we
being received, unloaded, cleaned and returned.
want to add more value for our customers. Q: What role does Mexico play within your global portfolio? A: We have more than 90 years’ experience doing business in Mexico. The country is important to us and critical to our growth and long-term success. When it comes to mining
The new plant in Mexico will require an investment of US$150 million
solutions, we have been selling sodium cyanide in Mexico for more than 30 years and we are the market leaders
Q: How will new trends such as biomining affect the
in the country. Given the strength of this market, we are
company’s business going forward?
in the process of building a new plant in Mexico to meet
A: If a new method of extracting gold without sodium cyanide
the growing demand, requiring an investment of around
were to become technically and economically viable, this
US$150 million. Currently we import everything from our
would of course have an adverse effect on our business as
plant in Memphis, Tennessee, so the new Mexican facility
it is today. We have invested substantial time and resources
will help us improve our customer service in Mexico and in
internally to try and find an alternative to current practices
the Latin American region. We are confident the Mexican
and technology, and mining companies have been making
mining market will continue to grow in the next few years.
similar efforts as well. So far, all efforts have been unsuccessful simply because sodium cyanide is a unique product and I
The sodium cyanide market in Latin America is unique
do not anticipate a drastic change in the short term. Several
because demand is higher than the installed capacity
new companies and young engineers are testing innovative
so many companies are importing the chemical from
methods and we support those efforts entirely and join them
Asia. We want to distinguish ourselves by operating and
when possible. The reality, though, is that new technologies in
manufacturing locally.
this industry take a long time to develop. It will be a long-term project, with a lot of trial and error.
Q: How do you help your clients reduce their environmental footprint and reduce the risks associated with sodium cyanide handling?
The Chemours Company has over 200 years' experience
A: Our planned sodium cyanide operation in Mexico will
providing titanium technologies, fluoro products and chemical
generate a lot of energy-related value, mostly in the form
solutions. It is the world’s largest producer of solid sodium
of steam. The new plant in Mexico will use the steam and
cyanide (NaCN)
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VIEW FROM THE TOP
PROPER CYANIDE HANDLING ELIMINATES DANGER ANDRÉS CEBALLOS Sole Administrator at Lagsom Química
Q: What have been the group’s highlights during its 35 years
the environment. But the fact is that, when handled
of operation?
correctly, it is not dangerous. The mining community in
A: One of the most important recent achievements is
Mexico has always been conscious of the need to protect
that we were certified under the cyanide safety conduct
the environment
for the handling, storage and transportation of sodium cyanide. In Mexico, the handling of sodium cyanide is
Q: How does the company differentiate itself from the
heavily regulated and any company that distributes
other sodium cyanide distributors in Mexico?
the substance needs to comply with strict norms, with
A: There is a lot of competition so we stand out from the
a particular focus on environmental protection. It is
crowd by offering an unrivalled service. As a distributor,
important for us to have completed all the requirements
we have a duty to ensure that our clients know how to
from the government because there are few sodium
handle the substance in the safest way possible. We
cyanide distributors that have the same qualifications
provide training courses to our clients, in cooperation
and it helps us to attract new business. We started
with local hospitals, to educate the mining companies
distributing sodium cyanide around six years ago when
and their employees about the risks of handling sodium
various small mining organizations in the stage of Hidalgo
cyanide and other delicate chemical substances.
started to ask if we distributed the chemical alongside the other solutions we provide.
This service has become even more important given the way the mining market fluctuates. We have 35 years’
The company started to import it from China, Korea,
experience in the industry and we know that it is never
Australia and Germany. Given that we are now certified,
easy to predict how commodity prices will move. This
we are not allowed to buy from any manufacturer that is
experience has taught us that as a service provider we
not certified. That simplifies the decision regarding which
have to create strong relationships with our clients to
brands to represent. Over time the business has grown
ensure their trust during the downturn. The better the
and sodium cyanide is now roughly 60 percent of our
service offering, the more quotes will be received.
total revenue. We have clients throughout the north of the country and also in Oaxaca, Guerrero and Hidalgo and
Q: What plans do you have to expand your portfolio
the State of Mexico. We are also building our international
of products and services to further consolidate your
portfolio, exporting substances such as sodium silicate to
position in the market?
Cuba, Costa Rica and Venezuela.
A: Our philosophy is based on meeting the clients’ needs so how we develop will depend to a certain extent on
Q: How do you see the new biomining technology affecting
what services our clients require. For example, we are in
long-term demand for sodium cyanide?
advanced discussions with a Chinese firm, from which we
A: I have attended a number of seminars on best practices
already buy sodium cyanide, to start exporting minerals
for the extraction and processing of ore and the fact is
to China. This is a new path for us but we are excited by
that leaching is still the most effective method. There have
the project and we expect to begin this process by the
been several trials for bacterial floatation but this remains
end of 2017.
a costly process and as far as I know the only country to have adopted it on a grand scale is Australia. I do not see biomining becoming a viable, cost-effective replacement for
Lagsom Química started operations in 1982 with the goal of
leaching in Mexico in the near term so demand for sodium
distributing, importnat and exporting chemical products for
cyanide should remain strong. The issue that sodium cyanide
the pharmaceutical, mining, cosmetics and food industires. The
has is its reputation as a dangerous substance that damages
comapny is based in the State of Mexico
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INSIGHT
AUTONOMOUS PROCESSING SOLUTIONS DRIVING HUMAN DEVELOPMENT JAVIER SCHMAL Director General of Latin America at Martin Engineering
When it comes to mineral handling, safety is the primary
acquired the company and set about marketing the product
concern for mine operators. To process the extracted ore
to its worldwide customer base.
and convert it into material ready for market, miners need
286
to use complex substances like sodium cyanide that, if
“Clean Scrape is an alternative way of cleaning conveyor
handled incorrectly, can cause great damage to workers
belts,” says Schmal. “Companies can easily install and adjust
and surrounding ecosystems. But thanks to technological
it to their machines and its product life is more than double
advances, physical contact between worker and chemical is
average cleaners in the market. It is much more expensive
becoming rarer, leading not only to fewer lost time incidents
that the traditional system but with massive benefits and
(LTIs) but also increased productivity and lower costs.
savings that justify the investment.”
“Mining companies are focusing on reducing human
One benefit of the Clean Scrape system, and all autonomous
interface,” says Javier Schmal, Martin Engineering’s Director
solutions, is that there is less scope for human error or
General of Latin America. “We try to identify and approach
injury. But this has its consequences because modern mine
areas of the plant that can be monitored or maintained
operations require human capital with an entirely new set
through the Internet with a phone or via a computer.”
of skills. Workers trained in traditional methods but with
“
Mining companies are focusing on reducing human interface”
no experience of modern practices are no longer attractive to recruiters. This pool of unskilled labor could pose a real conundrum for companies like Martin Engineering but Schmal sees the situation as an opportunity rather than a problem. “The fewer people that are working in mines, the safer the operation becomes,” he says. “Martin Engineering specifically focuses on developing human capital to improve
The US engineering firm with a presence in 19 countries
productivity and competitivity with the use of technology,
around the world provides wide-ranging solutions to a
sensors and remote monitoring.”
number of industries, including oil and gas, cement and agriculture, but its forte is designing and manufacturing
Martin Engineering’s main markets are in the US, Europe
cutting-edge technology for the mining and metals
and Australia but given the well-established mining tradition
sector. Among its specialty areas is conveyor belts, the
and wealth of talented mine engineers in the country,
mechanisms used to transport ore throughout the mine
Mexico is rapidly becoming a priority. In less than three
site. Conveyor belts are energy intensive, so any design
years, the company has doubled the size of its team and
modification that can improve energy efficiency and
business in Mexico, and forward-thinking technologies such
reduce material loss translates into substantial savings for
as Clean Scrape have already helped draw the attention of
the mine operator.
leading miners across the country; Grupo México, Industrias Peñoles, Goldcorp, Agnico Eagle and Minera Frisco are all
In late 2016, Martin Engineering came across the Clean
beneficiaries of Martin Engineering’s technical expertise
Scrape system, an innovative and versatile belt-cleaning
and focus on community development.
solution designed by a German company. The Clean Scrape is installed at an angle across the discharge pulley, requiring
“Mexican companies face significant issues when it comes
minimal space for installation, and the cleaner is equipped
to efficiency and environmental control,” says Schmal.
with tungsten carbide tips that can be used on mechanical
“They face a large amount of pressure from communities,
splices, meaning maintenance costs are reduced to a
which tend to be against the development of new mining
minimum. Seeing the value, Martin Engineering immediately
projects. That is where our solutions can help.”
VIEW FROM THE TOP
SAVING ENERGY, FUEL AND COSTS RICHARD BOOTH Managing Director of North and South America for MMD
Q: What position does the Mexican mining sector hold
Q: Apart from mobile structures, what other strategies do
within MMD’s global portfolio?
you use to keep costs low?
A: Currently, Mexico does not play a significant role within
A: We have a great deal of new equipment and it is all based
our global portfolio, accounting for around 7-8 percent,
on our greener mining ethos – eliminating or reducing the
but it is certainly a market that we want to support and
number of emissions-heavy and fuel-thirsty trucks in a
invest in. We mainly manufacture two pieces of equipment
mine. In cases where there is no reduction in trucks, we
in Mexico – the MMD SIZER and MMD Heavy Duty Apron
can assist customers with ways to improve the availability of
Plate Feeder – with sales of around US$8-10 million per year.
the shovel through system design. This widely used piece of
However, we are growing to offer mobile rental equipment
equipment typically only operates to around 30-40 percent
and it is encouraging to be attracting a great number of new
availability and our equipment helps to increase that figure
customers. We are expanding our operations, bringing in
to over 90 percent.
new salespeople and a new general manager to strengthen our Mexico operations.
Q: How are you working to make the company more sustainable?
In the last couple of years, we have seen huge growth in
A: Over the last five years, we have been developing and
lime and aggregate production and customers particularly
working with the latest high-torque drive motor technology,
in the cement industry are starting to see the benefits of
and we are now installing it in most of our sizers. Offering
our equipment. Traditional approaches and equipment
a continuous saving in running costs of around 30-40
thankfully seem to be under review by mine operators. This
percent, the new motors also typically deliver a 4:1 saving
gives us significant confidence to grow our presence and
in electrical infrastructure expenditure in new setups. With
supply to the Mexican market.
high-torque motors, electrical demand spikes are virtually eliminated and a continuous higher production and constant
Q: To what extent have you found the Mexican market
torque performance is available over a greater speed range.
resistant to the adoption of new technologies?
From a standing start, instant maximum performance can
A: Times are changing. As far as I know, Mexican companies
be achieved. When no material or smaller load processing
began adopting new technologies a few years ago but did
occurs, power consumption drops again, to levels lower
not see much success. Thankfully, we are now seeing more
than those of a traditional motor, delivering further savings.
openness and the return of mines auditing their existing equipment and looking for more cost-effective methods.
Q: What are your main priorities for 2017?
MMD technology has been in the market for close to 40
A: We are looking to develop our Mexican client base and
years and has been thoroughly tried and tested, with over
relationships, and we have a vision of expanding into South
3,000 machines worldwide – so we know it works.
America, with a focus on Colombia and Venezuela. My role will be to oversee both the North and South American markets,
The reach of the technology has also evolved: our
which include the US, Mexico, Brazil and Chile. The Mexican
patented Sizer can now sit at the heart of complete, fully
market is one that people are investing in as it continues to
mobile turnkey In-Pit Sizing & Conveying (IPSC) system.
grow and it is perfectly suited to MMD’s solutions.
Furthermore, all our equipment undergoes finer element analysis (FEA). We sometimes build equipment here in Mexico to demonstrate to potential customers and allow
Mining Machinery Developments (MMD) is a world leader in
them to try it before making a commitment to buy. Five
the design, manufacture and supply of mineral processing
out of six customers to recently receive equipment have
solutions and associated machinery, serving the mining,
already placed orders.
quarrying and recycling industries
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INSIGHT
THE INTRINSIC VALUE OF AUTOMATION LEIF LINDHOLM Vice President Mexico, Central America and the Caribbean of Metso
288
The mining industry finds itself in the process of healing
Automation is a global trend and an important part of
the wounds that remain after a wave of low-priced metals.
Metso’s business, allowing companies to have better
Consequently, many companies are pressured to continue
control of mine operations. According to Lindholm,
to seek methods and technology that can help reduce
remote-control systems are not new to the international
costs and improve efficiency as a way to boost success.
global industry but Mexico is still in the process of
The adoption of international best practices is key for
adopting these technologies. “In two or three years, it
players that want to survive a storm that fortunately is thought to be clearing. “It has been a tough market but we are starting to feel more optimistic about prices,” says Leif Lindholm, Vice President Mexico, Central America and the Caribbean of Metso. “The landscape is starting to move in the right direction.” Metso considers mining to be its largest area of business, followed by the construction industry. It seeks regions that have strong markets to offer its products and services. The diversification of its markets helps balance out jurisdictions like the US that are undergoing a rough period when it comes to mining.
“
will become a standard in the country,” he says.
The idea is to create a mix of services while removing unnecessary costs to multiply profitability”
But it is not easy to convince the Mexican mining industry of the advantages automated systems offer. Metso works hard to prove and showcase the number of benefits it can bring to mine sites. “Automated systems can greatly
The company works in mines including Buenavista del Cobre,
diminish the number of people that need to be present
where Lindholm says a second plant has been installed
in mines,” says Lindholm. “As a result, they lower the
that mostly uses equipment from Metso. “We also installed
chance of accidents and fatalities, while simultaneously
equipment in Media Luna and for Goldcorp,” he says.
improving production rates.”
The company constantly strives to create equipment that
The company stands out among competition with a
breaks industrial benchmarks and improves efficiency.
strong service-based organization, Lindholm says. It
“The idea is to create a mix of services while removing
has also received recognition for its environmental and
unnecessary costs to multiply profitability,” says
innovative endeavors. In 2016, the company boasted an
Lindholm. Its global presence means Metso can also
A- ranking in CDP’s Climate Change evaluation at the
offer the mining industry a wealth of spare parts, expert
Leadership level. That year, CDP monitored a total of
services and solutions.
5,800 companies around the world. The global ranking reached an average of C, highlighting the significance of
Mexican mining companies demand a great number
Metso’s strong results.
of crushers from Metso, a leader in the development of crusher mills. “Crusher upgrades have the ability to
Overall, Mexico represents approximately 80 percent of
breathe new life into operations by making them more
the company’s business, which makes it an important
productive, cost-efficient and safer,” says Lindholm. For
market. But Lindholm says the company’s next big project
instance, the Symon cone crusher upgrades can generate
will be in Panama, providing services for an Australian
productivity gains of up to 20 percent. It has a remote-
company. “This project will be worth US$6.2 billion so
setting feature that facilitates adjustments and diminishes
it will slightly modify the amount of focus we place in
maintenance time during bowl removal and installation.
Mexico,” he says.
VIEW FROM THE TOP
MEXICO A STRONG BASE FOR LATIN AMERICAN MARKETS ENRIQUE MALDONADO Regional Director in North Mexico of Grupo Calidra
Q: How did the 2016 rise in metal prices benefit Grupo
required to finance the plant in San Luis Potosi was mainly
Calidra’s business?
contributed by the World Bank. It only supports projects
A: In 2016, our sales grew considerably thanks to the increase
that are sustainable and environmentally friendly and we
in gold and copper projects as a result of the favorable
receive funds because of our ecologically friendliness. We
average metal prices and market demand. Due to a reluctance
continuously strive to find the best technology in the world
to launch greenfield projects, operators are focusing on
to improve the quality of our processes. Our company is
maximizing production in existing mines even though the
always willing to experiment with innovative ideas and
ore grade is declining. We benefit from both high demand of
machines to keep one step ahead of our competitors.
metals and low-grade ore because they require more lime in the processing phase. Our main customers are Grupo México,
Q: How does Grupo Calidra promote sustainability and
Industrias Peñoles, Minera Frisco and Goldcorp.
social responsibility? A: Our company has a strong commitment to the
Lime is a versatile natural chemical because it can be used
environment. Lime can be used in areas with toxic residue
by all industries as a process aid. We supply almost all mines
because it stabilizes heavy metals that can contaminate
in Mexico, mainly gold, silver and copper extraction, so our
water or soil. Heavy metals such as lead or arsenic and
company has a strong relationship with the mining industry.
hazardous materials are combined with calcium oxide
In this sector lime helps to adjust the pH in processes at
to create a harmless substance, which reduces the
levels that are more efficient and less hazardous. Our goal
environmental impact by preventing the toxic metal
is to consolidate the Latin American market by 2020 and
reaching underground water sources.
to develop our position as one of the most competitive lime producers in the world.
To minimize our carbon footprint, we make sure the energy per ton we burn is the minimum necessary to convert
Q: What differentiates Grupo Calidra’s new plant in San
calcium carbonate to calcium oxide. We also use alternative
Luis Potosi?
sources of renewable fuels. In Mexico, 70 percent of our
A: The state-of-the-art sustainable hydration plant we
energy is produced through wind power. In Argentina, we
completed in November 2016 recovers and reuses all
are also looking for alternative sources of heat to minimize
the water used in our process. The process is completely
our impact.
air sealed so there is no dust emission or steam. We already have hydration plants in Mexico but none are as
When it comes to our relationship with surrounding
efficient as this new one, which incorporates completely
communities, we do not believe that it is a good idea to
new technology. Emissions are reduced not only by the
offer money. Instead, Grupo Calidra provides well-paid
process itself but through a reduction in the number of
employment and social security to our local hires. We also
trucks moving into the city of San Luis Potosi, since the
pursue reforestation projects. The company collaborates
plant is much closer to the quick lime kilns. This specific
with the public sector as well, providing funds or expertise
plant incorporates equipment and methods that are new
to the government for sustainability projects in the
to the country, such as transportation, discharge, dust
community.
collection and hydration technology. The process is part of our initiative on innovation and was endorsed by ITESM’s technical and feasibility studies.
Grupo Calidra was established in 1908 in Mexico as a supplier of lime and lime byproducts. The company supplies
All our projects and plants are financed through a wide
various industries including mining, construction and food
variety of partnerships and sources. The US$8.5 million
and beverage
289
VIEW FROM THE TOP
MANUFACTURER REAPS BENEFITS OF MARKET RECOVERY RICHARDT FANGEL Director General of FLSmidth Mexico
Q: What makes Mexico attractive to a global engineering
integrate that into The FLSmidth Group product flowsheet
firm such as FLSmidth?
than to develop an existing product design in-house. We
A: Mexico offers solid opportunities for world-class
constantly have to evaluate our needs and decide what will
equipment manufacturers. Indeed, we believe it is one
bring results to our clients and returns for our investors.
of the most attractive destinations in the world from a
That said, it is undeniable that there has been a growing
manufacturing point of view. Its logistics infrastructure
trend in the company in recent years to focus on in-house
for both imports and exports is well developed and the
development. We have a talented team of engineers and
devaluation of the peso against the dollar during 2016
we see synergies from plant operating experience back to
has provided a further boost to foreign manufacturers by
our design engineers.
making local prices more competitive. In fact, it is now more expensive to manufacture in some parts of China than it is in
In September 2016, we also announced a JV with the state-
Mexico, which was unthinkable five years ago. When adding
owned Chinese heavy-machinery manufacturer Northern
these competitive prices to the free trade agreements
Heavy Industries Group (NHI). The new JV operates under
Mexico has with over 40 countries, it has become a vital
the name NHI-Fuller and provides the mining industry with
manufacturing hub that offers great value to both Mexican
mid-market crushing equipment. Fuller was an independent
and foreign companies.
US-based equipment manufacturer specializing in cement and minerals until acquired by FLSmidth in 1989. China
Q: How has the market in Mexico reacted to the rise in
will be the initial focus for the venture but in time it will
precious metals prices in 2016?
incorporate other markets, including Mexico.
A: During the recent downturn producers were focused almost exclusively on cutting costs and streamlining
Q: What are the most innovative solutions FLSmidth offers
operations but as prices have risen they have turned their
the industry?
attention to increasing production levels in a bid to increase
A: One of our newest designs is the nextSTEP. This rotor/
output. This has led to more plant upgrade projects starting
stator can be applied to existing flotation cells to generate
up throughout the country as operators want to extract
substantial energy savings as well as increased recovery.
as much as possible to benefit from slightly higher prices.
The product was launched in early 2016 and the pilot tests
This has, of course, been of great benefit to the whole
have confirmed our expectations for increased productivity.
supply chain because mining companies need to buy more equipment and modify the existing equipment.
Elsewhere, our research and development team is constantly working in the lab to update and improve existing products
This trend can particularly benefit companies like FLSmidth.
and processes. In Mexico, we are constantly working to
Our highlights for 2016 include the installation of a stacking
improve our aftersales service. To this end and when the
conveyer system for Grupo México at Buenavista del Cobre
needed state fiscal legislation is ready, we will expand our
and the extensive work we did on the Peña Colorada
service center in Zacatecas to convert it into an inbound
expansion project that will go onstream in early 2017.
park, which will allow us to move more spare parts and cater to our clients’ needs more efficiently.
Q: What role does M&A and JV activity play in FLSmidth’s strategy? A: Over the last 15 years, FLSmidth has been acquiring
FLSmidth is a global engineering company based in Denmark,
many companies with specific products that add value to
providing the cement and mineral industries with mineral-
our portfolio. Depending on the product it will from time
handling solutions like crushing, flotation, screening and
to time be more beneficial to buy another company and
filtration
291
INSIGHT
GRAVITY KEY TO EFFICIENT SEPARATION GREG RASMUSSEN Vice President, Sales and Operations, North America of Gekko Systems
292
Accurately identifying a viable ore body buried kilometers
To date another of Gekko’s technologies, the InLine Leach
underground is a formidable task in itself but for metal
Reactor (ILR), has proven more popular in Mexico. The ILR
explorers it is just the first step on the long road toward
enables mine operators to leach precious metals out of
production. A key junction arrives when the extracted
floatation concentrate and produce doré bars onsite, as
metal must be separated from the rock, a complex process
opposed to sending the extract to an off-site processing
that can make or break a mining project. Gekko Systems,
location, which Rasmussen says helps mining companies
an Australian family-owned outfit, made its name in the
generate gold and silver sales immediately with better
industry after releasing its gravity jig separation design,
payment terms. In July 2016, Gekko completed the
which separates mineral particles from the ore body based
installation of its biggest ILR as part of Alamos Gold’s
on their relative density. Founded in 1996, the company
Mulatos mine expansion, a cooperation that began in 2011,
has dedicated the last 20 years to improving separation
while it has also worked with Fresnillo on its La Herradura,
technology and thinks it has found the answer with its
La Ciénega and San Julián projects.
Python Plant design. “We have a gravity circuit installed at Mulatos. There is a “The Python is an environmentally conscious modular ore-
high-grade deposit but a lot of ore was being lost in the
concentration plant solution for the mining sector,” says
heap-leaching system, so Alamos Gold contacted us and
Vice President for Sales and Operations, North America
we installed a gravity leach plant,” says Rasmussen. “We
Greg Rasmussen. “It was initially designed for underground
look after its pre-concentration and crushing processes.”
crushing, comminution and handling of concentrate through the use of gravity. Gravity alone recovers 95 percent of
Although the Python Plant and the ILR are two examples of
the ore, meaning that the operator requires little energy to
Gekko’s modular designs, the company takes a subjective
recover the remaining mineral.”
approach and tries to develop tailored solutions to fit the differing ore bodies found in Canada, Australia, Mexico and
The Python specializes in utilizing energy-efficient
elsewhere. “We look at the nature of the deposit, analyze it and
floatation processes to reduce ore to a coarse size, which
then carry out all the required testing,” says Rasmussen. “By
lowers the downstream processing energy costs. It was
taking charge of everything from testing and planning through
primarily intended for use on underground, rather than
to construction, the client does not have to contract several
surface, operations. When installed underground, the
different companies to carry out each process.”
tailings remain below the surface so there is no need for a surface tailings facility. This greatly reduces the operator’s
Despite its work with Fresnillo and Alamos Gold, Gekko
environmental footprint. The Python Plant has already been
Systems is still relatively new to Mexico and the company is
installed above ground in mines in Australia, South Africa,
focusing on increasing awareness of its ILR and Python Plant
Argentina and Canada. Given the large amount of coarse
solutions throughout the country in 2017. The experience
gold and silver in the country, Rasmussen hopes Mexico
gathered through its success in Canada and Australia is sure
will be next.
to help but Rasmussen accepts the company will need time to fully adjust to the particularities of the Mexican market.
“Our portfolio in Mexico is still relatively small, although we hope for it to expand during 2017,” he says. “To help us
“We understand that the mindset is a little different to the
crack the Mexican market, we began working with FIMSA,
rest of North America in that business relationships are built
a Torreon-based company with far more local experience.
over a longer period of time,” he says. “We truly believe
We have done a lot with FIMSA in the past, and it will soon
in the country’s potential to become a mining hub of the
become our formal distribution agent in Mexico.”
future. It is a big part of our growth strategy.”
INSIGHT
SCREENING SOLUTION INCREASES EFFECIENCY, REDUCES COST BEN HILTL President and CEO of Fluid Systems
The oil and gas industry’s demand for exceptionally fine
At Peña Colorada, Fluid Systems installed a new product –
screening made Fluid Systems’ decision to start out in
the 3642 DFL MultiG screener – which is an extremely high-
this sector an easy one. With the development of new
frequency solution, and it has already provided benefits for
technology, namely linear motion technology 20 years
the operator. “It has been in operation since the start of
ago, the company saw an opportunity to diversify. “This
2016 and is around two to three times more efficient than
technology was extremely successful and a crucial factor in
the previous technology,” says Hiltl. The design is based
growing the business in the early days,” says Ben Hiltl, the
on resonance technology and increases the frequency
company’s President and CEO. “Over the years, it became
and forces on the machine substantially, as well as the
more and more prevalent in mining and that led to our
separation efficiency and volume-handling capacity.
interest in the mining sector.” “Most screening solutions on the market work in ranges Fluid Systems designs and manufactures screening
of 5-8g of acceleration, after which point the structure
solutions for the processing phase of mining, specializing
struggles to handle the level of vibration,” says Hiltl. “Our
in liquid/solid separation. In mining, gold processing is a
technology absorbs the extra power and feeds it back
unique process to iron ore or phosphate production, so
into the machine, allowing the screener to operate at over
the design depends on the individual processing needs of
50g of acceleration on the panel. The customer can reach
the project and Hiltl says the company tailors its solution
the same level of performance and output with half the
to each individual client. Typically, Fluid Systems’ machines
machines.”
are compact, powerful, and applicable to the whole range of mineral processing, including gold, silver, zinc and
When ore grade lowers in quality, which inevitably happens
phosphate.
as a mine reaches the latter stages of its lifespan, screening and separation processes become vital to the operators’
The Texas-based company’s relationship with Mexico
productivity, which is where Fluid Systems’ technology
first blossomed around 15 years ago. ArcelorMittal, one
can really help. The MultiG represents a huge jump in
of the investors in the Peña Colorada iron-ore mine in
performance and is entirely different to the company’s
Manzanillo, contacted Fluid Systems to request that it
previous technologies and those of its competitors,
design some machines for the project. “The pilot testing
according to Hiltl. It is attractive from a cost standpoint
produced positive results and we have been working
because the customer now has to spend significantly less
with the company ever since,” says Hiltl. “We initially
money to reach the same level of output. “We anticipate
installed 10 machines and following the recent expansion
that this product will have a significant impact on the mining
at the mine we now have 72 machines operating on that
industry, not just in Mexico but around the world,” he says.
project alone.” This technology was developed alongside Virto Group, That contract required a large aftersale support service
an Italian-based outfit with which Fluid Systems has now
and when Fluid Systems then sealed an equally significant
set up a joint venture. It focuses on circular, dry screening
deal in the oil and gas sector, it made the jump to set up a
applications whereas Fluid Systems is more specialized in
formal presence in Mexico. This led to the creation of SIPSA,
the rectangular models for wet screening. The reason for
which is based in Villahermosa and operates as its official
this, Hiltl says, is simple. “Around 95 percent of all screening
distributor. Now, Hiltl says that with the downturn in the
in both open-pit and underground mining uses water as
local oil and gas industry, mining has recently emerged as
the primary liquid medium in the ore separation process,
the company’s main focus in Mexico, equating to around
so the rectangular solutions in particular are tremendously
50 percent of its business.
effective,” he says.
293
VIEW FROM THE TOP
FIFTY YEARS OF SCREENING SOLUTIONS FOCUSED ON CUSTOMER NEEDS JOEL RAMÍREZ President and Founder of Cribas y Productos Metálicos
Q: What factors spurred you to start the company and
we refuse to compromise on quality or service standards.
what challenges did you face?
Excellence in customer service has always been the goal
A: There was a lack of quality screens at the time and those
for Cribas. Our motto is to treat our customers as I would
that were available often came lose, openings were not
have liked to be treated as a client many years ago.
consistent and they wore out rapidly. I began as a customer, 294
working in the steel furnace, where initially there was no
One of the highlights for the company over the last five
issue with constant screen changes. But as we started
years has been the full integration of all our product lines.
increasing our consumption, it became a real challenge.
We can now offer all types of screening media for any
I spoke with the owner of the company supplying us the
and every application, screening machines, accessories,
screens at the time, asking him to improve his quality and
technical support for screening issues and installation.
was discouraged by his lack of proactivity. I realized that
We have become a one-stop shop to solve all screening
our suppliers were not going to change and something
issues. Our greatest strength is the people that make up
needed to be done.
the company.
We started importing our screens from Germany with the
Q: To what do you attribute the success Cribas has
belief that screens should be made to suit the customer’s
enjoyed?
needs and the customer must always be satisfied. I had
A: First, it was a market that lacked a product, so we
over 20 years of experience using screens at the time,
trained ourselves to become screening specialists, both in
meaning I could use my first-hand knowledge of what
manufacturing them and in their application. We started
worked and what did not in order to provide the best
using different materials for different types of screens
solution for the client.
and applications. One of our first steps was to make perforated plate screens. From there we branched out
The company started small, manufacturing screens that
to all other types.
were initially difficult to sell. Companies did not want to pay a higher price for our screens until we could prove
When I started, I used the catalog from a German company
that they were losing more money by continuing to use
as my guide. This company was a pioneer in screen media
poor-quality screens than if they bought our screens. We
manufacturing and I believed that to be successful, we had
were able to show them they were losing millions but our
to replicate the quality found in the best screens in the
screens were able to decrease these losses by about 20
world. I did not know how much time this was going to take
to 30 times.
us but we knew the direction in which we were headed and we have been heading steadily toward that goal.
Q: As Cribas has expanded, what have been the challenges associated with this and what are the highlights for the
We became experts in what we do. Our goal has always
company?
been to manufacture screens of the best quality and at
A: Our greatest challenge has been maintaining reliable
competitive prices. Ultimately, companies will spend more
coverage of our markets as the company has expanded, as
in labor and wasted time because of a poorly made screen. The last five years have involved the full integration of all our product lines. We can now offer screening media
Cribas y Productos Metalicos is a family-owned company
for every application, including screening machines,
specializing in manufacturing screen media for mineral
accessories, technical support for screening issues and
processing. Founded in Monclova, and based in Monterrey, the
installation. We have become a one-stop shop for solving
group is represented throughout Latin America
screening issues.
One of the most important components of our success has been that the people working with me have adopted the company’s spirit that we must do things correctly, carry out quality work and produce quality products. Importantly, we do not compromise on quality or service standards. We started as a small company selling to other small companies. Throughout our growth and the growth of Mexico’s mining industry, we have challenged ourselves every day to maintain the same standards we incorporated from the outset. The company is growing at a steady pace. We have been
This year Cribas launched its polyurethane screen line, which has helped customers obtain better solutions for specific screening problems
filling the gaps that we had as a small company and making steady improvements. Even though we are still not a
This year we launched our polyurethane screen line, which
large company, we are not small anymore. This growth
has helped customers obtain better solutions for some of
has allowed us to provide screening solutions to different
their specific problems. No single screen media can solve
industries in Mexico, while staying focused on our core,
all problems, which is why polyurethane gives us one more
which is mining. We are highly invested in Mexico’s mining
option to offer our customers. 295
sector and this industry moves with the price of metals. When prices are high, mining companies are willing to
Q: What strategies are you following to break into other
invest and this keeps us active.
markets and where do you see the most opportunities? A: We have analyzed the petrochemical, recycling and
Q: Following the company’s high-carbon wire, rubber
power-generation sectors and find they are closely linked
and polyurethane screens, what comes next in terms of
to the screening we do in mining but they are all very
research and innovation?
different industries. We have reached out to PEMEX and
A: Our focus has always been to produce screens at a
have installed some screens for ethanol production. We
competitive price and with the best materials. This goal has
have also proven ourselves in the recycling industry with
already been met so it is now up to the newer generations
our screens being used to recycle car batteries.
to set goals for the years to come. We have always stayed ahead of the industry in material technologies because we
Cribas should be among the top 10 screening companies
try to follow the example of the best in the industry.
worldwide within the next 10 years. Screen fabrication is not an industry where our competitors experience a
We have been focusing on the virtualization of our
lot of growth because for most of them, this is not their
processes, as well as plant and screen-performance
main product. We have had big competitors that have
simulations. This gives us the ability to understand the
stopped manufacturing screens to focus on other more
issues the customer is facing in the field and to be able to
profitable products. We are dedicated to this business and
customize a solution for the client’s exact needs.
will continue to be.
VIEW FROM THE TOP
FLUID OPERATIONS WITH LONGER-LASTING SEALS JUAN CARLOS MORENA Director, End User Sales for Latin America at Flowserve
Q: What role does the Mexican mining sector have to play
tend to place a lot of pressure on the applications in use and
within the company’s portfolio?
so engineers are constantly striving to develop solutions
A: The Mexican market represents 25-30 percent of our
that can withstand this abrasion.
business in Latin America and of our four manufacturing
296
plants in the country, three serve our worldwide customer
While in other markets like oil and gas we try to incorporate
base. We have an engineering pump plant in Mexico City
digital technology, in the mining sector we are particularly
that has been in operation for over 60 years and, taking
focused on designing mechanical hardware that serve
advantage of the competitive labor and operational costs,
specific applications. We are constantly seeking out new
Flowserve’s largest mechanical seal plant in the world was
chemical and abrasive solutions, such as super duplex or
built in Tlaxcala in the late 1990s. We interact with our clients
different alloy materials, to provide longer lasting seals,
in Mexico both through our network of distributors and
slurry pumps and valves and to help our clients make their
directly through our sales and engineering force. The mining
fluid motion-control processes more efficient and reliable.
sector is particularly strong in Latin America. Traditionally
For example, the majority of mechanical packing for slurry
we have always been stronger in the oil and gas sector but
applications uses large amounts of water but we have
in the past 10 years we have begun to develop our mining
developed a mechanical seal that does not use water. The
business and Mexico and Chile are now the most important
SLC seal device lasts for over a year, which is twice the
mining markets for the company in Latin America.
time as most competitive solutions and this product has been extremely successful in Mexico with Grupo México,
Q: What is your strategy for increasing your market share
Industrias Peñoles and Minera Frisco all using the system.
in the local mining industry? A: We are constantly working on product development.
It is always a challenge to convince our customers that this
Using our resources in Mexico, we are in the process
solution is the best – packing solutions are more common
of finalizing plans on a specialist pump for the mining
on the market. We have found that in the mining sector,
industry that will be launched first in Latin America and
good news travels fast and so if one operator has strong
then in North America and the rest of the world. It will be a
results from a new product, the other operators will soon
regeneration of one of our current slurry pumps but it will
hear about it and begin to make enquiries.
be lighter, cheaper, and smaller in order to reach the mills as a response to current market expectations. It will be
Q: What strategies are in place to generate organic growth?
particularly attractive for copper producers and we hope it
A: Our main focus is to expand our presence in the
will help us cement our position in the slurry pump segment
mining market, particularly in Latin America. Although
of the sector.
we are still strong in the oil and gas and petrochemical spheres, these markets are experiencing a downturn and
Q: What is the current focus of your research and
so we have diversified our focus to the mining sector,
development efforts?
which we believe is set for an extended period of solid
A: The biggest challenges that mining companies are facing
growth. With its stable environment, ideal geographic
are in water usage and wear and tear. Mining operations
location and strong resources, Mexico will play a big part in that process. The country remains one of our favorite destinations for investment and we have ambitious
Flowserve manufactures and services fluid motion control
expansion plans for our Mexican plants. We also want
solutions, including valves, pumps and seals, for the oil and
to grow our distributor business in Latin America. Within
gas, power, and mining industries. The company has operations
five years, we are aiming to double the size of our Latin
in 55 countries
American business.
INSIGHT
PRIORITY ON CLIENT SAFETY DRIVES SUCCESS VALENTIN KAUFMANN Sales Manager for Mexico and Central America of Depreux, COBRA Group
For as long as underground mining has existed it has been
says Kaufmann. “Mexico has been welcoming to COBRA’s
fraught with danger. For centuries miners took caged
Depreux belts and we are deep in negotiations with a
canaries down the tunnel as an early warning system;
number of operators to install belts in their mines.”
when toxic gases such as carbon monoxide and methane inevitably began to seep out of the excavated rocks, the bird
The success of COBRA’s Depreux belts can be attributed
would begin to choke and in doing so inform the workers
to its fully integrated production. Depreux is recognized
that conditions were unsafe. Thankfully standards have
worldwide for its weaving facilities that manufacture the
improved drastically since then but underground mining
textile carcass of the conveyor belts. The process allows
still represents a real threat to worker safety. Fires and gas
the company to maintain control over quality and costs.
leaks are not uncommon at modern mine sites and faulty
Depreux has the flexibility and innovation capacities to
or inadequate conveyor belts are among the main causes.
develop premium belts that are specially designed for underground mining applications and that provides users
“Our number one priority is the safety of our clients,” says
great resistance, security and productivity. For instance,
Valentin Kaufmann, Sales Manager for Mexico and Central
the COBRA Group was recognized for developing the most
America of Depreux, COBRA Group. “Conveyor belts are
resistant 1-ply straight-wrap belt in the marker for a copper
particularly vulnerable to fire-starting, so we always ensure
mine. The group still holds that world record with their 1-ply
that our belts exceed the standards required,” he says. “We
aramid carcass of 3150 N/mm.
offer our customers on-site training, analysis and evaluation services to ensure that they are installing the correct
“Our carcasses make the conveyor belts more durable and
conveyor belt for each project or operation.”
this is the main reason why we have such a strong position in the underground mining market,” says Kaufmann. “To
As a member of the REMA TIP TOP Group, Depreux is
survive in the hostile underground conditions, over the years
part of one of the world’s leading companies in the field
we have developed a solid woven carcass with excellent
of conveyor belts, services and accessories. Depreux’s
cut and impact resistance and the ability to trough at 45°
underground belts are manufactured with national and
and flex around drive, head, tail, loop and snub drums.
international safety standards in mind, adopted according
The carcass design is fundamental for the final strength of
to the country in which they are installed. For the majority,
mechanical fastened belts and vulcanized joints.”
these safety requirements encompass fire resistance, drum friction, antistatic tests and for some countries, hygiene
To continue the company’s legacy of having a strong
tests for fume emissions.
R&D culture that offers specialty carcasses to the mining market, Cobra’s Depreux foments partnerships with OEMs
COBRA Group’s client base has always been centered
companies to strengthen its ability to offer customized
around underground mine operators and the company
belts to meet customer requests.
is one of the largest underground conveyor-belt manufacturers for the industry globally. Given its extensive
The investor community has also taken notice. German
network of underground silver mines, Mexico offers vast
company REMA TIP TOP recently acquired majority shares
business opportunities and COBRA Group formally entered
in the company but Kaufmann insists that COBRA Group will
the country in 2012. So far, the decision has paid off and the
remain true to its principles. “COBRA Group will continue to
company is considering expanding its presence.
work as an independent company, with our own production, R&D and sales organization all over the world,” he says. “Our
“We intend to continue developing our production, storage
new investors will bring us financial back-up, R&D support
and service capacities in Northern and Latin America,”
and we will benefit from their technical knowledge.”
297
VIEW FROM THE TOP
INNOVATIVE THINKING TO STAY AHEAD OF THE PACK MARTÍN SUBIRIA Director General, Mexico and Central America of Weir Minerals
Q: What strategies fueled the company’s solid growth in
attractive. The industry in Mexico compared to Chile or
2016 and what part did Mexico play?
Peru is smaller and incentives for new investors are fewer.
A: We were resilient because our strategy was based
298
on being closer to our customers, working with them to
Q: As a company with such a wide variety of products,
guarantee savings and showing them our commitment
what is your best seller?
to working together. Mexico is important because it is
A: Our slurry pumps are the most in demand right now but
a traditional mining market. We serve all the primary
we can cover the entire mining process with our products
operators and the all the biggest mines in the region.
and solutions. We are always working on new pump designs
Being recognized here as a top supplier is an excellent
to increase efficiency and reduce wear rates inside the
achievement and our minerals division is the strongest in
mines. Our expertise as a mining equipment manufacturer
the group, partly because of our close relationship with
allows us to continuously improve performance. Right now,
our customers, who trust in us. We are always looking
as an example, we are testing different materials like metal
for new ways to save them money. In some countries
alloys to test how to improve wear life. By improving the
in Central America, attitudes toward mining are still
wear life of our components, we can reduce maintenance
relatively unfavorable. But Mexico is a country with a
and costly downtimes, resulting in tangible cost-savings
strong mining history, with talented human capital and a
for operators. We want to maintain our reputation as
well-formed supply chain. Mexico is also important due
number one worldwide by staying ahead of the pack and
to its geographical position. Nevertheless, Mexico is not
innovating to integrate new designs and new materials. We
fully using its geographical advantage to become more
are constantly improving our technology. Q: What is the company’s main goal for this year?
Weir Minerals is an engineering firm that delivers products
A: Central America has a lot of aggregates and this is what
including slurry pumps, conveyors and feeders to the mining
we will focus on. In Mexico, we have plans to work with our
industry. The company is a subsidiary of The Weir Group and
main customers as partners and solutions providers rather
its Mexico base is in Monterrey
than just suppliers.
INSIGHT
COMPACT FILTRATION SYSTEM BOOSTS PROFITABILITY THOMAS RIEDEL Director General of Grupo ASM
Times change, and that is usually accompanied by changes
in lower energy usage,” says Riedel. “Our filter systems
in attitude. The business world’s view leans toward
drastically increase the expected lifespan of a gearbox,
sustainability now and that shift is leading directly to
which uses far less energy if the oil is cleaned on a consistent
savings and growth, says Thomas Riedel, Director General of
basis.” Any reduction in oil usage also has benefits for the
Grupo ASM, which exclusively distributes Danish company
environment and CC Jensen systems enable operators to
CC Jensen’s filter systems in Mexico.
consume just one-fifth of their regular quantity of oil. 299
Grupo ASM has worked with such companies as Grupo
The group works in other areas to provide a broad range
México, which has many CC Jensen filters installed on the
of solutions. “To complement our range of filter systems,
Buenavista del Cobre mine in Cananea. Over the last 10
we offer aluminum profile systems. We have a separate
years in partnership with these operators, Riedel has seen
automation business,” says Riedel. The business is split
the growth of a culture of corporate responsibility regarding
more or less equally between the three product lines,
oil usage in Mexico that was not present previously. “People
and today the company’s biggest markets are power
now understand the importance of oil cleaning and many
generation, hydraulic systems, the marine sector and the
companies train their staff to appreciate the savings that
mining industry.
can be generated through responsible oil usage,” he says. “This cultural shift has undoubtedly helped the company
Although the company has enjoyed its share of growth
grow over the years.”
over the years, there have been several hurdles along the way. The sheer size of Mexico can be an issue, for example.
When the company was created in 1999, its main aim was
“The nature of the service we provide means that time is
manufacturing specified machinery, including manipulators
vital, because any extended period of downtime can mean
and tightening systems for the automotive sector, but it
dramatic losses for our clients,” says Riedel. “To overcome
was through the CC Jensen deal in 2006 that Grupo ASM
this challenge, in 2016 we set up an office in Hermosillo to
entered the mining sector. The filter insert is compact – just
cater to the needs of Grupo México and our other clients
27x27cm – but each one can absorb at least 4kg of particles.
in Sonora, because it is difficult to respond in a timely and
“CC Jensen offers an offline filtration system. It is unique
efficient manner from our headquarters in Puebla.” Grupo
from other systems in that it can absorb an exceptionally
ASM plans to establish a new facility in either Chihuahua
high number of contaminating particles,” Riedel says.
or Monterrey in 2017 because it has extensive client bases
“While most other filter systems operate on the surface, the
in both of those regions. “By expanding our bases across
absorption technique CC Jensen filters employ means that
the country, we hope to be able to improve the client
we can filter ultrafine particles other systems are unable to
relationships that we have already created in Mexico and
detect. In one pass, our systems remove a minimum of 98.7
establish new ones,” he says.
percent of all particles in the system, whereas the majority of systems only filter out around 50 percent.”
After over 15 years of working in Mexico, one of the lessons Riedel has learned is that it is vital to contact the right
This translates into increased productivity for the operator
people within the mining companies. “When we started to
because clean oil produces far less waste than dirty oil, but
distribute for CC Jensen, business was initially slow because
the filter also provides tremendous time savings. When the
people did not understand the need for our products,”
system is applied on a standard cone crusher, the investment
he says. “As this changed over the last 10 years, we have
is paid back within one month of operation. The technique
established ourselves in the market and despite the slight
is also more efficient when it comes to use of energy. “Less
improvement in metals prices during 2016, owners are still
contamination means less friction, which in turn results
looking for cost benefits.”
ROUNDTABLE
WHAT DOES THE FUTURE HOLD FOR SODIUM CYANIDE?
Sodium cyanide has been used to separate gold from ore for generations, but the chemical compound is highly toxic and, under increasing pressure to make the industry more environmentally friendly, the mining community is working on more sustainable and safer alternatives. One solution is biomining, which replaces sodium cyanide with microorganisms. However, alternative techniques are still in the early phase of development and for the majority of mining projects, sodium cyanide remains the most economically viable solution – for now at least. Mexico Mining Review spoke to leading sodium cyanide producers and distributors to find out what the future holds for this controversial substance.
If a new method of extracting gold without sodium cyanide were to become technically and economically viable, this will of course have an adverse effect on our business as it is today. We have invested substantial time and resources internally to 300
try and find an alternative to current practices and technology, and mining companies have been making similar efforts as well. So far, all efforts have been unsuccessful, simply because sodium cyanide is a unique product, and I do not anticipate a drastic
LUIS REBOLLAR Global Business and Strategy Director of Chemical Solutions Business of The Chemours Company
change in the short term. Several new companies and young engineers are trying innovative methods and we support those efforts entirely and join them when possible. The reality, though, is that new technologies in this industry take a long time to develop. It will be a long-term project, with a lot of trial and error.
We want to help our clients use cyanide more efficiently and safely, even if that means they buy less product from us. This is the goal of our Applied Technology group, to maximize the efficacy of the cyanide used and to reduce waste of cyanide. The first step was to bring product (solution) and packaging (ISO containers) that were both more efficient and safer than the current product offering in Mexico. The second step is to bring our clients onto the Sodium Cyanide Control System (CCS). The
CARLOS FLORES Vice President, Latin America of Cyanco
system would help our users to have better control on the cyanide dosing by taking real time samples and continuously adjusting up or down automatically as needed. This reduces under dosing, which results in loss of gold recovery or over dosing, which in turn results in wasted cyanide and possibly leaching unwanted metals. We want to help our customers use cyanide in the correct way and in the right quantity.
There are a number of alternative technologies that are currently being developed to replace sodium cyanide. In Mexico, the Canadian companies are the most open to trying the new solutions. For example, Sandioss is an alternative to sodium cyanide that is environmentally friendly, and we are currently in the process of analyzing this product to assess how efficient it can be in comparison to sodium cyanide. With the help of nanotechnology, biomining is also becoming more and more viable and, in
GUILLERMO Ă LVAREZ Director General of Aplicaciones Cientificas del Norte
a few years, it could have a great effect on the mining sector by making it far more sustainable. However, these technologies are relatively new in Mexico and it will take some time before they are ready to enter the market. For now, as a sodium cyanide distributor we have a responsibility to handle our produce in a responsible manner that reduces the risk factor as much as possible.
VIEW FROM THE TOP
BREATHER PRODUCTION ON THE RISE JASON REINER Director of Business Development, Latin America of Des-Case
Q: In July 2016, the company was sold by Pfingsten
preventing the lubricant from getting dirty in the first place.
Partners to International Growth Partners. How has the
The standard breather from the manufacturer typically only
sale affected Des-Case’s business?
offers protection from particles of 40 microns. Often, it
A: Des-Case started in 1982 as the pioneer in desiccant
fails to offer any protection from water caused by humidity,
breathers. Right now, we are in the transitional phase
which can be more damaging than dirt particles. Our
between being a mom-and-pop company and turning that
desiccate can keep out particles of 3 microns or more,
into a major organization. Pfingsten’s growth strategy was
which not only extends the life of the lubricant but also
to own Des-Case for four to five years and subsequently sell
extends the life of the equipment.
the company. With that came a lot of growth opportunity and we were able to acquire several well-established
Q: What new products are you going to launch onto the
companies, including AMS Filtration and ESCO. This made
market in the near future?
us more attractive and Pfingsten did a wonderful job of
A: We have a few new releases, one of which is our visual
turning us into a medium-sized enterprise.
oil analysis line. In many pieces of equipment one of the challenges is keeping track of oil levels because this
At this point the best partner for us was International
equipment is often in severe mine environments. Our Visual
Growth Partners, which is a private equity firm that
Oil Analysis Adaptors are installed on the equipment and
operates with companies on a different level than Pfingsten.
when passing the equipment, it is immediately clear if the
International Growth Partners’ strategy will likely be very
oil is at the correct level, if water is present or if there is any
similar but it will be done in a different way because it
discoloration. This can prevent a great deal of downtime
deals with companies with a longer track record that are
failures. One of our clients had 50 gearboxes located 6m
more attractive. Our growth will be achieved inorganically
overhead on a production line. An employee would take 24
by further acquisitions and a great deal of investment in
hours over three shifts to determine the oil levels of those
human resources and other factors.
gearboxes. With the installation of our Bullseye Visual Oil Analysis, this time was cut down to one six-hour shift.
Q: How did the introduction of the desiccant breather change the market when it was produced?
Q: What would you like to achieve in Mexico?
A: The desiccant breather did not provide a sudden change
A: Our sales strategy is an area we will be focusing on
in the market initially but that began to happen around
tremendously. I envision an increase in key account
10 years later. Our product has not saturated the market,
managers in Latin America and inside sales support specific
and even in the US, we are present in 20 percent of the
to Latin America. Of the three regions in which we want to
potential applications that could use this technology. In
set up key account managers, Mexico would be our first
Latin America, we are in around 5-10 percent depending
choice because it is one of our strongest business partners
on the country.
in terms of product sales. It represents the area that would offer us the quickest ROI. In an upcycle, operators can
In all equipment that uses lubricant, there is a correlation
afford to have equipment running at all costs and in a
between the cleanliness of the lubricant and the life
downturn, our equipment mitigates expense.
expectancy of that piece of machinery. If the lubricant is not exposed to extreme temperatures and is operating under the proper specifications, it should never fail. That
Des-case is a US company, founded in 1983, that designs
is the goal but we know that equipment fails and can do
desiccant breather systems for lubricant protection. The
so at the worst times, incurring huge expenses. Instead of
company also offers fluid handling systems and visual oil
focusing on cleaning the lubricant, our product focuses on
analysis
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Equipment monitoring
AUTOMATION & DIGITALIZATION
11
Mining has undergone countless transformations over the years. The industrial revolution introduced explosives and power tools for the first time and electronics then opened the road to automated processes and robotics. Each wave of technological development has helped to make mines safer, more productive and more profitable. Now, the digital revolution has finally arrived in the industry and is fundamentally changing the way modern mines operate. Centralized fleet-management systems and data analytics allow site managers to make informed decisions from remote locations in real time. Underground Wi-Fi and radio technology keeps workers around the world connected at all times. Digital Twins and the Internet of Things help optimize operating costs and energy use. Automated vehicles are gradually leading the industry away from dangerous, outdated underground human labor.
Put simply, no modern mine can operate without digital technology. This chapter explores the technology that is leading the “Fourth Industrial Revolution� in Mexico, and the impact this movement is having on the mining industry. Among other issues, leading engineers and technicians ponder how far Mexico is from achieving a fully autonomous mine.
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CHAPTER 11: AUTOMATION & DIGITALIZATION 306
ANALYSIS: Digitalization: A Brave New World
307
VIEW FROM THE TOP: Vernon Murray, Emerson
309
VIEW FROM THE TOP: Felipe Rivera, Schneider Electric Systems Mexico
310
INSIGHT: Javier Barella, OSI Soft
311
VIEW FROM THE TOP: Gerardo Gardea, Delta Solutions
312
VIEW FROM THE TOP: Roberto Pérez, Siemens Mesoamerica
314
VIEW FROM THE TOP: Scott Phillips, GE Mining
315
INSIGHT: Sagar Chandra, Rajant Corporation
316
INSIGHT: José Luis Vázquez, JL Vázquez Distribuidor
317
VIEW FROM THE TOP: Jesús Flores, Lasec
318
VIEW FROM THE TOP: John Winterbottom, AssayNet
319
EXPERT OPINION: Álvaro Rendón, ECN Scientific
320
VIEW FROM THE TOP: Alejandro Tafoya, ABControl
321
INSIGHT: Heidi Levitt, NLT
322
ROUNDTABLE: What Impact is the Internet of Things and Other Big Data Tech Having on the
305
Mining Industry?
ANALYSIS
DIGITALIZATION: A BRAVE NEW WORLD Industry 4.0. The Fourth Industrial Revolution. The Internet of
Mexico. “Younger technicians are coming into
Things. Whatever you want to call it, digitalization is changing
the laboratories eager to learn and adopt new
the face of mining, challenging conventional methods and
technologies. Understanding of the data is
catapulting the sector into the modern era
changing.”
Boosted by recovering metal prices, companies now
SAFETY ADVANCES
have more time and resources to put into research and
In 1978, a total of 242 miners died from work-related
development and revolutionary techniques are popping
incidents in the US, according to the Mine Safety and Health
up across the mining value chain. 3D mapping and
Administration (MSHA), a product of inadequate and widely
drone technology guide prospectors toward previously
adopted safety practices. Now, radiocommunication and Wi-
undetectable deposits, advanced radiocommunication
Fi technology enable site managers to keep tabs on workers
techniques keep workers safer than ever and innovative
spread out across the labyrinth of tunnels and shafts. In 2016,
concepts like biomining offer a novel approach to mineral
the MSHA reported a total of 28 fatalities, a record low.
processing. All the while, mine managers can keep track of every aspect of the mining process to minute detail using Big
“Unified communications have brought radiocommunication
Data management systems and automated vehicles.
back to the forefront of mine operations,” says Gerardo
306
Gardea, Director General of Delta Solutions, a Monterrey“With digitalization, plant managers can reduce the time
based provider of radio and GPS solutions for the mining
and money they spend on maintenance and operations by
industry. “Each unit is fitted with an alarm system that
up to 80 percent,” says Roberto Pérez, Head of Solutions at
sounds every time the radio is horizontal for more than 30
Siemens Mesoamerica. “All the data is already available, but
seconds, to warn of a worker accident or fall.”
the problem is that it is spread out over all the assets on a mine. Digitalization allows managers to access all the data in
BIG DATA, BIG IMPROVEMENTS
one place and make a decision on the spot.”
Complementing improvements on the technical side, Big Data technology is becoming increasingly applicable
IF IT AIN’T BROKE DON’T FIX IT
to the mining sector. Fleet management systems and
But it has not always been this way. During the downturn,
inter-operable analysis have advanced to the extent that
operators were forced to put expensive research programs
managers receive information on the real-time performance
to one side and focus on short-term cost optimization. As
of every aspect of the mine operation, from vehicle fuel
a result, the industry garnered a reputation for adopting
consumption and oil temperature to minute-by-minute ore
a conservative, “if it ain’t broke don’t fix it” approach to
extraction figures. The data is collected automatically and
technology. Now, with demand for metals and minerals
presented via a centralized user-friendly interface. This
rebounding, operators are jumping on the opportunity
technology is now being developed to work between mines
afforded by wider profit margins to invest in new solutions
internationally, generating huge savings for multinational
that can have long-term benefits. “The world is changing,
mining corporations managing assets in several jurisdictions.
and companies must adapt parallel to the technology that is available,” says Pérez. “Operators have to switch their focus
But just as the world’s largest mining companies must
away from plant maintenance and toward plant optimization.”
adapt to ever-evolving technologies, so too must the labor market respond to the changes. Workers must now learn
The exploration segment is leading the way. Geological
to control automated vehicles remotely and expertise in
modelling software generates detailed 3D images, allowing
information technology is trumping traditional mining
geologists to visualize mineral deposits and removing
skills. This requires a change in approach throughout the
the need for laborious manual digitalization. Companies
value-chain, from the scientific institutions and research
can now dramatically reduce the risk factor attached to
centers to universities, to ensure that the next generation
expensive and uninformed drilling programs. At first,
of professionals is equipped to take the sector forward.
geologists were skeptical – concerned by an apparent threat
For Schneider Electric´s Felipe Rivera, rather than fearing
to the value of the skills – but the community has now come
the consequences of digitalization, the mining community
around to these solutions. “We have got past a tipping point
must embrace it. “The human factor will always remain a
where people have learned to trust this technology,” says
necessary part of the market and there will be a constant
Rob Ferguson, Director of Product Strategy at Leapfrog,
need for talent,” he says. “Transformation is inevitable but
a 3D modelling platform installed in mines throughout
it does not necessarily imply a massive loss of jobs.”
VIEW FROM THE TOP
WIRELESS SOLUTION FOR SAFE LIXIVIATION VERNON MURRAY Vice President and General Manager Mexico and North Latin America of Emerson
Q: What opportunities does Emerson see in the Mexican
we do vibration monitoring of essential assets and critical
mining sector?
equipment. Vibration is an enemy of the mining industry,
A: Mining in Mexico offers an important growth opportunity
so vibration monitoring is critical for miners to ensure
for Emerson. Reliability, safety and environmental
reliability and production uptime.
stewardship are extremely important for the company and in the mining industry automation plays a key role in all
As for security, miners face exactly the same risks as
those parameters. Mines are harsh environments and the
companies in oil and gas. The quality and proprietary
capabilities of automation and data acquisition today are
nature of the data on mines, including everything from the
allowing miners to monitor information and to act on it
production rate of gold mines to the quality and quantity
more quickly and smoothly than in the past.
of water that is being used, means it is extremely important to manage it in a professional and secure matter.
Emerson recently created a mining center in Chile where Ph.D candidates and specialists work with local industry
The mining industry in the past had to spend money on
and universities to develop mining applications for Mexico
automation and monitoring to reduce costs. Now that prices
and the world. For instance, one of our advancements
are recovering we are happy to see that that trend is not
uses wireless measurements in the lixiviation processes.
disappearing but continuing. Despite the higher prices, we
Lixiviation is difficult from a safety standpoint because
do not see the trend of investing in automation fading away,
employees must go into the field to take measurements
mainly because companies have seen and understood the
from a pool the size of a soccer field. It is a tough
advantages of becoming top-quartile by finishing projects
environment and is located far from the operations
on budget and on time.
center. Emerson partnered with local experts to monitor the lixiviation process remotely with its measurement
Q: How has the Energy Reform changed the Mexican
equipment. Creating a wireless infrastructure by using each
market?
of those pieces of equipment as a self-replicating network
A: The Energy Reform has been rewarding. Both national
guarantees the reliability and continuity of the signals.
and international players are entering the market, diversifying it and opening it to new opportunities as well
Mexican miners are some of the most innovative in the
as investing more capital. These companies are making
world. When we launch new products, Mexican mining
significant investments and have an expectation of returns
companies are among the first adapters. Emerson’s mobile
but first and foremost they have expectations for quality,
worker concept is a tablet carried by an engineer in the field
safety and reliability standards.
to ensure essential assets are operating properly. One of the first installations of a mobile worker in the world was
In terms of reliability, our portfolio for key equipment
done in the Mexican mining industry.
monitoring is the market leader and in measurement systems our portfolio is one of the strongest in the market
Q: What special needs do miners have and how can
with Coriolis flow meters and pressure, temperature and
Emerson help them solve those needs?
level measurements.
A: Miners handle expensive raw materials. Having a minute of downtime in a mine costs a lot of money so the first and most important application for miners is the use of
Emerson is a global industrial automation company that serves
Distributed Control Systems (DCS) to ensure uptime. Water
industries including oil and gas and automotive. Founded in
management is another important piece of Emerson’s
1890 in the US, it helps mining companies improve the effiicency
portfolio, particularly for flow and water quality. Finally,
of their energy usage and mineral handling operations
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VIEW FROM THE TOP
ENERGY REFORM OPENING DOORS IN MINING FELIPE RIVERA Industry Business/Process Automation Hub Leader Mexico and Central America of Schneider Electric Systems Mexico
Q: How does the mining sector fit into Schneider’s global
need for human talent. Automation is an essential part of
strategy?
the mining industry’s advancement and people should not
A: Mining is an industry that uses an intensive amount of
fear its consequences.
energy and we focus on providing technology, programs and services that help maximize elements like water
The way we operate mines today is obviously vastly
consumption. Our solutions involve a series of products
different from the way they were operated 20 years
and services that work toward satisfying the requirements
ago, and it will continue to change in the years to come.
of each mining unit. Silver mining operations in the north
Transformation is inevitable but it does not necessary
of Mexico will obviously differ greatly from a copper
imply a massive loss of jobs. It simply means that the
one in the south so we adapt our services to the varying
way people work in mines will change. It is similar to the
needs of the industry. The mining industry is one of the
entrance of cell phones and computers in the workplace,
oldest in the world and it is undergoing a significant
which increased production rates and changed the
change. We develop technology that adapts to the new
dynamic of the labor force.
and different needs of mining markets around the world. We aim to allow operators access to information easily
Q: What changes will the Energy Reform bring to the
and instantaneously.
mining industry and how is your company helping miners adapt?
Q: What kinds of services do mining companies in Mexico
A: The Energy Reform now allows mining companies to
request from Schneider?
optimize the way they generate energy. The possibilities are
A: Mining companies are constantly in search of technology
limitless when it comes to finding strategies that optimize
that can optimize their processes, resources and human
energy generation. Integrating information from existing
talent. To support this demand, we provide technology
mine infrastructure through sensors and hardware offers
that can train operators in rural areas as a way of ensuring
a more accurate measure of mine processes and ensures
employees have the knowledge that is needed to use
compliance. Through this technology mining operators
expensive equipment.
have online access to information on the status of activities hundreds of meters underground.
We do not offer direct training courses to companies. The mining industry tends to have high rates of employee
Over the last five years, Mexico experienced some
turnover, and it would be expensive for companies to
heavy legislative changes and the transformation not
constantly seek outside sources for training. We find it more
only impacted the energy sector but also the finance,
efficient to provide clients with software that can digitally
labor and telecommunications sector. Many of these
simulate important aspects of the operation. The programs
reforms are bound to affect the mining industry. The
can adapt to the dynamic needs of mining units and this
Telecommunications Reform will help the mining industry
allows operators to provide training as needed, even on a
become better connected to the Internet and the Internet
daily basis. It helps create an overall safer environment in
of Things (IoT). This is especially important considering
mine sites.
that the mining industry tends to work in isolated areas.
Q: To what extent should the industry be worried about job losses in the face of technological advances?
Schneider
A: No matter the technology, the human factor will always
management, helping clients optimize energy levels and
remain a necessary part of the market. The types of jobs
resource consumption to create an overall more efficient and
required will obviously change but there will be a constant
sustainable level of production
Electric
is a
global
leader
in
electricity
309
INSIGHT
INNOVATIVE SOFTWARE SOLUTION ATTRACTS INDUSTRY HEAVYWEIGHTS JAVIER BARELLA Regional Director North Latin America of OSI Soft
As an industry, mining is not known for its readiness
by any company with operations large enough to need it,
to adopt new technology that challenges established
regardless of the sector in which it operates,” says Javier
methods. But the emergence of IoT and Industry 4.0
Barella, the company’s regional sales manager for Mexico
are making it increasingly hard for executives to resist
and Central America. “Nine out of the 10 largest metals and
transition. OSI Soft designs open enterprise infrastructure
mining companies in the world use our system.”
to help industrial companies optimize their processes 310
via operational intelligence. Its flagship PI System, which
With automation technology increasing the importance of
generates real-time infrastructure data to be transferred
computers in mineral extraction and production processes,
onto different platforms for immediate analysis, can be
mine operators can find themselves having to analyze
adapted to sectors varying from oil and gas and energy to
a myriad of different networks simultaneously. From
pharmaceutical and transportation. A total of 65 percent of
remote-controlled vehicle tracking devices to innovative
Fortune 500 industrial companies currently use the system,
filter management systems, platforms like the PI System
and it has proved a massive hit in the mining sector with
enable operators to keep track of several networks via one
heavyweights Barrick Gold and Anglo American both on
centralized base. The data generated allows the user to
the company’s client list. “This technology can be used
assess the systems’ performance quickly and accurately.
VIEW FROM THE TOP
REGULATION STRUGGLES TO KEEP PACE WITH TECHNOLOGY GERARDO GARDEA Director General of Delta Solutions
Q: What does Delta Solutions expect from its mining
of collapse but unified communications have brought it
division?
back to the forefront of mine operations. This technology
A: Delta Solutions will celebrate 30 years in the market in
also represents a step forward in terms of mine security
2018 and although we work in a variety of sectors we see
because every worker can be located using an indoor GPS
great opportunity in mining. As the sector recovered in
system. Each unit is fitted with an alarm system that sounds
2016 and 2017, we made a conscious decision to expand
every time the radio is horizontal for more than 30 seconds
our mining division and are now devoting more time and
to warn of a worker accident or fall. 311
resources to the mineral extraction industry. We have been working with Industrias PeĂąoles for 28 years. Delta
Q: How open is Mexico to this new technology?
Solutions is strengthening its client relationships and with
A: I believe there is tremendous progress being made.
the help of constantly evolving technology, working with
The people making decisions in mines in Mexico are well
them to solve specific issues. We recently signed a deal with
versed in technology and innovation and the benefits it
Minera Media Luna, a subsidiary of Torex Gold, and we also
can bring.
work extensively with Goldcorp. Mining now represents at least 20 percent of our total sales, up 2 percent from the
The issue today is not technology or finances, but regulation.
previous year.
The authorities need to catch up. Radio frequencies in Mexico are heavily regulated and unfortunately this means
Q: What are the main technological trends dominating the
that it can be difficult to obtain the permits to apply the
communications industry?
unified communication technology. The laws have not been
A: We are focused on improving on-site means of
adapted to reflect technological developments, and this
communication for mining companies, to the extent that
is limiting the sector in Mexico. However, a new law was
it becomes a key contributor to productivity and, most
recently passed that requires all individuals working in a
importantly, security. It is also vital to make sure new
mine to be in constant communication with each other for
designs are adaptable and scalable. Our clients are under
security reasons. This is not possible if we cannot access
pressure to become more sustainable and therefore they
the radio frequencies so I am optimistic that we will soon
cannot be seen throwing away their old models each time a
see an improvement in this area.
new design becomes available. We therefore always ensure the upgrades complement existing units, rather than replace
Q: Which strategies does the company have in place to
them, which has economic benefits for our customers.
continue growing and expanding its client base in Mexico? A: The radiocommunication industry is becoming reliant on
The biggest breakthrough in radiocommunication
Wi-Fi technology, and this is dependent on networks so we
technology is a concept called unified communications.
need to streamline all our innovation efforts to strengthen
Previously, radiocommunication was used exclusively for
this area of the business. Happily, the company is growing
sending messages between specific operating teams but
on a yearly basis. To celebrate our 30th birthday, we will be
now these messages can be transmitted across various
opening a new office in Monterrey and our workforce will
mediums including mobile phones, tablets and any other
be increasing to over 80 employees.
device that has access to Wi-Fi. The user simply has to download an app, which is widely accessible, and then connect to the other members of the team. This means
Delta
that workers in any mine in the world can communicate with
radiocommunication solutions for the mining industry. The
each other via radio. Around 10 years ago, many observers
company represents world famous businesses including Motorola
thought the radiocommunication industry was on the verge
and Kenwood, and is celebrating 30 years of operation in 2018
Solutions is
a
Mexican
company
that distributes
VIEW FROM THE TOP
MINERS WAKING UP TO ENERGY REFORM ROBERTO PÉREZ Head of Solutions for Siemens Mesoamerica
Q: Where does the mining sector fall into Siemens’ overall
Mexico because we see far greater potential in juniors than
business strategy?
with large companies that already have well-established
A: Mining is one of the most important vertical markets
processes. We can approach small and midsize mining
for Siemens worldwide. The mining market is one of the
companies and discuss an entire concept, including total
largest consumers of our motors so it is a vital component
plant digitalization and cost of ownership.
of our core business. We supply to the market through 312
OEMs, distributors and via direct sales. In fact, we are
Q: How did the Energy Reform change the mining sector
making a concerted effort to increase our portion of
in Mexico and what impact did it have on Siemens’
direct sales to the sector because we believe technology
business?
companies can add tremendous value to a new mine.
A: The Energy Reform is an important milestone for the development of the country because it is a big step toward
We find that distributors and OEMs tend to focus more
the reduction of CO2 gas emissions in the country. It is one
on the financial side of the investment, whereas we want
of the most advanced reforms to have been implemented
to speak directly to the operators and demonstrate the
globally and is attracting vast amounts of new business
long-term value of the concept and design. Cost reduction
to Mexico. Electricity costs for industrial sectors, including
is always positive but in mining it is essential to look at
mining, have already dropped and they will continue to do
the costs over a minimum 10 years and not simply make a
so as the country adjusts to the new regulations.
decision based on the initial price. I feel the most important change will be for solar and Q: What strategies do you employ to increase your direct
wind energy. Today, 20 percent of energy production is
sales and who are the primary targets for expanding
clean energy, while wind and solar represent 3.3 percent
Siemens’ client base?
of total production. The Energy Reform will increase clean-
A: We have to change the mindset of the mining
energy production by around 35 percent over the next
companies, so we present an electrical and/or automation
10 years. The reliability and storage of renewable energy
concept that makes sense for the customer in the long
is also improving and this will help encourage industrial
term. We emphasize the improvements to the safety,
companies to make investments and reduce consumption
reliability, efficiency and productivity of operations over
of fossil fuels.
a 20-year period. We are fortunate that our main clients in Mexico are Goldcorp, Grupo México and Industrias Peñoles,
The mining community is now starting to make the most
all of which have substantial experience in mining and
of the opportunities presented by the Energy Reform and
therefore share our vision. We work with these companies
Siemens, as an experienced drive-control manufacturer, is
to improve reliability through equipment upgrades and
obviously well-placed to benefit from the new environment.
maintenance in existing plants.
One of the first to make its move was Grupo México. The company already has two power plants generating 516MW,
We are also making a concerted effort to do business
and both were built by Siemens. There is a great willingness
with smaller companies that are entering the market in
from companies to invest in energy and a number of specialist law firms and consultancy groups have been set up to help guide mining companies through the changes.
Siemens is
a
German
manufacturing
and
electronics
It is going to have a great impact on Mexico.
conglomerate founded in 1847. The company provides drivecontrol, energy efficiency and a range of digital solutions to
Q: What does Industry 4.0 mean for the mining sector
the mining industry
and how is it affecting the industry?
A: The world is changing and therefore companies must adapt parallel to the technology that is available. In some sectors, including mining, there is a certain inertia and this is what needs to change. Operators have to switch their focus away from plant maintenance and operation toward plant optimization. With digitalization, plant managers can reduce the time and money spent on both maintenance
The Energy Reform will increase clean-energy production by around 35 percent over the next 10 years
and operations. All the data is already available but the problem is that it is spread out over all the mine’s assets,
buyers also have a duty to take a chance on new ideas
from heavy vehicles to drill rigs and processing plants. To
and believe in our work.
make a decision, a manager must invite 20 people for a call or meeting and decide together on the best route to
Our main focus in the short term is to simplify digitalization
take. Digitalization removes the need for this drawn-out
and make it more appealing to mining companies. We can
process, allowing managers to access all the data from
then begin to change the mindset of the mine owners to
one common platform and make a decision on the spot.
focus the company efforts on optimization and not just maintenance. We are looking for the right partner who
Due to the nature of mining operations around the world,
shares our vision of a fully digitalized mine in Mexico.
it is difficult to develop a standardized digitalized system for the sector. We are working on an automated platform
Technology is causing us to move forward, increasing
that can be linked to different mines worldwide, aligning
productivity and generating additional resources that end
our customers’ global operations.
up creating more jobs and exploration opportunities. While many are wary of the implications of increased technology
Q: How does Siemens’ approach to digitalization differ
in terms of job losses, this is certainly not the case. Rather
from competitive solutions available on the market?
than replacing human capital, it generates new information
A: We are trying to create the most complete, safe and
and more knowledge. But while Mexico is making strides in
profitable product that can be applied across the lifecycle
adopting new technological advances, the country still needs
of a mine. Clearly, we have a duty to develop new systems
more structured data that will help companies make efficient
and products that can benefit our customers but the
decisions in the future, and this is what we are striving for.
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VIEW FROM THE TOP
LEADING THE WAY FOR INDUSTRY 4.0 SCOTT PHILLIPS Vice President and CEO of GE Mining
314
Q: What are the main areas of opportunity for your
behavior and context of a physical industrial asset – all
business in the mining industry?
made possible by Predix. It is a key piece of technology
A: The mining industry faces strong headwinds and must
for the mining sector. It can create a digital model of an
drive productivity and improve operational savings. Mining
entire process for customers to understand the analytics in
companies continue to experience volatile commodity
real time and predict possible failures. Real-time equipment
prices and challenging economic fundamentals as global
data is compared to the Digital Twin’s predicted behavior,
demand slows. Following an extended period of massive
uncovering potential issues and preventing failures.
capital investment, the mining industry is now firmly focused on improving productivity and sustainable cost
Q: How do you evaluate the mining sector in Mexico and
management. Miners face declining ore quality, operations
what importance does it hold for GE?
dig deeper underground or in remote locations to find ore,
A: Mexico is an important market for us. We have a great
and a macroeconomic context that changes frequently with
relationship with prestigious operators such as Grupo
commodity prices. This makes it increasingly challenging for
México and Fresnillo, to whom we offer electrification and
companies to access capital. It can also be difficult to find
water solutions. We enjoy spending time with our Mexican
workers with adequate skills, capabilities and qualifications.
customers. By clearly explaining the positive outcomes of
We believe in using technology to close this talent gap.
implementing information technology, we can illustrate the amount of productivity they can unlock with our solutions.
The industry acknowledges that digital technology and
Companies can see the benefit of larger initial investments.
the use of information is an effective way to understand
We put ourselves in their shoes, and take ownership of the
and analyze ore bodies, drilling blast cycles and excavation
outcome.
procedures. The idea is to use technology to acquire information and insert it into a platform to analyze it. It is a
Q: What will be the importance of industry 4.0 to the
way to provide mining customers data in real time so they
mining sector and how will this revolutionize the way
can adjust quickly. We have an opportunity to help solve
operators do business?
these challenges in the mining sector. Our idea is to connect
A: Bringing Industry 4.0 to the mining industry enables us to
the entire industrial ecosystem and unlock productivity
solve the real problem of productivity. The question for all
potential. Influencing productivity by at least 1-3 percent
miners right now is how to produce more from less. Digital
implies thousands of dollars for our customers. The idea is
Mine connects all mining assets, providing operators with
to become more productive and cost-efficient.
information in real-time on a tablet or screen. Operators can identify inconsistencies before they become issues, thereby
Q: What advances has GE mining made on digital twin
reducing unplanned downtime, optimizing operations and
technology?
enabling proactive processes.
A: Digital twins are dynamic digital representations that enable companies to understand and predict the
GE has led the way in transforming into a digital industrial
performance of their machines and their business. Digital
company, adding value from its extensive network of assets
twins are a persistent digital model of the structure,
through the industrial Internet and driving productivity across its business through the Digital Thread. GE Mining marries technology and deep industry expertise. Customer
GE Mining was launched in 2012 as General Electrics global
processes are mapped and studied to identify bottlenecks.
mining business unit. The solutions it offers include water
Solutions are identified to match sensor technology with
treatment systems, drill guidance technology and electric drive
process KPIs to learn how adjustments can be made real-
systems
time to optimize processes and increase productivity.
INSIGHT
INDEPENDENT NODES CREATE FAIL-SAFE WIRELESS NETWORK SAGAR CHANDRA Vice President, Business Development, Latin America at Rajant Corporation
When New York’s Twin Towers came crashing down on
and independent nodes. “One of the key factors of the
Sept. 11, 2001, so too did the communications system across
technology is that there is no central controller,” says
the city, making the jobs of the paramedics and firefighters
Chandra. “With other network systems on the market, if
even more challenging than they already were. Without
the central node goes down, the entire system collapses.
a fully functional wireless network, the response teams struggled to coordinate their efforts and their performance suffered as a result. But out of crisis comes opportunity. Rajant Corporation was founded in October 2001 with the precise goal of providing a wireless network system that could be deployed in a disaster zone. Sagar Chandra, the company’s Vice President for Business Development, Latin America, explains that speed of installation was at the heart of the initial technological design process. “We wanted to create a standards-based solution that would be applicable to a range of situations and
“
Our design reduces the risk of failure dramatically.”
With other network systems on the market, if the central node goes down, the entire system collapses. Our design reduces the risk of failure dramatically”
projects, and could be installed in short order,” says Chandra. “Initially, we created the product for first responders and we
Rajant serves a worldwide customer base but Peru and
have successfully deployed our private wireless networks in
Mexico are leading the group’s expansion into Latin
many other markets including military, mining, transportation
America. In 2011, the Kinetic Mesh Network system was
and oil and gas.”
installed on the Caterpillar vehicle network at Fresnillo’s La Herradura gold mine just south of the Arizona border.
Given the harsh, remote nature of the projects, the company
In early 2016, Rajant expanded its global distribution reach
soon turned its attention to the mining industry. Since 2008,
by adding Alliance Corporation to its existing channel
the company has installed its Kinetic Mesh Network in over
partnerships. “By having a distribution channel in Latin
100 mines around the world, and mining has become one of
America, we believe we are in a better position to readily
Rajant’s most important markets. The Kinetic Mesh Network
support and serve the growing demands of the mining
system is essentially a web of interconnected wireless mesh
sector in all of Latin America,” says Chandra. “We have eight
nodes that each house up to four radios, set to different
active channel partners in Mexico, that represent resellers,
frequencies to avoid a single point of failure. The nodes
system integrators and wireless integrators.”
are deployed at strategic locations throughout the mine site, connecting the entire operation 24/7. “This gives the
Given the fact that fleet management and vehicle-health
customer full wireless coverage throughout the operations,”
monitoring is such a crucial part of surface mining in
Chandra explains. “Once coverage is established, the nodes
particular, there has traditionally been a stronger need
are installed on all moving assets in the mine, connecting
for a high-capacity mesh network on open-pit mines. This
them to each other as well as the fixed assets.”
segment is still where the majority of Rajant’s demand comes from but Chandra explains that the company is
Wireless coverage at mine sites is not a new phenomenon
receiving more and more enquiries from underground
but Rajant’s solution offers something different from its
operators. “As businesses invest more in applications
competitors. The nodes, colorfully called BreadCrumbs
to improve efficiency, the connectivity requirements in
because of their ability to retrace steps in a Hansel and
mining continue to increase as a result,” he says. “That is
Gretel-like manner, are fully autonomous, self-reliant
where Rajant can help.”
315
INSIGHT
TECH PROMOTES ZERO-ACCIDENT MINES
“
Our company guarantees a return on investment within a few years and our clients can use a percentage of this capital to pay for our services and keep the equipment” José Luis Vázquez, General Manager of JL Vázquez Distribuidor
sites became a particularly attractive segment of the industry to drive down costs. Now, according to Vázquez, the mining industry finds itself in a unique position as geopolitical instability is helping the price of metals spike and creating many areas of opportunities for growth. Companies like JL Vázquez can continue to help operators be more efficient, safe and compliant by distributing tracking systems, gas detectors that automatically turn on exhaust fans as needed and other telecommunication services, now with higher margins. Vázquez also stresses the impact of safety on costs. JL Vazquez promotes the development of zero-accident mines through the role that technology plays in operations
316
When jumping on the automation bandwagon, the most
and provides collision avoidance systems that detect
significant barrier operators can face is lack of investment
the proximity of surrounding objects or people. “Safety
capital as the technology tends to incur a high initial
technology is no longer optional as the Ministry of Labor
investment. Automation technology is also a continuous
issued norm 023 in 2012, which requires operators to keep
investment as mines that expand have to adapt the
a tracking system of people that are working in mine sites,
system to their growing needs with extra components
preferably in real time,” he says. A tracking system can
and cooling systems.
also prevent fatal mistakes due to the massive blind spots of certain machines. The system emits visual and audible
JL Vázquez Distribuidor differentiates itself from other
preventive alarms when the proximity is dangerous. When
suppliers by offering a unique payment program to solve
it reaches 5m the machine automatically turns off and
this problem. “We let our clients pay us with the difference
prevents fatal mistakes and collisions.
in energy savings our ventilation system provides while we finance the installation of the products,” says José Luis
Another problem JL Vázquez’s tracking systems can resolve
Vázquez, the company’s General Manager. “Our company
is the danger associated with proximity to blasts, which
guarantees a return of investment within a few years and
is exacerbated by faulty tracking of employees and poor
our clients can use a percentage of this capital to pay
communication. The company provides products that
for our services and keep the equipment.” This opens
manage long-distance control of blasts to ensure the well-
doors for companies that might not be able to afford the
being of operational and resource management. “Many
equipment otherwise.
mines have a simple whiteboard where employees place a form of identification to indicate that they are inside of
The company’s main product supplier is PBE Group and
the mine site,” Vázquez explains. “But they often forget to
JL Vázquez works as a distributor of its systems. With
remove their card upon exiting. This can create problems
representatives in states such as Chihuahua, Vázquez is looking
as blasts cannot be executed if there is a possibility of
to expand to other mining-rich jurisdictions such as Sonora,
someone being inside the mine.” These types of mistakes
Sinaloa and some southern states. “JL Vázquez depends
cost millions of pesos as scheduled blasts that are delayed
on representatives for the sole purpose of distribution and
or canceled still have to be paid for whether or not they
sales because we prefer to carry out the installation ourselves
actually go ahead.
due to our expertise,” Vázquez explains. With business in mines such as Tayahua, San Francisco, Hercules, Saucito and
JL Vázquez’s tracking system can prevent costly errors by
Madero, the company is working on expanding its business
installing access points in all entrances and exits. This limits
with Canadian companies like Goldcorp and expanding its
the possibility of human error and provides live data on the
services to open-pit mines. “Our biggest project is Saucito,”
status of mine employees. It can additionally be modified
says Vázquez. “We are in charge of everything from quality
to signal whenever a resource like water is low, which can
control to cameras and leaky feeders.”
be dangerous during a blast. “In the past, miners used to manually set off explosions and run but now systems can
With the metals price downturn, automation and the
carry out the process automatically and in a safer way,”
development of new telecommunication systems in mine
says Vázquez.
VIEW FROM THE TOP
MINING AUTOMATION ATTRACTS COMPUTER EXPERT JESÚS FLORES Director General of Lasec
Q: How did a computer company become a fixture in the
mines in Coahuila. We have also started to produce these
mining industry?
products locally in Zacatecas, which saves time and money
A: When Lasec was founded, we were initially focused
on shipping.
on identifying computer problems. After a few years, we started to look at the local mining industry and we realized
Q: What is the primary objective of the company’s R&D
that the majority of communication service providers
efforts?
were foreign enterprises. We saw a gap in the market for
A: Safety continues to be the main challenge for underground
a Mexican designer so we decided to start working on a
mines. In 2016, we completed work on a product that could
leaky feeder system to be installed in underground mines
become a leader in protecting the safety of underground
in Mexico to help workers communicate via radio. We are
mine workers in Mexico. The product, called Smart Flow,
now one of the leading providers of leaky feeder, Wi-Fi
allows mine managers to keep track of each worker in real
and fiber-optic system radios, not only in Mexico but on
time and is a great tool for helping companies comply with
a global scale. The mining industry represents at least 95
the Norm 023 regulation, which dictates that mine operators
percent of our business.
must know exactly where all the workers are at all times. The Smart Flow technology allows users to carry out a
Q: What led to the acquisition of the company by Becker
full evacuation in the case of emergency much faster than
Mining Systems in 2014?
competitive solutions. The basic technology has been used
A: We had been working with Becker Mining Systems
in places like Australia and Canada for many years but it is
for many years on a number of products and this strong
entirely new in Mexico. We installed this product at Industrias
relationship inspired the German company’s decision to
Peñoles’ Tizapa project in the State of Mexico. This is the
buy out a part of Lasec. From our side, we were delighted
only mine in the country in which all workers are tracked on
to welcome Becker into the business because it is a name
a constant basis throughout the entire operation.
recognized around the world and it had technology in its portfolio that perfectly complemented our product line.
The long-term objective is to design an intelligent, centralized
We were looking for opportunities to diversify and Becker,
solution that automates the entire operational flow within an
with its decades of global experience and wide range of
underground mine. This means enabling the operator to have
solutions, was the perfect partner. Around 80 percent of
real-time knowledge of where each worker and vehicle is at
Becker’s business was dedicated to soft rock, mainly coal
any given moment, how each unit is performing and what
mines, while Lasec has always been a specialist in precious
might be needed to maximize mine performance. For the
metal, hard-rock mines. The deal provided Becker with an
most part, we are helped and encouraged in our efforts by
opportunity to penetrate the hard-rock market by creating
our customers. There are still some mine managers in Mexico
a formal partnership with Lasec.
that think exclusively about how to extract greater quantities of ore, and therefore do not take the time to analyze the
Q: How has this partnership changed Lasec’s business
benefits of communication technologies, but I would say
model?
that these people only represent around 30 percent of the
A: In Coahuila there is a sizeable collection of coal mines,
community now in Mexico.
which are not present in the rest of the country, and a direct offshoot of the cooperation between Lasec and Becker has been our ability to enter this market. Becker has a variety
Lasec
of automated solutions for underground soft-rock mines,
information technology, telecommunications systems, power
including conveyor-belt controllers, monitors and energy
distribution, electric power quality and roof supports to
distributors. We are now distributing these products to
underground mines. The company is based in Zacatecas
offers
consulting,
engineering,
implementation,
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VIEW FROM THE TOP
INTEGRATED DATABASE SYSTEMS FORESEE PROBLEMS, TRENDS JOHN WINTERBOTTOM Technical Manager of AssayNet
318
Q: How do you perceive the quality of Mexican mine labs
We differ from existing companies in Mexico by offering
and how does Mexico differ from other countries?
services that go beyond mining laboratories. Mine sites
A: We find that there are absolutely no differences in quality
are usually divided into different areas that have separate
between mine laboratories in Mexico, the US and Canada.
systems and our program collects information from all these
But in comparison to other countries, Mexican mines
departments to integrate it into a single database. It creates
have laboratories that are more labor intensive due to the
a much more complete panorama of the mine that can be
country’s lower labor costs. Laboratories in the country
used to foresee patterns, trends and areas of opportunity.
can afford to employ a larger number of highly qualified personnel while other countries have to pay employees
LIMS is a way of managing, collecting, storing, validating
much more. Companies often find that robots are most
and distributing the analytical results. Different departments
cost-effective in other areas of the world. We just installed
are usually simultaneously sending samples to mining
a program for a large iron-ore mine laboratory in Australia
laboratories, which can be tricky to manage without a
that is almost completely operated by robots.
proper program. Throughout the processing plant, the ore needs to be continuously analyzed to make sure that
Q: What are the advantages of the data management
it is under control and continuing as planned throughout
system AssayNet offers?
the production chain. The idea of LIMS is to avoid human
A: We find that integrated database systems are new in
errors. It speeds up the process and promotes traceability
Mexico as the programs that are used by the different
for audits.
divisions within mine sites are quite isolated. We help integrate systems by communicating with vendors
Q: In what ways does your program help mitigate accidents
that supply the existing databases of a mine. They are
in mine sites?
usually quite happy to share with us the data we need
A: Our system may not be able to prevent large accidents
as it is a mutually beneficial arrangement. The suppliers,
like Grupo México’s incident in its Buenavista del Cobre
the operators and our team all receive a more complete
mine but it can help with more minor incidents that often do
spectrum of data to offer better solutions.
not get the attention of the media, such as small seepages of cyanide solution. These leaks are usually so tiny that
AssayNet is a software company that offers laboratory
companies do not notice them. Our system can help find
information management systems (LIMS) as its main
them by mapping trends. For instance, a PH that randomly
product. The company targets mine laboratories, and
varies from 7.8 to 8.1 is not usually a concern but our system
commercial and governmental laboratories that are
can warn operators when it finds that the balance is slowly
complementary to mines in the country. We originate from
increasing over time from 7.5 to 8.3.
Canada and we already manage mines such as Peñasquito for companies such as Goldcorp. In Mexico, we serve various
Q: What future do you see for mine laboratories within the
Canadian companies that are familiar with our services but
industry as a whole?
Grupo México is the only Mexican company we serve. We
A: Our vision is to expand within mining laboratories by
hope to work more with local companies.
building mobile applications that facilitate the real-time view of the data we offer. Traditionally, companies receive data though phone calls. This is dangerous because it allows
Assaynet develops state-of-the-art laboratory information
room for misinterpretation and errors. We inform clients
management systems (LIMS) that can integrate the different
through monitors that can instantly show results on the
databases of a company’s division into a safe and accessible
screen and send alerts if something goes wrong, which is
program
faster, more accurate and efficient.
EXPERT OPINION
INDUSTRY 4.0: CREATING INTELLIGENT MINES Ă LVARO RENDĂ“N Director of ECN Scientific
The connected industry, or Industry 4.0, is the standard
private companies dedicated to the development of
title that defines the technological impact of cloud
solutions for mining process optimization, so that the
computing and the Internet of Things (IoT) in the operation,
new professionals who will use this new intelligent mining
maintenance and supply chain groups of industrial
can be prepared. Mining companies that install the first
operations.
systems must allow universities and research centers to use these early systems as training centers for new
The IoT is comprised of cloud servers that collect
engineers. 319
information from field devices through the IoT Hub, which is the gateway to the cloud and in charge of achieving a
All mining companies should start a process of digital
secure connection of our data. This IoT Hub can also be
transformation to remain competitive. This trend will
connected directly to the DCS of a plant or servers with
attract metallurgy and process control professionals to the
existing plant databases.
companies that invest the most in the digital transformation, meaning companies will have difficulties retaining qualified
These connected services will generate new business
labor if they do not adapt to the new landscape. In the same
models and a new generation of expert consultants based
way, companies that supply and service mining companies
on the prediction models that can be programmed into
will have to transform and adopt this technological trend,
existing Machine Learning servers on the cloud. New
or they will be replaced by new companies that can provide
DNA is being developed, which will be a combination
a connected service.
between process engineers and computer engineers. This will program live-stream data, which after being filtered,
Professional positions at the operational and logistics
validated or discarded, will build predictive models that
monitoring centers will be among the new jobs generated
will be dynamically adjusted and can be used in real time
by miners. These jobs were traditionally something that
through web services. With these, we can integrate our
were created exclusively by large multinational mining
process monitoring to use as information in our decision-
corporations. On the contrary, the scale of the mining
making.
operation will not hinder these efforts because the necessary infrastructure does not have to be acquired as
Imagine a scenario where all suppliers are able to define,
an asset but as a cloud service, which will be incrementally
in real time, the adjustments or improvements they must
invested in and will follow a critical optimization path.
make to their product to send to the customer. For example, the firmness of each section of a mill’s internal linings can
In short, we have to create the intelligent miner ourselves. In
be adjusted, based on the different waste generated by
the future, the devices or systems connected using IoT will
each section, so that the new batch will achieve a more
generate large structured databases (Big Data), which can
uniform wear. Furthermore, a connected service from this
generate statistical prediction models (Machine Learning).
supplier could alert the mechanical or process area that
These models can be fed back to the process control
some equipment is operating outside its specifications, thus
systems, so that they use the parameters in their control
registering events where coatings could suffer greater wear,
loops and thus achieve the optimization of processes.
as in the cases of loading and unloading mill cycles. New business models will emerge that, like Optimization The Mexican mining sector must, as soon as possible,
as a Service (OaaS), will give rise to a new generation of
promote the creation of an Innovation Center for Mining
consultants who will be able to use the remote-monitoring
4.0, as has already been done in other countries. Efforts
platforms for industrial plants, matching what has been
should be focused on research centers, academia and
done for years in the oil and gas industry.
VIEW FROM THE TOP
INTELLIGENT TECH MAKES MINES EFFICIENT, POWERFUL, SAFE ALEJANDRO TAFOYA Director General of ABControl
Q: How have ABControl’s strategic priorities within the
with fundamental providers who will become part of our
mining industry evolved?
MINE platform.
A: The Mexican mining sector has been changing very
320
quickly in recent years and the companies that provide
Q: In what way is ABControl a technologically innovative
technology and services have been forced to do so too.
business?
The mining sector has stopped looking at production as
A: The MINCOM1 communication system is a pioneer in
its only goal. Today, it wants to be not only productive and
incorporating broadband power line (BPL) technology
efficient, but sustainable and responsible in a social context.
in subterranean mines. It also maximizes the cost-benefit
ABControl’s priorities have developed throughout 12 years
of these projects, since it does not require optic fiber or
of operations. We have turned from being a company that
special cables to communicate. MINCOM1 uses the same
offered only automation solutions for the mining sector
high and low-voltage infrastructure already installed in the
to a company that now provides turnkey projects in high
mine and serves as the medium whereby all MINE-enabled
and low-voltage systems and processes automation
gadgets communicate among themselves.
and electrical substations for the mining, energy and construction sections. The mining sector demands that
MINE incorporates open communication equipment in such
companies provide solutions and services of a greater
a way that it is not limited to connecting with ABControl’s
presence, quality and impact. Besides this, they must offer a
Smart P devices. Rather, any type of equipment is
rapid response and solution when supporting maintenance
compatible, provided it communicates in standard industrial
issues, especially from those companies that provide high-
protocols using serial port or RJ-45. All these conditions
tech solutions, such as ours.
mean MINE is the ideal architecture for any critical mine equipment in terms of cost-benefit, facility of integration
Q: What new technology are you bringing to the mining
with the Smart P and other components and simple and
market and how do they offer value?
fast network movement.
A: Our Mine Intelligent Network (MINE) technology was developed in our work plant in Coahuila and has since
Q: How does ABControl adapt its abilities and ambitions
been installed in Fresnillo’s plants. It has exceeded initial
to face operational and technical challenges?
expectations. MINE integrates the equipment and machines
A: With the continuous improvement of the processes in the
inside the mine through a communication channel that
mining industry, it is crucial to have equipment that analyzes
uses high and low-voltage electricity lines, breaking
the user’s needs to guarantee their continued relevance. As
the old-fashioned paradigm that expensive fiber-optic
a company dedicated to automation processes, we have
installations or coaxial cables were required for a well-
identified a huge area of opportunity in the design and
connected underground mine. This is not the case with
commercialization of high- and low-tech systems for the
our MINE platform due to an easy installation of its three
specific needs of the mining industry.
essential components, which can then be relocated when required. Along with our high-value solutions for safety and
The proven proficiency of ABControl in the energy segment
efficiency we will continue to generate strategic alliances
is striking. We already have an installed control and protection base in more than 100 substations throughout the country and the majority of our projects are approved
ABControl , founded in Torreon in 2005, offers automation
by the Laboratory of Equipment and Material Testing
and control needs for the energy, mining and construction
(LAPEM). This proficiency is being channeled toward
industries. Its flagship product is the Mine Intelligent Network
developing further mining solutions with the aim of making
(MINE) integrated communication system
the industry more efficient, powerful and safe.
INSIGHT
“
QUALITY OVER QUANTITY FOR COMMUNICATIONS COMPANY
Even though Mexico is a highly underprivileged market, it really embraces quality. The country seems to be willing to spend money on technology if the quality is worth the investment”
Light has penetrated the cap-lamp business and is now
Heidi Levitt, President and CEO of NLT
Companies normally start with voice systems, Levitt says,
looking to expand its offering. This expansion comes at an opportune time as Mexican companies are becoming more concerned about safety and measuring air quality to avoid compromising employee health and safety. “In certain cases, companies may opt for buying a cheaper system and end up recognizing that they need a full solutions system,” says Levitt. “They then come to us in search of a more professional system. Mexico is becoming more receptive to the digital mine concept.”
because it is an easy way to transition into increased automation and has a tangible value from the outset.
Despite the availability of lower-priced and often lower-
“All companies want to communicate faster. This system
quality products, Mexican consumers appear to put a
allows staff outside the mine to talk to specialists in the
priority on quality and are willing to pay for it. A McKinsey
mine through an underground phone system,” she says.
and Co. study in 2012 found that, after the financial
The old leaky feeder technology using UHF or VHF radios
downturn, only 4 percent switched to less expensive
only allows internal users to communicate, with a dispatcher
alternatives. Heidi Levitt, President and CEO of Northern
facilitating the call. But with voice over IP (VoIP), the
Light Technologies, says this trait bodes well for companies
connection works just like an extension and colleagues
like NLT.
outside the mine can also be contacted.
“Even though Mexico is a highly underprivileged market,
These kinds of automated systems are the first step toward
it really embraces quality,” she says. “The country seems
increasing productivity. Northern Light, which was the first
to be willing to spend money on technology if the quality
company to introduce Wi-Fi networks to underground coal
is worth the investment.” This, she says, serves the
mines, can create Wi-Fi ecosystems in mines that enable
company well given the increased competition caused
people to move faster, which saves the company money
by the lower-quality products that are flooding in from
as it optimizes productivity and strengthens safety in
Asian countries.
operations. Solutions such as health metrics are important as data is collected from mining machines that operators
Northern Light, which develops and deploys technologies
can use to measure when they need to change a piece of
to make mines safer and more efficient, is focusing on
equipment in real time and other significant details.
getting its digital communication products into Mexico to enable communication underground and on surface
“Our Wi-Fi infrastructure is easy to use and can be managed
mines. The technology allows companies to track people
by users that do not have highly technical expertise,” says
and equipment, optimizes safety and operational costs
Levitt. “We have slick software that maps out mines in the
and automates mines. Northern Light recently introduced
same way that Google Maps works. Companies can use it
equipment into a mine in Durango belonging to Grupo
to zoom in and out and updated maps can also be installed
Bacis, which Levitt says will be the company’s market test;
into the software quickly to make sure the map does not
end users, after all, are usually unwilling to play the role of
remain static.” Users can even use these systems to check
guinea pig.
their email accounts underground.
“Mexico is an important market sector for us because it has
This adaptability has allowed Northern Light the
a tremendous amount of mining and exploration potential,”
opportunity to work with Bacis and soon Levitt hopes to
says Levitt. The company also has a strong relationship with
establish relationships with other major operators. With
its Mexican distributor, which gives the company invaluable
the right demand, the company is even willing to set up
experience from a local context, as well as a great number
manufacturing facilities in the country, meaning it will be
of connections in the mining market. As a result, Northern
here for the long haul.
321
ROUNDTABLE
WHAT IMPACT IS THE INTERNET OF THINGS AND OTHER BIG DATA TECH HAVING ON THE MINING INDUSTRY?
Mining technology has come a long way since the days when canaries were sent down the shaft to warn workers of carbon monoxide leaks. A few years ago, concepts like Big Data and Industry 4.0 were seen by miners as gimmicky, expensive and impractical. But today the digital revolution is sweeping through the industry, paving a way toward greater efficiency throughout mining operations and forcing executives to rethink their technological strategies. Mexico Mining Review asked a range of industry players for their opinion on how digitalization is shaping the mining sector both locally and on a global scale.
All of our key solutions, including Downhole Navigation, Structural Geology, Infield Geo-analysis, Driller Operable Geophysics and Drilling Optimization, have the awardwinning cloud-based IMDEXHUB-IQ at the heart of the solution, offering real-time secure data access to field data. Clients benefit from an enhanced chain of custody, 322
quality data, timeliness of information and streamlined processes.
PAUL ST. ONGE Mexico Manager of REFLEX
We believe the future of mining is about automation, collaboration and real-time information. We see this continuing to play a key part in the future of mining operations in areas of exploration through to mineral processing operations.
The Telecommunications Reform will help the mining industry become better connected to the Internet and the Internet of Things (IoT). This is especially important considering that the mining industry tends to work in isolated areas. We develop technology that enables the industry to be less centralized in terms of information accessibility through the IoT and helps operators make better on-the-spot decisions.
FELIPE RIVERA Industry Business/Process Automation Hub Leader Mexico and Central America of Schneider Electric Systems Mexico
The way we operate mines today is vastly different from the way they were operated 20 years ago, and it will continue to change. Transformation is inevitable but it does not necessary imply a massive loss of jobs; it simply means that the way people work in mines will change. It is similar to the entrance of computers in the workplace, which increased production rates and changed the dynamic of the labor force.
The industry acknowledges that digital technology and the use of information is an effective way to understand and analyze ore bodies, drilling blast cycles and excavation procedures. This technology can determine the quality of an ore body, and can also facilitate adjusting the quantity of energy and water needed in an operation. The idea is to use technology to acquire information and insert it into a platform to
SCOTT PHILLIPS Vice President and CEO of GE Mining
analyze it. It is a way to provide mining customers data in real time so they can adjust quickly. We have an opportunity to help solve these challenges in the mining sector. We want to connect the entire industrial ecosystem and unlock productivity potential. Influencing productivity by at least 1-3 percent implies thousands of dollars for our customers. The idea is to become more productive and cost-efficient.
Companies need to always keep in mind the reduction of operative costs, which is one of the few things they have complete control over and promotes a higher return on investment. Given that there are not enough resources to increase exploration investment, companies find themselves with even less capital to invest in technology. This information can be a great area of opportunity for companies that want to get ahead of the pack. Any company that dares to defy the current benchmark and prioritize digitalization can acquire a considerable jump start by starting to incorporate digitalized
EDUARDO SALGADO Head of Mining Industry for KPMG Mexico
equipment. Each phase of a mine cycle has different needs but one of the best ways to optimize costs is to digitalize the mineral handling processes.
The Internet of Things can mean several things, and if you ask 100 people for a definition you will receive 100 different responses. Essentially, the Internet of Things is a great connector. It connects assets, personal resources and companies. 323
The idea is to create a unified network to enable companies to monitor all resources in one place. The IoT enables us to gather larger quantities of data, and when this happens, the user has so many more opportunities for improvement. The user stops working on ideas and premonitions, but hard facts. In the mining sector, operators
JAVIER BARELLA Regional Sales Manager at OSI Soft
now have several opportunities to make their operations more efficient.
Around 10 years ago, many observers thought the radiocommunication industry was on the verge of collapse but unified communications have brought it back to the forefront of mine operations. Previously, radiocommunication was used exclusively for sending messages between specific operating teams but now these messages can be transmitted across various mediums including mobile phones, tablets and any other device that has access to Wi-Fi. The user simply has to download an app, which is widely accessible, and then connect to the other members of the team. This means that workers in any mine in the world can communicate with each other via
GERARDO GARDEA Director General of Delta Solutions
radio, which generates huge savings in terms of time for the user. This technology also represents a step forward in terms of mine security because every worker can be located using an indoor GPS system.
Imagine a scenario where all suppliers are able to define, in real time, the adjustments or improvements they must make to their product to send to the customer. The firmness of each section of a mill’s internal linings, for example, can be adjusted based on the different waste generated by each section, so that the new batch will achieve a more uniform wear. Furthermore, a connected service from this supplier could alert the mechanical or process area that some equipment is operating outside its specifications, registering events where coatings could suffer greater wear.
Ă LVARO RENDĂ“N Director of ECN Scientific
With a connected service, miners would move from a reactive relationship where explanation for a malfunction is found in previous experience to a preventive relationship where the product lifecycle in the equipment can be predicted.
Capstone Mining's shipment of Cozamin concentrate to port
LOGISTICS & TRADE
12
Once the ore has been processed and is ready for commercialization, mining companies face the task of bringing their product to market. But the final profit is heavily dependent on the trade links and connectivity in the country in which they operate. Mexico has free trade agreements with 45 countries, according to promotion agency ProMéxico, but its relationship with the US is complicated by Donald Trump’s “America First” foreign policy; the US president has already pulled out of the Trans-Pacific Trade Partnership (TPP) and is threatening to do the same with NAFTA. Against this backdrop, Mexico is turning its attention to Canada, the country responsible for 65 percent of foreign capital in the local mining sector. The two governments signed an MoU on sustainable mining development in February 2017.
In this chapter, public sector representatives from both Canada and Mexico weigh in on the importance of the bilateral relationship, and the role mining plays therein. Trading companies also discuss the state of the global metals trading markets and offer advice for improving commercialization processes. Finally, logistics and rail companies explain their approaches to overcoming the challenges brought about by the transportation of metals and minerals to the global marketplace.
325
CHAPTER 12: LOGISTICS & TRADE 328
ANALYSIS: Mexico and Canada: Great Mines Think Alike
330
VIEW FROM THE TOP: Mario Alfonso Cantú, Ministry of Economy
331
VIEW FROM THE TOP: Marco Barragán, SGS
332
VIEW FROM THE TOP: Sean Emmond, EDC
333
VIEW FROM THE TOP: Tomás Cabanillas, EDC
334
VIEW FROM THE TOP: Jean-Dominique Ieraci, The Canadian Trade Commissioner
336
ROUNDTABLE: How is Geopolitical Instability Impacting Trade in the Mining Industry?
338
SERVICE SPOTLIGHT: SGS Trade Services: Because Trade is Built on Trust
340
VIEW FROM THE TOP: Uriel García, Mercuria
341
INSIGHT: José Zozaya, KCSM
342
MAP: National Railroad System
344
VIEW FROM THE TOP: Hugo Meave, Compañia Isdamar
345
INSIGHT: Ricardo Díaz de León, ProMéxico
327
ANALYSIS
MEXICO AND CANADA: GREAT MINES THINK ALIKE As the global mining community prepares for what many
GEOLOGICAL POTENTIAL
predict to be the sector’s best year since 2011, Canada is busy
It is not hard to understand why Canadian
cementing its long-held role as the leading foreign influence
mining enterprises constantly seem to have
on Mexico’s extraction industry
one eye on Mexico. The wealth of unexplored geological potential in the country is well-
Canada and Mexico have always enjoyed a close-knit mining
documented, and despite over 500 years of constant
relationship. A quick look at the figures reveals the hunger
mining activity, Mexico’s mineral and metal reserves remain
Canadian miners have for Mexican minerals. In 2015, a total
among the world’s strongest.
of 75 percent of all foreign capital in the sector came from Canada, either via FDI or indirectly through the Toronto
But given the vast array of metal and mineral deposits
Stock Exchange. According to the Mexican Mining Chamber
throughout Latin America and the world, Mexico’s
(CAMIMEX), 173 out of the 267 foreign companies operating
reserves alone are not enough to explain this trend.
in the sector, or about 65 percent, are Canadian. The US, the
Geographic proximity means that it is easier to move
second best-represented nation, has just 44 companies.
key talent from corporate offices in Toronto to support the mines on specific projects in Mexico, and since the
328
“Canadian mining investment represents more than just
signing of the North Atlantic Free Trade Agreement
monetary resources coming to Mexico,” says Pierre Alarie,
(NAFTA) in 1994, foreign companies have been able to
Canada’s Ambassador to Mexico. “It is about creating jobs
invest in the sector without limitations. This can generate
and prosperity at the regional level in areas where no other
fantastic returns given the low operating and labor costs
economic activity is available.”
in the country.
One company that typifies this dynamic is Timmins Gold. The
Working in Mexico has also been made easier by the efforts
company, listed on both the New York and the Toronto Stock
of federal government institutions to encourage foreign
Exchanges, has corporate offices in both Canada and Mexico
investment. Bonillas points to improvements made by the
but focuses on gold exploration and project development in
Mexican Geological Survey (SGM), the body in charge of
Mexico exclusively. Its one producing mine, the San Francisco
prospecting and mapping Mexican territory, to explain why
project in Sonora, was planned for closure in 2016 but had its
Canadian mining companies continue to flock into Mexico.
life extended to 2023 following the rally in gold prices. The company is hoping the Ana Paula development project will
“The management of the mining registry in Mexico is now
soon join San Francisco as a fully-fledged mining operation.
very efficient, and this undoubtedly helps attract foreign companies to the country,” he says. “A lot of the credit for
“We are currently completing a full feasibility study at
this must go to the SGM, which does a fantastic job when
Ana Paula, and we anticipate that it will be ready before
it comes to target identification.”
the end of 2017,” says Timmins Gold President Arturo Bonillas. “There are metallurgical and geotechnical testing
INFLUENCE THROUGHOUT THE VALUE CHAIN
works being carried out in Canada, and we hope to begin
Canadian stakeholders are not the only ones to benefit
construction of the mine in 4Q17 or 1Q18 with operations
from this unique relationship. Despite boasting strong
to commence during 2018.”
mining skills honed over more than half a millennia, Mexican mining companies often lack the financial backing and
Timmins is not alone as a mining company with allegiances
latest technology required to efficiently exploit mineral
split between Canada and Mexico. First Majestic Silver,
deposits and convert them into profitable mines. This is
Argonaut Gold, Pan American Silver and Alamos Gold
where Canadian companies can offer a helping hand.
are all on the long list of Canadian metal producers with operations either predominantly or exclusively in Mexico.
“Canada’s solid financial and legal system make our country
Despite added tax pressures placed on the mining sector
the ideal place to raise capital for the high-risk exploration
in Mexico in 2014, there are no signs of this trend slowing.
that ensures the future of the industry,” says Michael
In September 2016, Ontario-based Premier Gold completed
Harvey, Chairman of the Canadian Chamber of Commerce
a US$122.5 million cash deal for Yamana Gold’s Mercedes
Mining Task Force. “We play a very complementary role
mine. The mine produced over 34,000 silver ounces in its
to the large Mexican-based companies that are the core
first month alone.
of the industry.”
Canadian money is not just useful for boosting the finances
AN UNCERTAIN FUTURE
of fully-fledged mine operators in Mexico. It also influences
Following the US presidential election, the political and
junior exploration companies that need investment to
economic spheres in North America are set for a period
advance early-stage projects. Telson Resources, with
of uncertainty. President Trump has withdrawn from the
shares trading in Toronto but executives residing in Mexico
Trans-Pacific Partnership and is threatening to do the same
City, is an example of the impact that Canadian money
with NAFTA. This could go two ways for the Mexico-Canada
has throughout the mining value chain. In June 2016, the
mining love affair; on the one hand, Mexico could find itself
company secured a credit line of CA$10.5 million, funds
robbed of many of the international trade partnerships that
that provided a vital lifeline to its Tahuehueto gold-silver
make it so attractive to foreign investors. On the other hand,
project in Durango.
further integration between Mexico and Canada might provide the perfect foil for US isolationism.
“We have a lot of connections with top executives in the mining industry, and fortunately they were attracted to our
However this pans out, uncertainty in global markets usually
project and decided to invest,” says José Antonio Berlanga,
results in a rally in precious metal prices. Against this hazy
President and CEO. “One of these investors forms part of a
backdrop the deep-rooted, mutually-beneficial cooperation
fund that had expressed a desire to enter the mining sector
that Mexican and Canadian miners enjoy could play a vital
in Mexico, and it was through this fund that we managed
role in the economy of both countries. Ambassador Alarie
to secure the credit line.”
has confirmed the Canadian government’s commitment to working with their Mexican counterparts to ensure “an
Shackled by low precious metals prices, the Tahuehueto
open and transparent business environment and responsible
project had been inactive for the best part of five years.
resource development.” Meanwhile, projects such as Telson’s
With this cash boost, Telson has commissioned a pre-
Tahuehueto and Timmins’ Ana Paula demonstrate the
feasibility study and Berlanga has bullish predictions for
commitment to the fostering this relationship.
the future. “We are always looking for alternative sources of financing,” “Assuming the study reveals the viability of a mine, we
says Berlanga. “We already have a series of meetings lined
will begin construction immediately,” he says. “We are
up with Canadian investors who want access to the Mexican
still making a few adjustments to the mine design, but
mining industry.”
this should not delay us too much and we hope to be in
This article was written by Mexico Mining Review and originally appeared in Negocios magazine
production before the end of 2017.”
MINING-METALLURGICAL TRADE BALANCE (US$) 2015
2016
Value
Participation %
Value
Participation %
Variation 2015/2016 %
1 – Metallic Minerals
13,434,020,110
92.1
14,547,104,470
92.8
8.3
a) Precious Metals
791,489,201
40
7,409,244,029
47.3
9.1
b) Industrial Metals
41,130,849
45
7,137,859,847
45.5
7.5
2 – Non-Metallic Minerals
1,140,721,300
7.9
1,133,505,806
7.2
-1.1
Total
14,579,347,410
100
15,080,070,261
100
7
1 – Metallic Minerals
5,729,232,388
70
5,012,788,919
70
-2
a) Precious Metals
338,957,985
4.2
275,327,990
3.5
-18.8
b) Industrial Metals
5,390,274,403
0.4
5,337,400,929
0.71
-1
2 – Non-Metallic Minerals
2,388,520,177
29.4
2,339,839,543
29.4
-2
Total
8,117,758,505
100
7,952,026,402
100
-2
EXPORTS
IMPORTS
BALANCE 1 – Metallic Minerals
7,703,393,722
8,934,315,557
10
a) Precious Metals
452,531,270
7,133,910,039
10
b) Industrial Metals
1,250,802,440
1,800,396,916
43.9
2 – Non-Metallic Minerals
-1,241,804,877
-1,200,273,736
-2.9
Total
401,588,845
7,728,041,819
19
Source: CAMIMEX
329
VIEW FROM THE TOP
STRENGTHENING RELATIONSHIPS WITH EXISTING TRADE PARTNERS MARIO ALFONSO CANTÚ Undersecretary of Mining at the Ministry of Economy
Q: Besides Canada and the US, which countries rank among
13. Even though the number is still limited, the work that has
the most important trade partners for Mexico?
been done has helped to arouse a greater interest among
A: Mexico is a major recipient of mining investment
Chinese companies to invest in Mexican mining.
worldwide. According to the latest S&P Global figures on
330
investment in nonferrous mineral exploration, our country
Q: How crucial is Mexico’s relationship with Canada and
ranked as the sixth most important destination globally with
what role does mining play?
5.8 percent of the total. We have a significant presence of
A: The Mexico-Canada relationship is strategic and deep.
Canadian and US mining companies but those from China,
Canada is our third-largest trading partner and fourth-
Japan, Australia, UK, South Korea, India and other countries
largest investor in our territory. Mexico’s relations with
also work in our territory. Our policy is to support existing
Canada are, for geographical, economic and demographic
investments and achieve greater diversification.
reasons, one of the priorities in our international work. From 1994 onward, NAFTA stimulated bilateral relations,
China and Australia are two key markets in the mining
governmental interlocution and cultural ties in both the
industry in terms of the value of their production, where
business environment and academia.
there is a large mining capacity. In 2004 the Canada-Mexico Partnership (CMP) was created Q: How well-developed is Mexico’s mining relationship with
by the leaders of both nations as part of a bilateral initiative
China?
to promote public and private cooperation between the
A: In 2013, China and Mexico relaunched their partnership,
two countries. In November 2016, the Mining Group was
strengthening it with the signing of a mining agreement.
created within the CMP, with the objective of strengthening
Since then, the two countries have reached a higher level of
cooperation on issues such as financing of the mining
friendship, trust and cooperation.
sector, indigenous consultation, sustainable development, clean energy, exploration and technological development.
As a result, the contact we had with China in recent years has been fruitful in many ways. Not only have we consolidated
Q: What progress has been made by the Mining Group?
a close relationship with the authorities of that country but
A: One of the first significant results generated by the
we have formalized it through several instruments. During
Mining Group is the formalization of a MoU on cooperation
the visit we made in September 2016, the renewal of the
for the sustainable development of mineral resources. The
Memorandum of Understanding (MoU) on Mining was signed
MOU was signed by the Mexican Minister of Economy and
and agreements have also been established between the
the Canadian Minister of Natural Resources, James Carr,
geological services of both countries.
on Feb. 1, 2017.
As Mexico is China’s largest trading partner in Latin America,
Mining is a particularly important industry in terms of
today the mining sector has huge potential to become a
economic and trade links between Canada and Mexico.
crucial activity. As of the end of 2013, nine Chinese companies
At the end of 2016, 275 mining companies with foreign
were operating in our country and at the end of 2016 we had
capital participation were operating in Mexican territory, and 176 of them - around 64 percent - are Canadian. These Canadian companies operate more than 600 mining
The Undersecretariat of Mining was created as a specialized
projects in different regions of Mexico. We are committed to
division of the federal Ministry of Economy in December
stimulating investment and promoting trade to consolidate
2016 in response to the growing importance of the mining
the mining sector as a fundamental part of the growth of
sector in Mexico
our economy and the development of the population.
VIEW FROM THE TOP
IN-COUNTRY MINERAL TESTING SAVES CRUCIAL TIME MARCO BARRAGÁN Mineral Business Manager - Mexico of SGS
Q: How do you view the landscape of the Mexican mining
differentiates us considering that most other commercial
industry at the moment?
laboratories have their samples sent abroad to Canada or
A: Mining operations are becoming more and more
the US for final analysis.
expensive in Mexico because of the weakness of the peso against the US dollar and the added tax pressure
We also work with the most important nonferrous, ferrous,
is negatively impacting the budget of local mining
coal and coke and other commodities trading companies,
companies. This is affecting the entire value chain but
as we have well-established operations in Mexico’s biggest
especially companies working in exploration. Junior
ports like Manzanillo, Guaymas and Lazaro Cardenas. We
exploration companies practically stopped operating in
carry out inspections, supervisions on sampling, indirect
Mexico in the past couple of years. This is concerning
analysis via XRF, radioactivity testing and other physical
because exploration is the future of the industry so it must
determinations to help mining companies prepare for the
be nurtured.
commercialization of their products.
Despite this trend, we are still seeing a number of new projects and developments springing up, which is an encouraging sign. Several of the major miners in Mexico picked up the slack left by juniors and have begun aggressive exploration projects. It is impossible to predict how the market will perform in the future, because Indian gold demand and Chinese iron-ore demand are extremely volatile. But we have to make the most of the available opportunities.
SGS operates the country’s biggest and most complete commercial laboratory in Durango
Q: What role does the mining industry play in terms of
Q: What are the main challenges that operators in Mexico
SGS’s overall strategy in Mexico?
face when commercializing their product?
A: The minerals sector has always been a vital component of
A: The determining factor is, and always will be, the
our operations in Mexico and it is becoming more important
metal prices. Any commercial transaction is based
every year. It is now as big as the oil and gas and automotive
on international commodity prices so that will have a
business for us. We are working on important operations
huge impact on the profitability of a mining or trading
in Guerrero and Guanajuato and have some important
company’s business. Of course, SGS has no control over
opportunities in northwestern Mexico in onsite labs.
the international markets but there are other aspects, such as logistics and quality, that we can help our clients to
On the commercial geochemical analysis side, we are proud
improve. We check the weight, quality and quantity of
to be the primary laboratory for some of the most important
mineral for producers prior to the product leaving the port,
mining exploration companies active in the country. We
enabling them to acquire warranties and so improving and
can provide a whole range of services, from certification to
streamlining the trading side of their business.
planning and construction but our expertise in geochemical analysis and metallurgical services is the most popular. We operate onsite laboratories and provide a full range
SGS , established in 1878, is the world’s leading inspection,
of analytical services as well as metallurgical testing. In
verification, testing and certification company. With more than
fact, we operate the country’s biggest and most complete
90,000 employees, SGS operates a network of more than
commercial laboratory in Durango. We test locally, which
2,000 offices and laboratories around the world
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VIEW FROM THE TOP
BRIDGING THE GAP BETWEEN CANADA AND MEXICO SEAN EMMOND Regional Manager for Mexico at Export Development Canada (EDC)
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Q: In 2015, Mexico was the fifth-largest recipient of
Q: How are Canadian businesses with investments in
Canadian capital in the world. How did it perform in 2016?
Mexico affected by geopolitical instability?
A: Mexico still remains among the top destinations for
A: For Canadian companies either already in Mexico or
Canadian capital in the mining sector, and the position is
looking to invest in the country, it is business as usual. We
strengthening. The mineral resources in the country are
believe that Canada and Mexico have a mutually beneficial
so strong that the jurisdiction will always be on the radar
trade relationship, and that will continue regardless of
for mineral explorers and developers.
external factors.
Our role is to help facilitate business between the two
The initial boom started around 10 years ago when a
countries, and mining is an important sector. On the
swathe of Canadian junior mining companies started
one hand, EDC can offer loans in the same way that
developing projects in Mexico. Every year there is a better
commercial banks do. On the other hand, we also have a
understanding in Mexico of Canada, and vice versa, both
range of insurance products, which include risk mitigation
at the government and commercial levels. We aim to
solutions for companies looking to make investments in
deepen that relationship by providing a platform for B2B
foreign jurisdictions. For example, if a Canadian supplier
discussions between Mexico and Canada.
sells a product to a Mexican company, it will often look to insure the receivables generated by that sale. We can
Q: How do you assess the working environment for
provide that.
greenfield exploration in Mexico? A: The sector has reached an interesting crossroads, and
Q: What is EDC’s main focus within the mining sector?
the next few years will be interesting. Commodity prices
A: We want to connect Mexican miners with Canadian
are on the rise again, and there is consequently a renewed
suppliers, so our efforts are focused on first establishing
interest in Mexico and investing in exploration projects
financial relationships with Mexican miners. On the basis
in the country. The Energy Reform also represents a
of that relationship, we learn about the investment plans
significant opportunity to lower overall power costs of
of each particular project and then connect them with the
mining operations. Endeavour Silver is looking at the
right Canadian supplier that can add value to the mining
possibility of powering one of its mines using only solar
operation. We are constantly striving to identify innovative
energy, and we are excited about this prospect and
and cost-efficient technology coming out of Canada that
would be willing to help finance similar initiatives. If the
can improve the efficiency of Mexican mining projects.
weakening of the peso against the US dollar is added into
Many small and medium-sized mining companies in Mexico
the equation, it is a good time to be a mineral explorer
often lack access to the products that can improve the
in the country.
efficiency of their operations. In some cases, these are family-run operations, and EDC can assist them to pinpoint
Q: What are the main plans EDC Mexico has set out for the
where their operations can be improved and then put them
mining sector in the next five years?
in touch with the suppliers that can make a real difference
A: If the recovery in metals prices is sustained and consistent,
to efficiency and profit margins.
we expect to see significant new investment in the sector in Mexico, and we would like to play a role in financing those investments. We want to increase the number of projects
Export Development Canada is Canada’s self-financing export
that we work on and the level of financing that we provide,
credit agency that aims to develop that country’s export trade
but any project that we finance has to have Canadian flavor,
by helping Canadian companies respond to international
either in the form of Canadian capital or a critical mass of
business opportunities
Canadian supply.
VIEW FROM THE TOP
INCORPORATING CANADA INTO MEXICO’S SUPPLY CHAIN TOMÁS CABANILLAS Sector Adviser, Mining of Export Development Canada (EDC)
Q: What more can Mexico to do to attract Canadian
natural resources has positioned it on the cutting edge of
companies to invest in mining?
technology-driven practices of exploration, development
A: Collaboration agreements between Mexican states and
and operations of metals, minerals and other resources.
Canada are an effective tool to promote trade between the countries. Recently, Guerrero in Mexico and SAMSSA,
Q: In what ways do you implement Canada's environmental
an association based in the city of Sudbury in Canada,
standards in Mexico?
signed one such agreement. Sudbury is home to one
A: We have high standards in terms of social and
of Canada’s key mining clusters and is well-known for
environmental issues. We are aligned with the Canadian
underground mining. As a result, companies in the cluster
government and will not compromise its position regardless
have developed a global-leading expertise in this field
of the jurisdiction. For the financing of project, we require a
and currently suppliers within the Sudbury cluster are
project to meet the environmental and social performance
looking to grow their businesses by pursuing international
criteria laid out in the International Finance Corporation
opportunities. For states in Mexico that are rich in
(IFC) Performance Standards as per our commitment to
mineral reserves, these agreements are useful because
our internal environmental and social policies and to the
they allow the states a platform where they can share
Equator Principles.
the challenges they are facing and leverage Canadian expertise to develop reserves in a sustainable way. Any country that has a predictable rule of law with clear and consistent regulatory framework is extremely attractive for Canadian mining companies. They see transparency as a valuable asset.
Collaboration agreements between Mexican states and Canada are an effective tool to promote trade
EDC does not play a role in the creation of inter-cluster agreements but we do support Canadian suppliers that
If a project does not meet our benchmark, we either
want to pursue opportunities in Mexico. We leverage
investigate what actions the company is taking to rectify
these agreements as tools to help mining companies find
that situation or we can go as far as declining our support
markets of interest within the country.
in that transaction. We are trying to do business in a lot of emerging markets in Latin America and Africa and many
Q: What can the Canadian supply chain offer to Mexican
companies within these markets are working to improve
mining companies?
their standards.
A: Our main value proposition is related to modernizing the mining industry. We help mining operations in Mexico
Q: What strategies do Canadian companies use to break
become more technically up to date, safer and cleaner.
into the Mexican market? A: The easiest way to initially enter the Mexican market for
Canada can assist the Mexican mining sector with the
Canadian companies is to target Canadian operators in the
Internet of Things (IoT), applied to a mining operation.
country, especially if there is an established relationship
Through sensors and Internet connectivity, conveyor
in Canada. In terms of Mexican-owned operations, they
belts, grinders, crushers and other automation systems
should initially target those that are inclined to incorporate
can be monitored to ensure proper functioning of the
the Canadian supply chain. For example, Fresnillo has a
equipment. This results in higher levels of safety, efficiency
reputation for working with innovative Canadian companies
and optimization of resources. Canada’s leading position
and we know Canadian companies that have done business
in the ICT Sector along with its strength and expertise in
with Fresnillo in the past.
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VIEW FROM THE TOP
STRUCTURAL REFORMS NEEDED TO ATTRACT INVESTMENT JEAN-DOMINIQUE IERACI Deputy Head of Mission and Minister-Counsellor (Trade) at the Canadian Embassy in Mexico City
Q: What kind of benefits does Mexico offer diplomats?
business-to-business relationship is heavily dependent on
A: Despite its geographic proximity, Mexico does not
Canadian investments in Mexico. This is something that we
feature in the minds of Canadian people enough; sadly, it
are trying to fix because the opportunities are there for
is known either for its beaches or for its issues with crime.
Mexican companies.
The relationship between the two countries is very rich but
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it has not reached anywhere near its full potential. As a
Q: Roughly 65 percent of foreign investment in Mexico’s
diplomat and trade commissioner, it is important to realize
mining sector is headquartered in Canada. What role does
that there is both a strong existing base of clientele and
this industry have to play in bilateral trade between the
room for improvement. In Mexico, there are challenges but I
two countries?
believe that they can be overcome, so for me Mexico ticked
A: There are two recent initiatives that demonstrate the
all the boxes on the professional side.
importance the extractive sector plays in the relationship. Firstly, a Mining Work Group has been created within the
Q: What would the potential renegotiation of NAFTA mean
Canada-Mexico Partnership (CMP), which is designed to
for the relationship between Canada and Mexico?
improve communication and knowledge sharing within the
A: The “America First” policy adopted by US President
mining communities of the two countries. Secondly, Canada’s
Donald Trump has certainly helped bring Canada and
Minister for Natural Resources James Carr signed an MoU
Mexico closer together and has created an appetite
with Mexico’s Economy Minister Ildefonso Guajardo during
for both countries to investigate further opportunities
his visit to Mexico City in February 2017. While both are in
for cooperation. The relationship is by no means reliant
the early stage, these initiatives are designed to give more
on NAFTA but all the discussion and fear generated by
structure to the role mining can play in strengthening the
the US rhetoric has exposed a certain weakness in the
bilateral relationship. Once all the statistics and data have
Canada-Mexico relationship. For example, in the early 1990s
been agreed from both sides, I expect a series of seminars
influential CEOs from both countries used to meet twice a
to begin, designed to discuss important issues such as
year to discuss business opportunities and how to improve
environmental mitigation measures and relations with
the bilateral relationship. This forum no longer exists and
indigenous communities. From the Canadian government’s
the Mexican community in Canada is much less visible than
perspective, we want to support Canadian industry and
those of other Latin American countries like Chile. With the
ensure that we can disseminate our experience of mining
new presidential administration in the US, we are seeing
in Mexico.
more Mexican students coming to Canada to study and, with the lifting of the visa requirement, more tourists are
Mexico is not the only country in Latin America with an
arriving. It is vital that this trend continues because it is
abundance of natural resources but the jurisdiction has
crucial to foster these interpersonal relationships.
traditionally had a strong operational framework that has attracted Canadians over the years. This has eroded in the
Moreover, with the exception of Grupo Bimbo’s acquisition
past few years, to the extent that many of the Canadian
of Canada Bread in 2014 and a few other smaller deals,
companies operating in Mexico today would not have
Mexican companies are not invested in Canada. The
made the same decision had they known how the sector would develop.
The Trade Commissioner’s mandate is to promote Canada’s
Q: How can the embassy contribute to increasing Canadian
trade and economic interests in Mexico, supporting the efforts
investment in the Mexican mining sector?
of Canadian companies that have selected Mexico as a target
A: There is a structural issue that needs to be dealt with.
market for their products, services or technologies
We spend a large portion of our time and efforts on helping
Canadian companies deal with security issues, which
appreciate the opportunities for their businesses in Canada.
unfortunately have been on the rise in recent months, but
Given the resources in Canada, there is no reason why
also a considerable number of our clients are owed back-
Mexican miners should not be looking north of the border
payments in VAT. We estimate that Canadian companies
for investment opportunities, which could come either in
throughout the industries are owed close to US$300
the form of mergers and acquisitions or less formal strategic
million in VAT back taxes. These are long-term outstanding
ventures.
claims that affect both cash flow and share prices. Since Canada represents 65 percent of foreign investment in the
The majority of the money in the mining sector raised from
Mexican mining industry, we would like to see the Mexican
capital markets comes from the Toronto Stock Exchange
government really tackle this issue because it is hurting
and if the large Mexican miners have ambitions to become
the entire country.
serious players on a global scale, they need to tap into the mining infrastructure in Toronto in one way or another.
Mexico needs to embrace the fact that it is a mining
There is also scope for investment in the auto parts
country. In other jurisdictions like Chile and Canada, the
manufacturing sector, and many more. We see Mexico as
governments will defend the mining industry when there
the window for further cooperation with Latin America,
is an issue but this is not the case in Mexico. We think the
and regional trade initiatives like the Pacific Alliance and
public sector can do a lot more to protect and promote
the Trans-Pacific Partnership could provide the framework
the industry, and to recognize the contribution it makes to
for us to achieve this.
the national economy. We are happy to help in this process because the reputation of a Canadian mine in Mexico has
335
an impact on the image of Canada. The creation of the position of Undersecretary of Mining within the Ministry of Economy was a good start but we would like to see a more centralized management of the sector in Mexico City because companies cannot afford to lose time running between different ministries and agencies at the local, state and federal levels. We were also encouraged to see the federal government step in to deal with the Zacatecas Ecological Tax, which could have had a disastrous effect
Mexican FDI in Canada
CA$1.4
billion in 2015
Canadian FDI in Mexico
CA$14.8 billion in 2015
on mining in that region and we want to see further developments of that ilk.
Mexico is Canada’s 3rd
Canada is Mexico’s 4th largest trade partner
largest trade partner Security is another concern. When there is an illegal blockade, we expect the government to step in and lift it but this does not always happen in Mexico. We need
Since 1993, trade between Mexico and Canada has increased sevenfold, from US$2 billion to US$20 billion in 2016
the government to protect our investments from criminal In 2016 Canada was
forces. We know that it is a challenging situation but we
Between 1993 and 2016
do not get the sense that the Mexican federal government
exports from Mexico to
the 2nd largest buyer
Canada grew 667%. In
of Mexican products
does all it needs to do to enforce the law on a local level. Q: What are the embassy’s main objectives with respect
imports from Canada grew 819%. In 2016,
to trade in Mexico?
Canada was Mexico’s 6th
A: The issue of NAFTA looms large on my desk. NAFTA has
largest supplier.
been tremendously beneficial for all three countries and now is the time to modernize the treaty and improve it. Although the officials that negotiated the original treaty in the 1990s did an exceptional job, the world has moved on since then
In 2015 Mexico was ranked second in terms owned by Canadian
should play a more influential role in NAFTA going forward.
in a foreign country.
We want to see greater protection for our investments, with
There are currently
because we feel that many Mexican CEOs do not fully
Canada grew 819%. Mexico’s 6th largest supplier in the world.
of the amount of assets mining companies
We also want to see more Mexican investment in Canada
From 1993 to 2016 Mexican imports from In 2016, Canada was
and new technologies such as e-commerce could and
more clarity and stability in the region in general.
globally.
the same period Mexican
205 companies with Canadian capital
From 1999 to 2016, Canada invested US$27.48 billion in Mexico. Canada accounts for 5.9% of total FDI in Mexico in
established in Mexico. Source: Canadian Department of Natural Resources, EDC
that period.
ROUNDTABLE
HOW IS GEOPOLITICAL INSTABILITY IMPACTING TRADE IN THE MINING INDUSTRY?
Investment and instability are typically not the best pairing but the mining industry has proven to be a unique exception. When geopolitical instability arises, investors often view precious metals as a safer bet for their capital. Recent events such as Brexit and the US presidential elections created havoc for industries like automotive but have simultaneously brought fortune for mining companies through an increase in metal prices. Mexico Mining Review asked industry leaders about the impact of global instability on mining trade and the strategies they are using to mitigate risks.
The mining industry faces strong headwinds and must drive productivity and improve operational savings. Mining companies continue to experience volatile commodity prices and challenging economic fundamentals as global demand slows. Following an extended period of massive capital investment, the mining industry is now firmly focused on improving productivity and on sustainable cost management. Miners face
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declining ore quality, operations deeper underground or in remote locations to find
SCOTT PHILLIPS Vice President and CEO of GE Mining
ore and a macroeconomic context that changes frequently with commodity prices. This makes it increasingly challenging for companies to access capital. We believe in using technology to close this talent gap.
We are worried about the 2018 presidential elections in Mexico affecting mining policy continuity. We will have to wait and see what the results will be but whatever the outcome, we are dedicated to working with the government for the promotion of the sector, regardless of ideologies. The most important task is being able to communicate the importance of mining for our country because many people do not recognize its value. Essentially, Mexico is a mining country, not because miners
SERGIO ALMAZÁN Director General of CAMIMEX
decided it should be that way but because of its rich mineralization and resources. In fact, Mexico is often ranked as one of the most promising mining countries in the world because of the reserves it holds.
The determining factor is, and always will be, the metal prices. Any commercial transaction is based on international commodity prices so that will have a huge impact on the profitability of a mining or trading company’s business. Of course, SGS has no control over the international markets but there are other aspects, such as logistics and quality, that we can help our clients to improve. We check the weight, quality and quantity of mineral for producers prior to the product leaving the port,
MARCO BARRAGÁN Mineral Business Manager - Mexico of SGS
enabling the acquisition of warranties and so improving and streamlining the trading side of their business. We see a lot of room for growth in this particular segment.
For Canadian companies either already in Mexico or looking to invest in the country, it is business as usual. We believe that Canada and Mexico have a mutually beneficial trade relationship, and that relationship will continue regardless of external factors. The initial boom started around 10 years ago when a swathe of Canadian junior mining companies started developing projects in Mexico. Over that time, the relationship has come a long way. Every year there is a better understanding in Mexico of Canada, and vice versa, both at the government and commercial levels. We aim to deepen that relationship through the work we do providing a platform for B2B discussions between Mexico and Canada.
SEAN EMMOND Regional Manager for Mexico at Export Development Canada (EDC)
We notice that the western world and China have different ways of reacting to the geopolitical context and its impact in the mining industry. China is quickly taking advantage of the market by creating a strategic alliance between the government and the private sector. Companies often give the Chinese government an almost unlimited amount of funds to advance their interests in areas such as Africa. It is a
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quite incredible method of resource imperialism where China has managed to take over large swathes of the world.
PAUL LINTON Chief Business Development Officer at Terracore
The prevailing sentiment is that factors such as the new presidential administration in the US and the Chinese economic rebound should have a positive effect on the mining industry. The aggressive and unpredictable foreign policy of President Trump in particular is generating economic instability on a global scale and this will encourage investors to look for less risky assets like precious metals and other commodities. The mining sector will always be volatile and difficult to predict but in terms of metal prices 2017 is shaping up to be a strong year and we have already seen companies being more active in the sector.
MARCO BERNAL President of the Mexican Association of Mining Metallurgists, Engineers, and Geologists (AIMMGM)
The NAFTA renegotiation is something that we have to prepare for and the federal government should be ready to negotiate but it is important to remember that NAFTA works three ways. There are some clauses that benefit the US and not Mexico or Canada, and vice versa, and so we have to remember Mexico's strengths. Not only are production costs in Mexico low, but there is a tremendous amount of high-quality labor available in the country, which is not easy to find. This is especially true in the state of Chihuahua.
MIGUEL GUERRERO Director General of Proesmma
SERVICE SPOTLIGHT
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SGS TRADE SERVICES: BECAUSE TRADE IS BUILT ON TRUST Whether considering the weighing, sampling and analysis of metals in their various forms or the movement of mineral commodities in bulk, either of these stages of metals transport can introduce significant commercial risk to all parties involved in the trade chain. Quantitative and qualitative parameters must be verified throughout the transaction and transport process. Often specialized services and expertise are needed. SGS is the world’s leading training, testing, inspection, certification and verification company, with experience, expertise and a global reach. Whether clients are selling, buying or transporting commodities, SGS is ready to independently verify the shipment weight and quality parameters for them. SGS offers a full spectrum of trade support services focused on risk management for all mineral commodities including base metal concentrates, precious metals, secondary and scrap, automotive and refining catalysts, fertilizers, coal and coke, wood pellets, iron ore and industrial minerals. With offices in the most important ports in Mexico - Manzanillo, Lazaro Cardenas and Guaymas – the company has served metals traders since its inception. For both trading parties to feel satisfied with their side of the deal, the key component is trust. SGS is the neutral and independent provider of all the information that helps build trust between trade partners. The company can certify that products are in compliance with laws, regulations, rules, standards, import/export requirements, safety regulations, chemical composition, durability and environmental impact parameters. SGS inspects, tests and verifies to provide the independent control and assurance that allows banks and the finance world to provide loans and letters of credit to those who trade, by independently assessing and assuring that the traded goods are indeed what the parties expect them to be. SGS also helps countries that are ramping up their institutional infrastructure to deal with import and export control and compliance inspections at the point of departure or destination. It can also provide valuation services that help countries maintain a smooth flow of imports and exports as well as providing independent information for tax purposes. By doing this SGS can help ensure that global trade flows continue to function as efficiently and fairly as possible.
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VIEW FROM THE TOP
TRADER EXPECTS 2017 RECOVERY FOR ZINC, COPPER URIEL GARCĂ?A Former Director General for Mexico at Mercuria
Q: How did the fluctuations in metals prices in 2016
have a lot of faith; we believe that it will be trading around
impact the Mexican mining sector?
US$6,000/t during 2017 and 2018.
A: 2016 was an interesting and challenging year for the
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entire mining sector. In Mexico, the base-metal and
Q: How can Mercuria attract new clients in Mexico?
precious-metal markets are separate, although the local
A: The metals trading business has changed and become
mineralogy dictates that concentrates are mixed between
much more professional in the past 10 years. Now there is
the two more often than not. For example, Mexico is the
far more competition and the processes are more complex.
number one producer of silver in the world but until recently
We see a lot of potential in the small mining companies in
silver was expensive to process and countries such as China
Mexico because although the quantity of their produce is
did not see the economic benefits of extracting the silver
generally quite small, the quality and grade is much higher.
that comes from primarily copper concentrates in Mexico.
The most important factor to ensure the long-term future of
This is now changing, and people are actively seeking out
a business is relationships. All large mining companies start
silver concentrates, so this is boosting local producers in
out as small miners, so we seek to forge an understanding
Mexico.
with small miners now that we believe will pay off in the future. Mining companies sometimes have problems with
Regarding prices, 2016 was a mixed year but Mexican
cash flow, so we are flexible with our payment plans to
operators have an advantage over the rest of the world
ensure that even in tough times they can get their produce
to mitigate the impact of international metal prices. While
to market. If we can help small companies become midsize
they sell their product in dollars, their expenses for energy
miners by offering credit lines, everyone will benefit.
and labor are paid in pesos. So although an ounce of silver is being sold for US$15, if the Mexican peso is trading at
Q: What role does the public sector play in facilitating
US$20 there is still a strong profit margin. As a trading
the commercialization of Mexican metals and minerals?
company, this does not have a direct impact on our business
A: Unfortunately, the sector is suffering at the moment
because our buy and sell rates depend on the international
because the government does not fully understand
markets. We cannot buy an ounce of silver for US$15 and
how the mining industry works. For example, the Tax
sell it for US$40, for example. That said, we always prefer
Administration Service (SAT) is making things difficult
higher prices because our clients are making larger profits.
for traders in particular. We buy goods in Mexico and sell them overseas and so we have to file a claim to be
Q: Which metals do you expect to perform well in 2017?
reimbursed for the 16 percent VAT we pay on purchase.
A: Zinc should perform well because it is a vital ingredient
However, the process takes a long time because SAT does
for many processes in the construction industry. Major
not understand our business and does not recognize our
Mexican players are planning to double zinc production in
right to reimbursement. This lowers the incentive for new
the coming years. In the past 24 months, there have been
players to enter the market.
several closures of large-scale mines around the world, which has helped the price of the metal rise to its highest
Q: What are the principal advantages and disadvantages
level since 2007. Copper is another commodity in which we
offered by the Mexican market? A: Unlike other countries in Latin America such as Peru, Mexico is not dependent on mining but it is a mining
Mercuria is one of world's largest energy and commodity
country and has incredible potential to grow. Moreover, the
trading group with over 1,000 employees and operating bases
total capacity of refineries is relatively low, meaning that
in more than 50 countries. Founded in 2004, its turnover in
operators in the country have to sell their product to be
2015 was US$56 billion
processed overseas. This is a bonus for trading companies.
INSIGHT
MEXICO’S RAIL NETWORK: BUILDING BRIDGES JOSÉ ZOZAYA President of Kansas City Southern de México (KCSM)
As the head of one of Mexico’s largest rail companies,
process. Any improvement to the efficiency of this process
and the only one that operates in both Mexico and the US
should translate into wider profit margins.
directly, José Zozaya, President of Kansas City Southern de México (KCSM) has a deep knowledge of how international
One area that could contribute to this process is further
borders function. KCSM, a fully owned subsidiary of Kansas
development of Mexico’s rail network. Giant copper
City Southern, transports everything from agricultural goods
producer Grupo México under its Ferromex subsidiary
and automotive parts to metals and minerals between
and KCSM represent 72 percent of the rail market share.
Mexico and the US using its extensive international rail
A large chunk of the US$160 million KCSM plans to invest
network. “International crossings are designed to facilitate
in the country in 2017 will be spent on developing the route
legal international trade, not to hinder it,” he says. Zozaya
from KCSM’s Patio Sanchez base in Nuevo Laredo, a key
is convinced that, for the benefit of all involved, the two
international border crossing that has been creaking under
countries have to work together to redesign the border
the weight of increasing trade levels.
crossings and renegotiate bilateral trade agreements. But according to Zozaya, the market is not ready for more “The North Atlantic Free Trade Agreement (NAFTA) helps
players. “If we want further competition in Mexico, more
the large number of exports from the US into Mexico, as well
railways need to be built,” he says. “Given the current
as the other way around,” he says. “It needs to modernize –
infrastructure, it would be counterproductive to have more
the world has changed exponentially since 1994.”
rail companies because there simply is not enough space.”
Zozaya forms part of a group of leading CEOs from both
KCSM plans to invest US$160 million in Mexico in 2017
sides of the border that meets twice a year to discuss trade developments and what needs to be done to improve international commerce. The dialogue is facilitated by the US Chamber of Commerce and the general consensus,
But Zozaya insists that the rail network is not the most
says Zozaya, is that NAFTA has been “tremendously
urgent issue. To provide mining companies with the support
beneficial” to both sides and is a vital facet of the bilateral
necessary for the sector to continue growing, Mexico
relationship. KCSM recognizes the role that improved
needs to focus on developing other areas of transport
border infrastructure and regulation can play in further
infrastructure, as well as tackling security issues that
strengthening this relationship, and its doing its part to
continue to place seeds of doubt in investor’s minds. “There
lobby the public sector and drive change.
needs to be an improvement on road, airport and seaport infrastructure but more importantly the legal infrastructure
“We are working with the authorities from both countries
in the country needs to evolve,” he says. “For the mining
to achieve a unified customs process instead of separate
industry to continue growing and attracting investment,
facilities in the US and Mexico,” he says. “This will create a
Mexico needs to re-establish the rule of law. It is imperative.”
more agile crossing that will be much easier to navigate.” Despite the challenges, the willingness Zozaya sees With many of Mexico’s largest mines straddling the US
from business communities on both sides of the border
frontier, executives at mining companies operating south
convinces him that the international rail network between
of the border would welcome a more open customs
the US and Mexico can play a vital role in promoting
process. Transporting ore extracted from the mine to
bilateral trade and cooperation for years to come. “We
the processing plant, and then onto the international
are very optimistic about the future,” he says. “The
marketplace, can be a lengthy and time-consuming
cooperative relationship for Mexico and the US is bright.”
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NATIONAL RAILROAD SYSTEM
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HOW TO USE RAILWAY SERVICES IN FERROMEX 1
Request Tariff
2
Request the Type and Number of Rail Cars Required
3
Load the Product
4
Document the Rail Car(s)
5
Unload the Product
6
Release the RaIl Car
MINING MATERIALS MOVED BY RAIL Copper, Zinc and Lead Concentrates Sand and Clay Steel and Pellets Lime
Main routes in the national highway system National railway system KCSM's cross-border connections Grupo México's cross-border connections KCSM'S access to ports Grupo México's access to ports
Source: SCT, KCSM, Grupo México
Grupo México 9,952km
Grupo México's railroad network
GRUPO MÉXICO RAILROAD NETWORK Subsidiaries: Ferromex and Ferrosur Connections to the US through 5 border crossing points Ferromex has a network of 8,130km with access to 6 ports Ferrosur has a network of 1,822km and access to 2 ports 343
KCS 10,622km KCS's railroad network
KCS RAILROAD NETWORK The KCS coordinated rail network includes KCSR, KCSM and Tex-Mex between the US and Mexico Connected to major seaports: TampicoAltamira, Veracruz and Matamoros Exclusive access to Lazaro Cardenas Port Crosses through international bridges in Nuevo Laredo and Matamoros
VIEW FROM THE TOP
CONTRACTOR TO DIVERSIFY INTO OPERATIONS HUGO MEAVE President of Compañia Isdamar
344
Q: How important is the mining sector to the company’s
not the size we are looking for. It is easy to find people
overall business strategy?
willing to buy copper and most mines can acquire 20-year
A: The company started in the mining world and eventually
contracts even before production. Apart from precious
expanded into the construction sector. We decided to fully
metals and minerals, the company is quite advanced in
re-enter the mining industry in 2003 when it experienced
terms of nonmetallic minerals and is negotiating to export
a significant boom. We support the sector by offering a
several resources to the US, including aggregates such as
complete set of services for mines throughout the entire
limestone.
life cycle. We are a mid-level company, meaning we have the capacity to move 50,000-60,000 tons of dirt daily. We
Q: What services do mining companies request the most
can adapt to both underground and open-pit mines and our
from you?
biggest client is Minera Frisco, with whom we are involved
A: Companies today prefer contractors that can offer a
in two projects; Concheño and San Felipe.
complete set of services. We specialize in production mining, which involves drilling, blasting, loading and hauling.
Our company was one of the few to offer drilling and
If the client so requires, we can work with fellow companies
blasting services in the mining industry during the 1980s.
to provide the metallurgical process needed to obtain the
Our experience is broad and backed up by additional
final product. We have worked with a wide range of mines
knowledge acquired in the construction industry, where
and operators such as Goldcorp in Los Filos and Peñasquito.
blasting is also required to build projects like highways. We use this knowledge to assure the quality of the services we
Q: How are geopolitical conditions affecting the mining
provide to the mining industry.
industry and Isdamar ? A: The US will require large quantities of minerals,
Q: How will Isdamar expand operations in the mining
especially considering the amount of construction that is
industry to take advantage of a potential bull market?
being planned by the Trump administration. Geopolitical
A: Isdamar is in the process of diversifying and becoming a
instability is also providing many opportunities for Mexico
mine operator. Our goal is to cover a market that involves
to act as a main supplier. It is promoting commerce toward
medium-sized projects, which are highly overlooked. We
Mexico as the most important companies in Europe are
are working out the details and evaluating the viability
starting to target us. The country has much to offer the
of a possible prospect in Sonora. These types of midsize
world, such as its rich mineral and natural resources.
projects would probably not be chosen by large companies but for a company like ours, they are the ideal size. We
Q: Where are the biggest areas of opportunity within
also have the equipment and the ability to expand in this
the sector?
direction. Isdamar is planning to have a copper project in
A: Operators need to stop focusing solely on large
its portfolio by the end of the year.
100-year-long projects because they are difficult to find and there are smaller projects waiting to be discovered
We consider copper to be the most viable commodity
throughout the country. Mexico has strayed away from
for Isdamar because gold and silver projects are often
medium-sized projects but the mentality is starting to change as Canadian companies, who are experts in this sphere, have entered the market.
Compañia Isdamar was founded in 1996 and works as a contractor across various industries including mining,
The mining industry was overlooked for a long time but
construction and infrastructure. Based in Hermosillo, Isdamar
people are starting to realize its importance; without mines
specializes in drilling and earth moving equipment
we would not have many of our everyday products.
INSIGHT
FUNNELING LOCAL EXPERTISE TO THE GLOBAL MINING MARKET RICARDO DÍAZ DE LEÓN Infrastructure, Mining, Logistics and Tourism Coordinator for ProMéxico
Mexican mining companies with an international presence
companies will be more encouraged to see Mexico as a
such as Grupo México have years of experience crafting
country they can collaborate with to develop technology
and developing their own drilling machines, drones and
for the mining market.
geological-analysis equipment, among other tools to increase the efficiency of their mines. But few are aware
To further address the needs of companies, ProMéxico
of the areas of opportunity they have when it comes to
organizes meetings between the private and public sectors to
exportation and offering an added value to the international
create channels of communication. Companies have several
market, according to ProMéxico, the government arm
requirements they need to meet to be able to produce in
responsible for promoting international trade and
Mexico and these meetings guide them through the process.
investment.
Through talks with the deputy minister of mining, foreign companies can understand the legal and industrial context
“Most suppliers of machinery and equipment in Mexico
in Mexico at a deeper level. In an interview with ProMéxico,
are not taking advantage of the specialized machines they
mining minister Cantú stated that “cooperation between the
are developing,” says Ricardo Díaz de León, Infrastructure,
public and private sectors is essential to the development of
Mining, Logistics and Tourism Coordinator for ProMéxico.
the mining sector because the resulting synergies serve to
“Our job is to help them see their ability to expand their
multiply the impact of strategies implemented by individual
services to other countries through exportation and
players in the industry.” Mining entities are also welcome to
collaboration opportunities with international companies.”
access ProMéxico and its 29 offices around the country to propose strategies that can strengthen the development
Through research and data collection, ProMéxico collaborates with the Undersecretary of Mining at the Ministry of Economy, Mario Cantú, as well as with the the Mexican Mining Chamber, and the industry’s clusters, to identify the added value that Mexican mining companies can offer to the international market. To boost its position, the country needs to invest more in the production of technology. “Mexico still has to import many products from other countries to extract and explore. To make sure that companies see us as more than just a mere exportation destination, we need to improve our ability to develop technology,” Díaz de León says. “For instance, Mexico should increase the production of important products for the sector, such as milling steel balls, a tool that allows mining companies to produce more at
“ of the industry.
Cooperation between the public and private sectors is essential to the development of the industry because the resulting synergies serve to multiply the impact of strategies implemented by individual players”
a smaller cost during the extraction process, instead of having to import them.”
Promexico seeks to not only promote the mining industry but to connect the supply chain throughout the lifecycle
The clusters could help fill in the missing elements in the
of a mine. “We are developing intelligence and strategies
Mexican supply chain, says Díaz de León. For instance,
for the mining industry,” says Díaz de León. “It is a chance
Guerrero, the most recently created cluster has the potential
to maximize the areas of opportunities in the industry and
to become a hub for mining technology in the region. By
multiply investment along with the models we offer to help
strengthening the country’s ability to create added value,
companies create alliances throughout the supply chain.”
345
Great Panther Silver's reforestation program in Guanajuato
ENERGY & SUSTAINABILITY
13
Maintaining a close relationship with surrounding communities is one of the toughest obstacles mining operators face. Otherwise, projects can risk blockades or delays that cost thousands of dollars a day and the public image of a company. Fortunately, operators can rely on international benchmarks laid out by institutions such as the International Finance Corporation to guarantee socially and environmentally sustainable projects. These guidelines, if followed, also facilitate access to certifications and funds, as investors and banks are increasingly using them to evaluate risks within projects.
The Energy Reform is also beginning to take root and, as the majors begin to take advantage of their ability to generate energy, countless new opportunities are opening up for them to become qualified suppliers. With energy constituting 40 percent of the costs in a mine, this business could be potentially lucrative.
This chapter emphasizes the best practices used by influential operators, consultancies and lawyers and success cases in the Mexican mining industry. It also includes technology companies and suppliers that are providing innovative solutions in energy generation and supply.
347
CHAPTER 13: ENERGY & SUSTAINABILITY 350
ANALYSIS: The Mining Trust Fund: A Long Road to Change
352
VIEW FROM THE TOP: Guillermo Haro, PROFEPA
354
VIEW FROM THE TOP: Galo Galeana, SEMARNAT
355
VIEW FROM THE TOP: Héctor Herrera, Haynes and Boone
356
EXPERT OPINION: Irma Potes, Grupo México
358
VIEW FROM THE TOP: Armando Ortega, New Gold
359
CASE STUDY: New Gold's Closure Plan and CSR Policies for Cerro San Pedro
360
INSIGHT: Rubén Castillo, Mejora
361
VIEW FROM THE TOP: Jaime Martínez, ERM
Renato Urresta, ERM
362
PROJECT SPOTLIGHT: Investing in Social Good
364
VIEW FROM THE TOP: Gabino Fraga, Grupo GAP
365
INSIGHT: Adrián Juárez, CTA
366
INSIGHT: Guillermo Hinojos, ASES
367
INSIGHT: Brian Weihs, Kroll
368
ROUNDTABLE: How Can The Mining Industry Establish Healthy Relationships With Surrounding
Communities?
371
INSIGHT: Bernardo Salcido, Técnica Salgar
372
VIEW FROM THE TOP: Pedro Berriel, Power Electronics
373
INSIGHT: Murilo Dalla, Danfoss
349
ANALYSIS
THE MINING TRUST FUND: A LONG ROAD TO CHANGE Three years ago, the creation of the Mining Trust Fund sent
a specially created committee, composed
shockwaves throughout the industry. The majority of mining
of a mix of public, private and social sector
companies are still to be convinced of its merits but its
representatives, to allocate the funds to
supporters believe a long-term perspective is needed
specific projects.
In 2014, the newly elected center-right Institutional
“Each committee is made up of five members and chaired
Revolutionary Party (PRI) government implemented
by a SEDATU representative,” says Ricardo Lopez, Director
sweeping reforms in a bid to raise taxes and boost public
General of the Mining Trust Fund at SEDATU. “Mining is
finances. Among the changes was a 7.5 percent royalty on
a finite industry, so our job is to ensure that communities
metal and mineral production, plus an added 0.5 percent
do not become dependent on support from the extraction
duty on gold, silver and platinum extraction. The Mining
activities going on around them.”
Trust Fund was set up to make use of the added cash inflow, with a specific goal to fund social infrastructure
A total of MX$1.74 billion (US$98 million) was collected
projects in mining regions.
and redistributed in 2016. By February 2017, 812 projects had been started, of which more than 250 were completed. As the country’s most productive mining state, Sonora
creaking under the pressure of plummeting commodity
receives the highest proportion of the funds – over
prices, the new taxes cut profit margins further and pushed
MX$579 million in 2016 - followed by Zacatecas, Chihuahua
many operators to the breaking point. Three years on, the
and Durango.
Mining Trust Fund continues to divide opinion. Detractors argue the tax is unconstitutional and that a large chunk of
Local municipal governments are in charge of distributing
the proceeds are lost in the public-sector ether. But some
50 percent of the funds, with the state and federal
corners of the community believe that in the long-term,
government presiding over 30 percent and 20 percent,
the ground-breaking program has the potential to bring
respectively. The added income can make a dramatic
real change to isolated communities with precious few
impact to public-sector spending power on a local level,
sources of income.
especially in municipalities with large metal outputs.
The Mining Trust Fund has no precedent in Mexico.
“The creation of the Mining Trust Fund opens a space
Under the guidance of the Ministry of Agrarian, Territorial
for a fair distribution of capital among the communities
and Urban Development (SEDATU), it is designed to
that surround mineral extraction sites,” says Jorge Vidal,
finance social projects in targeted regions where mineral
Minister of Economy for Sonora. “Without the fund,
extraction is present. Municipalities and states receive a
municipalities like Cananea would only have a budget of
portion of the resources, depending on their respective
MX$8 million per year but now they will have an extra
contribution to Mexico’s mineral output. It is then up to
MX$122 million annually.”
DISTRIBUCION DEL MINERO POR ESTADO MONEY COLLECTED BYFONDO THE MINING FUND RECAUDADO BY STATE 2016 EN 2016
CORPORATE RESISTANCE
($1,736 MILLONES DE PESOS)
MX$1.74 billion
600
340.9
400
100 0
timing of the changes. In October 2014, the gold price point two years previously. Arturo Bonillas, President and Director of Timmins Gold, says the government could have waited for the wounds to heal before striking another he says.
148.9
200
to the reform, with many pointing to the questionable
blow. “The tax was imposed at the worst possible time,” 232.1
300
Mining companies have been open about their opposition
stood at US$1,143/oz, 50 percent lower than the same 433.8
500
579.6
350
Mexico’s metal producers felt persecuted. Already
Although prices have subsequently recovered, the doubters remain. Many organizations have been operating
Sonora
Source: CAMIMEX
Zacatecas Chihuahua
Durango
Other
mines for several decades and during this time have built up a strong, mutually beneficial relationship with the
local community. They feel the changes threaten this
could produce the kind of results the companies are
relationship and place responsibility on public authorities
waiting for. While Lopez admits that his team is still trying
lacking in local knowledge.
to find the “most effective” way of investing the funds, he insists that this will process will not be rushed to appease
“I have always stood against the reforms and continue to
the doubters.
do so,” says Robert Eadie, President and CEO of Starcore International, which has been operating the San Martin
“Many companies expect to see change happen overnight
mine in Durango since 2008. “We feared the government
but that cannot be the case,” he says. “It would be easy
would not do an efficient job in distributing the resources
to hand out the money to districts without taking care to
collected into the Mining Trust Fund and this is exactly
ensure that local authorities are using it correctly but we
what has happened.”
believe that the quality of the construction outweighs the importance of speed.”
For the mining companies, the results of the program have been slow and underwhelming. They are happy to support
For Mexico’s miners, the recovery in metal prices during
economic development in local communities through
2016 and the first part of 2017 eased the pressure
their own corporate programs, and feel that the Mining
applied by the added taxes and the focus switched away
Trust Fund creates an unnecessary middleman between
from complaint to strategy for increasing production.
themselves and the people. Eadie claims the reform is
Nevertheless, it is clear that the issue is still a touchy
“unconstitutional” and that it has not changed the way his
subject for companies with years of experience in Mexico.
company interacts with the community. “We do not wait
Regardless of how well the sector is performing, they want
around for the government to show up,” he says.
to see results sooner rather than later.
GOVERNMENT RESPONSE
“I support the royalty taxes and I do not doubt the good
Those at the Mining Trust Fund understand the concerns.
intention,” says Bonillas, before adding, “as long as the
Lopez acknowledges that the fund should do nothing
funds go back into the communities.”
351
to negate the “well-established” relationship between company and community, but stresses that the fund
DISTRIBUTION OF THE MINING FUND BY STATE AND MUNICIPALITY IN 2016 (MX$)
finances projects that fall outside of the private sphere.
Municipal Allocation
State Allocation
Sonora
440,707,743.13
264,424,645.88
705,132,389.01
Zacatecas
302,832,566.05
181,699,539.63
484,532,105.68
Chihuahua
142,080,772.14
85,248,463.28
227,329,235.42
Durango
111,385,579.59
66,831,347.75
178,216,927.34
Coahuila
82,136,539.95
49,281,923.97
131,418,463.91
San Luis Potosi
48,910,911.28
29,346,546.77
78,257,458.05
Oaxaca
30,764,545.45
18,458,727.27
49,223,272.72
Guerrero
28,880,298.28
17,328,178.97
46,208,477.25
project may not have the dramatic effect of a suspension
Baja California Sur
24,761,902.38
14,857,141.43
39,619,043.81
bridge or new hospital, says Lopez, but the real weight is
Sinaloa
23,625,866.34
14,175,519.80
37,801,386.14
often greater.
Michoacan
20,060,235.24
12,036,141.14
32,096,376.38 30,936,800.25
“Our job is to make sure that the funds received from the new taxes are reinvested into infrastructure projects,” he says. “Mining companies are not responsible for improving public services.” During the first two years, the focus was on small-scale infrastructure works on a local level. The majority were road maintenance, paving and construction projects in extremely remote areas of the country. A local road repair
State
Total
State of Mexico
19,335,500.15
11,601,300.09
“Rather than speaking about specific projects, I prefer to
Colima
16,957,778.88
10,174,667.33
27,132,446.20
focus on the overall social impact of our work,” he says.
Guanajuato
15,158,283.60
9,094,970.16
24,253,253.76
“For isolated communities, an improvement to the local
Baja California
12,081,188.18
7,248,712.91
19,329,901.09
road network significantly boosts quality of life.”
Jalisco
11,524,804.45
6,914,882.67
18,439,687.12
Aguascalientes
11,306,975.78
6,784,185.47
18,091,161.25
LONG-TERM BENEFITS
Hidalgo
11,296,766.07
6,778,059.64
18,074,825.72
Given the fact that the Mining Trust Fund is an entirely
Queretaro
7,255,167.11
4,353,100.27
11,608,267.38
untested public initiative, it should come as no surprise
Veracruz
3,848,307.18
2,308,984.31
6,157,291.49
that the cracks are still being ironed out. According to
Nuevo Leon
2,913,710.68
1,748,226.41
4,661,937.08
Lopez, in the next two years the focus will switch to
Nayarit
670,662.90
402,397.74
1,073,060.64
Puebla
593,998.60
356,399.16
950,397.76
funding regional, rather than local, development that impacts larger and more urbanized communities. This
Source: CAMIMEX
VIEW FROM THE TOP
MINING COMPLIANCE REMAINS ON AN EVEN KEEL GUILLERMO HARO Federal Attorney of PROFEPA
Q: How have authorities boosted their capacity to monitor
includes the companies that are reported as non-compliant,
the mining industry?
those that have a history of non-compliance, those that
A: Like most economic activities, mining impacts the
have not yet been inspected, and those that present some
environment. Environmental legislation establishes various
urgent environmental risk.
instruments to prevent or mitigate these environmental
352
factors arising from the use of natural resources,
One of the main challenges PROFEPA faces is locating
including mining resources. The main instruments are
and accessing remote areas in which mining activity is
the environmental impact studies and authorization of
carried out. Access roads are difficult to travel and are
change of land use. In both cases, SEMARNAT establishes
often unsafe. In addition, clandestine operations are
several conditions for carrying out mining activities,
often dispersed over remote locations and are quickly
and compliance with these conditions are monitored
dismantled. To verify compliance with environmental
by PROFEPA. In case of noncompliance, companies are
regulations, we rely on the armed security forces on the
sanctioned with closures and fines that are set depending
federal, state and municipal levels.
on the severity of the noncompliance and the impact on the environment.
Q: How have mines improved their commitment to compliance in 2017?
From January 2013 to April 2017, PROFEPA increased
A: As part of the inspection and surveillance activities
its surveillance effort by carrying out 1,313 inspection
carried out by PROFEPA between 2007 and 2016, 676
and verification visits to 1,187 mining facilities to verify
inspection visits were carried out to formally established
compliance with the terms and conditions established in the
mining facilities, mainly in the states of Coahuila, Colima,
environmental impact authorizations given by SEMARNAT.
Durango, Zacatecas and Puebla. Due to these visits,
In this period, 91 mining companies - one in five - showed
closures were imposed in just over 6 percent of cases, which
irregularities in their environmental compliance to the
means that the vast majority of mining facilities did not
extent that merited mine closure as a security measure,
present irregularities that merit such security measures. A
resulting in economic sanctions totaling MX$94.36 million.
similar percentage of closures were imposed between 2013
The rate of mining facilities that fully comply with their
and 2015. In 2017, five of the 61 facilities that have been
environmental obligations year-on-year has remained
inspected have been closed, equating to 8 percent of the
relatively constant in the last four years, with an average
installations, which implies that the level of compliance of
of one in three visited.
the mining companies has remained relatively constant. Closure is a safety measure imposed when non-compliance
Q: What are the main challenges PROFEPA faces when
with environmental obligations can cause, or is causing,
overseeing environmental compliance in the mining
serious damage to the environment. However, any breach
industry?
is punishable by fines.
A: PROFEPA faces a great challenge in terms of inspection because our capacity is limited, so we have established
Q: What tools can PROFEPA offer mining companies that
a strategy of inspection and surveillance priorities, which
can help guide them toward compliance? A: One of the guiding principles of federal environmental policy is an emphasis on prevention. In this sense
The Federal Environmental Protection Agency (PROFEPA)
PROFEPA has a strategy to promote the best
is a decentralized administrative body of the Ministry of the
environmental performance of the productive sector
Environment and Natural Resources (SEMARNAT). PROFEPA’s
through development tools, regulation, self-regulation
task is to increase compliance with environmental regulations
programs and volunteers. These voluntary programs
are aimed at companies that, because of their location,
Certificate and have obtained significant benefits; 69 other
size, characteristics and scope, can cause significant
companies are in the process of obtaining it.
negative effects on the environment when they breach the applicable environmental protection provisions.
In terms of economic benefits, each company saved on average almost MX$5 million in 2015. These economic
The environmental audit established in the National
savings are mainly due to an improvement in environmental
Environmental Audit Program is a clear example of a
performance that allowed them to save, for example,
tool that some mining companies are already using to
MX$13.7 million of water, which is equivalent to supplying
improve compliance and we are convinced that many
137,000 people in a year. In terms of combatting climate
more mining companies can follow these examples.
change, these companies prevented the emission of almost
Another PROFEPA program aimed at improving the
600,000 tons of CO2 in one year, equivalent to the annual
environmental performance of industrial facilities is the
emissions of over 116,000 compact cars.
Environmental Leadership for Competitiveness Program (PLAC), which involves strengthening value chains in
Q: What are PROFEPA’s main priorities in the mining sector
reducing atmospheric emissions, wastewater discharges
in the short to long term and how will it achieve these?
and waste generation of all kinds, while improving the cash
A: The purpose of the Attorney General’s office is to enforce
flow of the companies involved.
federal environmental legislation. In this sense, PROFEPA will continue to inspect companies in the mining sector
The 34 mining companies that participated in PLAC
and all those that are considered priority for the country, in
generated annual savings of MX$72 million with the eco-
such a way that, through compliance with the law, Mexico’s
efficiency projects they developed last year. The companies
environment and natural resources will be protected. Citizen
managed to save 120,000m of water (which is equivalent to
participation is fundamental because with reports of events
supplying 475,000 people), reduce solid waste production
that may constitute a violation of the law, the public helps
by 619 tons and prevent CO2 emissions at a rate of 16,000
the Attorney General to efficiently carry out this work.
3
tons per year. The relationship between mining authorities and Q: What financial benefits can mine operations gain from
companies is important not only to promote voluntary
satisfying these criteria?
programs but also to increase the degree of compliance
A: In itself, compliance with environmental obligations
with environmental obligations and reduce the impacts
generates economic benefits since there is no risk of
generated.
fines, suspension of activities by closures or compliance with actions to repair environmental and social damage.
Compliance with the law generates fair competition as a
In addition, mining companies that decide to participate
company that invests in improving the environment is not
in PROFEPA’s voluntary programs can obtain additional
at risk of punitive measures. In the end, companies that do
economic benefits, both environmental and social. For
not comply end up paying more because not only must they
example, in the National Environmental Audit Program,
pay the economic sanctions imposed but there is a social
currently 48 mining companies have a Clean Industry
cost in informing society about its behavior.
353
VIEW FROM THE TOP
TRIGGERING POSITIVE CHANGE FOR MINING GALO GALEANA Head of the General Direction of Energy and Extractive Activities at SEMARNAT
Q: What are the biggest challenges SEMARNAT faces
part of a global community and our rules must be aligned
with the mining industry and how does the institution
with the worldwide context to maintain the competitiveness
overcome these?
of our mining sector. We always seek to evaluate what other
A: One of the biggest challenges has to do with the cultural
countries are doing and benchmark our performance. It
change among mining companies to include the idea of
would be irresponsible not to do so.
productivity and sustainability within their operations.
354
Sustainability and environmental protection have often
Q: How effective have laws such as LGEEPA been in
been perceived as opposing concepts. Great work has
promoting environmental sustainability in the Mexican
been done to change this point of view, especially in the
mining industry?
enhancement of communication networks. For example,
A: The current regulatory system is quite effective in
we have worked alongside the mining sector to reinforce
promoting environmental sustainability. As a matter of
the official standards that apply to the industry and make
fact, the environmental impact assessment is a tool that
miners realize that productivity and process efficiency
combines not only the point of view of how a mining
implies less environmental harm.
company wants to perform a project, but how the authority considers it must be performed in an environmentally
Q: How does SEMARNAT enforce environmental and
conscious way. One of the things that should be done to
social compliance in the mining sector?
strength our legislation is related to the mine closure plan
A: Once again, communication and teamwork is the key.
presentation, and that is what we are now working on.
Even the most perfect enforcement system in the world
Although there is a process for mine closure in the current
would not work at all without commitment. PROFEPA’s
system, there is a lack of formal planning within legislation.
work is key in this process with two of its programs (environmental inspection and environmental auditing)
Communication between the social, private and public
aimed toward promoting outstanding environmental
sectors needs to be worked on constantly because
performance on a voluntary basis. Along with PROFEPA’s
collaboration among the three parties is a key contributory
work, consultation forums with communities are essential,
factor to reaching better levels of commitment and
and this process has been continuously enhanced.
implementation. International laws adopted by the
A project should not be carried out without social
Mexican government already obligate miners to take social
awareness, which implies community enrollment and
approval into account in order to implement sustainable
respect for different ways of life. There is no better
projects. Permanent communication will allow us to design
thermometer of the success of a project than an informed
environmental criteria that satisfies all parties.
community. Q: In what ways does SEMARNAT collaborate with Q: What actions is Mexico adopting to meet international
international organizations to promote environmental and
benchmarks for environmental and social legislation?
social projects in the mining industry?
A: We are not isolated in the world, so we have always been
A: SEMARNAT is working along with several international
aware of the growing trend toward globalization. We are
organizations. For instance, right now we are working with the World Bank on two projects related to the mining sector. We have also received technical assistance from the
SEMARNAT is the federal environment ministry and works
Canadian Embassy on themes related to tailing dams. We
in four priority areas: the sustainable use of ecosystems, the
are continually updating our official standards so they can
prevention and control of pollution, the integral management
cope with new challenges and imposing new sustainability
of water resources and the fight against climate change
goals on the sector.
VIEW FROM THE TOP
LAW FIRM SEES IMPROVEMENTS IN REGULATIONS HÉCTOR HERRERA Partner at Haynes and Boone
Q: What are the main challenges mining companies face
informed SEMARNAT that our studies indicate no indigenous
when negotiating with ejidos and how can Haynes and
communities in the area. The agency agreed with our findings
Boone help?
but maintained that, as a condition of the authorization, we
A: The social aspects have become the most relevant legal
must carry out an indigenous consultation in coordination
issue for the success of a mining project in Mexico, especially
with the Ministry of Economy. In this particular case, since
if not handled properly. For many years, business in Mexico
we have clear evidence of no indigenous communities in
was carried out differently, with a lack of respect for
the area, we challenged the resolution and we are about to
communities and even public opinion. Now, the balance has
receive a favorable judgement from the court.
shifted in the opposite direction and based on international treaties, we must follow a certain set of procedures and
Q: To what extent has understaffing problems at CONAGUA
carry out indigenous consultations prior to establishing
and PROFEPA improved in the last year?
mining projects. Therefore, the mining community in Mexico
A: Every six years with each change of federal government
has become more cautious. Even negotiating with ejidos
administration, environmental legislation is strengthened
is not an easy task and we have expert teams to help our
and this has been no exception. The mining sector has
clients in this process. Based on the treaty and Mexican law,
been improving its environmental compliance but there
the negotiations are supposed to be carried out between
are still many minor environmental issues in the sector.
the government and the Mexican people. In practice, the
When comparing the results of inspections by PROFEPA
mining company is invited as a “government adviser” but
and CONAGUA 20 years ago to those carried out today, it
normally ends up negotiating on the government’s behalf.
is clear there is a tremendous improvement in compliance. I have seen an improvement in design and prevention and
There is also a lack of legislation, which is causing problems.
the results of inspections. The main environmental problem
For instance, the ILO 169 ruling clearly states that prior to
in mining is caused by lack of planning. Right now, most of
any project that may affect the rights of indigenous people,
our business from mining companies comes from correcting
there must be a consultation. That treaty also stipulates
irregularities after the authorizations have been granted.
that the government should create the corresponding authorities and procedures to carry out these consultations.
Q: Have you seen an improvement in sustainability in terms
This was done correctly in Mexico with respect to the
of general practices?
hydrocarbons sector and it works well. But this is the only
A: Mining companies are becoming much more sustainable
economic sector in the country that has this authority and
and even generate power in a much more efficient way than
procedure outlined clearly. Our clients are therefore pushing
CFE. They are using water in a more effective manner by
for the Mexican government to legislate on this issue.
recycling. Other byproducts are also being recycled because it saves money and is more sustainable. Mining companies can
Q: What part does Haynes and Boone play in negotiating
be a solid example of large companies doing business the right
this issue?
way in Mexico. Large companies tend to spend a lot of money,
A: First, we have to determine whether there are indigenous
carry out due diligence and have sizeable legal departments
communities or not. There is an unfortunate practice
with technicians tasked with ensuring compliance.
carried out by SEMARNAT in regards to this treaty. During a mining company’s Environmental Impact Assessment, an indigenous consultation is mandatory, which can cause
Haynes and Boone is among American Lawyer’s top 100 law
problems when there is no indigenous community in the
firms, with more than 575 lawyers in 15 offices and 40 major
assessment’s jurisdiction. We have a mining project for which
legal practices. Haynes and Boone has been serving clients in
we obtained the Environmental Impact Authorization and
Mexico and the US for 20 years
355
EXPERT OPINION
WHEN COMMUNITIES ASK ‘WHAT ABOUT US?’ DESPITE COMPANY EFFORTS IRMA POTES Subdirector of Community Development at Grupo México
Managing expectations is one of the most complex and
It is easy to conclude that the distribution of tax resources
interesting facets of human relationships.
generated by the extractive industry is inefficient. It does not help communities that lack basic healthcare, education
Thanks to my experience of working at Grupo México, I am
and other public services. Therefore, we should not be
in constant contact with mining communities and I have
surprised to hear individuals in these remote locations
witnessed the tremendous impact social projects can have
asking themselves “What about me?” while the mining
on economic development and the local job market. That
company wonders “Now what?”
said, the companies hope that communities are grateful and 356
receive the investments as an opportunity to grow together.
Perhaps the devil is in the details. For any mining operation or investment to be a success in the long-term,
On the other hand, people living in rural communities do not
it needs to have the complete support of the neighboring
always know how to improve their social and/or economic
communities. Investors need to be sure that social order
wellbeing. Whether consciously or not, they often transfer
will be preserved, and mining companies are well aware
this responsibility onto the mining companies. The problem
of this condition. But we cannot simply stop there. People
is that corporate expectations and objectives often differ
expect to receive direct benefits, and this is where mining
from those of the community.
companies can really get creative with their community development programs. Mining companies are now
The true impact of mining projects and the social
doubling their efforts to ensure that social development
development that goes with them is often best appreciated
is directed more at local populations and is no longer
from afar. A study conducted in 2015 in a country in Latin
generalized.
America revealed that 73 percent of the general population views oil & gas and mining projects favorably, compared
Some common practices are training and specialized
to just 59 percent of the population in the communities
scholarships, local service provider training and adaptation
directly affected by the projects.
to local supply regulation, support for non-industrial, productive projects and support or donations for family
For those on the investment side, it is relatively simple to
economies, including school equipment, sport clothes and
explain that mining is capital intensive, and therefore the
provisions.
supply chain is highly specialized. Taxes are regulated by the federal government and then redistributed to the
Aside from practices, Grupo México has been implementing
communities. The majority of development projects are
a successful and creative tool that fosters the development
focused on social infrastructure, including road paving,
of local institutions and empowers locals to become the
drainage systems and sustainable water treatment solutions.
architects of their own destiny. These are competitions
But these programs do not have a direct impact on the
arranged by local committees.
thickness of people’s wallets – they do not become richer. These mechanisms are effective because they encourage On the other hand, any community member can be
active involvement and show the desire of the company to
directly impacted by mining activity, whether through
become valuable neighbors. It creates a mature bond and
noise pollution or physical change of landscape. Often, the
allows the company to really help develop the community.
benefits that the people are waiting for are not felt in their
It is no longer handing out resources without thinking about
homes. They feel that the mining operation, and the impact
where or how they will be deployed. They are programs
it has on the community, does not allow them to work on
from the community, for the community and controlled by
their own development.
the community.
Grupo México's community engagement program
357
A famous Mayan text sums it up perfectly: “You know
that all corners of the community are actively involved.
something, and I know something. But you do not know
The proposals are submitted and openly processed by
everything, and neither do I. So we should speak, and in
the committee to decide which ones will be approved.
doing so we can leave behind our ignorance and fear.”
It operates as an impartial intermediary to bring mutual benefits to the company and the community.
If the devil is in the details, what are the details made of? I will share some of Grupo México’s initiatives, with pleasure.
Pablo Andrade, a member of the Grupo México Community
We provide the finances to encourage the community to
in Cananea, Sonora, tells us: “It is something that I had
actively participate in social development via infrastructure
not seen before. The programs are innovative and really
projects. We aim to generate real change on education,
revealed the impact of the mine on the community. Kids
sports and environmental issues.
and young adults were excited, and it showed that nothing is impossible for a community when there is a common
The Community Committee is a social participation tool
will. Social transformation can happen when people
that decides how the money will be spent. Company
feel that their concerns are being heard and taken into
representatives, social leaders and volunteers all
consideration. Everyone knows the responsibility they have
participate in the committee on a rotation basis, to ensure
to contribute.”
VIEW FROM THE TOP
PREPARING COMMUNITIES FOR MINE CLOSURE ARMANDO ORTEGA Vice President Latin America of New Gold
358
Q: What are the targets for Cerro San Pedro in 2017?
by external qualified persons. We have completed the first
A: We closed the pit entirely in mid-2016 and since that
stage, which is reforestation. Despite some unforeseen and
point we have been in a phase of residual leaching. It is
unpreventable setbacks, we have successfully reforested
hard to predict how long this process will last because it is
a total of 393.3ha, which represents 100 percent of our
heavily dependent both on the minerals recoveries and the
commitment. We are now moving onto the second stage,
gold price. We will continue for as long as it is economically
which is to maintain the healthy survival of the newly-
feasible and we have set guidance at 35,000-43,000 gold
planted trees. This is a long-term commitment that will last
ounces at Cerro San Pedro for 2017. Cerro San Pedro is an
for several years.
historical asset that was discovered in the year 1590 so quite simply the reserves have been exhausted. We have made
Q: What strategies do you have in place to ensure that
significant efforts to continue exploiting the deposit as long
the Cerro San Pedro community can continue to thrive?
as possible and in a sustainable manner but the asset is
A: During the operation’s golden age, from 2010-2013,
depleted. Across our producing assets around the world,
Minera San Xavier had an average of 900 workers,
our goal is 380,000-430,000 ounces throughout the year.
employees and contractors. With the closure of the pit, the team has been stripped down to around 140, so close
Q: What have been the main challenges in designing the
to 70 percent of the workforce has already moved on. To
mine closure plan?
approach this challenge in the right way and ensure that
A: It is paramount to execute a successful mine closure,
our workers are best equipped to move on from Minera
one that leaves a positive and long-lasting legacy at our
San Xavier, we have set up a number of initiatives. Instead
hosting community. The main obstacle is to ensure that in
of deciding for ourselves what our staff would foresee
the long-run our sound mining operation and community
as a feasible future, we conducted a comprehensive
work prevails over a negative and ill-founded narrative
consultation with our employees enquiring in which areas
originally crafted by the opponents of our project when
they would most like to receive training. Where possible,
it was approved for commercial operation in 2007. We
we then provided the corresponding training courses. This
must have a mine closure plan that not only meets best
included electricity and plumbing courses, training for the
international practices but also caters to the future core
automotive sector that is strong in San Luis Potosi, hair
needs of the local communities in San Luis Potosi. The real
stylist courses, mechanics, and even training on handling
issue behind the original opposition to the project was that
television cameras with TV Azteca. We also helped dozens
the site is extremely close to a colonial town and to the city
of our truck operators to get an official certification for
of San Luis Potosi so there was strong resistance to building
their mining skills, to enable them to look for jobs on
a new open-pit mine so close to urban areas.
mining projects elsewhere. We have contacted peer mining companies to recommend our former workers.
The closure plan is vital for us to maintain the hard-earned good reputation that we have achieved through many
Finally, we have also created and funded a formal
years of a sustainable operation. The biophysical side is
foundation, called Todos Por Cerro San Pedro, which is
heavily regulated in Mexico, and supervised and audited
designed to operate on a standalone basis once Minera San Xavier has totally shut down. The idea is to prepare the locals to run the foundation themselves, both from
New Gold is an intermediate gold miner with three producing
an administrative and financial standpoint so that they
assets in Australia, Canada and the US. Its Cerro San Pedro
can continue to develop the local economy and ongoing
project in Mexico transitioned to redisual leaching in 2016 after
projects independently. We want to ensure that we leave a
a decade of production
positive corporate footprint behind us.
CASE STUDY
NEW GOLD'S CLOSURE PLAN AND CSR POLICIES FOR CERRO SAN PEDRO A comprehensive closure plan includes both social and
SOCIAL ASPECTS
environmental aspects and assurance of the economic
New Gold made sure that its
development of surrounding communities and the
collaborators had the necessary tools to
future of collaborators.
continue their professional development in either the mining industry or in the execution of their own business.
Exploration —
Training: Strengthen the
CONCEPTUAL CLOSURE PLANNING
abilities and capacities of our collaborators to potentialize their employability Local Economy: Contribute towards the development
Pre-feasibility —
<
of a local economy
Feasibility —
<
diversifying activities to
by strengthening and create new opportunities. Entrepreneurship:
<
Construction —
Implement a program with an aim to develop abilities that permit collaborators
Operation —
and the surrounding communities to contribute more to the productive
State holder input
Mine life cycle
sector and services in the
Increasing detail
locality.
ENVIRONMENTAL ASPECTS The restoration plan of the mine is divided into phases that last several years. It aligns itself closely to the approved regulation laid out by environmental authorities such as PROFEPA and SEMARNAT.
• Administrative offices, the plant DETAILED CLOSURE PLANNING
and water basin will be dismantled
<
Decommissioning — Transition to closure Closure —
<
to restore the natural structure of the area. • The pit will be physically stabilized in its circulating perimeter and walls. • Its leaching pads will be contoured and smoothened to stabilize the basins and renovated through a
Post Closure —
washing process before initiating its revegetation process with a cover. • The soil will go through an ecological regeneration process
Relinquishment —
with the inclusion of native plants
359
INSIGHT
WORKING WITH OPERATORS ON SUSTAINABLE CLOSURE RUBÉN CASTILLO Director General of Mejora
When a mine prepares for closure, the operator is faced with
period of 10 months. The account is opened in January and
a number of challenges. A full remediation and reforestation
the savings are then shared out between the members the
plan must be drawn up to meet all environmental
following November, although funds can be withdrawn at
requirements, a strong project pipeline must be ready to
any point during the year. Workers can then hand out tax-
replace the fall in production levels and revenue and the
free loans to each other at far more competitive rates than
land must be returned to the original owner according to
would be on offer on the market at conventional micro-
local protocol.
finance institutions. “This gives the client more flexibility, which is important for workers in Mexico who often need
360
But there is one issue that could have particularly damaging
cash at short notice,” says Castillo. “It makes it much easier
effects if not handled correctly: how to ensure that
and more attractive to save and take out loans.”
thousands of workers, most of whom inevitably lose their jobs as a project winds down, are prepared for a future
This short-term model was designed by Mejora
without the mine. While most operators do their best to
specifically for the Mexican market. Castillo accepts
offer their staff support via training schemes, workshops
that microfinance is a “fantastic tool” for developing
and recommendations, the sheer size of the redundant
economies like Mexico but insists that the lack of
workforce means that the employer requires help to ensure
financial awareness in the country makes this method
that everyone receives the backing he or she needs.
of lending risky for the local working population. “If there is no basic financial education microfinance can
Mejor is a San Luis Potosi-based nonprofit civil association
cause socioeconomic problems because people do not
that administers annual savings funds for workers across
understand the small print when taking out loans and so
a variety of industries, is geared toward fostering a culture
the interest can snowball out of control,” he says. “Taking
of saving and future planning in Mexico. For many years it
the money directly from the salary removes the danger of
has managed an annual savings fund – a collective savings
failure to pay the installments on time, which is a problem
account that is renewed every year – for workers at Minera
we continue to see in Mexico.”
San Xavier, which runs the Cerro San Pedro mine near the city of San Luis Potosi. The mine, owned by Canadian
Although Mejora does not gear itself toward any particular
miner New Gold, is now in a final leaching program, with
industry, the annual saving fund platform is particularly
full closure expected to arrive in 2019 at the latest. Mejora
attractive to miners, whose wages are higher on average
is helping the workers take the next step in their careers.
than other sectors in Mexico. From its base in San Luis Potosi, the company is growing at a considerable rate and
“Many of the workers have shown interest in starting their
already has operations in Tabasco, Guanajuato and Jalisco.
own business,” says Ruben Castillo, Director General of
Mejora now works with over 70 companies, including
Mejora. “We help to connect them to the right people and
Dräxlmaier, General Motors and Faurecia, to encourage its
our support will not stop, despite the fact that the annual
workforce to start saving. By doing so, says Castillo, the
savings fund is coming to an end.”
company hopes to see workers in Mexico better prepared for the uncertainties of the future.
As well as supporting workers faced with redundancy, Mejora, which has been in operation since 2004 and now
“Our business model revolves around encouraging people
has over 45,000 members, tries to encourage workers to
to save and to do this we work with companies to teach
save by offering a unique investment platform. The annual
personal finance, investment and future planning,” he
savings fund allows workers from any company to invest
says. “There is a significant lack of financial awareness and
a portion of their wages into a collective account over a
education in Mexico and we are trying to fill that gap.”
VIEW FROM THE TOP
PROMOTING A LONG-TERM VISION AND COOPERATION Jaime MartĂnez Business Development Director of ERM
Renato Urresta Principal Consultant at ERM
Q: How can environmental and social regulation in Mexico
and the communities, and overall the investments. We
improve?
collaborate with our clients to develop projects according
JM: Regulation is overly emphasized. Many countries spend
to these standards, so they successfully comply with audits.
a large chunk of their time creating paperwork and complex
We also collaborate with financial institutions to perform
legal processes that will never be executed. Trust and
audits on projects to make sure they are complying with the
cooperation should be prioritized. International standards
requirements. Many private financial institutions have become
are being brought to Mexico by foreign companies and
more demanding when it comes to project development and
many of those are of a higher benchmark than those our
corporate responsibility as a way to protect their capital.
public institutions adhere to due to their cost-reduction
Banks often include social aspects in their applications.
strategies and corporate responsibility obligations. Policymakers can benefit from knowledge in the industry.
Q: What do you foresee for the mining industry regarding social and environmental management and how will ERM
Q: In what way does your company help overcome social
participate in this context?
and environmental challenges?
RU: Mining legislation in Mexico and Latin America still
RU: We help our clients understand and manage social and
has room for improvement, particularly when dealing with
environmental risks and challenges so they can operate
foreign investment and protection of the interests of social
successfully. When it comes to foreign companies, one
spheres. International standards and best practices are
of their main challenges is understanding Mexicoâ&#x20AC;&#x2122;s local
helpful in these matters because they can serve as guides
context and legal requirements. Our international and
for project development. It is important to consider the
national experts help facilitate understanding and dialogue
vision of the different stakeholders to generate long-term
among large companies and surrounding communities. We
plans that include different views and interests and to better
strive to promote transparency among these players.
distribute the benefits of the projects.
Along with our clients, we prepare Fit for Purpose Strategies
Successful projects require the public and private sector
that range from engagement, to land acquisition and
to work hand in hand every step of the way and require
resettlement processes to environmental impact studies
well-planned strategies followed up with a proper
and mine closure plans. Our scope is to help our clients
implementation process.
and communities transform challenges into development opportunities. Conflict prevention and resolution is one of
With regards to the mining sector in Mexico, ERM is working
our main services. When our clients require support and
on a resettlement process in the state of Sonora, under
guidance to improve their stakeholder engagement, we
World Bank and IFC international standards. We have been
provide support to ramp up sustainable solutions. We work
involved with this initiative for the last three years. We are
on site, side by side with the communities and client teams.
also developing a strategic planning project for the opening of another mining project in the state of Morelos and working
Q: What are the financial benefits to adopting sustainble
in Guerrero to create a livelihood restoration project and will
practices?
evaluate how it directly impacts the surrounding community.
RU: Responsible mining operations comprise transparent and participatory measures. International development organizations such as the World Bank and the International
Environmental Resources Management (ERM) is a global
Finance Corporation provide funds for projects. To gain access
provider of environmental, health, safety, risk and social
to finance, a company must comply with standards that have
consulting services. With more than 160 offices in over 40
been developed particularly to protect the environment
countries and territories, ERM employs over 4,500 people
361
PROJECT SPOTLIGHT
362
INVESTING IN SOCIAL GOOD The management team of Starcore International Mines is committed to driving and developing its company toward its growth and valuation objectives while maintaining an unwavering commitment to social and environmental stewardship. Its largest involvement flows directly through its biggest asset in Mexico, the San Martin gold mine in the state of Queretaro. The mine has approximately 320 employees with families that live in the nearby town of San Martin. Starcoreâ&#x20AC;&#x2122;s participation in youth education includes ongoing donations to improve kindergarten and elementary programs, purchasing of school supplies, annual summer camps and maintenance of the grounds and entrances of the school areas. It recognizes its responsibility in providing the best tools for the children of the community to succeed and be prepared for the future. On the public health front, Starcore provides its employees with annual medical checkups free of charge, including prostrate antigens exams, audiometry exams, physical exams, glucose, triglycerides and cholesterol exams and thorax x-rays. â&#x20AC;&#x153;Investing in social good as a core value of the company is one of the main reasons we have been successful in Mexico,â&#x20AC;? says Robert Eadie, President and CEO of the company. Starcore has adopted the technology of dry stacked tailings at a considerable added cost to its operations. It is one of the only companies in Mexico to apply this method. The dry stack tailings method provides many benefits to the surrounding environment, including the ability to recycle more of its process solutions within the plant, reducing water consumption by as much as 80 percent, decreasing land usage, creating a more stable impoundment geotechnically and also helping to revegetate the surrounding area. As part of the revegetation process, Starcore provides a nursery for plants in the region and an estimated 7,500 plants per year. Through friendly engagement of the community, the children from the San Martin primary and secondary schools submitted ideas based on the perceived needs of the community for an unused piece of land. The ideas were submitted to a panel that consisted of mine staff and community members and the best idea that focused most on a sustainable and an equitable solution would win. The submissions reflected an incredible amount of passion and vision, clearly demonstrating that the desire to create a park for the generations to come was instinctive to the children.
363
VIEW FROM THE TOP
TRANSPARENCY NEEDED TO APPEASE ANTI-MINING COMMUNITIES GABINO FRAGA Managing Partner at Grupo GAP
364
Q: To what extent do you feel confidence is returning to
Q: What services do you provide your clients in the mining
the sector following the price downturn?
sector?
A: The depreciation of the peso against the US dollar
A: We have been working on issues surrounding land
has been a big boost for Mexicoâ&#x20AC;&#x2122;s ability to compete in
ownership legislation for more than 25 years, and we
the international sphere because production and other
specialize entirely on the subject of land access. Torex Gold
operational expenses are coming down. After the royalty
bought a project in the Cocula municipality in Guerrero in
taxes were introduced in 2014, we saw many companies
2008, an area with a very complicated social structure. The
pulling out their investments from Mexico and putting them
previous owner of the concession was Kennecott, and was
into other Latin American jurisdictions because mining in
unable to develop the project for 12 years despite having
the country was becoming too expensive. Now, with strong
all the equipment on the property ready to work. We were
reserves in Mexico and recovering prices, the international
hired and immediately carried out an in-depth social and
investor community and major mining companies are once
land due diligence to clearly establish the social, technical
again looking at Mexico as a viable destination. This is great
and legal situation. We needed to find out who were the
to see but the country still has some improvements to make,
local community leaders, and what they wanted to know
particularly on the issue of security.
and receive in return for approving the project. Following the inquiry, we realized that all the issues that had been impeding the projectâ&#x20AC;&#x2122;s progress could be easily resolved.
Grupo GAP offers legal and social advice for mining, energy
We reached resettlement agreements with a total of 190
and oil projects in Mexico. It specializes in resolving conflicts
families, and by 2010 Torex was able to start working.
related to land access and usage and agrarian issues, in
The mine entered into production in 2016 and is now a
particular communication with ejido communities
multimillion-dollar asset. We did a similar job for Alamos
Gold on its Mulatos project in Sonora and for Agnico Eagle
done, the project cannot be successful. This is where Grupo
at its Pinos Altos project in Chihuahua.
GAP can add value.
Q: How do you approach communities that fundamentally
Q: What do you hope to achieve over the next few years?
oppose mining projects?
A: For the past 28 years, we have been working to ensure
A: Mexico has been a mining country for 500 years, and
that the mining sector brings jobs, investment and
many of those who oppose mining today come from mining
development to the country and that objective has not
families. States like Guerrero and Oaxaca prospered on the
changed. We believe we have an important role to play as
back of mining, but this has changed as the political and
the bridge between mining companies and communities
social environment have become more complicated. Mining
and we want to continue working to improve this complex
companies have a duty to explain to these communities,
relationship step by step. I want to see the mining sector
as openly and transparently as possible, what the plan for
fulfill its potential and contribute more to the national
the project is, and what impact this will have on the nearby
economy. Mining pays higher salaries than most other
communities. The companies, with our help, need to carry
industrial sectors and provides jobs in remote regions where
out their due diligence to understand exactly how each
there are no other options for employment, so it is vital that
individual community functions, who its leaders are, and
the public and private sector work together to support the
what is important in the region. If the homework is not
ongoing development of the industry.
INSIGHT
“
SOCIAL CONSCIOUSNESS TO ATTRACT FUNDING
Banks require that the projects they finance are viable and profitable but they also need high environmental and social stewardship”
extremely demanding because if problems arise, the fingers
Adrián Juárez, Director of CTA
to carry out additional social and environmental work
immediately point to the financing source as the problem. CTA works with clients to provide guidance on how to comply with these loan terms. The difficulty in adopting these best practices depends on the point at which an operator requests funding, according to Juarez. “Some mines start up without a loan, having already acquired the permits,” he says. “Problems arise when they are asked as a condition of the funding. They have already made production commitments and at this point must make
Mining projects are investment-heavy and many companies
readjustments, which can be problematic for them.”
reach the startup stage and find they require extensive investment to carry on. The operator can reach out to
Although many of Mexico’s mining regulations are
consortiums of banks, such as the World Bank’s private
comprehensive, others are outdated and no longer relevant.
funding arm IFC, for a loan. But because banks want to
“The regulations that were put in place years ago should now
ensure the viability of their investments, they impose strict
be the tip of the iceberg in terms of responsibility," Juárez
terms on the funds, including conditions related to the
says. Twenty-five years ago, when the legislation was drafted,
social and environmental practices of the operators.
less was known about the significance of concentrations of metals like arsenic in water in soil. As a result, Mexican
Adrián Juarez, Director of the environmental and social
laboratories now adhere to standards that dictate that
consultancy company CTA says that operators are expected
arsenic levels must be less than one part per million (ppm).
to comply with strict regulations for the duration of the loan
But now, as more knowledge is gathered, scientists agree
or risk forfeiting further funds. “Banks require projects to be
that more than 0.1ppm of arsenic can be toxic. “This specific
viable and profitable but they also need to have high levels of
legislation limits the scope of laboratory analysis because
environmental and social stewardship,” he says. “This prevents
it mandates how it should be carried out with no leeway,”
the risk of toxic spills, protests, strikes or litigation, which in
says Juarez. “Now many companies need to send samples to
turn protects the bank’s investment.” Banks, he says, must be
laboratories outside Mexico for accurate analysis.”
365
INSIGHT
CHANGING THE IMAGE OF THE MINING INDUSTRY GUILLERMO HINOJOS CEO of ASES
Mining has a particularly toxic reputation for pollution and
consulting. “Our people gathered some of the community
neglect of land use and environmental impact regulations.
leaders involved in the mining project and through these
Guillermo Hinojos, Director General of environmental
negotiations the project was able to continue,” says Hinojos.
consultancy ASES, says this reputation is extremely
“The community went from being so shut off to the idea of
outdated. “The biggest challenge miners face is in convincing
mining to really embracing the industry and when the mine
the community that a modern mine is far removed from what
was eventually closed, there was a lot of sadness from the
the industry looked like 30 years ago.” On the contrary,
same people who had initially put up so much resistance.”
the industry is now unfairly demonized and many other 366
industries – mainly informal ones – do not have to adhere to
This is an example of how ASES is able to help mining
the same rigorous standards as mines and therefore end up
companies in Mexico. Having originally begun as a small
having a worse impact on the environment, he says.
company focused on environmental consultation, step by step it was able to convert into a multidisciplinary firm
“There is a great deal of regulation in mining and very
specializing in ecology and sustainable development.
little oversight,” he says. “And most importantly, there
After widening its panorama to access bigger and bigger
is an overwhelming willingness from mining companies
companies, ASES is now the biggest environmental
to comply with standards.” The challenge, Hinojos says,
consulting firm in northern Mexico, with 50 people working
is in convincing communities of how rigorously mining
across 22 different disciplines.
companies must adhere to standards related to waste management, land restoration, compensation programs and
In its 15 years in the industry, the company has made big
environmental impact, among other factors, or risk their
strides and its most notable mining clients now include
operations being shut down. In fact, as a result of tightening
giants Agnico Eagle, Pan American Silver and Minera
regulations, mining now has some of the strictest regulatory
Frisco. Hinojos says that Agnico’s internal environmental
standards of any industry in Mexico.
department is a little more established now so activities with this operator are more low-key. But ASES recently
This message can only be transmitted to communities
completed an extensive program to train workers from
through a concerted communication effort, he explains.
Pan American Silver on the identification and handling of
“Communities often demand immediate results because of
poisonous snakes. “We provide training to identify the type
poor communication. We must make the effort to explain
of animal, what risk it poses and how to avoid danger while
that changes occur over the mid to long term, as well as
protecting the species,” says Hinojos. “Many of the species
making them aware of the benefits that will be available to
in these regions are endangered and we want workers to
them over the course of a mining operation.” Unfortunately,
be able to remain safe while inflicting minimal disruption
mining is often overlooked as one of the most important
to the ecosystem.”
industries in the world, supplying the raw materials for everything from steel used to build skyscrapers to silver
This is also why Hinojos says it is important to take
used in cell phones and car manufacturing.
reforestation campaigns seriously. Often, these programs are too complex for just one company to oversee. “It is very easy
In one success case in which ASES participated, two staff
to plant trees but we cannot simply reforest with the same
members worked in the Tepalcatepec municipality in
type and size of tree throughout the complex; this is not a
Michoacan. The area had experienced uprisings and tension
forest, it is a park,” he explains. “There is a delicate ecosystem
was rife for reasons unrelated to the mining industry in the
to consider and each location has varying requirements for
area, causing the community to resort to blockades that
different species of a variety of animals. We cannot just
prevented supplies reaching the mine for which ASES was
reinstate the structure of the forest but also its functions.”
INSIGHT
LOCATION, LOCATION, LOCATION BRIAN WEIHS Mexico Office Head at Kroll
“Location, location, location” may be a commonly adopted
The company finds that exploration companies generally
mantra among real estate agents but it is also one of the
face the most challenges because they tend to be smaller
biggest concerns that mining companies have upon entering
and less well-known among indigenous communities. Kroll
Mexico. Mining operators often have to battle security
helps minimize the risk by collecting reliable data from
issues that arise from organized crime near mine sites or
key players in the area to find the root of the issue. “Even
surrounding communities that prevent the development
though mining companies often have their own methods of
and continuation of projects. “To more efficiently manage
gathering information, it helps for us to gather our own as
the risks, operators should conduct a security analysis of
the companies’ data could be biased,” says Weihs.
any area where they wish to acquire a mine site, particularly in the case of a greenfield project,” says Brian Weihs, Mexico
The key is to find sources of information who would not
Office Head at Kroll. This could prove to be a key step
under normal circumstances be likely to talk to mining
that could save companies thousands, perhaps millions of
companies. This offers a more complete picture of the
dollars.
area that would otherwise be quite limited. “When it comes to more specific issues such as suspicion of theft, a more
The seriousness and type of security issues greatly varies
detailed process should be undertaken,” says Weihs.
between states and surrounding communities. “The northern Mexican states tend to have many years of experience with
Another challenge that the industry often battles with is
the mining industry and are generally accustomed to these
the resolution of land issues and community members who
activities,” says Weihs. “But issues are more likely to arise
are angry about incoming projects. “Even though we are
in areas south of Mexico City.” These communities, he says,
not directly involved with these resolutions, we understand
are less accustomed to mining and are therefore less aware
that they can be quite complicated,” says Weihs. “The public
of the benefits the sector can provide.
sector should facilitate these processes.”
When it comes to the mining sector, Kroll, as an
Improving transparency is a strong priority for all sectors
international advisory firm that helps clients with all
and the federal government is under pressure to improve its
forms of security threats, mostly focused on investigating
processes. Weihs believes that the National Anti-Corruption
and solving issues that companies have with local
System that was created by constitutional reform in the
communities, loss of products and other types of threats
summer of 2016 might be the push the country needs
that operators face. “We analyze the security risks that
to take a new direction. “Hopefully, it will lead to the
operators face throughout the stages of their project
appointment of an independent anti-corruption prosecutor,”
and, with this information, we develop risk-management
he says. “The prosecutor and investigators will be at liberty
programs for our clients,” says Weihs. The company
to investigate any governmental area that receives capital
focuses on issues from northern Mexico, Chihuahua and
from the federal government at a local, state and federal
Sonora but it also works with some companies from
level, as well as private companies.” This new position is
Guerrero and Michoacan, which also endure theft and
expected to be established in 2017.
major security problems. But Weihs strongly believes the government is making great Theft, according to Weihs, can be especially damaging
strides in improving transparency. “It is improving processes
during a downturn. “Operators need to be particularly
like single-window transactions and implementing Internet
careful when production is lower than normal and they
portals to minimize opportunities for unauthorized activities,”
need to be as cost-efficient as possible,” he says. “A theft
he says, with the conviction that, if more transparency is
at this time can considerably exacerbate financial strain.”
achieved, Mexico’s investment climate will greatly improve.
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ROUNDTABLE
HOW CAN THE MINING INDUSTRY ESTABLISH HEALTHY RELATIONSHIPS WITH SURROUNDING COMMUNITIES?
Costly blockades that halt mining activities can cost companies millions of dollars a day and tend to be rooted in a lack of satisfaction and dialogue between the surrounding communities and the mining industry. Companies eagerly seek new ways to communicate with social spheres to avoid the costly blockades and negative media coverage. Some opt for international certifications while others incorporate sustainable habits to reduce their environmental and social impact. Mexico Mining Review asked industry leaders about the main obstacles to creating a healthy relationship with these communities and what best practices they use.
In 2016, we were given an award in recognition of our sustainability programs from CEMEFI, which marks the sixth consecutive year we have received this honor. At Guanajuato, the mine is in the middle of the city so we really have to work very closely with the local communities. The most important aspect a company must consider when working in close proximity to a city is ensuring it is a good corporate citizen. This includes the way it treats employees, respect for the environment and integration
368
ROBERT ARCHER President and CEO of Great Panther Silver
with the community. At the San Ignacio mine right outside the city, the communities are more rural and some do not even have access to drinking water. We are working with them to provide access to these facilities and we are implementing education programs based on recycling, hygiene and other relevant topics.
In truth, we have excellent relations with local communities, but unfortunately it only takes 10 people to execute a blockade that can be very damaging to the operation. Given that we are new to the area, understanding what we do is vital so we arrange a bus to pick up community members and take them through the plant every Thursday, which has been a tremendously popular initiative. We also support local fishermen by providing equipment and stocking facilities. It is important to maintain a constant
FRED STANFORD President and CEO of Torex Gold
presence and dialogue so that we are no longer viewed as an outsider, but rather as an important contributor to regional development.
ArcelorMittal Mexico is a Socially Responsible Company. Besides being the main generator of employment in Michoacan, we are also committed to transforming the industry and building a better future for the generations to come. We are aware of the impacts of our interventions in the region and measure the effectiveness of our strategies according to the level of transformation achieved in the communities where we operate, and the shared value that they generate.
MANOLO ESPINOZA Mine Director of ArcelorMittal
We believe that establishing early and close relationships with communities is fundamental to our business, with the aim of jointly addressing and managing the negative impacts that may arise in the field, both for our mining and our steel production operations.
Our company’s Environment, Health, Safety and Sustainability (EHSS) policy is our commitment to sustainable performance. It is the basis for our decisions related to environmental, health and safety and social performance. We use the Mining Association of Canada’s Towards Sustainable Mining protocols for tailings management, energy management, health and safety, and stakeholder engagement as best practice in these areas. The Cozamin mine has been recognized by several organizations for our commitment to sustainable performance, including the distinctive ESR Socially Responsible Company (Mexican Centre for Philanthropy - CEMEFI), Clean Industry Certification (PROFEPA) and the Family-Responsible Company Accolade (Ministry
DARREN PYLOT President and CEO of Capstone Mining
of Labour and Social Welfare). In 2015, the mine was ranked number 16 in the top 100 Great Places to Work in Mexico for companies of 500–5,000 employees.
Exploration or mining companies need to use their own people, as senior as possible, to establish from the very beginning the relationships with the mineral project’s surrounding communities. Companies often use foreign or independent consultants to do this social work, but it never beats using the company’s own people. Upon starting an exploration project, it is important to get to know the local folks, to listen to them and to start earning their trust. In general, locals truly respect that and it builds a solid trust base to build upon when a major mining operation is planned for the future. In my opinion, problems with the ejidos only become an issue out of
369
ALAIN CHAREST Exploration VP at Evrim Resources
negligence.
Responsible mining operations comprise transparent and participatory measures. International development organizations such as the World Bank and the International Finance Corporation provide funds for projects. A company, in order to gain access to finance, has to comply with standards that have been developed particularly to protect the environment and the communities, and to protect overall investment. We collaborate with our clients to develop projects under these standards so they successfully comply with audits. We also work with financial institutions to audit projects to make sure they are complying with the requirements. Many private financial institutions have become more demanding when it comes to project development and corporate responsibility as a way to protect their capital. Banks
RENATO URRESTA Principal Consultant at Environmental Resources Management (ERM)
often include social aspects in their applications.
The largest obstacle in environmental and social compliance is the community consultation process as it requires a complex understanding of cultural norms. For the oil and gas industry, the National Human Rights Commission released recommendations for environmental compliance in August 2016 that now include community consultations and are based on international norms. However, these same specifications were not established for other industries, so many mining companies struggle with the lack of a clearly established regulations in terms of community consultation. Operators can incorporate more preventive and proactive approaches by identifying, within economically viable projects, a map of advantages, areas of opportunities and allies. Taking the time to develop a strategy often helps align the objectives of a project with the needs of surrounding communities and ensures success.
BRENDA ROGEL Partner at Hogan Lovells BSTL
370
TĂŠcnica Salgar's automatic absorption/rejection filter
INSIGHT
TAKING ADVANTAGE OF ENERGY REFORM OPPORTUNITIES BERNARDO SALCIDO Director General of Técnica Salgar
Energy accounts for 40 percent of the operational
to store and is not as “environmentally friendly” as we
expendidures in mines and, with the arrival of the Energy
think,” he says. “To store solar power, large batteries that
Reform, the rules of the game have changed for the
resemble those of a car are required. These batteries
industry. Previously mines integrated energy-efficiency
take years to degrade, their lifespan is short - between
tools to lower their production costs but now they are
two to five years - and they are extremely harmful to
obligated to make changes to their processes and,
the environment.” Another problem is that they create
according to Bernardo Salcido, Director General of energy
direct current which must be transformed using electric
systems company Técnica Salgar, this has been more
and transformers into AC electricity in the network. This
difficult than expected.
electric transformation creates many power disruptions within a network, which is why there have been many
“There are many players within the industry that do not
problems with wind energy, where transformers have
completely understand the new norms that came from
exploded and systems have been shut down.
the Energy Reform,” he says. “Whenever a mine requires something related to energy, it must go through CENACE.
Técnica Salgar is working with one of these energy
Operators now require various expensive studies that start
generators - Fresnillo - on its newly operating San Julian
at US$100,000 and it does not matter if they have their
mine in the Durango-Chihuahua mountains, having
own power generation plants.” However, he concedes that
supplied its first batch of filters. Due to the success of
this new norm gives companies three years to align their
the Fresnillo project, the company has begun working
processes to the new standards and Salcido sees this as a
with Industrias Peñoles on its new Rey de Plata project
window of opportunity.
in Guerrero. With Grupo México arduously working on the expansion at Cananea, Salcido sees a great deal of
Técnica Salgar is a 40-year-old Mexican company that
opportunity for Técnica Salgar’s services in the near future.
specializes in engineering, equipment manufacturing,
“The rules of the game for energy usage have changed,
consultancy, maintenance, testing and operation of
creating new opportunities for us as an energy-efficiency
these energy-generation systems. The company is taking
company,” he says.
interest in products that will help companies that want to cogenerate power and then supply it to CFE’s grid.
The processes have become more intricate and mines
“Before transferring power, companies must convert it
must now carry out more complex processes. But if
into short-circuit power,” says Salcido “We believe this
the machinery works the way it is supposed to and
will become a huge trend in the future and we are the only
processes are strictly controlled, energy usage is
company that can supply miners with the high-current
dramatically reduced which leads to greater profit
reactors needed to connect to the national network.”
margins, says Salcido. “The market is small and there are few competitors,” he says. “The biggest companies
With the Energy Reform, mining companies were given
like Alstom and ABB dominate the market, but due
the power to generate their own energy supply and sell
to the increase in products coming from Asia, smaller
the surplus to CFE. While the largest Mexican miners,
companies are starting to participate.” Although more
Grupo México and Industrias Peñoles, have seized the
competition is starting to arise, there are few companies
opportunity, Salcido warns that renewable energy is not
innovating in the types of products or services they can
as simple as it seems.
offer to the mines. Técnica Salgar sets itself apart by constantly competing with itself to ensure it is providing
“The renewable energy trend is difficult to keep up with
the optimal solutions to clients and continuously
because for instance, solar power is extremely difficult
improving processes.
371
VIEW FROM THE TOP
ENERGY PROVIDER ADDRESSES POWER FACTOR PEDRO BERRIEL Director General Mexico of Power Electronics
372
Q: What impact has the Energy Reform had on the mining
conditions. However, there are new Canadian companies
sector?
entering Mexico without properly understanding the
A: The Energy Reform is an immense advantage for
nuances. The Canadian government offers a significant
operators to exploit additional resources, such as gas,
amount of support to companies that want to enter Mexico
that arise naturally from the exploitation of minerals. It
so operators that feel comfortable with this safety net are
has brought a new wave of opportunities for the mining
less likely to take the necessary precautions. Companies
industry in the country. The Energy Reform was well-
such as Grupo México, Peñoles and Goldcorp have lowered
written thanks to the fact that it adopted international best
investment in the sector.
practices. It applies lessons learned from mistakes made in countries like Spain, where the renewable-energy sector
Q: In what ways can your products and services help the
is relatively unsuccessful compared to the country’s total
mining industry?
energy demand. The mining sector’s reaction to the reform
A: We can help the Mexican mining sector by providing
could be more aggressive.
products that generate the additional energy that is required in mine sites. The power factor can be an issue in mines when
The minority that is properly taking advantage of the
an area does not have enough energy to meet the demands
open doors tend to be large operators that have enough
of the operation. Transmission lines can be damaged and
resources to expand into other sectors. For instance, Grupo
machines tend to overheat. Our products create a better
México and Industrias Peñoles are creating additional
flow of energy. The greatest advantage we offer is that our
companies that are not related to mining to enter the oil
products can work continuously day and night without
and gas industry. Valmex, an energy subsidiary of Industrias
requiring sunlight. The extra generation of energy can
Peñoles, was created in the beginning of 2016 and is already
improve the efficiency and productivity of mines. It also
starting to invest in new projects. Other companies like
helps reduce the likelihood of fines for noncompliance with
Grupo México are starting to invest in wind farms. Industrias
environmental guidelines. Our products inject reactive power
Peñoles is one of our main clients.
in motors to close the power factor gap in mines.
We hope to grow in the Mexican market similarly to the
Q: What products or services are you promoting to the
way we did in the UK, which was our main market for
mining sector
many years. In the last two years, we managed to sell
A: We not only sell products but also solutions that help
around 3.5GW in the UK alone. We own 40 -45 percent
move mines into automated processes. In Chile, automated
of the market.
conveyor belts are our specialty. We adapt to underground and open-pit mines. The company can also support the
Q: How do you perceive the mining industry at the
extraction process by providing products that extract the
moment?
naturally occurring water.
A: The mining industry is going through a transformation that requires the development of new products. There is a
Our main product is the medium voltage drive and most
particular need for automated products considering market
of our work revolves around controlling the motors of a mine. The product is particularly important as motors need to be able to support the load of the material that is on
Power Electronics is a power services provider for industries
the conveyor belts. Our motors are not made to only offer
including
With
speed but also durability. When we design our products,
headquarters in Spain, the company’s portfolio includes
we take into consideration the speed and weight of the
ignitors, inverters and solar stations
material that needs to be processed.
mining,
oil
and
gas
and
construction.
INSIGHT
PUTTING THE BRAKES ON ENERGY WASTE MURILO DALLA Business Development Manager at Danfoss
With mining companies often located in remote areas away
and already participates in a solar plant for Fresnillo.
from CFE’s power grid, a substantial portion of their energy
“We collaborate with companies such as Jorgensen that
is generated by electric motors, which are relatively compact
provide solar power for mines to continue finding ways to
and can adapt to rough terrain. But approximately 60 percent
use energy more efficiently,” he says. Additionally, Danfoss’
of the energy consumed around the planet is used by industrial
product can intelligently separate heat in the cabinet room,
companies and 40 percent of this powers electric motors.
which further provides savings and energy efficiency by
According to Murilo Dalla, Business Development Manager
minimizing or eliminating the need for air conditioners.
of Danfoss, this implies a vast number of opportunities to promote efficiency and reduce energy consumption.
But, he warns that energy efficiency is not simply a onestop solution. “We want to emphasize that energy efficiency
“Electric motors are a blessing for mining operations but
requires more than just applying a drive,” he says. “It is
they were created to only work at full speed,” he says.
not magic and should be applied with the expertise of a
“Some companies try to control the speed through a fan
specialist to take full advantage of its benefits.”
or pump but these only manage the flow of the air. This method is similar to pressing a gas pedal on a car and
Although Danfoss does not directly work with mining
attempting to manage the speed with the brakes.” He says
operators, it develops products that are used under
these sorts of tools should only be used as a last resort
different brands in the mining sector for projects managed
because it is better to manage the source of the speed and
by operators such as Industrias Peñoles, Agnico Eagle and
that is how a drive can help save energy.
Cobre de Mayo. “The problem is that the sector does not recognize our efforts in the mining world because our
Danfoss, which first developed the expansion valve for
name is not attached to these products,” says Dalla. “We
refrigeration and air conditioning systems in 1933, is present
are focused on positioning our brand and making our work
across a variety of industries. It is divided into various
in the mining industry more recognized.”
segments such as drives, cooling, heating and power solutions. Danfoss Drives is a segment with a particular
Dalla says, however, that the company’s positioning in the
focus in the Mexican mining industry. As a drive specialist,
sector is getting a boost from current metal prices. “When
it helps customers comply with harmonic mitigation issues
prices are too high, companies are wasteful and inefficient
that are important for electrical systems and production.
and when they are too low, people are hesitant to invest in new projects,” he says. “The prices per ounce at the moment
“Drives offer a way to manage speeds, eliminate unnecessary
are at a healthy balance and companies are quite interested
energy consumption and provide heat management,” says
in continuing to maximize efficiency.”
Dalla. “Our drives excel under mining conditions as these operations require large amounts of power and energy.”
Danfoss is constantly striving for higher and higher efficiency
Danfoss can provide products that can make between a 1-2
through the innovation and R&D the company is renowned
percent cost improvement compared to what is offered by
for. Danfoss develops projects, including an app that can
competitors. And in a business like mining, just 1 percent on
take a photo of a component and use a code to calculate
a 300-horsepower drive that runs 24 hours a day quickly
how to optimize its efficiency, and provides databases that
adds up to thousands of dollars per year.
include information about the drive such as the length of the warranty to facilitate use. “Danfoss is changing the idea that
Drives are equally important in renewable energy because
our customers have of drives and proving the product’s ability
each photovoltaic cell requires a drive to convert it into
to make mines more efficient,” says Dalla. “This eliminates the
usable energy. Danfoss has a huge line of solar drives
fear that many have of applying new tools to their systems.”
373
Buenavista del Cobre, Sonora, Grupo MĂŠxico
INDUSTRY OUTLOOK
14
With a 500-year history dating back to the Spanish conquistadores, the mining industry is one of the oldest and most traditional in Mexico. But the appearance of strict regulations, exponential changes in technology and the drawbacks related to the sectorâ&#x20AC;&#x2122;s cyclical prices are forcing operators to take a second look at their structures and business models for opportunities to optimize and maximize. If the trend continues and operators adapt accordingly, the industry is on its way toward a more productive, efficient and environmentally-friendly future. Thanks to the interest of tech companies in the industry, mine sites will soon replace people with robots to conduct the sectorâ&#x20AC;&#x2122;s most hazardous tasks, reducing the possibility of human error. Projects will also be discovered faster than ever before, closing the gap between demand and the lack of new sites. But for all of these predictions to become a reality, companies must overcome paradigms and a resistance to change.
In this chapter, leading experts give their opinions and forecasts on the needs and advances of the industry. The public and private sector discuss ways to keep the industry flourishing and what Mexico must do to stay ahead of the curve and remain one of the worldâ&#x20AC;&#x2122;s top mining destinations.
375
CHAPTER 14: INDUSTRY OUTLOOK 378
ANALYSIS: Sowing Seeds for The Future
380
VIEW FROM THE TOP: Mario Alfonso Cantú, Ministry of Economy
382
VIEW FROM THE TOP: José Jabalera, Ministry of Economy of Chihuahua
383
EXPERT OPINION: Federico Santoyo, Ministry of Economy of Sonora
384
VIEW FROM THE TOP: Carlos Espinosa, SoftLanding Group Mexico
385
VIEW FROM THE TOP: Philip Hopwood, Deloitte
386
EVENT SPOTLIGHT: Strengthening Ties Between Industry and Academia
388
INSIGHT: Fernando López del Bosque, Zacatecas State Council for Economic Development
389
INSIGHT: Andrés Robles, AIMMGM
389
BOX: Marbella Centell, Women’s Committee Mexico City District
390
INSIGHT: Added-Value Services Attract Operators
391
VIEW FROM THE TOP: Alberto Vázquez, VHG Abogados
392
ROUNDTABLE: What Challenges Will the Mining Industry Face Over the Next Few Years?
394
VIEW FROM THE TOP: Peter Bryant, Clareo
395
VIEW FROM THE TOP: Jorge Sánchez, Haynes and Boone
396
INSIGHT: Héctor García, PwC
397
VIEW FROM THE TOP: Eduardo Salgado, KPMG Mexico
398
INSIGHT: Henk van Muijen, IHC Mining
377
ANALYSIS
SOWING SEEDS FOR THE FUTURE The mining industry is one of Mexico’s most conventional sectors.
MAKING AN IMPRESSION
But sticking to the status quo means it is struggling to keep up
An increasing amount of the world’s metal
with the world’s brand-driven economy. To meet the growing
demand now comes from tech companies
needs of the 21st century, the industry must embrace the future
developing the latest smartphones or electric vehicles. But these industry giants
In 2017, KPMG released an insight about the top risks
can afford to be picky about supply-chain standards.
to the future of the mining industry, as perceived by
In 2016, Amnesty International and media outlets such
mining executives in Canada. At the head of the list
as the Washington Post and Sky News began releasing
lies the ability to access and replace reserves, which is
controversial reports about the origin of cobalt, a mineral
understandable given the fact that exploration activity all
used for lithium-ion batteries in products developed
but halted in recent years due to a prolonged commodity
by big tech companies like Apple and Sony, in the
price downturn. There is now a lack of pipeline projects
Democratic Republic of Congo (DRC). The reports found
and operators are examining ways to get the most out of
strong connections between the mineral, child labor and
brownfield assets. Sierra Metals has strengths in greenfield
dangerous working conditions. Consequently, Apple, HP,
exploration but its current strategy is aligned more with
Samsung SDI and Sony joined the Responsible Cobalt
development close to its existing properties.
Initiative led by a Chinese business group as a pledge to follow OECD guidelines for mining supply chains. Apple
378
“We are focused on brownfield because we have a lot of
even announced that it has stopped buying cobalt from
untapped potential close to the existing mines,” says Mike
these mines in the DRC until they are able to guarantee
McAllister, the company’s Vice President of Corporate
adequate worker protection and a ban on child labor.
Development. “We benefit more from brownfield exploration that is close to mine heads as these projects
Companies like Industrias Peñoles are leading the pack
can generate mines in less than a year.”
by basing the future of the company on sustainable development, human capital and technology. “We have
But with a desperate need for new mining projects,
an internal R&D group made up of 35 full-time researchers
authorities are now concerned about promoting Mexico
working at a specialized center in Torreon, and we are
on a cut-throat international playing field. “Strong mining
always looking for innovative methods that can improve
jurisdictions in Latin America like Peru and Chile are all
our practices,” says Fernando Alanis, Director General of
fighting for investment from Asia, North America, Australia
Industrias Peñoles. “We are fully aware of what is going on
and Europe,” says Armando Perez, Director General of
in the industry on a global scale and we will never hesitate
the Mining Development Trust Fund (FIFOMI). “Like its
to invest funds into new technology that can move the
neighbors to the south, Mexico has a capital deficit and
mining sector forward.”
needs foreign investment so we need to ensure that our processes and practices to attract foreign capital are
Operators in Mexico that align themselves to sustainability
superior to the competition.”
and environmental standards are reaping clear benefits. Capstone Mining was ranked number 16 in the top 100
Even though the mining industry is now held to some of
Great Places to Work in Mexico for companies with
the highest environmental and sustainability standards,
500-5,000 employees. It is also the first mine in Mexico
the public continues to hold a stereotypical image of a
to receive a certificate from the National Council for
miner covered in dirt holding a pickaxe and a lantern. “The
Standardization and Certification of Occupational
global mining industry is going through an identity crisis,”
Competencies. These kinds of actions are important
says Andres Robles, President of the Mexico City Chapter
strides toward changing the perception of the industry.
of AIMMGM. “A hundred years ago the media created a particular image of the industry and that image has stuck
Paying attention to its brand, as noted by PwC, is an
in people’s minds.” To guarantee the future of the industry,
efficient way to demonstrate that an industry is deserving
miners now know that a project pipeline is needed. And
of self-regulation and to guarantee demand. The 2016
with such stiff competition for all-important exploration
Label Insight Transparency ROI Study surveyed more than
investment, the Mexican industry realizes it must clean up
2,000 consumers about the impact transparency has on
its image and seek new methods that ensure longevity
their trust and loyalty to brands. According to 56 percent
and continued investment inflows. In today’s society,
of those surveyed, additional product information inspires
perception is everything, and mining is no exception.
more trust in a given brand and 73 percent are willing to
pay more for a product that promises total transparency.
the marketplace in a transparent manner. This needs to
This is added pressure for the mining industry to clean up
change.”
its game and share more information with the end user about its processes.
And projects and actions that are being financed through The Mining Fund could go a long way to creating a
TURNING THE PAGE
positive impact when it comes to the perception of the
Considering the need to take advantage of rising metals
industry. “The Mining Fund’s investments have contributed
prices by mining and selling as much ore as possible, Phillip
to improving the image of mining both among the
Hopwood, Global Mining Leader at Deloitte, considers
communities where it is carried out and between local
the adequate use of resources to be one of the biggest
governments, which have identified a lower incidence of
issues that mining companies face. “Once companies have
conflicts,” says Mario Alfonso Cantú, Undersecretary of
negotiated with suppliers and cut spending to a minimum,
Mining at the Ministry of Economy.
it is crucial for them to focus on innovation,” he says. To survive the waves of uncertainty being created by This is when branding and public image come most
technological advances and economical and social
into play, as tech companies and talented youth will
shifts, a culture of transparency and brand awareness is
always choose to collaborate with industries that are
necessary. The path will not be easy nor quick. But, as
aligned with their core values and goals. “If the sector
Glenn Ives, Americas Mining Leader Deloitte Canada, asks
wants to attract young talent, it has to actively promote
in Tracking the Trends, “Will the next two years be wasted
sustainability, renewable energy and innovation,” adds
time, where companies fail to learn from the mistakes of
Hopwood. “Mining brings jobs to remote communities
the past? Or will these be the years where miners seize
that have very few employment options but as a sector
the opportunity to transform themselves and create a
it has been ineffective at getting the message out into
sustainable industry?”
In 2015, a total of 75 percent of all FDI in the mining sector came from Canada. This means that the concerns of Canadian executives are particularly pertinent to the longevity of the Mexican industry. According to the 2016 KPMG Report Insights into Mining, the top risks identified by CEOs from leading mining companies in Canada show their main concern is the ability to replace reserves with new projects. In comparison, CEOs from around the world share worries about emerging
RISKS AND SOLUTIONS FACED BY LEADING CEOS
technologies, their brand and their reputation. While it seems that mining companies have wildly differing concerns to those from other industries, the survey found that CEOs around the world are implementing a variety of strategic initiatives for the next three years to meet the needs of the sector. These represent solutions for the industry’s primary concerns as companies that are focusing on becoming more data-driven in the short term could simultaneously help the mining industry control capital costs. Another example is an overall focus on strengthening marketing, brand and communication that was mentioned by Mexican CEOs in the KPMG report. This could be used to improve the all-important issue of community relations in mining projects. Through strategic alliances with companies from the automotive and tech industries, for example, mining companies might be a step closer to closing important operational gaps and mitigating risk.
PROBLEMS
STRATEGIC INITIATIVES
Identified by CEOs in Leading Mining Companies from Canada*
From CEOs Around the World**
Ability to Access and Replace Reserves Including
Fostering Innovation
Access to New Projects
Implementing Disruptive Technologies
Community Relations-Social License Controlling Capital Costs Identified by CEOs Around the World**
From CEOs in Mexico** Strengthen Marketing, Brand and Communication
Emerging Technology
Gain Public Trust
Reputation/Brand
Becoming More Data Driven
*Information from the 2016 KPMG Report Insights into Mining **Information compiled from 2017 Global CEO Outlook and KPMG International
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VIEW FROM THE TOP
UNDERSECRETARIAT TO PRIORITIZE ACCELERATION OF CONCESSIONING PROCESS MARIO ALFONSO CANTÚ Undersecretary of Mining at the Ministry of Economy
Q: How do you assess the performance of SEDATU and the
The Mining Fund’s investments have contributed
Mining Committees regarding the allocation of the funds
to improving the image of mining both among the
from the Mining Trust Fund?
communities where it is carried out and between local
A: The Regional Committees for the Development of Mining
governments, which have identified a lower incidence
Zones are the bodies that are responsible for defining the
of conflicts.
application of resources, seeking to benefit mining locations and regions where mining takes place according to Article
Q: What role can mining clusters like the one formed in
275 of the Federal Law of Rights.
Guerrero play in bringing more talent and capital to the sector in the long term?
380
Each Regional Development Committee is composed of
A: Promotion of clusters is a key component within the
a representative of the Federal Public Administration.
Ministry of Economy’s National Development Plan and
In this case, it is the head of SEDATU, a representative
innovative Mining Development Program 2013-2018. This
of the state government and a representative of the
program seeks to strengthen and enhance the capacity of
municipality or municipalities where mining activities are
the mining sector to contribute to national development.
located. In cases where they are carried out in indigenous
The formation of mining clusters is one way to accomplish
or agrarian communities, a representative of these
this goal.
communities, as well as a representative of the relevant mining companies with activities in the municipality
Mexico has five mining clusters: in the states of Zacatecas,
round out the committee.
created in 2012; Chihuahua, created in 2013; Coahuila and Sonora created in 2014 and the most recent was created
The fund’s resources during 2015 amounted to around
in the state of Guerrero in 2016.
US$131.2 million. The committees that were installed in the same year have already worked on the identification of
One of the fundamental characteristics of these clusters is
community projects to which the funds will be allocated,
the inclusion of educational and research institutions as part
including the construction and refurbishment of schools,
of their structure. This allows the generation of collaborative
road infrastructure, public lighting, water treatment, waste
activities in the training and integration of human resources
landfills, urban mobility initiatives and the protection of
in relation to the specific requirements of the industry in
natural areas. The projects approved represent US$93.7
the regions where the cluster operates, as well as in the
million, according to SEDATU.
development of research and technological solutions to improve operations and processes. This is how clusters
Between 2015 and 2017, the fiscal authorities raised more
develop and attract human talent to the activities of the
than US$508 million through the special, additional and
mining sector.
extraordinary rights, of which about US$408 million are being allocated to the Fund for the Sustainable Regional
The integration of local and regional suppliers in the cluster
Development of States and Mining Municipalities.
is fundamental because this allows greater efficiency in the costs of inputs and services provided by these companies, as well as savings in transportation. This creates synergies
The Undersecretariat of Mining was created as a specialized
that stimulate the productivity and competitiveness of the
division of the Ministry of Economy in 2016. Mario Alfonso Cantú
members of the cluster, improving the business environment
was appointed the first Undersecretary having previously held
and the conditions for the profitability of investments. In
the position of General Coordinator of Mining at the ministry
this way clusters stimulate the flow of capital to the sector.
Q: What is being done to rectify the issues and delays faced by the concession system in Mexico? A: In accordance with one of the primary objectives of the Mining Development Program, we are implementing technological tools to reduce costs, streamline service procedures and provide a more efficient service to users. We have clearly identified the areas of opportunity that
Between 2015 and 2017, the fiscal authorities raised more than US$508 million through the special, additional and extraordinary rights
we can develop with technological infrastructure to have better control. We are working on modernizing our
contribution to the economic and social development of
technological platform and digitalizing all the concession
the country, its regions and localities.
process and cartography, meaning we will be able to reduce the number of days taken to issue a concession title. This
The Mining Development Program 2013-2018 defines four
Digital Government Integrated Platform will also allow us
main objectives: to promote greater levels of investment
to accelerate procedures through faster digital reception
and competitiveness in the mining sector, to seek increased
of requests. The training and strengthening of our staff will
funding in the mining sector and its value chain, to promote
also play an important role in this transition.
the development of small and medium-sized mining and social mining and to modernize the institutional regulations
Q: What are the main goals and objectives for the
for the sector and improve processes for dealing with
Undersecretariat of Mining in 2017 and beyond?
mining concessions.
A: The federal government, through the Ministry of Economy, is committed to supporting the growth
We will continue working to achieve the goals we set for
and expansion of mining activity, even more so in
2017 and 2018 and encourage the re-engineering of the
a complicated and more competitive international
Undersecretariat of Mining to be able to meet the expansion
context. This will be carried out through specific public
and development needs of the sector.
policies that address the greater needs of the industry to consolidate its strategic importance. Public policies for
We have four immediate priorities. Firstly, the development
the promotion of mining recognize the current conditions
of 1:50,000 cartography will continue since it is fundamental
of mining operations and our strategies guide the work
to encouraging investment that favors the development
of federal government bodies to strengthen the sector
of projects and sources of employment. Secondly, we
as a catalyst for development.
will support and promote the technological and process improvement to favor the productivity of the sector and
These policies are reflected in the Mining Development
its competitiveness. Thirdly, we will work toward allowing
Program 2013-2018, which includes public policies that are
the immediate deductibility of pre-operating expenses.
already applied as well as the goals and work agenda of
And finally, we will continue with the systematization of
the current administration. We want to help the sector meet
the procedures under the remit of the Undersecretariat of
the challenges of the current situation and consolidate its
Mining through the Directorate General of Mines.
MAG Silver and Fresnillo's Juanicipio JV development project, Zacatecas
381
VIEW FROM THE TOP
CHIHUAHUA SEEKING REBOUND IN EXPLORATION SPENDING JOSÉ JABALERA Director of Mining at the Ministry of Economy of Chihuahua
382
Q: What is the state of the mining industry in Chihuahua?
trying to facilitate mining in the state by helping them find
A: Most of the mines are in the southern part of the
new ways to deal with those communities and to fill gaps
state, in the Sierra Madre mountainous region. Mining
in the state’s mining supply chain. The agency is helping
companies in the region are often responsible for their
suppliers find areas of opportunity in the supply chain
operations and for mining closures. For instance, El Sauzal
by identifying the industry’s main needs. Approximately
recently closed and Goldcorp is doing an excellent job
25-30 percent of the suppliers are local and we want to
re-establishing the ecosystem with continued monitoring
increase this number by processing more resources locally.
of results to make sure the closure and re-adaptation is
We want local companies to collaborate with foreign
advancing as planned.
companies in developing products that can meet supplychain requirements. This contributes economically to the
Chihuahua has a primary focus on silver and gold but
development of the region.
the epicenter of the state also offers base metals such as lead, zinc and copper while the east side produces iron.
60 percent of employees on mine sites are hired locally
It is difficult to produce base metals because the country does not have the infrastructure to process or refine these resources. Regarding projects in development, the state experienced a drop in exploration investment after metals prices fell in 2012. The first phase of Fresnillo’s San Julian project is about to ramp up to full production and there are
Q: In what ways are the authorities collaborating with the
several other mining companies evaluating opportunities
private sector?
for exploration. As a state, we seek to attract exploration
A: Our main objective is to promote the mining industry
companies not only from the US and Canada but also from
and to facilitate access to information, such as geological
other regions such as Australia, Europe and South America.
survey data, to attract investors. In this regard, a safety
We had a meeting with the South African ambassador
protocol was agreed upon between the authorities and the
and we are planning to visit companies in that country
private sector to make sure companies know the steps they
to promote the state. Chihuahua strives to promote the
have to take to guarantee safety within their operations and
state internationally to attract more investment. At the
exploration activities. This helps them mitigate problems
moment, junior companies are starting to reinitiate drilling
with suppliers, surrounding communities and organized
and prefeasibility studies.
crime to ensure the continuity of their investments.
Q: How would you describe the main areas of opportunities
We are attending international events such as PDAC to
in Chihuahua?
better position Chihuahua in the mining industry. The state
A: Mining companies often struggle with land permits
is looking for other events to share information and attract
and relationships with surrounding communities. We are
investors. We are starting a campaign for medium-sized miners to help them create growth strategies through planning and technology.
The Ministry of Economy of Chihuahua has the goal of promoting and implementing public policy with the aim of
The private sector also collaborates with its public
generating further employment and attracting more business
counterpart by growing trees in greenhouses. They are
to Chihuahua
planted not only at mine sites but throughout the entire
state as needed. An agreement is being signed between
economic development of mining towns. Fortunately, 60
mines and forest agencies to make sure there are enough
percent of the employees in mine sites are hired locally.
trees in the state. Q: How is the state taking advantage of the Mining Fund? Q: How does the mining cluster in Chihuahua support the
A: We are designating the funds from 2016 for projects such
industry and the state?
as tourism development to help surrounding communities
A: The work of the mining cluster is divided between
diversify their sources of income. This way communities are
operating and developing mines and the supply chain.
less at risk when mines reach the end of their life cycle and
Its main focus is to create more local suppliers for
can continue working in nonmining-related vocations. The
mines and to strengthen security in the region. Most of
funds are being used for more than just paved roads and
Chihuahua’s mines belong to the cluster. The committee
lights. We are also encouraging young people to create
strives to identify their main needs and instill socially
new businesses and develop solutions that address issues
and environmentally responsible habits that support the
within their communities.
EXPERT OPINION
A CHALLENGING 2017 FOR MINING FEDERICO SANTOYO Director of Mining at the Ministry of Economy of Sonora
We closed 2016 with an improvement in average metal prices
Thus, the mining agenda is a constant push and pull,
compared to the previous year and with a rise expected. But
with new issues that affect the healthy performance of
for Mexican miners, 2017 began with fuel increases and the
this noble sector. It is necessary to add to this collection
absurd implementation of an “environmental responsibility
the insecurity in some mining regions and the general
tax” for mining activity in the state of Zacatecas, which was
complaint regarding the slowness in the liberation of
essentially a tax-collecting effort by Governor Alejandro Tello.
mining concessions.
But most of all, without a doubt, the strongest emotional
This whole adverse panorama shapes the set of challenges
blow was the arrival of Donald Trump as the new president
that will be faced by mining investors, federal and state
of the US. All signs seem to indicate that he does not view
authorities and all those who somehow depend on this activity.
his neighbors to the south in a favorable light.
So hopes are pinned on the new Mining Undersecretary at the Ministry of Economy.
We could say the issues with mining are the same as ever but the indicators tell us that Mexico is losing its attractiveness
A historic petition of the Mexican mining guild was addressed
as a destination for mining investment, as indicated in the
by the Federal Government with the granting of an official
2016 annual Fraser Institute survey. The study places Mexico
overseer of the mining sector in the department instead of
in 50 place, down 13 points from its placement in 2015. It
the General Coordination that existed until last year.
th
is important to note that in 2012 Mexico ranked 25th. The same thing could happen in exploration investment, for which
The main reason for its creation was to give it adequate
Mexico is now in 6th place.
economic weight that is representative of the mining industry’s contribution to the country. With this, the sector
Mexican miners are hopeful that lawmakers will approve a
will be given a greater say in the shaping of mining policy,
proposal to return to the previous scheme, which allowed
with the possibility of being able to solve the problems of
the deduction of exploration expenses immediately
the sector more quickly. At least this is how it is seen by so
instead of being pro-rated in 10 years as it is presently. This
many of the main players in the Mexican mining industry, who
mechanism has caused a vertiginous drop in exploration
are also hoping that the expected results will happen sooner
projects in Mexico.
rather than later. Mexico needs it.
383
VIEW FROM THE TOP
JUNIOR FUNDING INCREASES BY 150 PERCENT CARLOS ESPINOSA Partner at SoftLanding Group Mexico
384
Q: How can Mexican governmental agencies help foreign
the change in equity raised in 2016 compared to 2015.
companies to enter the country?
The Toronto Stock Exchange and TSX Venture Exchange
A: They are already helping a great deal and this tends
(TSX.V) are the two leading exchanges globally for mining.
to be one of the first ports of call for foreign companies.
Last year mining companies listed on TSX raised CA$6.8
Canadian companies normally approach the Mexican
billion, compared to CA$5.7 billion in 2015, an increase of
trade commission first when contemplating entry into the
20 percent. The TSX.V, where junior companies are listed,
country. This agency can provide information and guidance
raised CA$1 billion in 2015, which jumped to a whopping
and through the trade commission, meetings can be set
CA$2.5 billion in 2016. This is a great indicator of how
up with the right people in the community, such as the
the industry is rebounding and how junior companies are
Ministry of Economy or FIFOMI. The trade commission
accessing equity for their exploration projects again. We
can provide a list of potential partners but it is the foreign
will see many junior companies investing in exploration
company that is responsible for carrying out due diligence
activities in Mexico in the coming years.
on these companies. The state and federal governments are extremely pro-investment in mining because this equates to
Q: How can junior miners raise enough money to continue
more jobs, more investment and a better economic outlook
in exploration projects?
for the region and the country.
A: Especially in Mexico, junior companies must become more professionalized. To be listed on the TSX or TSX.V,
Last year mining companies listed on TSX raised CA$6.8 billion, compared to CA$5.7 billion in 2015, an increase of 20 percent
any company must have the N.I. 43-4010. This report has
One of the big concerns is the royalty tax and the new
Q: What would be your advice for companies that want to
tax in the state of Zacatecas. Another concern is the time
transition from the BMV to TSX/TSX.V or want to dual list?
taken to return VAT payments to mining companies, which
A: The BMV consists of a relatively small group of
can extend to six months or even more. On top of this, the
companies, around eight of which are mining companies.
permitting could be faster and the information coming from
The Canadian market offers wide access to institutional
SGM could be more accurate. Mexico is well ahead of other
investors with a great deal of resources. The TSX and TSX.V
jurisdictions but still improvements can always be made.
have a much wider portfolio across all markets, so for a
become an international standard. One of the ways Mexican companies can have access to equity is to prepare to go public. This process includes proper corporate governance, professional management and technical reports, among other requirements.
Mexican company that wants access to a high liquidity Q: What opportunities do you see in the Mexico exploration
market, Canada is a great option.
segment? A: I see a great deal of opportunity. When examining
Another thing to consider is that around 40 percent of the
the numbers recently, I was pleasantly surprised to see
daily trading in Canada originates overseas, from markets like New York, Hong Kong and London. Listing on the TSX does not just offer access to the Canadian market but to
SoftLanding Group Mexico is an international trade and
a wide international market. The number of analysts in
development group that facilitates the entry of Canadian mining
Canada covering mining companies globally is much higher
companies into Mexico. Carlos Espinosa previously served as
in Toronto than in any other part of the world. That is why
Head of Business Development, Global Mining at the TSX
many companies are investing in mining companies here.
VIEW FROM THE TOP
SUSTAINABILITY KEY TO ATTRACTING NEW TALENT PHILIP HOPWOOD Global Mining Leader at Deloitte
Q: To what do you attribute the rally in commodity prices
at getting that message out into the marketplace in a
in 2016 and the early part of 2017?
transparent manner. This needs to change.
A: It is never easy to explain the fluctuations of gold and silver prices because sometimes investors make emotional
Q: What role does Mexico play in the strategy for Deloitteâ&#x20AC;&#x2122;s
decisions that are hard to predict. Most observers expected
global mining division?
the gold price to shoot up amid the uncertainty caused by the
A: With its high-quality, long-term assets, Mexico is a
election result in the US but in fact it went the other way. Ore
vital jurisdiction. However, it faces strong competition for
body grades are declining throughout the world and many
investment because many other countries in Latin America
of the largest gold, silver and copper mines are more than 50
have strong assets and reserves. Crucially for investors,
years old. The mining companies have not been replacing the
Mexico is a relatively stable country in which to work and
deposits simply because during the downturn the capital was
the government supports the mining sector. Canada is by
not available and so supply is becoming stretched. This should
far the most important foreign participant in the Mexican
have a positive impact on prices in the long term.
mining sector and these investments play a vital role in the strong bilateral relationship between the two countries.
I also believe the growing demand for renewable energy solutions will reflect well on metal prices. Lithium, cobalt,
Mexico needs to make sure that stability remains for the
nickel and graphite are all key components of batteries,
long term. Any new mine plan constitutes a project life of
which are emerging as a popular alternative to diesel
at least 20-30 years and investors need to know that the
fuel. Silver is obviously a vital ingredient in solar panels
environment will be more or less the same for the duration
so I believe the long-term outlook for many metals and
of the project. In the past, Latin America struggled to attract
industrial mineral producers is bright.
its fair share of investment due to volatile jurisdictions and frequent policy changes but conditions are improving now.
Q: Now that the sector is on the rise, how should companies
Mexico, as well as Argentina, Colombia, Peru, Chile and
be using the extra time and resources at their disposal?
even Ecuador all have strong assets and friendly business
A: This is the big issue now facing mining companies.
environments and this is a boost for the whole region.
Traditionally, gold miners stop spending the moment prices start to fall but this strategy is only effective in the short
Q: What are the biggest challenges facing the sector?
term because producers have to replenish their resources.
A: Mining companies have to ramp up exploration because the
Once companies have negotiated with suppliers and cut
industry needs new large-scale assets. Grades are continuing
spending to a minimum, it is crucial for them to focus on
to fall at an alarming rate and some of the worldâ&#x20AC;&#x2122;s biggest
innovation. The scientific institutions, research centers and
mines are reaching the end of their lifecycle so we need to
mining associations need to work together to develop
start developing the next major assets to meet global demand
more sustainable and efficient mining techniques, which
for metals and minerals. Digitalization is also a significant
should involve looking at what can be learned from other
challenge. Companies need to be more willing to accept new
industries.
technologies and integrate them into their operations as this can translate into dramatic long-term savings.
Unfortunately, the mining sector has a poor reputation in many countries as an exploitative industry. This is not true everywhere â&#x20AC;&#x201C; Canada and particularly Australia are
Deloitte is a UK-incorporated multinational professional
tremendously supportive of the extractive sector. Mining
services firm, providing various services including audit,
brings jobs to remote communities that have very few
consulting and financial advisory for companies in various
employment options but as a sector it has been ineffective
industrial sectors
385
EVENT SPOTLIGHT
386
STRENGTHENING TIES BETWEEN INDUSTRY AND ACADEMIA In 2008, Jackie Stephens and 14 other former employees of Rio Tinto’s Borax and Kennecott mines in the US saw a glaring social opportunity in Mexico. The premise was simple: work with the mining industry to raise money for universities offering courses in geosciences like geology, metallurgy and mining engineering. “Although social subjects play a certain importance in our education, the majority of time students must focus on hard skills such as mathematics, chemistry, physics, mining, geology and metallurgy because this is what the mining industry needs,” says Stephens. He says that there is an added benefit in that, when companies donate money, they want to know where it is going. “In this way, attention is drawn to geoscience students and their opportunities for postgraduate employment is greatly strengthened,” says the Roundup’s President. There is also a benefit for mining companies, says Stephens. “Through the Mexican Roundup, mining companies are more likely to interact with potential future employees,” he says. “We also encourage operators to be more involved with the communities in which they work, instead of focusing only on the commercialization of minerals.” The main aim of the event, according to Stephens, is to allow companies to bring some social perspective into mining. “Accountants have little mercy, environmentally or socially,” he says. “They want to make a profit and the main thing that matters is their bottom line. Events such as ours hopefully encourage the mining industry to be more involved in the community in which they are operating.” Raising around US$7,000-9,000 per year, Stephens concedes the event is hardly lucrative. But he believes strongly in the social benefits the Mexican Roundup can bring to the country’s mining sector. “I believe wholeheartedly in capitalism but there also has to be some community involvement to benefit the demographic that may not be able to access the same opportunities as others,” he says. When queried about the future of the event, Stephens is less certain. However, he admits that, just like the mining industry itself, the Mexican Roundup could be more resilient than expected. “We keep saying it will be the last year for the Roundup, and yet we are entering the event’s fourth year," he says. "We never know what the future will hold but we are again thinking optimistically.”
387
INSIGHT
ZACATECAS STATE COUNCIL LENDS HAND TO LOCAL MINERS FERNANDO LÓPEZ DEL BOSQUE Director General of the Zacatecas State Council for Economic Development
Mining has a long, rich history in the state of Zacatecas, having
important mining cluster in Mexico. “The presence of the
contributed almost 22 percent of the country’s total mining
cluster has opened the doors of Zacatecas as the best
GDP in 2015 at an impressive MX$32.2 billion. Zacatecas has
investment destination for the mining industry,” he says.
hosted mining activities for over 500 years and contains within
388
its border the iconic Fresnillo district, home to the operator
CLUSMIN is structured in such a way that everyone has an
of the same name that is the world’s top silver producer. It is
equal voice, from the smallest service provider to the largest
undeniable that Zacatecas is a mining hub, but some feel the
operator. “There have been some impressive success stories
new Ecological Tax implemented at state level is endangering
because of the cluster since best practices are shared,” says
its image as a mining-friendly jurisdiction.
Lopez del Bosque. “Tiny companies have multiplied in size over just a few years because of support from their peers.”
Fernando Lopez del Bosque, Director General of the Zacatecas State Council for Economic Development,
The open dialogue promoted within the state’s mining
disagrees. He does not believe the tax has been
sector is why Lopez del Bosque believes the tax has
implemented unfairly, nor that it was intended to cause
been implemented in the fairest way possible. “A lot of
damage to the industry. The main role of the council, in
our council members are part of the mining industry, as
fact, is to promote projects to the relevant government
well as from the automotive and ceramics industry and are
agencies that are in the best interest of state development.
requested to pay this tax,” he says. “As a result, we have
It is a decentralized public organization so although it is
welcomed open dialogue with companies and academia.
part of the government with a government budget, it has
Among all parties we are trying to find the ideal solution
total autonomy in making decisions. The council regularly
for Zacatecas and the mining industry. We cannot allow
convenes with the Zacatecas state governor, government
such an important part of our economy to feel mistreated;
ministers, academia rectors and leading businessman to
we need to have open dialogue and find a solution that
propose new projects and follows up on previous projects
works for everyone.”
that reflect the values of the state’s development plan. He stresses that the tax is not exclusive to the mining sector “Mining is the primary economic sector of the state and the
and that any industry that contributes a certain level of
council prioritized it as a strategic economic sector along
contamination to the environment is liable to pay. “It is also
with tourism, automotive and metal-mechanics,” Lopez del
important to bear in mind that this type of tax has also been
Bosque says. He highlights the far-reaching impact of the
implemented in many other countries,” he adds. Right now,
sector, which directly contributes around 30 percent of the
the tax is on hold due to the filing of an amparo against its
state GDP. “The majority of the state is affected by mining
constitutionality. The matter is with the Supreme Court of
in some way so in terms of taxes, employment and supply
Justice of the Nation (SCJN).
chain development, it is extremely important.” Despite these setbacks, Zacatecas continues to invest This is aided in part by the presence of CLUSMIN, the
its energies in optimizing the value chain and attracting
Zacatecas mining cluster that was developed by Jaime
new companies to the state. “We want to continue making
Lomelín, who has a long history in mining after having worked
Zacatecas an attractive location for mining companies and
in Fresnillo, Industrias Peñoles and finally their holding
this is certainly one of our priority sectors,” says Lopez del
company Grupo BAL. “We requested the collaboration of
Bosque. “Zacatecas is so rich in manpower, minerals and
Jaime Lomelín to set up the cluster and we have already
low-cost materials. The last thing we want is for mining
achieved a great deal,” says Lopez del Bosque. The cluster,
companies to feel they are being unfairly treated so we are
he says is a global success story – the first and the most
doing our best to provide support.”
INSIGHT
AIMMGM: EDUCATING THE NEXT GENERATION ANDRÉS ROBLES President of the Mexico City Chapter of AIMMGM
The mining sector, like many other industrial activities, is in
Robles is also particularly concerned with changing the
the middle of a digital transition. In the search for greater
popular image of mining as an exploitative, environmentally
efficiency, operators around the world are implementing
damaging industry. AIMMGM works alongside the Mexican
autonomous vehicle systems, remote-controlled devices and
Mining Chamber (CAMIMEX), the newly-created department
Big Data technology into their mines.
that oversees mining at the Ministry of Economy and other public-sector bodies to promote a better image for the
But this creates a dilemma. There is no use in having the
industry and attack the “lack of knowledge” that represents
shiniest equipment and digital technology if there is no
the root of the problem.
one trained to operate it. To continue thriving in the longterm, mining jurisdictions need to produce new generations
“The global mining industry is going through an identity
of professionals with the skills necessary to maximize the
crisis,” he explains. “A hundred years ago the media created
potential of the latest designs and to work on updates. The
a particular image of the industry, and that image has stuck in
Association of Mining Engineers, Metallurgists and Geologists
people’s minds. As an association of engineers, we are doing
(AIMMGM) is doing its part to ensure the future of the industry.
what we can to change this.”
“We need to increase the depth of knowledge within the mining industry,” says Andrés Robles, Mexico City President of AIMMGM. “We are constantly working to hold seminars, exhibitions and other events across the country to ensure
AIMMGM: THE WOMEN’S COMMITTEE
students are exposed to what is happening in the sector.” The vital role of AIMMGM's Women’s Committee AIMMGM, which provides a platform for Mexico’s mining
is to distribute university scholarships to help the
professionals to meet, share knowledge and discuss the latest
next generation of Mexican miners. “We provide
trends, runs a number of innovative programs to support
scholarships on both a national and local level,”
students of earth sciences in Mexico. A yearly membership,
says Marbella Centell, President of the Women’s
which costs MX$500 for students (MX$1,000 for everyone
Committee Mexico City District. “In Mexico City,
else), grants access to the Edumine online education system.
we have awarded a total of 37 scholarships
Edumine provides a series of courses, live webcasts, and other
worth MX$1,800 each to students at the National
vocational tools in both Spanish and English to help students
Autonomous University of Mexico (UNAM) and the
expand their knowledge and skillset. Meanwhile, AIMMGM’s
National Polytechnic Institute. Primarily, we focus on
Comité de Damas (Women’s Committee) offers scholarships
providing help to students who come from working-
to students who struggle to afford tuition fees.
class families, who need to travel large distances to the universities’ campuses and who excel in their
“The best way for the next generation to prepare itself to enter
studies. They must have completed at least three
the industry is to gain first-hand experience of the theories
semesters of their degree.”
and processes they learn in the classroom,” says Robles. “We are making the final preparations to send students from the
The committee also aims to promote integration and
National Autonomous University of Mexico (UNAM) and the
development within mining communities that are
National Polytechnic Institute (IPN) on a trip to a mine just
often remote and lacking in financial resources. The
outside of Mexico City. They will visit a metallurgical plant,
committee is split into several districts. Alongside the
hear from the experts about exploration strategy and listen
Mexico City District, which has a total of 38 members,
to technological pioneers about the latest designs.”
the strongest are Chihuahua and Sonora.
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INSIGHT
ADDED-VALUE SERVICES ATTRACT OPERATORS
“
The early adopters of our products will be happy with the end results” Sigifredo Dávila, Director General of Digsa
Because of its cyclical nature, mining operators are known
are expected to increase their hunger for cost reductions while metal companies will continue to search for new growth opportunities. In the report, Richard Sharman, KPMG international’s Global Head of Commodity Trading, says the mining industry strives to carefully organize its capital and investments to prepare itself for the coming upcycle. “Miners need to improve the way they allocate capital to prioritize cash flow and earnings,” he says.
to always be on the lookout for a balance between the lowest price and highest quality to mitigate financial risk.
To provide a solution to this challenge, Digsa has incorporated
This in turn makes the supply chain highly competitive and
a meticulous selection process when it comes to the products
challenging for companies wanting to stand out from the
that are in its catalog, ensuring it always offers the highest
crowd. As a result, companies are now looking to generate
of standards at a competitive price point. “We work with
added-value services – customer service, aftersales support
operators like Industrias Peñoles and Grupo México,” says
and maintenance services – that can mean the difference
Dávila. “Due to their might in the industry and the strength of
between winning a contract and losing out to a competitor.
their operations, these operators do not settle for substandard products or services.” In this context, Digsa must submit to
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In response to the demands of the industry, equipment
the highest standards with zero leeway for errors.
distributor Digsa raises the benchmark by bringing innovation to the industry and analyzing brands that may
The mining industry in Mexico is the core of Digsa’s business
be less well-known but can offer better quality and prices. It
as the sector has many areas of opportunity for growth.
also strives to ensure constant availability and added value.
Dávila joined the company six years ago and in this short
“We only provide these products in certain cases. Industrias
time the company jumped from having 10 mining projects to
Peñoles, for example, prefers products from brands it is
over 30. No project is too big or small for Digsa, according to
accustomed to because this is how it mitigates risk,” says
Dávila. “We treat all our clients with equal levels of respect
Sigifredo Dávila, Director General of Digsa. “But the early
and priority,” he says. “It is important for us to have a strong
adopters of these products will be happy with the end
network of contacts that believe in our services.”
results. We guarantee satisfaction and quality.” Digsa is optimistic about the rising metals prices and is Ensuring quality at an affordable price is especially
benefiting immensely from the industrial turnaround. Dávila
important considering that KPMG recently found in its
considers the company’s next step to be manufacturing.
report Global Metals and Mining Outlook 2016: Making the
“We plan on eventually patenting our own products but it
Best of a Challenging Environment that mining companies
will require a considerable investment,” he says.
VIEW FROM THE TOP
FAIR MINING DUTIES FOR MUTUALLY BENEFICIAL RELATIONSHIP ALBERTO VĂ ZQUEZ Senior Partner at VHG Abogados
Q: What role do you think mining can play in the national
A: I believe that we are living in the worst administration
economy going forward?
of general mining regulation in Mexico. There are
A: Everything is in place for the mining sector to play a
thousands of concessions that are in the process of
leading role in the national economy. We have so much
cancellation. Every day we browse the public sources of
geological potential, a strong group of experienced
information looking for publications of freedom of land,
mining experts, fantastic interest from the foreign investor
and to my knowledge there has been no publications in
community and we have a good mining law. The mining
more than two years. This means that investors who are
industry can create jobs in isolated, rural areas that have
interested in risking their capital in Mexico do not have
limited options for employment, and as a country, we
any new land available for investment. The government is
should focus on giving our talented workers reasons to
losing money because canceled concessions are entirely
stay in Mexico rather than look for better options abroad.
redundant until they are made available again so I cannot
The mining industry pays higher salaries than most of its
understand why it takes so long for these concessions
competitors, and so it can be crucial in helping to develop
to be put back on the market. The only explanation I can
Mexicoâ&#x20AC;&#x2122;s poorest areas. It has the potential to overtake
think of is negligence.
the oil and gas industry because there is no state-owned company monopolizing the market like PEMEX does in oil
Q: What would you like to see the public sector change
and gas. I believe the government should place it higher
in terms of the handling of mining concessions in Mexico?
on its list of priorities. The largest mining companies are all
A: I want to see transparent officers that fully understand
transparent and they pay their taxes, which will have a huge
the mining law and regulations and who have experience
impact on public finances going forward. We can only hope
in applying it. The mining law in Mexico is good, although
that these funds, that are generated from the hard work of
it could be updated but the most important thing is
thousands of Mexicans, are used in the correct manner to
to have committed, experienced public officials who
benefit the people.
are passionate about the industry. Under the current administration, the process of responding to requests for
Q: What do you make of the lottery system used to allocate
concessions is extremely delayed, and for the first time
concessions in Mexico?
in many years lawyers are being forced to initiate court
A: It is almost impossible to find the perfect solution to the
procedures to get resolutions to disputes that should be
system for allocating mining concessions, because there
easily avoided. It is incredible that we have to go to court
will always be a divide between large and small companies.
just to get an answer from the authorities. We are hopeful
I am in favor of the lottery system because it does not
that the creation of the Undersecretariat of Mining will
allow the bigger companies to bribe the individuals in
help speed up these processes.
charge of processing the applications. It is a transparent process that gives a small miner a chance to compete
The mining industry only wishes that the government bear
against the large players, and with a bit of luck, win the
in mind its duty to treat mining concessionaires in good
allocation. Of course, the large companies have more
faith, as established in the Federal Law of Administrative
spending power and can therefore buy more tickets to
Procedure. The mining industry is not the enemy.
have a stronger chance of winning, and this is completely understandable and normal, but the lottery system at least evens the playing field slightly.
VHG is a law firm founded with a commitment to develop a relationship of service, trust, friendship and professionalism,
Q: What do you make of the claims that SGM does not
always
make enough concessions available for allocation?
relationship with all its clients
with
the
intention
of
maintaining
a
long-term
391
ROUNDTABLE
WHAT CHALLENGES WILL THE MINING INDUSTRY FACE OVER THE NEXT FEW YEARS?
By 2050, the UN estimates that the world population will reach 9.8 billion and 11.2 billion by 2100. The Brookings Institution also forecasts that the worldwide middle class could grow from 1.8 billion in 2013 to 4.9 billion in 2030. Considering this ongoing expansion, the mining industry, as the main supplier of raw materials needed for everything from cell phones to cars and solar panels, must act quickly to overcome the challenges of depleting ores and tightening regulations. Mexico Mining Review asked industry leaders what their main concerns are for the future and how are they preparing themselves for what lies ahead.
There is a lot of geopolitical uncertainty around the world at the moment and that could have varying effects on the industry. We cannot influence the commodity price so we must focus on controlling the factors that we can. One of the positive outcomes of the downturn is that mining companies have now become more streamlined and more disciplined in terms of their capital spending.
392
ORLEE WERTHEIM Head of Business Development – Global Mining at Toronto Stock Exchange and TSX Venture Exchange
Innovation is of course a major issue because I believe the mining sector lags behind other industries in that regard and it is essential for the sector to strive to develop new technologies.
The industry must continuously find ways to compete more aggressively and efficiently in the global market. The only companies that will survive in these new political landscapes will be those that adapt best to the situation. Players need to stop seeking short term benefits in order gain better long-term advantages. Mexico is preparing itself for important levels of growth in the next 10-15 years
FELIPE RIVERA Industry Business/Process Automation Hub Leader Mexico and Central America at Schneider Electric Systems Mexico
through its regulatory changes. In the short term, it may be causing problems in terms of adjustment but it is opening doors for the country’s strong long-term growth. We are going through a difficult time but I doubt the rough transition will last much longer. The country should be able to adapt fully to the new regulatory landscape in a year or so. It obviously takes time to get used to the new laws.
Ore body grades are declining around the world and many of the largest gold, silver and copper mines are more than 50 years old. Mining companies have to ramp up exploration because the industry needs new large-scale assets. Grades are continuing to fall at an alarming rate and some of the world’s biggest mines are reaching the end of their lifecycle so we need to start developing the next major assets to meet global demand for metals and minerals. Digitalization is also a significant challenge.
PHILIP HOPWOOD Global Mining Leader at Deloitte
Companies need to be more willing to accept new technologies and integrate them into their operations because this can translate into dramatic long-term savings.
Everything is in place for the mining sector to play a leading role in the national economy. We have so much geological potential, a strong group of experienced mining experts, fantastic interest from the foreign investor community and we have a strong mining law. The mining industry pays higher salaries than most of its competitors so it can be crucial in helping to develop Mexicoâ&#x20AC;&#x2122;s most underdeveloped areas. It has the potential to overtake the oil and gas industry because there is no state-owned mining company that monopolizes the market like PEMEX. I believe the government should place it higher on its list of priorities. We can only hope that
ALBERTO VAZQUEZ Senior Partner at VHG Abogados
these funds, which are generated from the hard work of thousands of Mexicans, are used in the correct manner to benefit people.
Everyone is talking about the return of the mining industry but prices in 2017 will remain similar to those of 2016 as the world continues to undergo high levels of volatility. The geopolitical context will continue to create waves like it did last year. As low metal prices continue to be present in the market, companies are decreasing their exploration investment, which is putting the future of the mining industry at risk. By 2050, analysts estimate that the consumption of metal is going to grow drastically and the current commodity price market is not stimulating enough growth to satisfy these demands. A mine takes many years to develop - even decades. The market needs to improve quickly to help promote growth in the exploration market and ensure future demand is met.
EDUARDO SALGADO Head of Mining Industry for KPMG Mexico
The main challenge is in the excessive regulation to which the mining sector is subject, which is becoming ever stricter, driving up prices and making exploration and development slower and slower. This is only exacerbated by the negative perception of the mining sector perpetuated by the media and by the lack of certainty in mining legislation. Although it has improved greatly, we still have significant infrastructure, service and safety deficiencies, which requires higher investment, costs and time to develop a project. A common problem, particularly with Canadian and foreign companies, is that many of the directors in charge of the projects and operations are not familiar
JOSĂ&#x2030; ANTONIO BERLANGA Director General of Telson Resources
with the country and have no experience working in Mexico.
Operators need to begin articulating strategies that invest in transformation but this does not necessarily have to involve millions of dollars to be efficient. The process can be done through collaboration. The first step toward innovation and sustainability is to recognize the importance of securing capital returns and community engagement. Companies have to understand that they cannot simply sit and wait for innovation to come around. We actually find that junior companies have an advantage, as most are in an entrepreneurial phase that is more open to innovation.
PETER BRYANT Managing Partner of Clareo
393
VIEW FROM THE TOP
AUTONOMOUS MINES FAST APPROACHING PETER BRYANT Managing Partner of Clareo
Q: What gap does Clareo fill in the market?
development partner approach in 2014, as well as the faith-
A: We are a strategic consultancy that focuses on
based dialogues with The Vatican and Church of England.
accelerating innovation and transformation in companies. In the mining industry, we noticed that companies were caught
Q: Why does the mining industry underinvest in technology
in a vortex of incrementalism and a fast-follower paradigm,
and innovation?
so there was minimal adoption of new technologies. Mining
A: The main factor centers around the massive cash flow
tends to resist transformation more than other industries
that was previously injected into the sector. It pushed
when it comes to technology and sustainability.
companies into a comfort zone. Mining operators were completely blind to cost reduction thanks to their financial
394
Our approach is based around principles that engage
reserves, driven by super-high prices. The industry was
companies in an alternative manner, particularly the
awash with money and innovation was low before the
mining industry. Mine closures strongly impact surrounding
supercycle. Operators need to articulate strategies that
communities. We strive to teach stakeholders how to be
invest in transformation and it does not necessarily have
more proactive partners in places such as Mexico, Latin
to involve millions of dollars to be efficient. The process
America and Africa. To transform the industry, a highly
can be done through collaboration. The first step toward
engaged and inclusive program is necessary. Many
innovation and sustainability is to recognize the importance
companies have already adopted similar principles. We
of securing capital returns and community engagement. We
stay away from being too restrictive as each mine, country,
work with companies like Goldcorp, which is responding
region and jurisdiction has specific issues that cannot be
positively to our approach. The strength of the innovative
resolved in a general manner. Our approach is flexible and
push ultimately depends on the budget and commitment
adapts to the needs of each player.
of the company.
Q: What would you consider to be the main consequences
Q: What role does the public sphere have to play in the
of the metal-price downturn and what role does Clareo
development of the sector?
play in this context?
A: Innovation ultimately depends on the country and the
A: When prices dropped, CEOs began to sharpen their
amount of commitment it shows. The governmentâ&#x20AC;&#x2122;s role is
focus on poor financial performance and productivity in
to collaborate with the industry to promote sustainability
operations. Processes became incredibly more effective and
and transformation while facilitating development. But
sustainable after companies re-evaluated their performance.
the collaborative muscle should be strengthened and
Four years ago, we kicked off an initiative to measure how
the public sector has to be careful not to smother the
companies engaged with communities, the government
industry with too much prescriptive regulation. Successful
and other stakeholders to promote better outcomes in
countries are characterized by an engaged government
the industry. I co-chaired a three-year initiative with Mark
that injects money into innovation and does not suffocate
Cutifani, the CEO of Anglo American, which involved most of
the private sector.
the major CEOs in the mining industry, NGOs and indigenous communities. Out of that effort came the formation of the
Mexico has to be more systematic and deliberate about the development of its resources. The country has many advantages, and it has not reached its full potential. It
Clareo is a consultant focusing on improving practices within
is ultimately closer to being a developed country than a
mining companies. Its methods promote the evaluation of how
developing country when compared to mining jurisdictions
resources are used and the legacy that is left behind by mine
in other countries. The sophistication of its law is comparable
closures
to countries like Chile and Australia.
VIEW FROM THE TOP
LACK OF TRANSPARENCY HAMPERS STOCK LISTINGS JORGE SÁNCHEZ Partner at Haynes and Boone
Q: How is the M&A market developing in the country’s
these financing sources are becoming more readily available
mining sector?
and because the latter institutions are very much aware of
A: We are starting to see many junior Canadian companies
the difficulties SMEs face in the mining sector in Mexico.
investing and developing greenfield projects and merging or creating JVs with larger operators. We are working
Q: This year, to what extent have you seen a return in
on some zinc and silver projects in the State of Coahuila
foreign investor confidence after a drop in FDI in 2016?
between Canadian companies that are publicly traded on
A: Most of our clients are investing heavily because they
the NYSE. These companies are trying to attract the right
have more confidence in the performance of metals on
type of partner and are waiting for zinc and silver prices
the international markets. They have become accustomed
to pick up. Zinc has already seen some increased activity.
to the mining royalty, which has ultimately proved not to
There are some instances of Canadian companies trying to
have affected their margins as much as originally thought.
expand silver production and buying assets in Zacatecas
I predict that next year we will see much more investment
and Sonora. Although we are not yet involved with these
coming to Mexico. The mining community has adjusted
transactions, we hope to participate in the future. Overall,
to the new tax pressures but there are still expectations
there has been much more predictability and enthusiasm
that the Ministry of Finance will ease some of these tax
this year in the sector.
considerations. Recently, a letter was sent by the mining task force from the Canadian Chamber of Commerce
Q: What can the mining community in Mexico do to
requesting a meeting with President Peña Nieto to discuss
support SMEs and mining juniors?
a reduction in the requirements of the mining royalty and
A: FIFOMI has an ambitious plan designed to finance SMEs,
a restructuring of fiscal obligations.
while there is another sector being financed by large trading houses like Trafigura, Glencore and Louis Dreyfus. We also
Q: As an advisory firm, to what extent would you like to
have banks like Scotiabank, which is very active in Mexico
see some of the taxes removed or modified?
financing Canadian-listed companies. I predict we will see
A: We would like to see certain deductions authorized, in
more financing coming from FIFOMI and from trading houses.
particular regarding exploration activities and investment,
There is appetite for SMEs to be listed on the TSX or LSE but
as this would create a more fair and reasonable environment
the problem is that these companies tend to be family-owned,
for the market in comparison to other jurisdictions in Latin
closely held and very averse to disclosing financial information
America. For example, the taxes surrounding exploration
in the way that is required for publicly traded companies. On
costs are especially punitive and this can go a long way to
one hand, they are in great need of financial resources that
explaining the drop in exploration activity in recent years.
can be offered by an IPO but on the other, they tend to be
There is also a lot of pressure to have surface rights overseen
unwilling to open up to the regulators.
and indemnified in the same way that occurs in the energy sector, which would increase clarity and certainty within the
Q: Where does this culture of an aversion to disclosed
mining sector. In mining, often the companies are subject
information come from?
to open negotiations with the ejido communities, whereas
A: At times, these companies do not have the best corporate
the energy sector has clear indemnities for each situation.
practices or institutionalized corporate governance or have significant environmental issues that may not comply with securities regulations. These factors can all prevent
Haynes and Boone is one of the American Lawyer top 100 law
companies from accessing sources of finance. An IPO is
firms, with more than 575 lawyers in 15 offices. It is among the
certainly the cheapest way to grow but companies may
largest firms based in the US and has been serving clients in
prefer to knock on the doors of FIFOMI and NAFIN because
both Mexico and the US for 20 years
395
INSIGHT
THREE STEPS TO BOOSTING FDI HÉCTOR GARCÍA Mining Tax Partner at PwC
396
Every year, Vancouver-based research organization the Fraser
precious metal production, which came into effect in 2014,
Institute releases an annual report to rate the conditions for
coincided with the reduction of investment flow into the
mining investment in countries around the world, based on
Mexican mining sector. Then, in late 2016 the Zacatecas
geological conditions and policy attractiveness. In 2012,
state government introduced a controversial set of tariffs
the Annual Survey of Mining Companies placed Mexico at
on waste generated by industrial activities, known as the
number 25 out of 96 jurisdictions. Fast-forward to 2016,
Ecological Taxes. Mining companies, which contribute
however, and Mexico has fallen to number 50. During the
over 30 percent of the Zacatecas state GDP, were heavily
same period, fellow mineral-rich Latin American country Peru
affected by the taxes and many filed for an amparo. The
has risen from number 39 to number 28. Mexico is losing
issue is now being analyzed by the Supreme Court of
ground and Hector Garcia, Mining Tax Partner at PwC, says
Justice of the Nation, with a verdict expected by 2018 at the
this trend will not be easy to reverse. “The Mexican mining
latest. Regardless of the outcome, Garcia says that these
sector is becoming less attractive to foreign investors,” he
incidents must stop if the foreign investor community is
says. “The government has a considerable challenge to turn
to once again look at Mexico as an attractive destination.
this around and make Mexico more appealing again.” “What concerns me is that if the taxes are not repealed, this The Fraser Institute’s rankings are supported by economic
would set a precedent,” he says. “We would like to see more
data. In 2014, Mexico was on its own in the coveted fourth
flexibility to allow more tax deductions to lessen the overall
spot in the list of global spending on exploration, behind
impact of the mining royalties and create a situation where
powerhouses Canada, Australia and the US. By 2016, Mexico
the tax environment is not a hindrance to investment.”
was still in fourth place but shared this spot with Chile, Peru, Colombia and China, according to an S&P Global Market
The final area of focus is land ownership and use. The
Intelligence report. During the same period, foreign direct
complex agrarian structure in Mexico is a turn-off for
investment in the sector in Mexico dropped from US$4.9
potential investors who do not understand how to negotiate
billion to US$4.7 billion, although this can in part be explained
or even with which groups they should be negotiating,
by the global downturn in metal and mineral prices.
Garcia says. The lack of communication between mining companies and local communities is also giving the industry
For Garcia, the situation needs attention but is not irreversible.
on the whole a negative image and more clarity is urgently
He highlights three specific areas on which not only the
needed, he says. “It is crucial that clear guidelines are
government but also the corporations must focus if Mexico is
developed on how to negotiate with ejidos and other social
to attract more investment going forward. The first is security.
groups to define a clear model to identify a reasonable
The Fraser Institute survey ranked Mexico as the ninth most
range of fees to be paid to landholders for the use of land
dangerous jurisdiction for mining investment, down from 15th
in mining activities,” he stresses.
the year before, and Garcia believes that the issue is having a damaging effect on the country’s investment profile across
Given the firm’s global experience, Garcia believes PwC is in
the board, not only in mining. “It is a very delicate subject and
a great position to help its mining clients in Mexico through
there is no magic formula,” he says. “But investors and the
these issues, particularly on the taxation side, as best it
government have to find the right approach.”
can. In July 2016, the company’s Mexico office merged with the US offices to allow greater proximity to its clients and
The second area of opportunity is mining tax and
create a more integrated, streamlined operation in North
regulation. Companies throughout Mexico complain of
America. “There are different sets of skills and expertise
back tax payments worth millions of dollars that have been
in our US and Mexico offices, and by combining the two
outstanding for years, says Garcia, while the royalties on
together we can offer greater value.”
VIEW FROM THE TOP
ECONOMIC VOLATILITY SUGGESTS FLAT METAL PRICES EDUARDO SALGADO Head of Mining Industry for KPMG Mexico
Q: What can the mining industry expect when it comes
gain an advantage by incorporating digitalized equipment.
to metal prices?
Each phase of a mine cycle has different needs but one of
A: KPMG released a study in 2017 that analyzed the top
the best ways to optimize costs is to digitalize the mineral
10 risks that are on the minds of CEOs at Canada’s top
handling processes.
mining companies for 2016. We found that metal prices are one of their biggest concerns as they determine the
Q: How is regulation influencing the attractiveness of
growth a company can expect. But in comparison to 2015,
operations in Mexico?
this commodity price risk placed second and now CEOs
A: The industry is looking to facilitate growth and additional
are more worried about their ability to access and replace
taxes such as the Ecological Tax in Zacatecas do the
reserves with new projects and acquisitions.
opposite. This tax requires mining companies to give up 1 percent of their profits, a large chunk of their budget. The
As low metal prices continue to be present in the market,
millions of pesos that would be collected through the taxes
companies are decreasing their exploration investment,
is money that could have been directed toward exploration
which is putting the future of the mining industry at risk.
and the opening of new mines. But a state does not have
By 2050, analysts estimate that the consumption of metal
the right to emit taxes that are of federal character, so it will
is going to grow drastically and the current commodity
not remain in legislation for much longer. Representatives
price market is not stimulating enough growth to satisfy
from the government have publicly stated their dedication
these demands. A mine takes many years to develop, even
to the mining industry but clear objectives or forms of
decades. The market needs to improve quickly to help
actions have not been clarified.
promote growth in the exploration market and ensure future demand is met. KPMG can help companies mitigate
Q: What can be done to promote the growth of the
risks by analyzing patterns in metal prices and creating
exploration sector?
strategies that adapt to reality.
A: Mining concessions are hard to obtain and this inhibits the growth of the exploration sector. The process takes
Q: How is the digital era influencing mining companies?
too long to develop and is no longer feasible if the
A: In the KPMG report, automation and digitalization ranked
market goes through drastic changes. The National Plan
low as a priority among major companies. This is due to the
for Mining Development considers increasing FIFOMI's
cost that these involve and the industry’s renewed ability to
ability to support junior mining companies. But these
improve operative costs. Reducing operative costs through
companies often complain about the number of filters
technology is no longer an absolute necessity. Operators
that need to be negotiated before having access to
do not have enough motivation to implement these tools
financial support from the public sector. Unfortunately,
in their systems.
mining needs significant investment that can take up to 30 years to recover. FIFOMI increased the amount of
But companies need to always keep in mind the reduction
capital that it directs toward junior companies but despite
of operative costs, which is one of the few things they have
this the number of exploration projects in the country
complete control over and promotes a higher return on
remains too small.
investment. Given that there are not enough resources to increase exploration investment, companies find themselves with even less capital to invest in technology. This can be a
KPMG is one of the “Big Four” professional services firms,
great area of opportunity for companies that want to get
providing audit, tax and financial advisory to clients around
ahead of the pack. Any company that dares to defy the
the world. In Mexico the firm consists of 190 partners and more
benchmark at the moment and prioritize digitalization can
than 3,000 professionals in 18 offices around the country
397
INSIGHT
DEEP-SEA MINING: THE ANSWER TO RESOURCE SCARCITY? HENK VAN MUIJEN Managing Director of IHC Mining
With over 70 percent of the earth’s surface area underwater,
are designed to scoop up polymetallic nodules lying on the
scientists have been working on deep-sea mining techniques
seabed and pump the recovered material via a magnet motor
for decades. But in the face of fierce opposition from
powered vertical transport system to the surface mining
environmental protection groups and unsatisfactory
vessel. A processing plant is installed on the vessel to begin
technology, the concept has been more of a pipe dream
the first dewatering and storage process, before the ore is
than a viable method for replacing onshore resources. That
transferred to an onshore facility.
could be changing. There is still a way to go. The mining vessels have limited ore
398
Thanks to a dramatic improvement in underwater extraction
and slurry storage capacity, placing strains on the economic
techniques and continually shrinking surface reserves, the
viability of the activity, while many offshore deposits are
world’s first deep-sea mine is set to begin production off the
found at depths deeper than 1,500m. But the basic technique
coast of Papua New Guinea in 2019 at the latest. According to
has been defined. “There is a concerted effort to improve
Henk van Muijen, Managing Director of wet mining technology
the maximum operating depth of the subsea crawlers to at
specialist IHC Mining, the industry is about to take off.
least 2km,” says Van Muijen. “The vertical transport system needs to be sufficiently powerful and efficient to drag the
“I am convinced that deep-sea mining will become a vital
ore to the surface.”
alternative to traditional mining methods and a solution to resource scarcity in the future,” he says. “Deep sea deposits
Another factor is the damage deep-sea mining would
have, on average, much larger grades than those commonly
do to surrounding ecosystems, which is still somewhat
found onshore and with commodity prices recovering, it is
unknown. Among a number of promising offshore
becoming more attractive by the day.”
discoveries was Exploraciones Oceánicas’ Don Diego phosphate project off the coast of Baja California Sur.
Wind turbines, electric/ hybrid cars and photovoltaic cells demand rare metals like tellurium found on the seabed
But in the summer of 2016, Don Diego was blocked by a combination of local communities and Mexico’s state environmental protection agency SEMARNAT, on the basis that the risk deep-sea mining poses to marine life is too great. In response, IHC Mining is working on an EUfunded project, Blue Nodules, a collaborative effort from 14 different industry and research organizations focused on refining the techniques for mining manganese nodules on the seafloor. Recognizing the need to provide answers to environmental protection groups, the Blue Nodules project contains a large sustainability program.
READYING THE TECHNOLOGY
“If we are going to dig into the seabed, we are inevitably
On the technology side, IHC Mining has played an important
going to influence the ecosystem to a certain degree so
role in the emergence of deep-sea mining as a viable solution.
we are working alongside various knowledge and research
Drawing on its experience in the offshore oil and gas and
centers to minimize this impact,” says Van Muijen. “We
dredging industries, the company launched its first subsea
are conducting a number of offshore tests to measure the
crawler in 2000 and has remote-harvesting technology that
environmental impact of this new technology, including the
can operate at depths of up to 1,500m ready for testing.
noise and plumes created by the crawlers, the CO2 footprint
The crawlers, equipped with massive rock-crushing teeth,
and seabed alteration.”
MOVING INTO PRODUCTION But the world’s underwater mineral resources are administered and regulated by the International Seabed Authority (ISA), which has so far only awarded exploration licenses to contractors; exploitation and production permits are still not widely available. A select few governments, including Papua New Guinea, New Zealand and Namibia, are exempt from this legislation and there are already crawlers operating on diamond mining projects at depths of
MEXICO’S LANDSCAPE
150-200m off the coast of Namibia. But a much more
• Located between the two largest oceans on the globe
advanced project in Papua New Guinea, Nautilus
• 17 federal laws and eight federal regulations govern
Minerals’ Solwara 1 operation, carries the hopes of the deep-sea mining industry. “It is a seafloor massive sulphide deposit (SMS) that contains highgrade copper, gold, aluminum and silver,” says Van
coastal zones • More than 11,000km of shoreline (across 17 states) • Six recognized coral reef regions (expanding 1,780km2)
Muijen. “We have been involved from the start as a possible technology provider and we follow it with great interest because it will be the first project that could move into commercial production.”
399
3 types of deposits found on the seabed: polymetallic nodules, rocks and seafloor massive sulfides In April 2017, the seafloor production tools arrived in Papua New Guinea ahead of submerged trials, and Nautilus is on track to start production in 2019.
26
If successful, Van Muijen believes Solwara 1 will give the concept of deep-sea mining the green light, generating more interest in the technology from the international investor community and encouraging governments to provide backing to future projects from both a regulatory and financial perspective. But if not, he warns, “it would represent a setback
exploration contracts awarded by UN International Seabed Authority (ISA) by the end of 2016, but no exploitation contracts so far
that would take some time from which to recover.” While the industry waits to see the results of Solwara 1, IHC Mining will continue to fine-tune its deep-sea mining technology. The Blue Nodules project should be completed by 2019, providing key answers to environmental questions, before going ahead with deepwater testing for the subsea crawlers. “The next step will be to install a pilot unit on the seabed that will be ready for commercial test operations in compliance with ISA regulations,” says Van Muijen. “We hope to achieve this by 2022 at the latest.”
Sources: IHC Mining, National Ocean Service, ISA, The Pew Charitable Trusts. NBC
INDEX A-G ABControl 320
Des-case 301
Aceros Fercom 139
Detector Exploraciones 201, 219
Agnico Eagle 21, 31, 47, 49, 63, 72, 93, 174, 214, 239,
DGI Geoscience 222
243, 286, 365, 366, 373
Digsa 390
AIMMGM 25, 29, 337, 378, 389, 400
Doka Mexico 241
Alamos Gold 10, 40, 63, 72-73, 90, 108, 188, 203, 218,
DSI Underground 243
292, 328, 364
ECN Scientific 319, 323
Alchisa 265
Emerson 307
ALN Abogados 49
Endeavour Silver 37, 44, 47, 99, 103, 106-107, 111, 113,
Americas Mining Corporation 72, 134, 136-137, 151, 152
228, 275, 332
Americas Silver Corporation 73, 102, 115, 144-145
Energold Drilling Group 200, 206
Aplicaciones Cientificas 282, 300
ERM 361, 369
ArcelorMittal 138-139, 150, 275, 293, 368
Espaciomovil 270
Argonaut Gold 47, 51, 72-73, 328
Evrim Resources 47, 158, 164, 176, 275, 369
Artisan Vehicle Systems 250, 263
Excellon Resources 46, 103, 177, 184, 185, 274
ASES 366
Export Development Canada 17, 48, 56-57, 332, 333,
Assaynet 318
335, 337
Atlas Copco 250, 251
EY 28, 46, 208
Avino Silver & Gold Mines 119, 137
FIFOMI 11, 38-39, 50, 56-57, 115, 141, 378, 384,
Azure Minerals 151, 182-183
395, 397, 400
BMV Group 22, 23, 38-39, 45, 50, 52, 56-57, 91, 134,
Firma Holdings 47, 72-73
178-179, 215, 384
Flowserve 296
Canadian Trade Commissioner Service 334-335
FLSmidth 275, 291
Candelaria Mining 47, 53, 69, 72-73, 91, 93
Fluid Systems 293
Capstone Mining 123, 132, 137, 140, 151, 152, 324,
Fordia 200, 208
369, 378
Fresnillo 8-10, 21, 24, 36, 37, 50, 59, 62, 63, 64, 72-73,
Carrizal Mining 132, 137, 152
74, 83, 86, 91, 92, 98-99, 100-101, 102-103, 106, 110-111,
Caterpillar 240, 254, 260, 315
114, 123, 124, 127, 133, 135, 143, 147, 165, 189, 192, 203,
Chesapeake Gold 73, 87, 93
207, 214, 218, 220, 229, 250, 252, 253, 292, 314, 315, 320,
Chesterton Mexicana 267
333, 371, 373, 381, 382, 388
Clareo 393, 394
G4 Drilling 209
Clusmin 18, 19, 20-21, 380-381, 388
Gambusino Prospector 215
Cluster Guerrero 10, 19, 20-21, 92-93, 345, 380-381
GE Mining 314, 322, 336
Cobra 297
Gekko Systems 292
Coeur Mining 53, 72-73, 99, 102, 104, 114, 121, 203, 217,
Global Air Cylinder Wheels 258
218, 228, 231, 243, 265, 274
Globexplore Drilling 170-173, 204-205
Comité de Damas 389
Gogold 40, 72-73, 102-103, 188
Compañía Isdamar 344
Gold Resource 72-73, 84-85
Consolidated Zinc 148, 151
Goldcorp 8, 9, 10, 21, 31, 32, 46, 59, 62, 63, 72, 75, 77,
Credipresto 50, 56-57
79, 83, 86, 98, 103, 111, 133, 201, 219, 224, 231, 242, 257,
Cribas y Productos Metalicos 294
265, 286, 288, 289, 311, 312, 316, 318, 344, 372, 382, 394
CTA 365
Goldgroup Mining 72
Cyanco 281, 300
Government of Canada 17
Danfoss 373
Great Panther Silver 73, 102-103, 112, 116, 368
Dassault Systemes 239
Grimaldi 231, 259
DBR Abogados 31, 53
Grupo ASM 299
Defiance Silver 103, 123
Grupo Bacis 137, 321
Deloitte 46, 133, 379, 385, 392
Grupo Calidra 280, 289
Delta Solutions 306, 311, 323
Grupo GAP 364-365
INDEX G-S Grupo México 9, 28, 30, 40, 45, 50, 77, 91, 111, 129,
MineralsEng 52
132-133, 134, 143, 149, 150-151, 152, 154, 182, 207, 214,
Ministry of Economy 8-10, 17, 19, 36, 40, 41, 53, 75, 114,
234, 240, 242, 243, 259, 266, 272, 286, 289, 291, 296,
159, 281, 335, 345, 355, 379, 384, 389
299, 312, 314, 318, 341, 342-343, 345, 356-357, 371, 372,
Ildefonso Guajardo Villarreal 11
374, 390
Mario Alfonso Cantú 14-15, 330, 380-381
Hard-Line 261
Ministry of Economy of Chihuahua 382
Haynes and Boone 355, 395
Ministry of Economy of Sonora 383
Haywood Securities 51
MMD 287
Hecla Mining 103, 111
Modular Mining Systems 273
Hogan Lovells BSTL 42, 177, 369
Mujeres WIM México 29
IHC Mining 398-399
New Gold 358, 359, 360
Immersive Technologies 260
Normet 262
IMPACT Silver 103, 113, 228
Northern Light Technologies 321
Industrias Peñoles 9, 10, 20, 24, 28, 36, 45, 50,72-73,
Oceanus Resources 188
83, 91, 98, 101, 111, 123, 133, 135, 136-137, 145, 147, 149,
Orex Minerals 159, 189
150, 152, 193, 203, 207, 218, 242, 243, 265, 266, 274, 286,
Orla Mining 46, 73
289, 296, 311, 312, 317, 371, 372, 373, 378, 388, 390
OSI Soft 310, 323
Invecture Group 72, 136
Pan American Silver 36, 72, 98, 102-103, 105, 108, 111,
Itzcoatl Drilling 214, 219
115, 175, 228, 240, 257, 328, 366
JL Vazquez 316
PANalytical 219, 223
Kal Tire 259
PEAL 69, 256-257
Kansas City Southern de Mexico 341, 342-343
Power Electronics 372
Kepler 30, 235, 238
Premier Gold Mines 46, 47, 72, 81, 93
Kootenay Silver 47, 51, 57, 102, 108, 158, 175-176
Primero Mining 47, 66-67, 73, 92, 203, 218, 243
KPMG 176, 323, 378, 379, 390, 393, 397
Proesmma 268, 337
Kroll 367
PROFEPA 36, 37, 43, 352-353, 354, 355, 359, 369, 400
Lagsom Química 285
ProMéxico 162, 325, 345
Lasec 317
PwC 30, 208, 378, 396
Leagold 10, 20, 46, 63, 72-73, 75, 79, 89
Rajant Corporation 315
Leapfrog 203, 218, 306
RB Abogados 45
Legalmex 54
Refacciones Neumaticas La Paz 210
MacLean Engineering 252
REFLEX 186-187, 218-219, 221, 322-323
MAG Silver 86, 98-99, 100-101, 102-103, 111, 223, 229, 381
Resemin 250, 253
Mammoth Resources 191
Reyna Mining 103
Maple 240
Riverside Resources 47, 158-159, 165, 189
Marlin Gold 73, 257
Rorisa 269
Martin Engineering 286
Santacruz Silver 72-73, 102-103, 145
McEwen Mining 29, 46-47, 53, 73, 201
Schneider Electric 309, 322, 392
Mejora 360
SEDATU 41, 119, 168, 350, 380, 400
Mercuria 340
SGM 11, 14-15, 21, 49, 70, 93, 102-103, 133, 136, 155, 159,
Metso 255, 280, 288
160-161, 169, 176, 193, 239, 328, 384, 391, 400
Mexican Roundup 386-387
SGS 167, 177, 331, 336, 339
Mexus Gold 47, 72, 102
Siemens 306, 312-313
Millrock Resources 158-159, 192
Sierra Metals 102, 137, 141, 150, 152, 378
Minaurum Gold 86
Silver One Resources 47, 98, 118
Minera Alamos 47, 51, 73
Silver Standard 47, 103, 118, 189
Minera Frisco 18, 45, 50, 63, 72-73, 91, 102-103, 132, 133,
SilverCrest Metals 116-117
136-137, 149, 152, 188, 207, 255, 265, 269, 286, 289, 296,
Sistemas Avanzados y Proyectos 193, 194-195
344, 366
Sitsa 255
INDEX S-Z Skysset 237, 246
Timken 149
SNMM 36, 54, 55
Timmins Gold 9, 20, 47, 53, 62, 63, 69, 72-73, 75, 86,
SoftLanding Group Mexico 48, 384
92, 176, 200, 257, 328, 350
Sonoro Metals 47, 174, 228
Torex Gold 10, 20, 62-63, 68, 69,72-73, 86, 89, 93, 111,
Starcore International Mines 77, 362-363
152, 200, 238, 311, 364, 368
Takraf USA and Mexico 234, 244-245
Toronto Stock Exchange 22, 39, 50, 328, 335, 384,
Tauro Capital Partners 57, 178-179
392, 400
TDM 233, 242
US Geological Survey 169
Teck Resources 46, 47, 136-137, 182
VHG Abogados 159, 391, 393
Tecmin 200, 207, 218
Victaulic 213, 266
Técnica Salgar 371
Weir Minerals 298
Telson Resources 73, 168, 181, 238, 329, 393
Wheaton Precious Metals 66, 125
Terracore 170-173, 218, 220, 337
Williams Scotsman 271
The Chemours Company 280, 283, 300
Yokohama Tire Mexico 230
The Silver Institute 8, 36, 98, 114, 118, 124
Zacatecas State Council 388
ACRONYMS AIMMGM
Mexican Association of Mining Engineers, Metallurgists and Geologists
BMV
Mexican Stock Exchange
CAMIMEX
Mexican Mining Chamber
CAPEX
Capital Expenditure
CFE
Federal Electricity Commission
CONAGUA
National Water Commission
FIFOMI
Mining Development Trust Fund
IoT
Internet of Things
IFC
International Finance Corporation
JV
Joint Venture
M&A
Mergers and Acquisitions
MoU
Memorandum of Understanding
MW Megawatts PEA
Preliminary Economic Assessment
PEMEX
Mexican Petroleum Company
PFS
Pre-Feasibility Study
PROFEPA
Federal Attorney's Office for Environmental Protection
SEDATU
Ministry of Agricultural, Farming, Rural Development, Fisheries and Food
SEMARNAT
Ministry of the Environment and Natural Resources
SGM
Mexican Geological Survey
TSX
Toronto Stock Exchange
TSXV
TSX Venture Exchange
UNAM
National Autonomous University of Mexico
TECHNOLOGY & PROJECT SPOTLIGHTS 166-67
SGS Durango Chemical Analysis Facility: Trusted Expertise
186-87
REFLEX: Redefining Drill Core Data Analysis
194-95
SAP: The Many Benefits of LIDAR Technology
212-213
Victaulic: The Industry's First In-Line Knife Gate Valve
232-233
TDM: Optimizing Production Through Geosynthetics
244-245
Tenova TAKRAF: Takraf Spreader Boosts Safety, Efficiency
338-339
SGS Trade Services: Because Trade is Built on Trust
362-363
Starcore International: Investing in Social Good
386-87
The Mexican Roundup: Strengthening Ties Between Industry and Academia
MINE SPOTLIGHTS 78-79
Leagold: Los Filos
142-43
Americas Mining Corporation: La Caridad
82-83
Fresnillo: La Herradura
146-47
Industrias Peñoles: Naica
88-89
Torex Gold: El Limón-Guajes
180-181
Telson Resources: Tahuehueto
120-121
Coeur Mining: Palmarejo
216-217
Coeur Mining: La Preciosa
126-127
Fresnillo: San Julián
ADVERTISING INDEX Inner Front Cover Fresnillo
202 SGS
6
Coeur Mining
211
Refacciones Neumáticas La Paz
15
Elastomeros Taza
226
Takraf USA
24 Resemin
240 Des-Case
34
248
Timmins Gold
MMD Mineral Sizing
39 FIFOMI
256-257 Grupo Peal
44
RB Abogados
264 ALCHISA
48
ALN Abogados
270
DBR Abogados
60 Brinks
278
Grupo Calidra
76
Starcore International Mines
284
Compañía Isdamar
80
The Chemours Company
290 FLSmidth
85 Cyanco
295
Cribas y Productos Metálicos
96
Primero Mining
298
Weir Minerals
107
Endeavour Silver
304
Mexico Mining Forum
109
Kootenay Silver
308
Schneider Electric Systems
117
Pan American Silver
310
Delta Solutions
122
Sindicato Minero Metalúrgico
313 Proesmma
130
Grupo México
326 Mercuria
140
Sierra Metals
348 Emerson
156
Globexplore Drilling
353 ERM
179
Tauro Capital Partners
364
183
Detector Exploraciones
376 Metso
190
Power Electronics
390 VHG
198 Victaulic
Grupo GAP
PHOTO CREDITS
4
Grupo México
68
Torex Gold
148 MBP
11
Ministry of Economy
69
Timmins Gold
149 MBP
14 MBP
72-73
Leagold
150
16
Comisión Especial de
75 Goldcorp
Minería
77 MBP
Canadian Ministry of
81 MBP
Natural Resources
84
17
18 MBP
ArcelorMittal, Sierra Metals, Industrias Peñoles
151
Azure Minerals, Capstone Mining, MBP
Gold Resource
154
Corporation
160 SGM
Grupo México
20
Torex Gold
86 MBP
164
Evrim Resources
22
Toronto Stock Exchange
87 MBP
165
Riverside Resources
23 MBP
90
168 MBP
24 Fresnillo
91 MBP
169 MBP
25 MBP
92
Timmins Gold, Primero
170-173
Mining, Fresnillo
174 MBP
26 MBP
Alamos Gold
Globexplore Drilling
28 EY
93
MBP, Torex Gold
175 MBP
29
McEwen Mining
94
Orex Minerals
176
30
Grupo México, Kepler
99
Top Energy
Constructora, Comisión
100-101 Fresnillo
177
Especial de Minería
Evrim Resources, Timmins Gold, MBP MBP, Excellon Resources
104 MBP
178 MBP
32 Goldcorp
105 MBP
182
Azure Minerals
31
Mining Technology
106
185
Excellon Resources
Partners, Goldcorp,
108 MBP
188 MBP
Agnico Eagle, DBR
112 MBP
189
Abogados
113 MBP
190 MBP
114
MBP, The Silver Institute,
191
Mammoth Resources
Ministry of Economy
192
Millrock Resources
38 FIFOMI 40 MBP 41 MBP
115
Endeavour Silver
Orex Minerals
Americas Silver
193 MBP
42 MBP
Corporation, Comisión
196 Sandvik
44
Especial de Minería, MBP,
201 MBP
FIFOMI
203 MBP
SilverCrest Metals
204-205 Globexplore Drilling
Endeavour Silver
45 MBP 48
SoftLanding Group Mexico
116
49 MBP
118 MBP
206 MBP
50 MBP
119 MBP
207 MBP
52 MineralsTech
123 MBP
208 Fordia
53
124
209 MBP
DBR Abogados
The Silver Institute
54 MBP
125 MBP
55 MBP
128
56
MBP, SoftLanding Group
134 MBP
214
Mexico, FIFOMI
135
215 MBP
Americas Silver
138 ArcelorMittal
218 MBP
57
210
Grupo México Industrias Peñoles
Refacciones Neumaticas La Paz Itzcoatl Drilling
Corporation, MBP
140
Capstone Mining
219
58
Torex Gold
141
Sierra Metals
220 MBP
66
Primero Mining
144-145
Americas Silver
221 MBP
67
Primero Mining
Corporation
222
MBP, Itzcoatl Drilling
DGI Geoscience
223 MBP
285
224 Goldcorp
286 MBP
345 MBP
229
MAG Silver
287
346
230
Yokohama Tire Mexico
288 MBP
352 PROFEPA
231 MBP
289 MBP
354 SEMARNAT
234
Takraf USA
291 MBP
355
235
Kepler Constructora
Lagsom Química MMD Mineral Sizing
344
Compañía Isdamar Great Panther Silver
Haynes and Boone
292 MBP
356-357 Grupo México
236-237 Skysset
293
Fluid Systems
358 MBP
238
294
Cribas y Productos
360 MBP
Metálicos
361 MBP
Torex Gold, MBP, Kepler Constructora
239 MBP
296 MBP
364 MBP
240 MBP
297 Cobra
366 MBP
241 MBP
298 MBP
367 MBP
242 MBP
299 MBP
368
243 MBP
300
246 Skysset
MBP, The Chemours Company
ArcelorMittal, Torex Gold, MBP
369
Capstone Mining, MBP,
251
Atlas Copco
301 MBP
252
MacLean Engineering
302 Sandvik
370-371
253 MBP
307 MBP
372 MBP
254 MBP
309
Schneider Electric
373 Danfoss
Systems
374
255 MBP
Evrim Resources Técnica Salgar
Grupo México
258 MBP
310 MBP
380 MBP
259
Kal Tire
311 MBP
381
260 MBP
312 MBP
382 MBP
261 Hard-line
314
GE Mining
383 MBP
262 Normet
315
Rajant Corporation
384
265 MBP
317 MBP
385 MBP
266 Victaulic
318 AssayNet
386
The Hermosillo Roundup
267 MBP
319 ECN
387
The Hermosillo Roundup
268 MBP
320 MBP
388 MBP
269 MBP
322
Schneider Electric
389 AIMMGM
Systems, MBP, GE Mining
391 MBP
MBP, ECN
392
270 Espaciomovil
MAG Silver
SoftLanding Group Mexico
271
Williams Scotsman
323
272
Grupo México
324 Capstone
273
Modular Mining Systems
330 MBP
274
MBP, Industrias Peñoles,
331 MBP
393 MBP
Excellon Resources
332 MBP
394 MBP
Arcelor Mittal, Endeavour
333 EDC
395
Silver, Evrim Resources,
334
Canadian Embassy
396 MBP
MBP
336
MBP, GE Mining
397 MBP
275
MBP, Toronto Stock Exchange, Schneider Electric Systems
Haynes and Boone
276 Goldcorp
337 MBP
398
281 MBP
340 Mercuria
Inner Back Cover Skysset
282 MBP
341
283
The Chemours Company
Kansas City Southern México
IHC Mining
CREDITS SENIOR JOURNALIST & INDUSTRY ANALYST: Dominic Pasteiner JOURNALIST & INDUSTRY ANALYST: Alejandra Gómez EDITOR: Ricardo Guzmán EDITORIAL MANAGER: Sara Warden MANAGING EDITOR: Mario Di Simine SENIOR PUBLICATION COORDINATOR: Agata Sobolewska PUBLICATION COORDINATOR: Itzel Soto COMMERCIAL DIRECTOR: Jack Miller GRAPHIC DESIGNER: Ailette Córdova JUNIOR DESIGNER: Mónica López DESIGN DIRECTOR: Marcos González WEB DEVELOPMENT: Omar Sánchez CIRCULATION MANAGER: Elizabeth Solís DIRECTOR GENERAL: Jeroen Posma
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