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LONG-TERM POLICIES TO PROMOTE INVESTMENT NEEDED OCTAVIO ALVÍDREZ CEO of Fresnillo plc
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Q: What should Mexico do to gain competitiveness against
I believe these resources must be directed completely to
other mining jurisdictions, such as Chile or Peru?
the mining communities. The Mining Fund can be a great
A: We are experiencing political and economic uncertainty at
complement to the work already undertaken by mining
a global level, and Mexico is going through numerous changes
companies. It is not so much about redesigning the fund,
internally. Although the country has a significant geological
as of making sure it works transparently and effectively.
potential, so do Peru and Chile, as does Argentina, to a certain extent. Newcomers include Ecuador and Colombia.
Q: What specific measures is Fresnillo taking to achieve its
The US and Canada remain very competitive in designing
production targets for 2019?
and putting in place all the conditions necessary to invest
A: We have had in 2019 somewhat difficult year. Therefore,
in mining. Against this backdrop, it is crucial that Mexico
our guidance for production was lower than in 2018, when
create long-term mining policies that promote investment
we achieved 61.8moz of silver, including our silver stream,
and guarantee legal and fiscal certainty. Right now, miners
and more than 920,000 oz of gold. Our guidance for 2019
in Mexico have a burden of around 52 percent, considering
is between 55 and 58moz of silver and between 880,000
income tax, mining rights for exploration-exploitation
and 910,000 oz of gold, reflecting some difficulties we have
concessions, royalties, PTU and other factors. Alternative
had with operations, mainly at Fresnillo on the silver side
jurisdictions have burdens as low as 25 percent. They also
and a softer production at Herradura. We also knew that
provide incentives for exploration that Mexico lacks.
Saucito would be performing with a lower silver grade, so that was not a surprise. Similarly, weaker silver production
Fresnillo is known for placing exploration at the core of its
was expected at San Julián.
business strategy. It is a crucial activity that we conduct throughout the industry’s cycles. That strategy enabled us
Of those mines, the only surprise was Fresnillo. We are putting
to double the silver resources we had 11 years ago and more
in place concrete plans to correct that and make sure we
than triple our gold resources. It resulted in a doubling of
reach our guidance for 2019. At Fresnillo specifically, we are
production. Now, exploration is decreasing in Mexico, given
implementing innovative maintenance programs to improve
lower prices for base metals and lack of incentives. Even
our equipment’s reliability. Moreover, we are introducing
Fresnillo will cut down moderately. A comprehensive fiscal
automatic drilling devices so we can continue drilling in
plan to incentivize the industry is much needed. It would
between shifts and increase productivity. We are increasing
contribute to the objectives of the current administration:
our contractors’ efficiency and hiring some foreign mining
economic growth and job creation in areas of the country
contractors for development, which is the future of the mine.
where often there is no investment because of their remote
This is not to say that we do not prioritize a strong local
locations. Mining companies bring infrastructure and
supplier network. We work closely with the Zacatecas Mining
development to such regions.
Cluster, which has been reflected in a strong supplier network in Zacatecas and the neighboring states. That is a KPI we
Q: What changes in the Mining Fund would be appropriate
follow quite closely: how many of our goods and services
so that it effectively fulfills its purpose?
come from local sources. But with respect to development
A: The original design was sensible. Directing the levied
specifically, we work with almost all the contractors in Mexico,
resource to the communities was an important initiative. It
and we have stretched them to capacity. We have had to hire
must be said, however, that after almost five years of the
foreign contractors to supplement those in Mexico.
fund’s implementation, Fresnillo, has not reduced its social investments in communities. The same can be said of almost
Q: Juanicipio is among the most important projects
all mining companies. This makes the fund an additional
in Fresnillo’s pipeline. What is the strategy for its
burden to an already heavily-taxed industry. Despite this,
development?
