Regional myopia is a widespread failing. Say "Mexico" in Europe and the word game usually brings up "holidays". The other side of the Atlantic it would probably be "cheap labour". Only in Canada is "mining" Mexico’s main claim to fame. Yet Mexico is one of the oldest mining countries in the world, and it is booming.
Getting on for 100 Canadian mining companies are leading the foreign rush for Mexico’s precious metals! They have around 375 projects there, 80% of the total new projects currently underway. Investment in Mexico’s mining industry totalled around $428m last year. Most of that was from Canada. Also, Mexico, not surprisingly, imports well over half of its mining machinery from Canada.
A major attraction is that Mexico is the largest silver producer in the world. Huge tracts of Mexico remained unexplored. Yet to a large extent the close relationship is down to Mexico’s membership of the North American Free Trade Agreement (NAFTA).
NAFTA helped bring in a stable and easy-to-navigate regulatory regime which has pulled in the miners. As Mexico’s Minister for the Economy, Eduardo Sojo Garza-Aldape, said at last week’s Prospectors & Developers Association of Canada convention: "It is the best period in history."
Clinton and Obama have upped the rhetoric
Ominously, both Clinton and Obama have been upping the critical rhetoric on NAFTA. Both say they will pull the United States out of the pact if Mexico and Canada did not agree to renegotiations. What they have in mind is the addition of enforceable labour and environmental provisions to the pact.
Others want something more protectionist. Lori Wallach, director of Public Citizen's Global Trade Watch, says Mexican workers are benefiting too much from US money. She wants to change the agreement's investment provisions on the grounds that they encourage US companies to move jobs to Mexico.
Robust objections are being voiced about some of this. US Trade Representative Susan Schwab has described the Clinton and Obama spate as "a rhetorical race to the bottom." She pointed out that since NAFTA was signed 14 years ago US employment had risen by 24%. Unemployment now averaged 5.1% against the pre-NAFTA rate of 7.1%.
Such talk is making Mexico nervous. Mining accounts for around 3.6% of the country’s $800bn economy. Around 300,000 people are employed in the mines. Exploration spending was up by 7.4% in 2007 at $189m, fuelled by rising gold and silver prices. According to Metals Economics Group, a consulting firm, Mexico ranked fourth behind only Canada, Australia and the US in attracting foreign capital. The value of mining production rose to a record $7.2bn in 2007 compared to $2.3bn in 2002.
Mexico is enjoying a minerals rush — not just silver, but gold and other metals. While there are several major companies operating, many there are small companies that have raised a few million to get started on the highly speculative Toronto and Vancouver exchanges.
Of course, criticism of Mexico’s foreign miners is not new. But normally it comes from another angle — the rights of the indigenous villagers. Those advocating stronger protection of rights say the local people feel that they are hardly ever informed about new projects. Rarely are they warned of potential effects on land and health, say the environmentalists and human rights lobbyists.
These socially minded groups maintain that since NAFTA came into effect over 15m Mexicans have been displaced from their lands. One things for sure — as a result its workforce militant and highly unionised. Though, of course, low wages and job opportunities also make fertile ground for militancy! Not such a bull point for the miners. Strike disruption is common.
No sign of resource nationalism here
Yet despite such troubles, Mexico will never be short of foreign mining applicants. Not even if NAFTA breaks up — and despite the ghosts from its history of currency and debt crises.
Few countries keep such an open house. No sign of any of the rising resource nationalism here! Pre-NAFTA Mexico passed mining laws allowing for 100% foreign investment in exploration and production. The recourses are vast. Mexico is almost entirely mineralised, yet around 80% of its mineral reserves are untouched.
Among the larger Canadian companies active in Mexico are Agnico-Eagle, Tech-Cominco, and, most frequently mentioned, Goldcorp. It nearly quadrupled earnings last year, helped by its Mexican operations.
While around half of Goldcorp’s production is in Canada, it calls Mexico is "growth engine." Goldcorp has three mines and two development projects there. One mine, Penasquita, will be the largest gold mine in Mexico once expansion is completed.
How on earth to navigate through the hundreds of small miners? An oft-mention miner is First Majestic Silver, a Toronto-quoted Mexican miner, now becoming a major producer. It has three silver mines now and produced a record one million ounces in the last quarter of 2007. That was a rise of 76% on the same time in 2007.
Silver production from the three Mexican mines increased by 176% to 3.6 million ounces. Keith Neumeyer, the company’s president and CEO, said the triple-digit growth came from vast improvements made at the silver mines. Plus, management has been strengthened. He expects to reach his target of expects a target of 5.5 million ounces of silver production in 2008.
...and some expensive light relief with germanium
Our favourite Mexican mining story hasn’t yet reached a stock market. Mexico has a wonderfully named rare and precious metal called germanium. Price at the moment is around $1,300 a kilo. Lone prospectors and small companies such as Eagle Mining are trying to find it. Germanium is a by product of coal and zinc production. This is another of those rare earths and precious metal markets dominated by China.
What makes germanium so valuable is that it used in making optics for infra-red missile guidance and surveillance systems. At a time when the US is re-equipping its military, and Russia and China are strengthening their defences, germanium is in strong demand. It is used in speed up computer chips and in solar cells. But light relief — the Japanese like it for extra-shiny bottles and their soccer stars use it for mineral baths to relieve aching muscles!
Keep mining
Erin and Isabel.
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