Beyond mining reforms

By Jim Norine

4 min read

Article first published in Mexico Business News, July 2023. Reprinted with permission.

Everyone has an opinion about how Mexico’s recent reforms will impact the mining industry and the country. Most suggest that the laws – which shorten concession times from 50 years to 30 years, tighten water extraction permitting processes and include requirements for community empowerment, among other measures – will lead to a significant drawback in foreign investment and mining activity. And that could hamper economic growth across the economy.

Within the Mexican mining community itself, there are significant concerns about the future viability of the market. In reality, international investors are engaged in a global game where market risks play a considerable role. At a time where neighbors are moving to make life easier for mining companies to get critical minerals to market (the US is working to reduce red tape at the Federal and, often, at the State level too), this type of radical and rapid reform only serves to spook markets.

To be clear, I share many of those concerns. I worry that Mexico’s high international standing as a great place for mining companies to invest may be at risk. I worry about what the laws might mean for Junior mining companies in particular. And for regions of the country where mining activity drives significant economic activity – like the State of Sonora where Junior mining companies are the lifeblood of the economy.

A new reality emerges

While the new mining laws may make life more difficult for the mining industry in Mexico, it will not make it impossible. There will still be significant opportunities for mining in Mexico. And Mexico will continue to be amongst the more attractive markets for investors. But some things will certainly change.

For one, shortening the concession lifespan will push investors and Juniors towards the highest-grade deposits as they seek to maximize profitability within a tighter timeframe. Much more focus will be placed on selecting the most valuable projects as early in the process as possible. The shape and areas of activity will shift – with important implications for the local supply chain and ecosystem.

Much more focus and resources will also need to be put into ESG-related considerations and requirements. In many ways, the reforms were meant to bring Mexico’s sustainability and environmental permitting up to North American standards and expectations; those with operations in Canada or the US, for example, will not necessarily find them more stringent than they would face in those markets.

Most importantly, mining companies will need to become much more focused on project economics. Every cost and design element will need to be scrutinized to maximize the whole-of-life value. Creative thinking and smart ideas will be needed to create robust financial plans. Owners will need to sharpen their pencils if they want to make the project work.

It takes a community

There is still significant opportunity for mining interests in Mexico. But uncovering and exploiting them will take collaboration across the many players in the ecosystem.

Governments – My hope is that the federal government will engage with industry to discuss concerns and find a middle ground. State and local governments should be looking at how they can help shift the agenda.

Mining mid-caps and majors – While the direct impacts on larger mining companies may be more limited, the long-term economic viability of the sector – and the availability of future junior assets for acquisition – is at risk. Majors and mid-caps should be participating in the debate as juniors are often the source of expansion.

Service providers – Junior mining companies will be looking for expert advice and innovative ideas to help drive their projects. Service providers will need to provide support with a wider range of sustainability services and smart design advice.

Investors – Mexico still has all the key fundamentals for investment and will continue to be an important mining market for decades to come. Now is the time to engage constructively with governments, owners, suppliers and service providers to understand the actual implications of the new laws.

Time to step up

As I noted in my last article, Ausenco is committed to Mexico over the long term. We see this new legislation as a call to action.

We will continue to grow our (already leading) sustainability practice and services in Mexico. We will redouble our efforts to create positive outcomes for our clients in Mexico as they seek project financing. We will support the local ecosystem through localization and partnerships. And we will continuously seek to find a better way to help our clients deliver their objectives.

Mexico’s new mining laws make life more difficult for the industry. But I believe there is still significant opportunity to be had in the market. It’s up to the community to help make it work.

Contact Jim to learn more.