Article first published in Mexico Business News, October 2022. Reprinted with permission.
My first business trip to Mexico involved an exhilarating 10-hour drive from Tucson, Arizona, to Álamos, Sonora in 2005. There was no suitable airport access near Álamos at the time. Waze had not yet been invented. And I spoke very little Spanish. But that didn’t stop me. Paper map in hand and a big bottle of water for emergencies, I hit the road.
This trip to Mexico was important to me. I had just been given my first mining project in Mexico, and I was determined to build up an ecosystem of local mining suppliers and professionals to help me deliver and operate it. Made in Mexico would be the key to our success.
The advantage of going local
There are plenty of reasons why mining companies should be sourcing their material, suppliers and services locally.
The most obvious is cost. Local talent will almost always be more cost-effective than expats, especially in today’s highly competitive marketplace. Materials also tend to be much more cost-effective when sourced locally. In part, the advantage comes from Mexico’s lower manufacturing costs. But massive cost savings can also be achieved by reducing shipping costs, customs duties and transport delays.
Projects that source locally tend to move faster and deliver better outcomes. Local service providers (permitting agents, lawyers, engineers and so on) often have first-hand experience and relationships that can be leveraged to identify and remediate barriers early – before they lead to delays. They understand local expectations and customs. And they often have a stronger sense of community and environmental stewardship.
Stakeholder relationships are also stronger when projects are sourced locally. Governments and community leaders are keen to encourage the type of economic development and skills training that comes from foreign investment. They recognize that mining projects can add significant value to communities, particularly in underdeveloped regions. They want the local communities to start seeing the benefits as quickly as possible.
The sign of success
Not surprisingly, investors and stakeholders want to see a high level of localization in mining projects. Investors see localization as smart risk management. They recognize that costs, delays and delivery schedules are more manageable within national borders. They see a world of geo-political turmoil and want to keep their supply lines short. They understand that poor community or government relations can easily derail a project.
In fact, one of the first things that investors and project managers tend to look at when examining a new mine project is their supplier list. If the list isn’t dominated by local suppliers and if around 70 percent of costs aren’t flowing through to local partners, alarm bells often sound. Sophisticated mining investors know the level of localization is directly related to project success. The more local, the better.
A case in point
About 550 km north of Álamos and 180 km northeast of Hermosillo lies the mine site of Las Chispas. From 1880 to 1930, the area was the site of several mines focused on extracting silver and gold deposits. But for the past 100 years or so, the site has been largely abandoned. Now, SilverCrest Metals, a Canadian exploration and development company, has brought the mine back to life.
It is an appealing project. Initial reserve estimates suggest some 3.35 million tons of high-grade ore bearing silver and gold at the site. Metallurgical testing places Las Chispas among the highest-grade primary silver projects globally. In 2020, Ausenco completed the Feasibility Study for Las Chispas which outlined attractive economics with an average annual production of 5 million ounces of silver and 50,000 ounces of gold from 2023 to 2029, resulting in a one-year payback period. As a result, the project advanced and we were awarded the EPC contract to deliver a 1,250 t/d gold and silver process plant.
Our global team of engineers - with deep expertise in metal processing - designed an efficient facility capable of processing the highly variable ore body and found a better way to reduce capital costs overall. To conserve water and reduce safety and environmental risks, tailings will be impounded in a dry stack tailings facility (DSTF). In May 2022, we completed our commissioning work ahead of schedule and under budget.
Why were we selected to deliver this project? I believe that in addition to our local experience, strong reputation for delivering projects, and drive to find the right solutions, we are known for prioritizing localization. Together, these factors drive our success.
Local saves the project
Like other projects across Mexico, our project team put significant focus on leveraging local resources and service providers to deliver the Las Chispas project. Our goal was to find local people who really knew the mining industry and then give them the resources they needed to do what they do best.
Our mechanical contractor was a large Mexican firm in Guadalajara. Our steel components – including structural tanks and thickeners – were produced in Hermosillo. That’s also where our civil contractor is based, as well as the local office of our electrical contractors. The workforce includes skilled workers from Hermosillo as well as some members of the closest community (Arizpe, with a population of around 2,000 people).
To understand how localization helped drive the success of this project, consider this: development work started right at the beginning of the COVID-19 pandemic. Had we planned to rely heavily on expat workers, the project likely would have ground to a halt as borders slammed shut and mobility was restricted. But since our job site was predominantly local, we were able to keep working (albeit with stringent health protocols in place). The mine was still delivered on time and on budget.
Step out of your comfort zone
The takeaway for mining and resource companies is this: the success of a project hinges on your ability to integrate local talent and resources into your plan and operations. If your supplier list isn’t three-quarters local, you should be asking yourself why.
I’ll be the first to admit that building up that supplier network takes determination, patience and trust. The good news is that mine project mangers and procurement managers no longer need to take an exhilarating 10-hour drive through an unknown countryside to build those networks; virtualization, online marketplaces and video conferencing have made finding and working with suppliers across Mexico much easier.
That said, I treasure that first business trip down to Álamos. That’s where I realized that localization would be the key to mining success.