Originally posted at https://theoregongroup.com/commodities/gold/mining-in-mexico-no-more-uncertainty/.
More than US$2.5billion investment has been announced in just two Mexico silver mining deals since theelectionof the new president Claudia Sheinbaum in June 2024:
- Coeur Miningto buySilvercrest in US$1.7 billion deal
- First Majesticto buywith US$970m Gatos Silver
Mexico is thelargest producerof silver in the world, accounting for 24% of global production — but political uncertainty has stalled investment; for example,
The uncertainty now seems to be over, and investment is responding.
Mexico’s mining politics
President Andres Manuel Lopez Obrador
Mexico’s previous, popular president Andrés Manuel López Obrador (commonly referred to as AMLO) embraced anti-mining rhetoric and policies, including:
However, some of the reforms hit significant roadblocks, including Mexico’s Supreme Courtgranting an injunctionagainst the mining law reform, declaring it unconstitutional — leading President Obrador tosign a judicial reform decree.
Needless to say, none of the above is exactly reassuring for mining investors with decades-long horizons and billions of dollars on the line.
The new president, Claudia Sheinbaum, from the same ruling Morena party as AMLO, won in June 2024 with a “supermajority” that may allow her to approve constitutional changes that eluded her predecessor (she wasseated besideAMLO as he signed his judicial decree)
So why have some of the large mining majors decided now is the time to invest in Mexico?
President Claudia Sheinbaum
Contrary to initial concerns, the incoming Sheinbaum administration appears to be taking a more pragmatic approach to the mining sector.
This shift is evident in the appointment of key cabinet members, who will be significant in shaping the future of the government’s approach to the mining sector, and have beenreceived wellby the mining industry.
In particular, in the Ministry of Economy and Secretariat of Environment and Natural Resources (SEMARNAT), which have significant influence over foreign direct investment (FDI) and environmental permits:
- Marcelo Ebrard as Economy Minister:
- considereda moderate
- announcedattracting and supporting foreign investment as a “priority”
- a former foreign minister
- experience in international negotiations and trade
- expected to lead renegotiation of the Treaty between Mexico, the US and Canada (T-MEC) in 2025
- Alicia Bárcena as Environment and Natural Resources Minister:
- previously Mexico’s foreign minister, and isreportedlyopen to dialogue
- advocate of sustainability and renewable energy
- experience and knowledge across environmental and industrial issues
And it’s not just the new cabinet that suggests the new president Claudia Sheinbaum is carving out her own policy path, away from AMLO’s footsteps. For example,
- the plan for a ban on open pit mining wasnot included in a list of 100 pledgesoutlined by President Sheinbaum on her inauguration, Oct 1, 2024
“I’m not sure that she’s willing to fight that fight right now” —saidJosé Sevilla-Macip, a senior research analyst at S&P Global Market Intelligence who focuses on economic and country risk in Latin America and the Caribbean
Instead, Sheinbaum highlighted how Mexico’s lithium and copper sectors are priorities
The mining industrycongratulatedPresident Claudia Sheinbaum’s inauguration, reaffirming its commitment to “open and constructive” dialogue and its dedication to protecting the environment.
The hope among many in the mining industry is that Sheinbaum’s technocratic background as a climate scientist and hercallsto revolutionize Mexico’s energy policy — as well as aslowing economy— signals a pragmatic approach to industrial development, with the new administration expected to prioritize sustainable mining over shutting down project developments.
There remains significant anti-mining policies and sentiment.
For example,according to Sheinbaum’s 100 pledges, her administration will not grant any new open-pit mining concessions — as the proposal to ban open-pit miningcontinues to advancein Mexico’s Congress.
Camimexwarnsthat 60% of the value of the national mining and metallurgical production in Mexico comes from open-pit operations, with more than 1 million formal jobs at risk and potentially leading to a 1% contraction of the national GDP.
For the mining industry, the transition from AMLO to Sheinbaum marks a shift from uncertainty to a more predictable landscape.
With a decisive election win, Mexico now has a president with a clear six-year mandate, offering a better understanding of the country’s political direction and a cabinet of ministers who bring a degree of familiarity.
New investment
This newfound stability since the election is already attracting investment to Mexico, including:
- five Canada-based mining companies have announced plans tolaunch new projectsin the country within the next six months.
- Coeur Mining’sacquisitionof Silvercrest in October, for US$1.7 billion
- First Majestic’sacquisitionof Gatos Silver in September, for US$970 million
- mining investment in 2024 is expected to remain stable, compared to 2023, at approximately US$5 billion,accordingto Camimex. In July 2024, Mexico’s mining production valuegrewby 1.4%, driven primarily by the rising prices of silver, gold, copper, zinc, and other metals
- accordingto the Instituto Nacional de Estadística, Geografía e Informática (INEGI), non-oil mining grew by 9.1% year-on-year in July, marking seven consecutive months of growth
The key with these investments is that they are not open-pit mines.
Strong mining foundations
Despite the recent political volatility, Mexico has a long history of mining, with established infrastructure and expertise, with new investment able to build on:
- established mining culture, with a skilled workforce
- legal framework, operating under English rule of law familiar for international investors
- a federal government with states, such as Sonora, Chihuahua, and Zacatecas with a long history with mining, given significant autonomy in permitting and regulation (unike, for example, in Ecuador, with centralized decision-making)
- trade agreements, including USMCA (previously NAFTA) whichtriggeredits dispute resolution mechanism when AMLO attempted to nationalize the lithium industry; lending a layer of legal security
So, for example, the mining reforms, even under AMLO, were moderated,including:
- payment to Indigenous communities living near mining operations was originally set at 10% of mining profits but lawmakers reduced it to 5%
- the original reforms wanted to limit the length of mining concessions to 30 years (form 100 years), but lawmakers ultimately settled on 80 years
The opportunity of the energy transition
Mexico sits in one of the most strategic locations in the world: on the doorstep of the US, desperate to secure critical mineral supply — including silver, copper, lithium, etc — from China to power its ownenergy transitionanddata centres for its Artificial Intelligence revolution.
The opportunity is enormous.
Mexico is among the top10 global producersof more than 15 metals and minerals:
- world’s largest silver producer
- 2nd largest exporterof fluorspar, with world’s largest fluorspar mine
- some oflargest lithium reservesin the world
- 6th largestzinc producer
- 7th largestgold producer
- 10th largestcopper producer
- and many more, including bismuth, celestite, sodium sulphate, wollastonite, lead, molybdenum, diatomite, cadmium, graphite, baryte and manganese
In particular, the silver market’s deficit isforecastto grow by 17% in 2024, as demand for solar and tech soars, which would be the fourth consecutive year of deficit for the metal since 2021.
Security Concerns
As one miner told us of the drug cartels in Mexico: “If you look for trouble, you’ll find it.”
Otherwise, organized crime’s involvement in the mining industry is limited, with a focus on protecting trade routes and territory. And, importantly, the states where mining is most prevelant in Mexico have a strong history of intolerance to crime.
As per our newsletter headline, the cartels are, unfortunately, a certainty in Mexico but established miners are no strangers to the problem.
Conclusion
Investing in Mexico’s mining sector comes with both political and security risks.
However, the uncertainty that was so prevalent during the past six years of the AMLO administration has largely been addressed with the outcome of the election — allowing miners to start making long-term decisions.
We think the cycle has turned for Mexico.
(20min delay)