Mexico is #1 silver producer in the world, #2 gold producer in Latin America, and a major copper producer.
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.
For a president who hasn’t taken office yet and whose government is still in waiting, Mexico’s Andres Manual Lopez Obrador (AMLO) has managed to ruffle a lot of very important feathers. First, he scrapped the country’s most lucrative infrastructure project, a partly built airport for the capital that was expected to generate billions of dollars for many of the country’s richest companies, banks and families. Then, two weeks ago, his National Regeneration Movement (MORENA) party proposed a bill that directly threatens one of the banks’ core businesses: fee gouging. Since then, billions of dollars have been wiped off the banks’ market value.
Now, the same party, which, together with its allies, holds majorities in both houses of Congress, has set its sights on the activities of the mining industry. On Tuesday Senator Angelica Garcia presented a bill that would make significant changes to Mexico’s mining laws, including a proposal that would allow the country’s Energy Secretary to declare certain parts of the country off-limits for mining companies due to their negative social or environmental impact.
Shares in Grupo Mexico, the country’s largest mining company, responded to the news by slumping 5% on Tuesday, 2% on Wednesday and another 5% on Thursday, to hit a 2-1/2-year low of 39 pesos. Shares in the company’s biggest domestic competitor, Penoles, have shed 13% over the last three days, and are now at their lowest level since April 2016.
Two analysts consulted by Reuters said the losses were fueled by concerns about the potential impact of the bill, if it is approved. The section of the bill that most worries investors is a clause that would require the consent of indigenous communities before granting mining concessions on their land — something that’s supposed to already happen in Mexico as a matter of course.
Almost 30 years ago, the Mexican government signed an International Labor Organization convention in which it committed to consult indigenous peoples on development projects that could affect them. But until today local laws only oblige the government to carry out such consultations for energy projects, and even then the pressure exerted by on indigenous communities to give up their land for energy pipelines or fracking wells can be unbearable.
It’s not just domestic mining firms that will be watching developments closely. Mexico is the world’s largest producer of silver and the second largest gold producer in Latin America, after Peru. It also produces 5% of the world’s copper and is the fifth largest lead producer.
This year Mexico is on track to reach a four-year high in foreign direct investment in mining. But the risks in the sector are piling up. Foremost among them is the prospect of AMLO’s new government hiking taxes on mining operations. In September the incoming minister of economy Graciela Márquez Colín said that “mining companies should pay an extraction levy, which would be used to mitigate the sector’s externalities.”
The revenues Mexico collects from taxing the mining sector are tiny. In 2017 the amount was the equivalent of just 0.2% of GDP, half the average registered across Latin America and the Caribbean. This is despite the fact that Mexico is home to 20% of the region’s mining exports and 15% of its foreign direct investment (FDI), second only to Chile and Brazil, according to the Economic Commission for Latin America and the Caribbean (Cepal).
Another major cause for concern for mining companies operating in Mexico is rising resistance from local communities. Mexico has experienced the highest number of social conflicts with mining companies of any Latin American country this century, with 45 of the 254 incidents registered in the region since 1998, reports the Observatory of Mining Conflicts in Latin America (OCMAL).
Canadian mining companies have received the lion’s share of complaints in Mexico, accounting for 21 of the 45 registered conflicts. The biggest culprit, according to OCMAL, is First Majestic, with four documented confrontations with communities close to their projects, followed by Alamos Gold, Brigus Gold Corp and Fortuna Silver Mines, each with two registered incidents.
Security — or the lack thereof — is another major problem for mining firms operating in Mexico. Risks such as theft, extortion, kidnapping, harassment of mining staff and logistic chain attacks continue to plague the sector. In May, Canada’s Pan American Silver reduced operations and suspended staff movements at its Delores mine in Chihuahua due to security concerns. A recent study by the American Chamber of Commerce in Mexico revealed that 6.1% of all major U.S. companies operating in Mexico suspended investments in the country due to security concerns, while another 4% reduced them.
AMLO and his political party don’t take the reins of government until Dec.1 but they have already proposed a raft of policies to transform Mexico, some of which have already cost Mexican companies and banks billions in market value. But it will be his government’s record on tackling the chronic insecurity and violence that has gripped the country, and the roots that nourish them (corruption, impunity, the government’s failed war on drugs, rampant poverty and inequality), that will ultimately matter most. By Don Quijones.
Governments trying to tamp down on fee gouging by banks is part of a global trend, as exasperated consumers are squealing, but no country has threatened to do what Mexico proposed. Read… Bank Shares in Mexico (and Beyond) Plunge as Incoming Government Threatens Core Business: Fee Gouging
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Good for Mexico.
The mining industry does provide jobs, but the Canadian mining industry does not have a very good track record as far as the environment goes. The article immediately made me think of two mines, and one proposed mine in BC., (mostly because many miners mentioned in the article are Canadian). Britannia Beach copper mine polluted Howe Sound for decades with copper leachate, and the defunct Mt Washington mine, about 75 miles from my home, sterilized the Tsolum River and destroyed a large salmon run with its copper tailings leachate. The proposed Windy Craggy mine at the headwaters of the Tatsenshini River (that eventually flows into Alaska) was so potentially polluting it was finally stopped by the BC Govt to much derision from the Cdn mining industry. A very earthquake prone area, the WC mine was meant to tunnel under a glacier and basically remove the top of a mountain. The mountain was full of sulphides and exposed to the elements would then leech out cobalt and other heavy metals into the environment and the Tatsenshini River, potentially killing off a major BC and Alaskan salmon run. I’m all for mining and mining jobs, but Canadian miners stopped from wrecking our country up here has now spread out into the world, particularly poorer third world countries, and continues on with pillage and exploitation.
https://www.oars.com/blog/how-the-tatshenshini-alsek-wilderness-avoided-mining-disaster/
My son works as an industrial electrician for support industry in open pit mining in Alberta. His wage is $60.00 per hour, and with benefits it approaches $100 per hour. The same job in a Mexican mine fetches 15% of that and provides no benefits. He works just 1/2 the year and flies home for two week rotations. People then say, but it’s cheaper to live in Mexico so they don’t need to make as much money. Oh, I forgot….when son is working in camp, lodging and meals provided including his own room with attached bathroom, gym, rec facilities, etc. I’ve traveled in Mexico and it is becoming more expensive to live every year. Most common folk are poor, work very very hard for what they do have, and are plain out exploited by the ruling/owner class.
Mexico either addresses these inequities or the place will fall apart and become ever more violent and subject to crime cartels.
“Oh, I forgot….when son is working in camp, lodging and meals provided including his own room with attached bathroom, gym, rec facilities, etc. I’ve traveled in Mexico and it is becoming more expensive to live every year. Most common folk are poor, work very very hard for what they do have, and are plain out exploited by the ruling/owner class”
Get used to it, your son too, because the benefits, the wages, the meals, the gym, ALL OF IT IS GOING TO DISAPPEAR! Unless your son comes to terms with this, he will be without a job!
Good info…in Sonora Grupo is the worst followed by the Canadian mines in the Caborca area.Piedmont sees the writing on the wall and just started donating monies to the Caborca municipality …the huge rains have overwhelmed shoddy holding ponds all over the state .The Sonora governor’s uncle is also stealing Ejido lands for the Canadian operators to mine…
I’m conflicted our southern neighbor is mired with corruption which in turn leads to enormous poverty. AMLO is trying to bring his country forward with modern reforms, however, I’m not entirely convinced the depleted nation can withstand these changes.
Its natural for companies to defend every bit of revenue they can, in any country. Just like Wall Street firms always cry for more easy money from the Fed here, and the propaganda machines they control push this message as best they can.
Mexico absolutely needs reforms to better their people. They have a very powerful and corrupt elite that will fight every step of the way, with all sorts of dire predictions if they don’t get their way. Take this with a grain of salt … the UK won’t collapse because of Brexit, the US won’t collapse because of the Fed hikes, and Mexico won’t collapse because their industries are deprived of their most exploitive practices. Mexico has a very long way to go before there is a noticeable dent in their labor and regulatory cost advantage versus the US and Canada. A strong middle class is a great political stabilizer, and they need one bad,
All and any major change is hard, that’s why it very rarely happens without major social and financial conflict. Someone’s gotta try though.
Good luck to them !
Passing new laws/taxes/regulations won’t do much unless they are enforced. On the other hand, if progressive laws are enforced, the enforcers will be coerced, bought or killed.
Maybe I’m overly pessimistic but it seems to me that Mexico, as it stands today, is ungovernable.
Excellent article!
The pain for these mining outfits has just started.
After years of aggressively marketing themselves to “gold bugs” by using the usual array of “contrarian” tactics, their stocks have not been merely caught in the recent worldwide selloff, but have been throughly crushed: First Majestic Silver is fighting to avoid becoming a penny stock, Alamos Gold Inc broke that barrier in early October and has since sunk further below and Fortuna Silver Mines… let’s just say if you didn’t get out of their stocks in time you are finding out exactly how much they are worth.
As share prices get crushed, it will become harder and harder for these companies to either use their equity to raise capital or to keep up their old ways, which include abusing people throughout the world while government officials turn the other way. These PM mining companies will soon discover nobody likes a loser and that the same government officials who once greeted them with open arms are now investigating them for a list of abuses a mile long. As the saying goes, the only honest politician is the one that when bought will stay bought.
The rights of indigenous peoples are synonymous with theft, corruption,and extortion (are they one in the same?) Is Obrador’s base a red state coaltion (rural and lawless) The airport project sounds like something typical of third world dictatorships. Bank gouging fees? Hey we elected a populist where’s ours?
Theirs’s is Left Wing Populism: ours is Right. It will be a very interesting experiment on both sides of “The Wall” me thinks. “May you live in interesting times”.
Once Mexico throws property rights under the bus (further), foreign investment will dry up. After billions in sunk costs, the Mexican government wants to impact mining, which is just the opening salvo in extracting greater financial concessions.Mexico is a mess, always has been, but mining is not the problem in Mexico. Are they going after GM & F next? The net net for Mexico will be negative. Its a shakedown operation.
BTW, what defines a social conflict? A couple of locals standing outside the gates with signs?
“BTW, what defines a social conflict? A couple of locals standing outside the gates with signs?”
Usually yes, and often are militants or are paid by some political movement in order to support this type of confiscatory measures, I do not mean that mining companies have no impact on local communities, but generally has more to do with the corruption of the local authorities that with the mining itself, or if not, why the same company that is accused of wreaking havoc in Latin America, operates without those criticisms in Canada, USA …
And corruption is enough in Mexico, and for those who believe that AMLO is going to change things, not only is it not possible, but it is not convenient for them, that same corruption is going to be their tool to hold on to power, just like Ortega in Nicaragua and Chavez and now Maduro in Venezuela, when Mexicans eventually realize the mistake they made and want to correct it democratically, when the consequences of violating property rights are evident to everyone and the country is bankrupt, it’s going to be too late.
Extraction levies are hardly “socialist” or “liberal” or even environmentalist. Oklahoma and Texas have been charging a severance tax on oil since the start of the industry. Those taxes are the FOUNDATION of the state’s budget, and the oil industry has obviously not been bankrupted by those taxes.
A coherent society is better than one with riches , just as an environment cannot be bought.
As AMLO’s leftist policies drive away capital investment, silver output from Mexican mines will likely decline, which could paradoxically strengthen the price of silver and silver mining shares elsewhere.
In the same way, Zimbabwe and South Africa seem to be doing everything possible to frighten off foreign investment in their mining sectors. I would think that would be bullish for the price of platinum group metals (PGMs) mined elsewhere, i.e. Russia, Finland, and North America, since Southern Africa is the world’s biggest producer of PGMs.
Mining in South Africa is a mixed bag.
As of the last available report (up to and including Q3 2018) iron ore, manganese ore, diamonds and PGM (platinum group metals) production has increased year on year. Hower coal, copper, nickel and gold are all down year on year. Gold production in particular has taken a beating and it’s now down 19%.
Year on year total mining production in South Africa does not paint a pretty picture, being down 9.1% against a “markest consesus” of 2% overall growth.
Personally I do not blame internal problems, as serious as they are, but the “Everything Bubble” experiencing the first hangover issues, especially in China, the most important customer for the South African mining industry.
China is still building up huge stocks of iron and managese ore, and the automotive industry (one of the main consumers of PGM) still hopes in a Christmas miracle to justify the insane overcapacity they have built up over the past two decades.
China will most likely engage in another round of crazy stimulus next year but if Europe is anything to go by expect it to have very short-term effects and to leave the Chinese economy even more dependent on it than before.
The history of commercial mining in Mexico dates back at least over 500 years.
Q:- Are there really, still, substantial reserves of silver & gold left in Mexico ??
How about copper, zinc, iron, lead, magnesium, molybdenum, arsenic, tellurium, then there are gemstones.
Surely the RAVENOUS GREED of the beneficiaries has gobbled up most of the raw assets ??
Saudi Arabia is pumping up oil dregs today & yet we still read about the vast reserves of Saudi oil.
There is a definite reluctance to give up the lifestyle & so they pretend it to be so.
This morning I watched several versions of ‘The Lord Lucan Story’ on Youtube.
Lord Lucan was a PROFESSIONAL GAMBLER ….
He won money gambling in casinos, this scenario went on for years.
He was known as Lucky Lucan.
A casino is rigged – 10% of its profits, is all the monies that are allocated to the potential of a win.
So — on the days that Lucan was LUCKY it was his salary being delivered to him via a gambling win for services rendered – usually in front of a potential ‘mark’ some high rolling chump from Europe, who was about to be taken to the cleaners.
This is the true way of things.
It is not the win that causes a dopamine fix to the brain, but the anticipation of a win & the striving thereof, that continuously delivers the dopamine fix.
Thx for this informative overview update, DQ.
Given the existing legislation re protection of native peoples, and how little (according to your post above) that legislation has been used to protect native peoples, the newly proposed regulations may not be strong barriers….I have to wonder whether they are even intended to be strong barriers.
Can’t help thinking of some of the fine people I met in Mexico- long ago now. They deserve good government, and (quoting from Atu, above (I think I understand the intended meaning)), “coherent government”….Don’t we all deserve that ?