(Last updated: 24 May 2011)

Trends and opportunities

The market

Mexico is one of the world’s top destinations for exploration investment in mining. The country has a long history of mining, provides an advantageous and stable legal framework, and is business-friendly towards foreign investment and participation. Mexico possesses some of the world’s largest reserves of key minerals, and is a global leader in the production of different metals. The sector accounts for almost eight per cent of the national GDP.

Mexico is currently the world’s largest producer of silver (exceeding 100Moz/y) and bismuth. It is the world’s fifth largest producer of lead, sixth largest of zinc, 10th largest of copper and 12th largest of gold.

According to Metals Economics Group’s (MEG) World Exploration Trends 2011 report, Mexico ranked in fourth place among countries with the largest exploration budget worldwide, and first in Latin America, accounting for six per cent of the total resources with US$672 million.

Currently, there are 738 exploration projects in the country, mainly for gold, silver, zinc and copper. There is also opportunity to target investment in iron, titanium and molybdenum.

There are 286 companies with foreign investment operating in Mexico. Fifty-six mines in production are in foreign hands – 73 per cent (210) of these firms are headquartered in Canada and 15 per cent (44) in the US. Only eight firms (three per cent) are Australian-based, including Global Resources Corporation Ltd (formerly Conclurry Metals Ltd), Australian Minerals Group, Allied Gold, Azure Minerals, OZ Minerals, Indo Gold, and Kings Minerals.

Of the 738 exploration projects only 9.38 per cent (71) are in production, 81.24 per cent (615) are under exploration and 2.64 per cent (19) are in the development phase.

Investment forecast

Despite the global economic crisis, the flexible Mexican regulatory framework for foreign direct investment (FDI) in mining sector has attracted investments worth over US$2 billion through 2009-10, primarily Canadian. Over the past decade, FDI in the extractive sector totalled approximately US$10 billion.

Slightly over US$4 billion is expected to be invested in the Mexican mining and metals sector in 2011, with another US$4.5 billion in 2012. This will add up to almost US$22 billion in investments in the sector over 2007-12. Twenty-five per cent of it is estimated to be FDI.

Market incentives and advantages

The worldwide policy potential index, a measure of the attractiveness of countries’ mining policies, ranks Mexico second in Latin America, after Chile. Globally, Mexico is in 35th place, ahead of Colombia (40), Peru (48) and Brazil (49).

Amongst the main reasons that make this market attractive and worth considering are:

• A stable business environment and support for foreign investment in the sector from the Mexican government authorities/ from the economy ministry. Mexico has very clear operating rules.
• Mining legislation that allows companies to be 100 per cent privately owned when it comes to the exploration, development and production of minerals, except for hydrocarbons and radioactive minerals.
• Concessions for mine production are granted for a period of 50 years and are renewable for a similar period.
• The country does not charge royalties on production.

The Fraser Institute’s Survey of Mining Companies 2010-2011, rates Mexico highly on stability in environmental and regulatory issues, taxation arrangements and workforce skills and supply.

Opportunities

The significant expansion of the Mexican mining industry and high levels of investment in the sector create excellent opportunities for a wide range of players in the Australian mining industry.

Furthermore, the Mexican Government is keen to diversify the sources of FDI in the sector, currently dominated by Canadian investment. They are keen to encourage Australian junior companies to increase their presence in Mexico, which in turn increases opportunities for Australian mining equipment, technology and services companies (METS) in the subsequent value chain.

Particularly good opportunities exist in:

• Mineral production concessions (gold, silver, coal, iron, titanium, lead and zinc, molybdenum and copper)
• Mineral exploration
• Mine software
• Mining processing technologies
• Mining equipment
• Engineering services
• Dump body and transportation technologies
• Mine safety
• Environmental equipment and consulting
• Mining education and training services

In terms of exploration, there are important projects in 26 of the country’s 32 states. As most of the current projects are still at an exploration stage, business opportunities for services and technology will be available on an ongoing basis well into the future.

Due to the limited physical presence of Australian mining companies in the market, there is relatively little awareness of Australian industry capabilities, goods and services. Those Australian companies already based in Canada, US and Chile, can take advantage of free trade arrangements with Mexico for the export of mining-related products.

Establishing a representative office, or a partnership with a Mexican agent, can be an excellent platform for more adequate targeting of opportunities in the internal Mexican market, as well for exploring the broader North American market, and Central America.

Tariffs, regulations and customs

Principal features of Mexico’s mining tax regime

National Income Tax
Tax rate – 34 per cent
Minimum tax 1.8 per cent of gross assets 0.5 per cent of net assets Secondary Tax: 12.5 per cent on 20 per cent of adjusted

(Income tax can be as at end of 1997 year. Net amount of dividend taxable profit carried back 3 years and forward 10 years)

Depreciation

Mine building – 10 per cent
Mine equipment – 10 per cent
Processing building – 6 per cent
Processing equipment – 6 per cent
Cost of concession – 10 per cent
Preproduction development
Preproduction exploration
On-going exploration – 100 per cent or three years
Loss Carry Forward – 10 years
Other – Lump sum depreciation; operation fees
State Income Tax – none
State Mining Tax Royalty

(Source: PricewaterhouseCoopers)

Marketing your products and services

Market entry

Australian presence in Mexico is limited to less than 20 companies (encompassing METS and juniors), and while the Mexican mining market is competitive, most of the business opportunities have to date been overlooked by the Australian industry.

A key factor for success in this market is establishing local presence to generate and strengthen awareness.

It is vital to have a knowledgeable and well-connected partner or representative, due to the fact that Mexican firms tend to seek ongoing, trust-based relationships that guarantee availability of aftersales and maintenance services.

Mexico, like most Latin American markets, is price sensitive.

Ideally, Australian companies should:

• Prepare comprehensive information packs, profiling your company and its products in Spanish
• Visit the market frequently – build confidence with the customer
• Follow-up with potential customers after visiting the market
• Establish a local presence and long-term commitment as soon as possible
• Offer in-market support and post-sales service
• Learn some Spanish – it sends a message
• Cover the details in paperwork and process

What are your options?

• Selecting a local distributor or representative
• Opening up an office (ideally a mix of Australian knowledge and local expertise)
• Joint venture with a local partner
• Purchasing an existing company

In general, skilled labour and the technical level of professionals is good. For employees with good English skills, you need to be ready to pay a bit more. In Mexico, hiring the right professional can make the difference between success and failure.

Attending key sector events is an important way of marketing your products and services. The biggest mining conference in the country, ExpoMin Mexico, is held every two years (the next event will take place 26-29 October 2011).

Common mistakes include:

• Selecting the first company you meet and like as your local representative (you need to research your best option available)
• Establishing presence without proper business-legal and tax advice
• Coming to the market without pre-arranged meetings
• Contacting people in mining companies or government directly without any introduction
• Visiting the market once without any follow-up

Links and industry contacts

Mining–related resources

General Mining Coordination Ministry of Economy – www.economia-dgm.gob.mx
Mexican Geological Service – www.sgm.gob.mx
Mexican Mining Chamber – www.camimex.org.mx
Ministry of Economy – www.economia.gob.mx
Mexican Mining Engineers and Geologist Association – www.geomin.com.mx
Mexican Mining Trust – www.fifomi.gob.mx

Contact details

The Australian Trade Commission – Austrade – is the Australian Government’s trade and investment development agency.

Through Austrade’s network of offices in over 50 countries, we assist Australian companies to succeed in international business, attract productive foreign direct investment into Australia and promote Australia's education sector internationally.

For more information on how Austrade can assist you, contact us on:

Australia ph: 13 28 78 | Email: info@austrade.gov.au

A list of Austrade offices (in alphabetical order of country) is also available.