Mining to Mexico

Trends and opportunities

The market

Investment in Mexico’s mining sector currently ranks fifth in the world after Canada, Australia, the United States and Chile. While Mexico has a long history of mining in silver, gold and copper, it has only recently appeared on Australia’s radar.

Mining is an important revenue generator in Mexico, contributing 8.3% of industrial GDP and 2.5% of national GDP. It is also a major job provider. In 2017, the sector supported 370,000 jobs directly and over 1.7 million jobs indirectly. (Source: CAMIMEX Annual Report 2019)

Mexico’s mining industry is undergoing significant restructuring. The previous Peña-Nieto government introduced specific tax and fee reforms, increasing fiscal pressure on mining concession owners, exploration companies and mine operators. The new leftist president, Andrés Manuel López Obrador (AMLO) is looking to improve security in the sector, increase infrastructure spending and expand broadband coverage to remote mining areas. (Source: Business Monitor International (BMI), Mexico Mining Report 2018, January 2019)

The value of the Mexican mining sector is forecast to grow over the next few years, supported by low operating costs and a strong project pipeline. It is estimated to increase from US$16.9 billion in 2018 to US$18.7 billion by 2026, averaging 2.8% annual growth. (Source: Business Monitor International (BMI), Mexico Mining Report 2018, January 2019 )

Mexico is:

• The world's largest producer of silver, with the states of Zacatecas, Durango and Chihuahua serving as the main production centres
• The world’s ninth-largest producer of gold
• The world’s seventh-largest producer of copper
• One of the top five producers of sodium sulphide, fluorite, celestite and wollastonite;
• A large coal producer, with an overall production of 7.28 million tons
• The world’s second-largest fluorspar producer, with a calculated reserve of 32,000 tons
• The world’s eighth-largest producer of graphite, with a calculated reserve of 3,100 tons
• The world’s second-largest producer of strontium, with a total of 56,500 tons produced in 2016.

(Source: Mexican Mining Chamber (CAMIMEX) 2017, January 2019 )

Around 70% of Mexico contains outstanding geological potential for mining, according to experts. Mexico is the world’s fourth-largest foreign direct investment (FDI) destination for mining, and the number one FDI destination in Latin America. (Source: ProMexico, Mexico´s Mining potential, 2016)

In 2017, the Mexican Central Bank (Banxico) reported that the country’s mining sector attracted US$1.02 billion in FDI. Most investments came from companies in Spain, Germany, Israel, the United States and Canada and focused on gold, copper, zinc and uranium. Companies such as Goldcorp, Fresnillo PLC, Agnico Eagle and Alamos Gold together produce over 100,000 tons of gold annually. Total mining investments grew in 2017, increasing by 14.7% to reach US$4.3 billion. Investment was expected to grow a further 22% in 2018, to reach US$5.26 billion.

Mexico provided one-fifth of the world's production of silver (4 million tons) in 2017, mined by companies including Fresnillo, Goldcorp and Coeur D'Alene. Copper production amounted to 463,000 tons, produced mainly by Grupo Mexico, Cobre del Mayo and Capstone.

Copper

Mexico's copper production will increase over the coming years, supported by a solid project pipeline and rising copper prices. (Source: BMI 2018 mining report)

While Mexico's total copper production declined by 4% year-on-year to 183kt in the first quarter of 2018, the long-term outlook remains positive. Mexico’s copper output is forecast to increase from 766kt in 2018 to 929kt by 2027.

In February 2018, workers at Grupo Mexico's San Martin mine voted to restart the mine, which had been stalled since 2007. The firm plans to spend US$77 million to resume operations by the first quarter of 2019, adding an annual 7.5kt of copper to the group's output. Grupo Mexico also expects the Pilares project to begin operating in 2019, producing 35kt of copper.

Major domestic miner Industrias Peñoles continues to develop the US$303 million Rey de Plata polymetallic project, with commissioning expected to begin in 2019. In the firm's first quarter 2018 report, Teck Resources outlined the drilling programme at the San Nicolas copper-zinc project. The firm will complete the prefeasibility study in H2 2019 and has allocated US$30 million for the project.

(Source: Business Monitor International (BMI), Mexico Mining Report 2018, January 2019).

Key Copper Projects in Mexico:

• Alacran – Azure Minerals
• Promontorio – Azure Minerals
• Pilares – Southern Copper Corp.
• Tayahua – Minera Frisco SAB de CV
• San Nicolas – Teck Resources
• La Verde – Equinox Gold/Teck Resources
• Los Verdes - Minera Alamos

Silver

Mexico's silver production is set to continue its solid growth, supported by vast reserves and strong project pipeline. The export-oriented sector will also benefit from growing demand from Asia.

BMI forecasts Mexico's silver production will increase from 188 moz in 2018 to 261 moz by 2027, averaging 3.8% annual growth. Mexico will remain the top global silver producer (it accounted for 22.4% of output in 2017). As a result, junior and major miners showing increasing interest in the sector.

Top domestic silver miner Fresnillo will ramp up spending over the coming years to support projects including the San Julian silver mine expansion and near-term growth projects at the Fresnillo and Herradura mines. In the first quarter of 2018, the firm recorded a 14% year-on-year increase in silver production, up to 14.2 moz. In 2018, Fresnillo maintained a production guidance of 67-70 moz.

In the first quarter of 2018, Pan American Silver reported a slight increase in silver production in its Mexican mines, up to 2.9 moz. The firm's expansion at the Dolores mine is on track, with the new underground mine expected to achieve rates of 1,500 tons per day by the end of 2018. In December 2017, junior miner Americas Silver Corp began commercial production at the San Rafael silver mine.

(Source: Business Monitor International (BMI), Mexico Mining Report 2018, January 2019).

Opportunities

Mexico's stable business environment and relatively stable macroeconomic outlook will drive metals demand and support the competitiveness of the country's mining sector in the coming years. Mexico’s close proximity to the United States and Canada gives it a significant supply advantage. The USA remains a net importer of numerous mineral commodities from Mexico.

Mexico’s large reserves of precious metals, particularly silver and gold, will attract investment. It also has significant deposits of zinc.

Mexico's regulatory landscape is generally favourable to mining, largely focusing on precious metals and, increasingly, copper. The sector's main pull back is the country's royalties regime, which came into effect in January 2014. Royalties range from 7.5% for base metals to 8% for precious metals. While the royalties scheme is amongst the highest in the region, comparatively the country's overall tax burden is not high.

Mexico has not traditionally been a destination for Australian mining companies. However, the country has strong fundamentals that make it both competitive and attractive. To date, 15 Australian mining equipment, technology and services (METS) companies and two mining operators (Azure Minerals and Consolidated Zinc) have established a presence in the market. Many other Australian companies are regular exporters to the market.

The Australian METS presence has developed swiftly in recent years. This is likely a result of tempered demand elsewhere but also a reflection of the globally significant opportunities in Mexico – a fact that has not escaped Australia’s major mining competitors such as Canada.

Australian companies wishing to investigate and build opportunities in the market should consider the key themes that are driving decision making in Mexico’s mining sector.

• Productivity: the current business environment is pushing organisations to become low-cost producers by driving operational efficiencies, optimising productivity and reducing costs.
• Innovation: strongly linked with productivity, the introduction of innovation in the industry is seen as key to making the industry more cash-effective and resilient to downturns.
• Education: there is demand for skilled workers with specialised knowledge and experience in areas related to extraction of resources, but Mexico is not producing enough human capital to satisfy this demand.
• Environment: as the public is becoming more aware of the environmental impacts of the mining industry, the sector is under greater pressure than ever to comply with international practices around mine planning and operations, treatment and management of waste and energy efficiency.
• Community: new approaches to community engagement are needed to ensure that mining operators provide jobs, infrastructure and services to communities and pay fairly for the use of land while maintaining their competitiveness. 

(Source: PwC MX, Retos de la Industria Minera ).

Mining Company Profile

Read a customer profile on Grupo Bal (PDF).

Competitive Environment

The mining industry in Mexico is highly competitive, with over 500 companies holding roughly 25,000 concessions, however, the market is mainly dominated by large firms. These account for an astounding 97% of main metals’ total output (gold, silver, copper, zinc and lead) and tend to dominate the most profitable niches, such as precious metals. Cumulatively, investment has risen sharply over the past decade and it currently hovers around US$5 billion per year.

Mexico remains one of the world's premier mine development locations in respect to the time frames required for new operations. Mexico was the only A-rated jurisdiction from Central American/Caribbean, according to the 2018 Investment Risk Index within the Mining Journal World Risk Report (feat. MineHutte ratings). (Source: Mining Journal, November 2018, January 2019)

Approximately 40 per cent of Canadian investment in Mexico is tied up in the sector, while almost 70 per cent of foreign mining companies operating in the country have Canadian interests. There are currently over 205 companies with Canadian capital established in Mexico.

The country’s geological potential is still growing, attracting more than 280 national and foreign companies to start new exploration projects, mainly in the northern states of Sonora, Zacatecas and Chihuahua. According to the General Direction of Mining Development, there are currently 347 mining projects in the country.(Source: Integral System on Mining Economy (SINEM))

The majority of these projects are in exploration phase, accounting for 68%. Another 11% are in pre-production phase and 16.6% of the projects have not been given the development and construction green light, given current commodity prices and the economic environment. In 2015 a reduced number of projects started their production phase. (Source: CAMIMEX, Informe Anual 2016, 15 February 2016 ).

Mexico will remain one of the most attractive mining destinations in Latin America due to its strategic geographic location, vast mineral reserves, limited investment barriers and favourable regulatory landscape.

Tariffs, regulations and customs

Mexican import controls have significantly eased in recent years. Most products no longer require prior import permits and import duties have also been reduced. Duties are generally assessed based on the transaction value of the products imported into Mexico.

Uncertainty over US policies towards Mexico has caused some disruption to trade and investment over the medium term. Nevertheless, close economic ties between the two countries will likely temper any significant barriers to trade and FDI, and Mexico will remain an appealing location for investment due to its broad industrial base, liberalising reforms in key sectors and numerous free trade agreements (FTAs). Mexico scores 62.9 out of 100 on the Economic Openness pillar of BMI's Trade and Investment Risk Index, ranking second in Central and South America, behind Chile.

Mexico has more FTAs than any other country in the world — 12 FTAs with 46 countries — including NAFTA and FTAs with the European Union, European Free Trade Area, Japan, Israel and 10 countries in Latin America. Additionally, on 8 March 2018 the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), also known as TPP11 or TPP-11 was signed. This trade agreement, which includes both signatories Mexico and Australia, represents significant benefits for Australian METS providers. These relate not only to the removal of tariffs on equipment and technology, but also provide favourable conditions for Australian staff members to enter the country for work reasons.

Mexico is also a member of the World Trade Organization (WTO), the Asia-Pacific Economic Cooperation (APEC), the G-20, and the Organization for Economic Cooperation and Development (OECD).

In order to export to Mexico, the government requires the importer to re-label the products in Spanish and include the relevant information about the contents and country of origin of the producer and information about the import, port of entry, etc. All imported merchandise should meet minimum sanitary and safety standards.

A wide variety of products must comply with the Mexican Standards of Quality, referred to as Mexican Official Norms (NOM). Certain imports and exports are subject to regulations by the Ministry of Environment and Natural Resources (SEMARNAT). Some imported products must receive sanitary or phytosanitary authorisations issued by the Ministry of Health. There are also rules establishing the classification of goods whose importation is subject to regulation by the Commission for the Control of Pesticides, Fertilisers and Toxic Substances. (Source: PWC, Doing Business in Mexico, January 2015 ).

Essential customs information and procedures to consider:

Documentation required:

• Bill of lading
• Commercial invoice with value breakdown
• Instructions letter
• Import and broker licence
• Specific requirements according to commodity code for goods.

Customs process:

• Clearance process time depends on commodity code
• The importer must be a registered person or legal entity.

Duties and taxes for formal entry clearance:

• VAT 16%
• Customs fees
• Duties depend on Harmonized Tariff Code
• Broker fee - depends on shipment value

All commercial invoices must meet the following requirements:

• Tax ID for the importer
• Full goods description and Harmonized System Code (HS) - if shipment origin is a Mercosur country it must include the Mercosur Common Nomenclature number (NCM)
• Merchandise unit cost, quantity and currency
• Applicable incoterms used

(Source: DHL, Mexico Fact Sheet , February 2015)

As tariffs and duty rates are subject to change without notice, Austrade strongly recommends confirming these prior to selling to Mexico. For more information, visit the Service of Tax Administration (SAT).

Marketing your products and services

Market Entry

The best approach depends on a variety of factors including the type of business, the appetite for risk and funds available to the company. Relationships are very important in Mexico and a local partner can provide valuable connections and networks to decision makers. In many occasions the decision makers both at corporate level and at mine operation level have a limited knowledge of English. Being able to speak Spanish fluently or having a Spanish-speaking local partner is important.

Australian manufacturers supplying to the mining sector may wish to investigate setting up local manufacturing facilities. Many of Australia’s largest manufacturers have a significant footprint in the country as a result of its competitive cost structures and regional market access. Austrade has also supported a small number of Australian companies in setting up contract manufacturing in Mexico. Boston Consulting Group have rated Mexico has having the third-lowest cost structure for manufacturing across the top 25 exporting nations.

Some tips to keep in mind:

• Setting up in Mexico sends a strong message to customers, signalling commitment to the market and will often convert interest into a solid commercial relationship.
• Having a local presence through a subsidiary can help start a relationship with your customer.
• Given the focus on efficiency and productivity in the mining industry, prepare a concrete value proposition which demonstrates clearly how your solution has saved customers money in previous projects. Other projects undertaken in Spanish speaking countries are especially relevant as they indicate a capacity to work to common cultural and language requirements.
• It is helpful to mention if you have already done business with the mining company you are targeting in other parts of the world.
• It is important to consult both with headquarters and the mine site while conducting business development. The mine sites and operations team tend to be in remote locations across the country and headquarters tend to be in Mexico City.
• Face-to-face contact is crucial when trying to win business in Mexico.

Events

Austrade recommends you attend or participate in the following list of events and conferences of the mining industry. These are excellent ways to meet customers, build relationships and gather first-hand intelligence. Austrade manages the Australian presence at these events. There are also many technical seminars and congresses in Mexico that are useful for market intelligence and networking in specific sectors of the industry.

• Mexico Mining Forum, 06 February 2019 in Mexico City, Mexico.
• Mexico´s Biannual International Mining Conference (this year will be held in Acapulco, Guerrero from 23-26 October 2019).
• Community Engagement Forum, Hermosillo, Sonora – November 2019.
• RIM Zacatecas 2020 in Zacatecas, Zac. Mexico (where Australia will be the guest of honour in this event)

Download the mining to Mexico summary

Links and industry contacts

Government, business and trade resources

• General Directorate for Mining Development
• Geological Survey Service
• Mining Development Fund

Media

• Directorio Minero
• Linterna Minera
• Mexico Mining Review
• Mundo Minero
• Mining.com/Mexico

Please note: This list of websites and resources is not definitive. Inclusion in this list does not imply endorsement by Austrade. The information provided is a guide only. The content is for information and carries no warranty; as such, the addressee must exercise their own discretion in its use. Australia’s anti-bribery laws apply overseas and Austrade will not provide business related services to any party who breaches the law and will report credible evidence of any breach. For further information, please see foreign bribery information and awareness pack.

Contact details

The Australian Trade and Investment Commission – Austrade – contributes to Australia's economic prosperity by helping Australian businesses, education institutions, tourism operators, governments and citizens as they:

• develop international markets
• win productive foreign direct investment
• promote international education
• strengthen Australia's tourism industry
• seek consular and passport services.

Working in partnership with Australian state and territory governments, Austrade provides information and advice that can help Australian companies reduce the time, cost and risk of exporting. We also administer the Export Market Development Grant Scheme and offer a range of services to Australian exporters in growth and emerging markets.