As the world’s key gold producing nations struggle mostly in
vain to replenish dwindling below-ground supplies, Mexico is bucking the trend
in a big way.
That’s right. It’s not a typo. We are indeed talking about gold,
Even factoring-in the world’s other emerging gold producing
nations, Mexico still stands head and shoulders above the crowd. In fact, only
Mexico has experienced impressive year-on-year production growth over the last
decade. This has culminated in an almost doubling of output since 1998 to 1.59
million ounces last year. No other nation comes close to matching such a
It is worth noting that global gold output hit an all-time high
of 68.83 million ounces in 1999. Yet, worldwide production last year represented
an almost 20% shortfall at 55.30 million ounces, which clearly illustrates a
troubling trend. The situation has been exacerbated by the fact that the world’s
top trio of gold producers – South Africa, the US, and Australia – are losing
their luster. In fact, they have seen their combined output slump even more
precipitously than elsewhere over the last decade. Dropping from 35.12 million
ounces to 21.66 million ounces in 2008, this amounts to a 62% slide.
This is all the more problematic for the mining industry when
considering the fact that gold prices have more than tripled over the last
decade. This represents a decline in revenues of around US $14 billion dollars
(based on current bullion spot prices).
Yet, there’s nothing but ‘blue sky’ upside for Mexico’s
ever-expanding gold mining industry. Especially since only about 15% of this
mining-friendly, geologically fertile nation has ever been systematically
explored for the yellow metal. This is largely because the country’s foreign
investment laws were prohibitively restrictive for centuries until it signed the
North American Free Trade Agreement in the early 1990s. Only then did Mexico
finally adopt transparent mining legislation that offers a level playing field
to foreign investors, which is also sweetened with plenty of business
incentives, such as a very competitive corporate tax structure.
This pivotal development ushered in a modern-day Gold Rush that
now involves over 250 mostly Canadian foreign companies with at least 600
projects underway – the vast majority of which were financed on Toronto’s two
mining-oriented stock exchanges. And, at least US $6.5 billion dollars in mining
investment has poured into Mexico in 2008-09, alone.
Further reinforcing Mexico’s ascendancy to the prestigious ranks
of the world’s leading gold producers is the fact that 2010 promises to be a
banner year. (Figures for 2009 are obviously not yet available but are expected
to reveal yet another boost over the year before, albeit a modest one). In fact,
output is expected to jump by an additional 860,000 ounces next year,
representing a 54% increase over 2008’s figure.
However, it must be noted that Mexico is by no means one of the
most prolific producers in the world – at least not yet. Its output in 2008 was
eclipsed by the world’s top three producers, as well as Peru, which earned
fourth place at 5.78 million ounces.
Mexico’s production last year was also still well below Canada
(3.04 million ounces) and Ghana (2.58 million ounces). It is now jostling for
position a short distance behind with only about half a dozen other emerging
gold producing nations – all of whom have more or less comparable production
numbers. Yet, while Mexico’s annual output is accelerating, the other players
are showing signs of fatigue, as demonstrated by their mostly unvarying
year-on-year output figures or by numbers that are clearly falling off the pace.
So how is Mexico managing to reinvent itself as a high-octane
gold producer after being so synonymous with silver mining for the past five
centuries? Well, a number of North America’s high-flying gold producers and
legions of junior gold explorers are increasingly viewing Mexico as the optimum
mining jurisdiction to do business. So says Jeffrey Christian, Managing Director
of the New York-based CPM Group, a leading commodities research, consulting,
asset management and investment banking organization.
“Mexico represents one of the most attractive places in the
world for mining, not only in terms of geology but also for its political,
economic and regulatory environment. There is also a pro-mining mentality in
Mexico. The country is very much open for business,” Christian says. “Also many
good quality deposits have gone relatively unexploited over the centuries.”
Conversely, an increasing number of other emerging
gold-producing nations are beginning to raise barriers to the building of mines
by foreign mining companies. In extreme cases, this involves the nationalization
of rich mineral finds that have been developed by well-financed North American
mining companies, Christian adds. Ironically, these protectionist regimes
include underdeveloped economies that have benefited from an increase in gold
output in recent years thanks to the influx of North American investment
North American mining companies are not having much better luck
on their own soil, he says. “Even in the United States and Canada the barriers
to obtaining mine production permits have become greater and greater,” Christian
says. For instance, “anti-mining groups” can use the legal system to win a
succession of court injunctions, which may delay the commissioning of a mine for
years on end, he explains.
Hence, an increasing number of frustrated mining companies are
turning their attention to Mexico, where they are mostly developing large silver
deposits – ones where gold and base metals constitute meaningful by-products.
But low-cost, near-surface primary gold deposits are also being targeted – some
of which are under-developed past producers that historically suffered from a
lack of investment capital.
Perhaps the best example of how this strategy is paying off in a
big way involves the world’s fifth largest gold producer, Vancouver-based
Goldcorp Inc. (NYSE: GG) (TSX: G), which just initiated production at its
world-class gold/silver Penasquito mine in Zacatecas State
“It’s been a relatively easy process from a mine permitting
standpoint,” Bragagnolo explains. “Also the local government and the local
population are on-side as we’re in an underdeveloped area that needs jobs.
Additionally, there’s great infrastructure in place, we can even work
“We’re also benefiting from low capital costs and we’re going to
be producing as inexpensively as around $400 an ounce,” he adds.
Unlike various other junior gold miners that also aspire to
become mid-tier producers, Timmins Gold has no intention of diversifying into
projects elsewhere in the world, according to Bragagnolo.
“We have all the right dynamics right here in Mexico for us to
grow into a much bigger company by way of organic growth and through property
acquisitions,” he says. “In the near-term, we have excellent exploration
potential around the mine. So our immediate goal is to double our reserve base
and therby double the mine life.”
Meanwhile Toronto-based Agnico Eagle Mines (NYSE: AEM) (TSX: AEM)
is also set to begin full-scale production at its Pinos Altos gold/silver mine
in the coming weeks. The mine is expected to generate 190,000 ounces of gold a
year. Moreover, Idaho-based Coeur d’Alene (NYSE: CDE) (TSX: CDM) is aiming to
produce 72,000 ounces a year from its new Palmerejo gold/silver mine, which was
commissioned last spring.