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Mining Sector - Mexico Study

Market Overview

For more than five centuries, Mexico has been one of the leading producers and exporters of minerals worldwide. It is one of the most important industrial sectors in the country, making up 5.5% of the country’s GDP. The country is the world´s leading producer of silver, fifth in lead, sixth in zinc, and eighth worldwide in gold production (see further below).

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Modern day mining clusters are located mainly in the north-western states: Sonora, which holds 31.6% of the production and Chihuahua with 11.3%, as well as in Zacatecas with 27.6%, which is located in the centre-north of Mexico. Each year, Business Sweden Mexico organizes trade delegations that visit the two main mining clusters in Sonora and Zacatecas. During the delegations Business Sweden carries out technical workshops in which Swedish companies can present solutions to current challenges in the mining industry, as well as organizing visits to mines owned by Mexican companies.

Between 2014 and 2015 the value of mining-metallurgical production increased 6.5%, driven mainly by a 16.8% value growth in precious minerals production. This development is due to higher production volumes, which offset the negative price trend. Investments have been growing where the investments for 2015 of almost 1.5 billion dollars in new projects represent an increase of 10% compared with 2014. In addition, eight mining products obtained record productions: gold, silver, lead, copper, zinc, wollastonite, magnesium sulphate and sodium sulphate. In 2015 gold contributed 34.1% of the total value of domestic production, followed by copper with 19.7% and silver with 18.5%.  

Mexico is a large recipient of foreign direct investment in the mining sector. The mineral advisory firm Behre Dolbear ranks Mexico as the 5th most attractive destination for mining investments. According to the Mining Chamber of Mexico (Camimex), investments in the sector reached 5.2 billion dollars in 2015. This represents a 5.1% increase over 2014. Canada is the main foreign investor in the Mexican mining industry with 65%, followed by USA with 17%. In total there are 267 identified companies financed by foreign capital operating in the Mexican mining industry, that manage a portfolio of over 900 projects. More than one third of these projects are in the exploration stage.

Swedish companies are well represented as suppliers to the mines. Companies such as Atlas Copco, Sandvik, Volvo Trucks (MACK), Volvo Construction & Equipment, SKF, SSAB, Xylem and Stafsjö are all active in the mining industry in Mexico.

What does the future hold?

According to BMI Research studies Mexico's mining industry value will see a solid growth, supported by low operating costs and a strong project pipeline over the next few years. The sector´s value is forecasted to increase from USD15.7bn in 2016 to USD17.8bn by 2020, averaging 3.3% annual growth. The country will remain the leading global silver producer, averaging 4.5% annual growth driven by increased silver consumption in Asia. The BMI Research study also states that Mexico's copper sector will continue to increase output due to competitive operating costs as well as a significant project pipeline over the coming years. The strong forecasts have spurred interest in new mining production sites, exemplified by the USD515M investment made in the San Julian site in Chihuahua that will focus on the production of silver and gold.

The federal government is committed to supporting the mining industry’s consolidation and growth, creating better conditions for investment in each stage of the mining process. It has made progress in strengthening Mexico´s competitiveness through reforms, responsible macroeconomic policy and an industrial policy focused on developing expertise in geology, partly through academic programs oriented toward this subject area. These initiatives contribute to promoting a sustainable development of the mining sector.

In December of 2015 there a was a total of 25,531 mining concession titles in force in the country, which cover an area of 231,700 sq km, equivalent to 11.8% of the national territory. This is expected to grow as the Federal Government has since granted mining concessions for a total surface of 347,967 sq km, almost 18% of the national territory.

Although the future looks bright for the Mexican mining industry it is important to follow closely the development of prices of precious metals. The World Bank estimates that the downward trend in prices will continue and although some degree of recovery is forecasted to begin in 2017, however in the medium term prices are not expected to reach the levels they recorded in 2010 and 2011. Further, assessments of the risk of gang criminality should be made. This problem is particularly widespread in the northern part of the country, where most mining developments are found. Trumps’s threat to tear up NAFTA has caused uncertainty in Mexico. However, in contrast to the automotive sector where supply chains and sales are highly dependent on the US market, this political uncertainty does not pose a significant threat against the mining industry whose metals are globally traded commodities. 

Mexico will continue to be the world’s leading producer in silver 

Silver Mine Production (LHS, moz) & Share Of Global Total (RHS, %)

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e/f = estimate/forecast. Source: BMI, USGS

Our recommendations

There are plenty of business opportunities in the Mexican mining industry, given the huge market size as well as the variety of mineral wealth. Domestic production includes 32 different minerals where Mexico is among the top ten producers in the world for half of them. The broad range of metals produced creates a market with many niches and companies are likely to find segments that are underserved. One of the competitive disadvantages for the Mexican mines is the high cost of energy. Therefore, solutions that can reduce the use of energy are in high demand for the mines. Other products related to the sustainability of mining are also drawing increasing interest, not least as the population is becoming increasingly aware of the negative environmental side-effects associated with current mining activity in the country. BMI Research states that Mexico's mining sector will gain increasing interest from international firms, due to the country's low operating costs and vast mineral reserves. Grupo México will remain the dominant copper producer in the country, while other sectors will see new junior and mid-tier entrants.

Given Mexico’s size and the widely dispersed mining clusters, distribution is problematic (see map further down). Normally the best way to serve the market is to start identifying distributors and then develop an approach that combines direct and indirect sales. All business decisions in Mexico are made in terms of each mine, independent of overlying ownership, and personal meetings are highly prioritized. To succeed in the market one has to have a local physical presence. 

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Sources

Behre Dolbear

Informe anual 2016, Cámara Minera de México

Mexico Mining Report, BMI

ProMexico


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Author: Abraham Morales, Consultant and Mining Sector Specialist
Updated: 28 Feb 2017
28 February 2017

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