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2013


The Mexican mining industry entered a new era in 2013. After a decade-long mining boom, which was only briefly interrupted by the global financial crisis, commodity prices are under pressure and access to financing for exploration activities is tightening. At the national level change is also on the horizon as the Mexican government, under the leadership of President PeĂąa Nieto prepares to introduce a royalty tax for mining companies while the upcoming energy and fiscal reforms, as well as the recently implemented labor reform, looks set to change the Mexican operating environment. Despite growing market uncertainty, investment in the Mexican mining industry is forecasted to increase from US$8.043 billion last year to US$8.145 billion in 2013, setting a new industry investment record.

At this time of change, Mexico Mining Review provides a comprehensive and timely overview of the latest developments, business strategies, technological breakthroughs, and operational challenges in the Mexican mining industry. By connecting key stakeholders across the national and international mining industry, Mexico Mining Review is perfectly positioned to accelerate the exchange of vital industry information and strengthen Mexico’s position as one of the world’s most attractive mining investment destinations. Published annually, Mexico Mining Review features the perspectives of the Mexican and international business and political leaders that are shaping the future development of the Mexican mining industry.


ALL RIGHTS RESERVED Š New Energy Connections LLC, 2013. This annual publication contains material protected under International, United States and Mexican Laws and international Treaties. Any unauthorized reprint or use of this material is prohibited. No part of this book may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying, recording, or by any information storage and retrieval system without express written permission from New Energy Connections LLC. Mexico Mining Review is a registered trademark of New Energy Connections LLC. The publisher has made all reasonable efforts to provide accurate information, and the information contained in this publication is derived from sources believed to be true and accurate. However, the information in this publication should not be considered to be complete or definitive, and may contain inaccuracies or typographical errors. The publisher accepts no responsibility regarding the accuracy of information and use of such information is at your own risk. The publisher will not be liable to any party for any direct, indirect, special or other consequential damages arising out of any use of information in this publication. The publisher provides no representations or warranties, express or implied, including any implied warranties of fitness for a particular purpose, merchantability or otherwise in relation to any information provided by the publisher in this publication.

ISBN: 978-0-9855346-2-2

2


TA B L E O F C O N T E N T S 1

STATE OF THE INDUSTRY

8

IRON ORE & INDUSTRIAL MINERALS

2

HISTORY & OPERATING ENVIRONMENT

9

INNOVATION & TECHNOLOGY

3

GEOLOGY & EXPLORATION

4

DEVELOPMENT & ENGINEERING

5

GOLD

12

TRANSPORTATION & LOGISTICS

6

SILVER

13

BUSINESS & FINANCE

7

COPPER & BASE METALS

14

FUTURE OUTLOOK

10 11

SAFETY & RISK MANAGEMENT

SUSTAINABILITY & CSR

1


2


STATE OF THE INDUSTRY

1 Last year was a year of change for the Mexican mining industry. While investment reached a new record and the industry was once again one of the main engines of job creation in the country, the apparent peak of the mining boom and the reforms announced by President Peña Nieto, who was inaugurated in December 2012, started to influence the development strategies of juniors, mine operators, suppliers and service providers alike.

In this chapter we provide an overview of the key trends that defined the industry in 2012, analyze how these developments have altered the Mexican operating environment, offer an insight into how last year’s record investment of US$8.043 billion has been spent, and consider the impact that the labor, energy and fiscal reforms could have on the position of the mining industry in the Mexican economy both as a driver of economic growth and the source of new direct jobs. We also present the perspectives of both the new and old faces that set the industry’s strategic direction and hold the key to its future expansion.

3


4


CHAPTER 1: STATE OF THE INDUSTRY 6

The Year in Review

8

Mexico’s Position in the Global Mining Industry

8

Mexico’s Participation in Global Mining Production (2012)

9

Contribution of Mining to Mexico’s Economy

10

President Peña Nieto’s Push for Substantial Reform

11

New Faces in Charge of the Mining Sector

12

Investment in Mexican Mining

12

Federal Government Organizational Structure for Mining

14

VIEW FROM THE TOP: Key Trends in the Mining Industry

16

EXPERT INSIGHT: Humberto Gutiérrez-Olvera Zubizarreta

17

VIEW FROM THE TOP: Bringing Together the Mexican Mining Industry

18

Impact of the Fiscal Reform

19

Employment in the Mining Industry

20

2012 Labor Reform Impact on the Mining Industry

22

GLOSSARY OF TERMS

5


THE YEAR IN REVIEW Until 2012 the mining industry had mostly resisted the

for exploration investment, and the fourth worldwide.

negative consequences of the recession that began in the

According

US in 2007 and later spread to Europe, becoming a global

investment in exploration activities in Mexico in 2012 was

recession in 2009. The global mining industry remained

twice the amount that it had been in 2008, with US$1.2

strong largely thanks to the continued growth of major

billion invested by 439 companies on 1,172 different

economies in Asia, however as China’s growth has slowed

projects. The majority of funding for exploration activities

and construction works decreased, an environment of

has traditionally come from foreign companies, largely due

uncertainty has crept into the mining industry on an

to the high-risk nature of these types of projects; in 2012

international scale. However, in the face of this uncertainty

foreign investment represented 70% of total investment in

the industry in Mexico continued to grow during 2012,

exploration projects.

to

Camimex

(Mexican

Mining

Chamber),

receiving a record US$8.043 billion in investment (MX$101.4 billion), and creating 18,833 new direct jobs. Following the

DEVELOPMENT

inauguration of President Enrique Peña Nieto in December

The significant increase in exploration activity in Mexico

2012, the new PRI administration has outwardly promoted the

in the last few years has led to a number of projects that

mining industry and its importance as a significant income

now have excellent proved and probable resources. After

generator for the country. A number of reforms, introduced

completing the prefeasibility and feasibility stages, these

both by the previous Calderón administration (2006-2012)

are now in the process of being turned into mines. Camimex-

and in the initial months of the Peña Nieto administration,

affiliated companies, which represent 93% of the value and

have also for the most part tightened regulation.

volume of Mexico’s mining production, spent US$1.8 billion on the development of new mining projects in 2012, over

EXPLORATION

US$711 million on project expansion activities, and US$1.7

Mexico’s profile as an excellent location for mining

billion on the acquisition of equipment and machinery. More

exploration activities is well known internationally, and

than half of the total expenditure of mining companies in

with 70% of the territory unexplored many companies

Mexico in 2012 is therefore estimated to have been spent on

have set up exploration projects in the country. Mexico’s

the development of assets. Camimex estimates that more

attractiveness as an exploration location is also reflected

than 15 new mining operations will begin production in the

in the fact that it is the top destination in Latin America

country between 2013 and 2015, which between them will contribute to an expected hike in Mexico’s total production

MEXICO METAL & MINERAL PRODUCTION (2012)

1.8% 2.0% 2.4%

of a number of different metals and minerals in the coming years. GOLD

6.1%

While Mexico has not traditionally been associated with gold mining, this has changed over the last few years as

3.8%

29.2%

4.3%

its importance as a gold-producing country has steadily grown. Of the total mineral and metallurgical value generated in 2012, gold represented the largest proportion

5.5%

at 29.2%. The country is now the world’s 11th biggest gold

US$17,799 million

producer, according to the US Geological Survey (USGS), with INEGI estimating that 102.8 tonnes of gold were produced in the country in 2012. According to Camimex data, Goldcorp is the country’s biggest gold producer,

19.6%

accounting for 26% of the country’s total gold production.

25.3%

The company also owns the country’s two biggest gold producing mines: Peñasquito in Zacatecas and Los Filos in Guerrero, which produced 411,000oz and 340,000oz of gold respectively. Fresnillo’s La Herradura mine was the gold

iron

silver

lead

copper

coal

zinc

molybdenum

coke

other

third biggest producer at 314,500oz of gold production. SILVER In 2012 Mexico maintained its position as the world’s biggest silver producer, and its silver production has continued to grow in 2013. INEGI estimates that Mexico Source: INEGI

6


MEXICO PRECIOUS METAL PRODUCTION (2012) HIGHLIGHTS OF 2012 • Total mining investment reached US$8.043 billion • US$1.2 billion was invested in exploration by 439 companies in 1,172 projects • Mexico produced 102.8 tonnes of gold • Mexico produced 5,358 tonnes of silver US$9,694 million

46.5%

• Mexico produced 500,275 tonnes of copper 53.5%

• Mexico produced 660,349 tonnes of zinc • The mining industry created 18,833 new direct jobs

Fraser Institute’s annual survey. The survey, which looks at mining investment trends, and rates different jurisdictions across a broad range of criteria, downgraded Mexico along gold

safety and security, fiscal regime, and policy potential Source: INEGI

silver

indicators, compared to the previous year.

produced 5,358 tonnes of silver in 2012, a new record. The

There is broad agreement that the labor reform that was

Fresnillo mine remains the biggest silver producing mine

passed at the end of 2012 has had a predominantly positive

in Mexico, and the biggest primary silver producing mine

impact on the industry, placing greater accountability

in the world, with a total production of 26.4 million ounces

on companies and workers for accidents in mines, and

in 2012. Fresnillo was followed by Goldcorp’s Peñasquito

tightening regulations around outsourcing and contracting.

mine in Zacatecas and Coeur Mining’s Palmarejo mine

Declining metal prices and the steady increase in the

in Chihuahua, which produced 23.7 million ounces and

cost of energy and equipment have also forced mining

8.2 million ounces of silver respectively. The silver price

companies, service providers and suppliers to streamline

has shown greater volatility than gold, with the average

their operations and maximize efficiency across all areas

price coming down over 11% between 2011 and 2012, from

of their activities, in order to remain as competitive as

US$35.12 to US$31.15.

possible.

BASE METALS & IRON ORE As the world’s ninth largest producer of copper, Mexico

MEXICO BASE METAL PRODUCTION (2012)

produced 500,275 tonnes of copper in 2012, a 12.8% increase compared to the previous year. The Buenavista 6.0%

del Cobre mine in Sonora is the country’s biggest producer, 8.3%

accounting for almost two thirds of the country’s total production. In 2012 Mexico was also the world’s seventh largest producer of zinc, with a production of 660,349 tonnes. Peñoles is the biggest zinc producer in Mexico, producing 157,257 tonnes across five different mines, and

18.6%

US$5,251 million

accounting for almost a fifth of the total production in the country. Mexico is currently the 14th biggest producer of iron ore in the world, with a total of 13 million tonnes. 66.5%

OPERATING ENVIRONMENT Mexico’s operating environment is viewed favorably by both national and international mining companies that operate in the country, which generally view its political stability,

financial

certainty,

and

mining

culture

as

welcoming to mining activity. However, in 2012 Mexico’s competitiveness slipped in a few key areas such as fiscal regime, policy potential, and security, according to the

copper

molybdenum

zinc

other (0.6%)

lead Source: INEGI

7


MEXICO’S POSITION IN THE GLOBAL MINING INDUSTRY Mexico is the fourth mining exploration destination in the

in the international economy, the country is among the top

world, and the first in Latin America. As of December 2012,

10 producers of 16 minerals (see table below). The total

285 companies with foreign capital were operating 853

income generated through Mexico’s mineral production

mining projects in the country. The total investment in the

reached US$17.8 billion in 2012. The major part of this

sector grew from US$2.158 billion in 2007 to US$8.043

income came from the export of mining products to the US,

billion in 2012 – an increase of 272%. The country’s geological

which is the Mexican mining industry’s main client. Over 57%

richness and the favorable business environment have

of Mexico’s mining exports had its northern neighbor as a

enabled companies to gain access to attractive concessions

destination. Other main foreign clients are China (10.4% of

and develop mining projects in advantageous timeframes,

total exports), South Korea (4.7%), Switzerland (4.4%), and

thus ensuring attractive return on investment rates.

the UK (4.3%). The most sought after metal in this market is gold, which makes up over one third of Mexico’s mining

According

to

Promexico,

the

Mexican

Government

institution in charge of strengthening Mexico’s participation

exports. The precious metal is followed by silver (21% of all exports), copper (15%), iron (9%), and lead (5.5%).

MEXICO’S PARTICIPATION IN GLOBAL MINING PRODUCTION (2012)

Silver

Fluorite

Bismuth

Celestite

1st place

2nd place

2nd place

3rd place

(17.71%)*

(17.52%)

(13.51%)

(8.29%)

Wollastonite

Sodium Sulfate

Lead

Cadmium

3rd place

3rd place

4th place

5th place

(7.84%)

(5.48%)

(4.71%)

(7.00%)

Molybdenum

Diatomite

Zinc

Gypsum

5th place

5th place

7th place

8th place

(4.36%)

(4.28%)

(4.85%)

(2.57%)

Barite

Graphite

Salt

Copper

8th place

8th place

9th place

10th place

(1.90%)

(0.73%)

(3.14%)

(2.94%)

Gold

Silica Sand

Kaolin

Manganese

11th place

11th place

11th place

11th place

(3.22%)

(2.05%)

(0.36%)

(1.06%)

Sulfur

Feldspar

Phosphorite

Iron

12th place

12th place

12th place

14th place

(2.36%)

(2.00%)

(0.81%)

(0.43%)

* Mexico’s share of global production

8


CONTRIBUTION OF MINING TO MEXICO’S ECONOMY The International Monetary Fund had forecast a growth

4.9% to the country’s total GDP. The investment the

of 3.5% for the Mexican economy in 2013. However, the

industry has triggered in recent years has had a significant

Mexican government announced a year-on-year growth of

effect on employment, infrastructure development, and

only 0.6% during the first quarter of 2013 and a moderate

the general growth of economic output in Mexico. As of

increase of 1.5% during the second. Overall, the Mexican

December 2012, the mining industry was responsible for

economy has underperformed in relation to both domestic

328,555 direct jobs and 1.5 million indirect jobs in Mexico,

and international expectations, averaging a growth rate of

according to data from the Mexican Institute of Social

only 1% during the first half of the year.

Security (IMSS). From 2007 to 2012, over US$25.64 billion was invested in the sector. In spite of the current economic

These negative results can be partly explained by the

context, mining companies are set to increase investments

current downturn in Mexico’s mining industry. Figures

by 1.3% during 2013, thus setting the stage for a better

reported by Mexico’s National Institute of Statistics and

economic performance once metal prices recover.

Geography (INEGI) indicate that the fall in metal prices caused the contraction of the mining industry’s output value by 1.75%. The decreased margins of mining activities also discouraged the industry from pursuing certain projects, and therefore negatively impacted the total

MINING INDUSTRY INVESTMENT 2012-2013 (US$ million) Camimex Members

2012

2013

Exploration

798

867

Project Expansion

711

916

New Projects

1767

2585

Training and Productivity

140

177

Equipment Acquisition

1723

1485

Environment

116

179

Safety and Ocupational Health

80

97

Security (private)

36

41

Community Relations

101

132

Maintenance

634

721

Other

1039

345

Subtotal

7,145

7,545

Exploration

367

200

Assets

531

400

Subtotal

898

600

8,043

8,145

volume of production, which only grew 0.32%. This double effect of negative metal prices was compounded by the loss of industrial activity, both within mining companies and throughout the sector’s network of suppliers. INEGI’s industrial activity index for the mining industry only fell an average of 0.07% during the first semester of 2013, due to the long term nature of investments in mine development. However, this index decreased 2.06% in the case of service providers for the industry. The numbers published by INEGI indicate that a bigger drop in the industry’s activities, production and value creation could be reported in the coming trimester, once the stall in exploration, construction, and production projects start to affect production figures. The importance of the mining industry for Mexico’s economy is clearly reflected in the country’s GDP. This sector’s negative performance influenced an average fall of 1.1% in the value of secondary economic activities during the first six months of 2013, which in turn pushed the growth rate downwards. By contrast, in the previous years

Non-members

of the mining boom positive growth in Mexico’s general economy was supported by the industry’s spectacular expansion, as shown by data from Camimex (the Mexican Mining Chamber). In 2012, for example, the total value output of the mining industry increased 14% in relation to the previous year. The mining sector also generated US$22.5 billion in foreign currency during that year, thus

Mining Total

positioning itself as the fourth largest contributor to Mexico’s economy (after the automotive industry, the

The macroeconomic framework, the prospect of structural

electronics industry, and the hydrocarbons sector).

reforms to promote economic growth, create jobs, and reduce poverty and social inequality, make Mexico an

Between 1994 and 2011, the mining industry’s participation

attractive investment destination despite the challenging

in Mexico’s GDP grew by 1.5%. Today, this sector contributes

financial environment in the mining industry. Source: Camimex

9


PRESIDENT PEÑA NIETO’S PUSH FOR SUBSTANTIAL REFORM In August 2013 political risk expert Ian Bremmer wrote in

Additionally, the government has backed a proposal from

an op-ed column for Reuters that, in his perspective, there

the National Governors’ Confederation (CONAGO), which

are only three world leaders who are actually leading.

aims to reallocate the public resources collected through

Mexican President Enrique Peña Nieto was included among

mining taxes. It is expected that the President will introduce

those three presidents who are managing to “squelch

a second reform initiative in the following months, and

opposition, carve out a more impactful role for themselves,

that the ensuing modification to the Mining and Fiscal

and undertake difficult reforms, all while leveraging their

Coordination Laws will allow mining states to benefit from

popularity and consolidating their strength,” he wrote. Peña

existing taxes collected from this activity. The Pact for

Nieto’s determined approach to reforming several sectors of

Mexico also aims to transform the mining industry into a

the Mexican economy has certainly gained him good reviews,

more efficient and sustainable sector. The effort to further

both in Mexico and abroad. Just one day after his inauguration

benefit the communities where mining operations take

he signed a series of commitments with the country’s main

place will not only be limited to resource allocation policies,

parties. Involving reforms in education, tax policy, social

with the pact also proposing the creation of consultation

welfare, and targeting strategic industries such as oil and gas,

forums with the communities. The government foresees

tourism, and telecommunications. This document, known as

these dialogues as promoting a better understanding of

the Pact for Mexico, marked the beginning of a concerted

communitarian life, and thus achieving greater respect for

effort between Mexico’s political forces.

local traditions and social cohesion in mining regions.

The Pact for Mexico contains a concise but relevant

The President is also interested in fostering the expansion

section dedicated to the mining sector. First and foremost,

of mining operations. On July 18, while attending the

it establishes the objective of introducing a new Mineral

inauguration of AHMSA’s new steel processing complex in

Resources Exploitation Law. According to the document,

Coahuila, he highlighted the industry’s importance in the

this law will modify the granting of mining concessions

generation of further investments and developments across

and the industry’s taxes and duties system. Modifications

a broad range of economic activities. When presenting

to the current Mining Law have already been proposed

his government’s National Development Plan in May 2013,

and approved by the Chamber of Deputies. The most

President Peña Nieto stated that “Mexico has the historic

important provision included in this first initiative concerns

opportunity to embark on a profound transformation in

the imposition of a royalty with which municipalities, states

order to foster its economic development for decades

and the federal power will implement social development

to come.” He is not alone in this perception. International

projects in mining communities. This initiative currently

media has already coined a term for the renewed attention

awaits approval in the Senate.

being payed to Mexico’s economic revival: the MeMo or ‘Mexican Moment’. President Peña Nieto’s ambitious plans regarding infrastructure and energy are destined to create substantial opportunities for the mining sector, even if the industry’s fiscal burden is expected to grow in the near future. Current metal prices provide a cautious canvas for Mexican miners’ optimistic expectations. The Pact for Mexico has proven its role as an effective platform for political consensus and as a stepping-stone for structural reform. Peña Nieto has been able to navigate the country’s security crisis, the social unrest surrounding his accession to power, and the opposition. Now he is putting his political capital on the line to achieve longawaited reforms that might truly transform the country into an international success case and an even more attractive investment hub. As Bremmer concludes, Mexico might just be “on the cusp of becoming the world’s third country (after Taiwan and South Korea) that has gone from being a developing country to becoming a developed country in the last 50 years.”

10


NEW FACES IN CHARGE OF THE MINING SECTOR | PRESIDENT OF MEXICO Enrique Peña Nieto defeated his opponents in the Mexican federal elections in 2012, thus enabling the return of his party to power after a 12-year hiatus. He represents the new face of Mexico’s long-ruling party, the Institutional Revolutionary Party (PRI), which held power in the country for over 70 years in the past century. Born in Atlacomulco, an industrial city in the State of Mexico (which neighbors Mexico City), Peña Nieto is the son of an electrical engineer and a teacher. He has been tied to politics and public service from birth: he is the nephew of a former Enrique Peña Nieto

mayor of Atlacomulco and has blood ties to two former governors of the State of Mexico.

Peña Nieto studied Law at Universidad Panamericana, one of Mexico’s top schools for this profession. During this period he joined the ranks of the PRI party, following in the footsteps of his family members. At the same time, he initiated his professional path as an employee at various legal firms. He later pursued a career as an independent lawyer and studied an MBA at the Monterrey Institute of Technology and Higher Education (ITESM). While he was completing his postgraduate studies, Peña Nieto was awarded his first position as a party representative at the national level. After holding a string of political positions, Peña Nieto collaborated in two successful electoral campaigns and held relevant positions in both resulting governments within the State of Mexico. In 2003 he was elected local deputy for the state legislature, as a representative of Atlacomulco. This position was the stepping stone for his candidacy for the state government, which he won in 2005 thanks to the thorough list of notarized commitments he made to the local population. During his six year term as governor, Peña Nieto followed the observance of each of these commitments, which marked advances in the state’s infrastructure, public services and public finances. At the end of his term as governor, Peña Nieto actively sought the election as the PRI’s candidate for the 2012-2018 presidential period. His opponent’s withdrawal early into the primary elections gave him a valuable opportunity to structure his campaign, action plan, and proposals. Peña Nieto’s presidential campaign followed the same model as his previous bid for government: he toured the country extensively, signing a series of notarized commitments at both the state and federal levels, and meeting with relevant actors of Mexico’s civil society and the private sector in order to listen to their concerns and design public policies in response to their needs. He was declared the winner of the July 2012 elections by a margin of almost 7% of the vote.

| ECONOMY MINISTER An economist born in Nuevo Leon, the country’s industrial hub, Ildefonso Guajardo Villarreal is the person in charge of fostering industrial development and supporting economic growth in Mexico. After receiving his bachelor’s degree in Economics from Nuevo Leon’s Autonomous State University (UANL), he completed a master’s program in Economics at Arizona State University. Guajardo Villarreal did his doctoral studies in Economics and Public Finances at Pennsylvania University, and today has an extensive background in his field. Ildefonso Guajardo Villarreal

Guajardo Villarreal has been involved in the political economic planning and programming of Mexico since 1984, when he was named Director of Public Finances at the Economy Ministry, which was then named Ministry of Budget and Programming. He subsequently held various positions in different areas of federal government, including Director of the North American Free Trade Agreement Affairs Office, based at the Mexican Embassy in Washington, Undersecretary at the Foreign Affairs Ministry, Deputy Ministry of Tourist Development, and Planning, Communication and Liaison Technical Secretary for the Trade and Industrial Development Ministry. Guajardo Villarreal also served as head of the Executive Office of the Governor of Nuevo Leon during 2003-2006, after which he became a Congressman, first at the state level and afterwards at the federal level. As a Federal Congressman, Guajardo Villarreal was Chairman of the Economics Commission and member of the Treasury and Public Credit Commission. After Enrique Peña Nieto was elected President, he called Guajardo Villarreal to his transitional team, naming him Vice Coordinator of Economic Policy, during the inauguration of the new presidential term he was named Economy Minister. He declared shortly afterwards his intention of promoting a series of reforms in the mining sector, namely concerning the industry’s fiscal framework and the de-regulation of foreign direct investment in the sector.

11


INVESTMENT IN MEXICAN MINING Mexico’s ranking as the fourth country in the world for mining

with the signing of NAFTA in 1994. The process of opening

exploration investment is not the result of coincidence.

up Mexico to foreign investment has invariably been viewed

The country has combined a historical mining culture with

by the key players in the mining industry as a positive step

an effective regulatory framework and a stable political

for Mexico. “I think it was a big success for Mexico to have

environment to make mining investment an appealing

signed NAFTA – an instrument that creates legal certainty

prospect for national and international companies. With

and other incentives for investment in Mexico. Without

the 14th highest GDP in the world and the second in

NAFTA the current level of local demand and stability in

Latin America, Mexico is one of the leading high-growth

the investment climate would be very different today, and

economies globally, along with Brazil, Russia, India and

the industry’s growth would certainly not have reached the

China, which together represent one fifth of the global GDP.

levels it has,” says Juan Francisco Torres Landa, Partner at BSTL Abogados. In the years following the signing of

The Competitive Alternatives report, compiled by KPMG

NAFTA, Mexico’s trade with the US and Canada almost

in 2012, compared these countries to a number of more

tripled, and foreign investment has gone from strength to

mature economies based on a number of different

strength since. Even in the face of declining metal prices

business environment criteria. Mexico performed best in

investment is set to continue growing, with Mario Cantú

the ‘Ease of Doing Business Ranking’ out of all five high-

Suárez, Mexico’s General Coordinator of Mining, telling

growth countries. It was also reported that the 81 days it

Reuters in May 2013 that he expects mining investment

takes to finalize permitting for a warehouse in Mexico, is

during President Enrique Peña Nieto’s administration to

significantly lower than the other high-growth countries,

reach, if not exceed, US$25 billion. This has been a natural

with the runner-up being India at 227 days. Of the mature

result of the more favorable environment that has been

economies only the US and Canada performed better at 26

created, and confirms that efforts made over the last 20

days and 73 days respectively, while Mexico was ahead of

years to improve Mexico’s business environment have been

countries such as Germany, the UK and Australia. Finally,

fruitful. “If you look again at the discussions of the best

of the 14 countries included Mexico ranked first on the

places to invest in, despite the challenges that the Mexican

‘Market Access Index’, meaning that its policy framework

mining industry faces, including safety issues, Mexico

was found to be the most welcoming of foreign goods and

is being ranked number one, even ahead of Brazil. It is

enables the greatest access to foreign markets for its own

good to know that bankers in London or in New York are

exporters.

precisely the ones saying that we are doing things right. It is time for a new wave of investment and activity in the

These achievements come as the result of a long period

Mexican mining industry,” says Torres Landa.

of liberalizing the operating framework and strengthening institutions, which began in the 1990s with the 1992 reform

A large proportion of foreign investment in the Mexican

to the mining law that allowed up to 100% of investment to

mining industry comes via companies listed on the Toronto

be foreign (it had previously been capped at 49%), and then

Stock Exchange (TSX), which in 2012 accounted for 70% of

FEDERAL GOVERNMENT ORGANIZATIONAL STRUCTURE FOR MINING

ECONOMY MINISTRY (SE) Ildefonso Guajardo Villarreal

GENERAL COORDINATION OF MINING (CGM) Mario Cantú Suárez

12

GOVERNMENT TRUST FOR MINING DEVELOPMENT (FIFOMI)

GENERAL DIRECTORATE FOR MINING DEVELOPMENT (DGDM)

GENERAL DIRECTORATE FOR MINING REGULATION (DGRM)

MEXICAN GEOLOGICAL SURVEY (SGM)

Armando Pérez Gea

Juan José Camacho López

Luis Raúl Rey Jiménez

Raúl Cruz Ríos


TOTAL INVESTMENT IN MEXICO’S MINING SECTOR (US$ MILLION) 9,000 8,000

8,043

7,000 6,000 5,000

5,612 3,656

4,000

2,858 2,156

3,000

2012

2011

2010

2009

2008

2007

1,257

2006

585

912

2005

348

2004

250

2003

0

380

2002

1,000

2001

2,000

3,316

Source: Camimex

equity capital raised globally for mining companies. “The

industry, as well as accelerating Mexico’s economic growth,

TSX has done a great job of developing business, and by

there is still some way to go. “One interesting development

listing many Canadian mining companies it has developed

in recent years is that the BMV has introduced instruments

specific expertise in mining, as well as an ecosystem that

under which a company makes certain amendments to its

includes investors that today feel very comfortable on that

corporate bylaws, adopting certain accounting practices

exchange,” says Edmundo Gamas, Principal at Ultra Maris

for example, before eventually making an IPO. The spirit

Capital. “Nowadays, being able to meet TSX standards

of these amendments is very good, but there are some

is a validation for mining companies, making them more

difficulties in practice that still need to be worked on,” says

attractive from an investment risk standpoint. The Mexican

Luis Armendariz, Partner at Arzola + Armendariz Abogados.

Stock Exchange (BMV) has traditionally listed the large

In the meantime the steady increase in foreign investment is

Mexican mining companies, and is now starting to focus on

very positive for the industry, which could not have reached

smaller mining entities. Overall, the BMV has done a great

its status as a prime mining destination without it. “Mexico

job in the last few years in developing new capital market

is still a developing country and does not have enough

products, and everything related to mining should be a

capital, and certainly very limited risk capital; it needs

natural fit.” Whilst there is general agreement that making

foreign investment to continue to develop, especially in high

financial instruments more accessible in Mexico would

risk ventures such as mining,” says Mauricio Candiani Galaz,

greatly benefit the development and reputation of the mining

President and CEO of Candiani Mining.

| GENERAL COORDINATOR OF MINING The background of the new General Coordinator of Mining is very similar to his superior in the Ministry of Economy. Like Guajardo Villarreal, Mario Cantú Suárez graduated in Economics from UANL and attended Pennsylvania University, where he received a master´s degree in Economy and doctoral credits in Economics and Public Finance. Cantú Suárez has 24 years of experience in the Federal Government, where he has worked in diverse areas of the Treasury Ministry, the Presidency, the Labor Ministry, the Social Development Mario Cantú Suárez, General Coordinator of Mining at the Economy Ministry

Ministry, the Tax Administration Service, the National Water Commission and the Public Service Ministry. He also lent his expertise in the management of public institutions such

as Conasupo Industrialized Milk (Liconsa), a government-held company that produces and distributes dairy products at affordable prices. Cantú Suárez also has experience in the private sector, for he served as an econometric analysis manager at WEFA-CIEMEX, the leader in economic forecasting in Mexico. As of January 2013, Cantú Suárez was named General Coordinator of Mining, and he was entrusted with the mission of strengthening innovation, investment, and competition in Mexico’s mining industry. Cantú Suárez has since participated actively in various industry forums and meetings with both the private and public sector in order to pursue these objectives.

13


| VIEW FROM THE TOP

KEY TRENDS IN THE MINING INDUSTRY SERGIO ALMAZÁN ESQUEDA Director General of Camimex

Q: How has the pattern of investment within the mining

and only focuses on the problems that relate to the mining

industry evolved over the past decade?

industry as a whole and that can really limit its growth. Under

A: In 2002 total mining investment in Mexico was US$340

this premise, the problems that Camimex tries to solve, as

million, compared to US$8,043 billion in 2012. Total

well as the body’s goals and objectives, are for the benefit of

mining investment includes not just exploration but also

the mining sector. We are in constant communication with

development, expansion, new infrastructure, and training,

the federal, state, and municipal government.

as well as new equipment and environmental and social demonstrate

In order to be able to reach our main objectives, we have

the impressive growth of the mining industry in the past

12 permanent commissions with working groups that any

decade. In the last year 60% of the total investment came

member can turn to. These groups address the main issues

from mining companies with Mexican capital and the

concerning the industry: energy, climate change, water,

remaining 40% from companies with foreign capital.

environment, community development, education, safety,

development

investment.

These

figures

health, taxes, legal framework, customs, and foreign trade. Q: What impact has mining-related investment made on

Camimex’s strength relies on the existence of these groups,

Mexico’s foreign exchange and trade balance, and what

which are led by industry specialists.

are the main destinations for Mexico’s metal exports? A: The Mexican mining industry currently has a trade surplus,

Q: Safety is a very important topic for the mining industry.

with exports outnumbering imports. In 2011 the positive

What is Camimex doing to counterbalance mining’s image

trade balance amounted to US$12.64 billion and in 2012 it

as an unsafe industry, and what best practices are being

reached over US$13 billion. The main geographical region

promoted as a result?

Mexico exports its minerals to is North America, followed

A: I want to emphasize that safety is a priority for

by Asia and Europe. The products we import are metals

Camimex’s member companies. In 2003 the accident rate

and minerals that the country does not produce, such as

was 8.3%, compared to 2011 when it was 3.2%. Although

aluminum, as well as others for which local production is not

this reflects great progress, Camimex’s goal is that all of its

self-sufficient, such as iron and coal, which in some cases

member companies should continue working to improve

have to be imported in order to meet local demand.

safety on their mine sites. We are working towards every company implementing a culture of safety in each of its

Q: What role does Camimex aspire to play in the Mexican

operations on every single level.

mining industry? A: Camimex is the official consultative governing body

The Occupational Health, Hygiene, and Safety Training

regarding all matters relating to the mining industry. In

Commission of Camimex promotes best practices for

recent years Camimex has brought together the 150 main

safety in mines with our members and regularly visits

mining companies in Mexico, and Camimex’s member

mining operations to train workers. For the past five years

companies represent 93% of the value and volume of

we have provided a continuous education course for

mining production. With the exception of small and some

underground mine safety in which mining experts from

medium-sized companies, the country’s most important

Chile and Mexico share their expertise. The Chamber also

mining companies are Camimex members, regardless of

organizes a biannual convention for mine safety with the

whether they are funded by Mexican or foreign capital.

aim of sharing new technologies and new safety practices, as well as organizing a national competition to reward those

14

The Law of Business Chambers provides the official faculty

companies that achieve the best results in safety; each

making Camimex the link between the mining sector and

year the Silver Hard Hat is awarded to the safest mining

the three levels of government (executive, legislative, and

operation in three different categories: underground mine,

judicial). Camimex is concerned about all of its members

open pit mine, and refinery and plant.


Camimex has recently begun a Safe Company and Self-

One of the most important challenges the industry

Management Program together with the Ministry of Labor

faces today is communicating how modern mining

and Social Welfare, in which companies voluntarily commit

practices have revolutionized the sector, and above all

to carrying out safety best practices in their mines. The

transmitting the deep benefits that the industry brings to

companies’ response to this initiative has been very

communities. Mining in Mexico has a more than 500 year

positive and we currently have 85 operations working

history; if we were to weigh up all of the good things the

under the program.

industry has done so far against some of the problems it has encountered, the balance would tip in favor of the

Q: What are the current environmental sustainability

positive legacy the industry leaves behind. Nevertheless,

trends within the Mexican mining industry and what

due to the general lack of awareness, we have to reach

initiatives are being implemented to create a cleaner and

people and communicate clearly and efficiently all of the

more efficient industry?

benefits that mining brings to the country. Mexico is a

A: Much like we have in safety and occupational health,

mining nation, although many Mexicans do not know this.

we have an agreement with the Environment and Natural

We have worked very hard and invested a lot of time and

Resources Ministry (Semarnat) and the National Forestry

money in changing the image of the industry. We know it

Commission (Conafor) to implement best practices in

has not been enough, so we will double our efforts and

these aspects, as well as fostering specific norms that

complement our strategies in order to show the good

apply to the mining industry and that guarantee good

practices that have been implemented, as well as all of the

environmental performance. Currently, 80% of Camimex

social benefits they have brought.

member companies have the Clean Industry Certification, and much of the remaining 20% are working to obtain

Q: What solutions and initiatives could be successful in

it. Mining is one of the industries that holds the largest

getting more people to enroll in mining-related academic

number of Clean Industry Certificates.

programs? A: The positive cycle of the mining industry began in

During 2012 3.5 million trees were planted by the industry,

around 2003, and many companies operating in Mexico

which in the past seven years adds up to a total of 13.5

were taken by surprise. After a 20 year period of low

million planted trees. After the Mexican Army and the

metal prices many of the professional activities related

forestry industry, we are the industry that has planted the

to mining, especially the earth science careers, were not

largest number of trees in the country. Mining companies

attractive to students. Following this positive change in the

are very concerned about preserving the ecosystem; for

industry we then faced the challenge of having a shortage

example, there are 16 natural areas that are protected

of qualified human capital. Once we understood this,

by the mining industry. For the past 10 years we have

Camimex implemented several programs to attract young

developed the annual Experience Seminar, with the

people to the idea of studying geological, metallurgical

participation of Semarnat, Conagua, Profepa and Camimex,

and mining engineering. In 2008 the Chamber created a

with the intention of exchanging experience to strengthen

trust fund to support universities and provide scholarships.

sustainability in the sector.

Through this fund we have been supporting students and professors from 12 universities, and member companies

Q: What is Camimex doing in terms of community

have injected over US$1 million annually to the fund.

relationships and communicating a message to the general

The institution organizes different conferences for all

public that raises awareness of the social responsibility

educational levels, with the aim of attracting the interest

initiatives of your members?

of students towards the industry. Last year several studies

A: Among their main objectives, all Camimex member

indicated that engineers in geology and mining are the

companies have to strengthen the social fabric with local

best paid professionals in Mexico, only after aviation. We

communities to stimulate their development. There are 28

are starting to see the results of the industry’s effort in

important groups that have received the Socially Responsible

this aspect. Through its member companies Camimex has

Company

increasing

always supported academic institutions with professional

involvement of the mining sector with local communities.

placements and laboratory and IT equipment, among

The ways in which the mining industry relates with people

others things. Furthermore, we are also working closely

from the surrounding municipalities is still being criticized,

together with universities to revise their programs so that

which only means that there is still a lack of awareness of the

they can supply the qualified human capital the industry

hundreds of success stories that have been achieved.

requires.

distinction,

which

proves

the

15


| EXPERT INSIGHT

Q: How would you describe the current business environment for Mexico’s mining industry, and what are the factors that have contributed to the country becoming a top destination for mining investment? A: In terms of income generation at the national level, mining continues to be the fourth biggest industrial sector in Mexico, amounting to US$22.5 billion in 2012. It is positioned after the automotive, electronics, and oil and gas industries. The mining industry generates 77% more income than the tourism industry, and slightly more than remittances from the US. According to Behre Dolbear’s 2013 Ranking of Countries for Mining Investment, Mexico is the fifth safest country for mining investment in the world after Australia, Canada, Chile, and Brazil. This annual assessment takes into account political risks in the non-renewable resource exploitation industry, as well as looking at government policies, economic and social issues, and corruption levels in mining countries. The trust of investors enables us to project an investment close to US$8 billion in mining projects for 2013.

Q: What is your perspective on the main trends in global mining and how do they impact Mexico’s competitive position? A: As metal prices drop and global economic uncertainty lingers, predicting demand for metals in the short term becomes complicated. In order to face the upcoming challenges that will result from this situation, companies need to evaluate the feasibility of each of their investment projects in great detail. However, everything indicates that mineral consumption will remain high because of their importance in consumer products, which allows for cautious optimism.

Q: How could the royalty tax affect mining operations and what measures should the private sector take in order to lessen its impact, if it is approved by Congress? A: Mining is a capital intensive industry that involves long maturation periods and irrecoverable investments that are subject to international market volatility, as well as being exposed to other issues such as technical and geological risks. The industry needs to be thoroughly studied by the government, taking into account that it already pays income tax (ISR), Employee Profit Sharing (PTU), and mining rights for each concession hectare; not to mention energy, water, and security costs, as well as investments in social and environmental issues. All of these things must be analyzed before an additional fiscal burden is established that could compromise the industry’s competitiveness and decrease investment in exploration, which is not fundable through traditional financial instruments due to its high risk nature. The royalty tax might also have a serious negative impact in those regions where there are no other economic activities. It is important to emphasize that the Mexican mining industry does not have any fiscal stimulus or tax stability as Argentina, Brazil, Canada, Chile, and Peru do. These countries are our competitors and this has to be taken into account in order to provide balance to the current proposal. From a public policy perspective it is important to increase the hierarchical level of the government agency responsible for the development of the mining industry to undersecretary and establish a long term mining policy that provides fiscal stability, so that the sector can continue growing and generating value for the country.

Q: What are the most important contributions of the mining industry to Mexico’s social and economic development that Camimex would like to highlight to Mexico’s policy makers? A: During 2012 mining investment in Mexico amounted to US$8.043 billion, which was 43% more than in 2011 or a US$2.43 billion increase. In the last six years investment in the industry has amounted to US$25.64 billion. Such significant figures allow the mining industry to continue being an excellent source of direct employment. During 2012 the Mexican Social Security Institute (IMSS) registered 18,833 new direct jobs created by mining. The total figure of direct jobs in the mining sector amounts to 328,555, which together with indirect employment represents more than 2 million jobs. Furthermore, mining employment continues to offer very competitive salaries that are close to 37% higher than the national average. Social and environmental investment on behalf of the mining industry in 2012 amounted to MX$2.84 billion (US$226 million) of which MX$1.52 billion (US$121 million) went towards environmental projects and MX$1.32 billion (US$105 million) went towards social projects. Mining activities bring electricity and water infrastructure to isolated communities and build roads, schools, hospitals, sporting facilities, and community centers in the places where the mine site is located.

Humberto Gutiérrez-Olvera Zubizarreta, President of Camimex

16


| VIEW FROM THE TOP

BRINGING TOGETHER THE MEXICAN MINING INDUSTRY JOSÉ MARTÍNEZ GÓMEZ President of the Mexican Association of Mining Engineers, Metallurgists, and Geologists (AIMMGM) Q: What is the role of the AIMMGM in the Mexican mining

highlight that mining is involved in all of the activities carried

industry?

out by the population. We communicate the way mining

A: Our goal is to bring together all mining professionals

activities are performed, emphasizing the responsibility

from the earth science specialisms, such as miners,

that is taken at every stage of the mining process. We want

metallurgists, and geologists. Within the association there

to avoid a lack of information or misinformation affecting

are mining professionals from government agencies at

the government’s decisions or people’s feelings toward

the federal and state level, as well as those working for

the industry, which is sometimes labeled as polluting or

Mexican and foreign companies operating in the country’s

predatory. In the past the industry has maintained a passive

mining industry. Our goal as an association is to maximize

or defensive position, but I believe that we have to develop

the number of people from the industry participating in the

a proactive attitude. We need to participate in children’s

process of transforming Mexico into a responsible mining

education showing what mining really is, so that tomorrow’s

country. The AIMMGM wants to create the infrastructure

adults are more open to the activity. Due to the fact that

that gives Mexican states the ability to pursue the

mining is cyclical, we cannot wait for a different perception

development of the mining industry with more financial

of mining to come about. This is why we want to go one step

autonomy, so that the industry can develop on its own,

further and also educate the authorities through forums,

without being centralized in Mexico City.

mass media and online content. With these measures we will reduce the unjustified media attacks that happen as a result

Q:

How

does

the

AIMMGM

promote

professional

of a lack of information. We need to give people a basic

development?

understanding about the different kinds of mining. Metal

A: The AIMMGM strives for professional development

mining and coal mining are not the same thing, and neither

and for the quality of our profession to be looked after.

are open pit and underground mining. Understanding those

Through dialogue with the educational authorities we

differences will in turn help people to understand what is

try to strengthen the relationship between universities

really happening in the different branches of the industry.

and the industry, so that the industry can get the talent it requires and, at the same time, universities can produce

Q: What were the conditions that enabled the mining

qualified mining professionals based on the needs of the

industry to flourish in Mexico?

industry. Currently, we function as a promotional entity in

A: We are not the only country with good deposits and we

this regard, and we are working together with universities

are certainly not the only ones that enjoy high international

to achieve this goal. Without Mexico’s qualified personnel

market prices, which are the two basic conditions for the

the mining industry would not have been able to reach its

mining industry to prosper in a country. The differences

current level. The issue that needs to be worked on is that

that distinguish one country from another are natural and

if the boom in international prices continues we need to

market circumstances. Even though a country cannot

see whether we can satisfy Mexican demand in the coming

modify the natural factors, it can create an adequate legal

years, both in terms of quality and quantity of skilled labor.

framework that gives certainty for investment and provide

We have to look to the future and need to generate the

the human resources for the development of the industry.

human resources needed for that industry to develop, from

Currently, Mexico has four positive conditions: international

skilled workers to managers.

prices, which other countries also have; the quantity of mineral deposits that are feasible for exploitation; the legal

Q: What is your strategy for improving the mining

framework, which even though it can be improved provides

industry’s image in Mexico?

sufficient certainty for foreign and domestic investment;

A: We strive to have a proactive rather than a reactive role in

and we have the quantity and quality of required human

our engagement with mass media and society. We are trying

talent for any mining investor – foreign or domestic – to

to promote the benefits that the industry brings and to

develop and exploit the mineral deposits in a timely manner.

17


IMPACT OF THE FISCAL REFORM By José Manuel Velderrain*-Article 39 of Mexico’s Income

the remainder of the tax is settled at the end of a 10 year

Tax Law establishes that taxpayers can deduct up to

period. Additionally, the reform package proposes to

10% of expenses made during pre operative periods of

impose a Value Added Tax of 16% on the wholesale of gold,

their business within a sole fiscal year. As a consequence,

jewelry, goldsmiths, artistic gold pieces, ornaments or gold

companies that exploit mineral reserves can deduct

ingots, the gold content of which exceeds 80%. The retail

investments made before a mine enters its production

commercialization of these products will remain exempt

phase. The current legal framework specifies that this tax-

from taxes, just as is currently established by Article 2 of

deductible preoperative period comprises the exploration,

Mexico’s Value Added Tax Law. The Statement of Purpose

localization, and quantifying processes of new mineral

that comes with the reform proposal for this law explains

deposits susceptible of being exploited. However, in

that, even if the wholesale commercialization of gold does

contrast to the law’s general rule, mining companies may

not engage final consumers, these transactions reflect the

submit these deductions in the same fiscal year during

buyers’ taxpaying capacity. The statement mentions that

which preoperative activities take place. The condition that

the Mexican Supreme Court of Justice has determined by

has to be complied with in order to enjoy this benefit is to

jurisprudence that the objective of zero tax rates is to avoid

perform tax deductions for pre operational expenses on

any harm being caused to the purchasing power of Mexico’s

each and every mineral asset possessed by the company

least favored citizens and to reduce the impact of prices

during a determined tax year. In the reform proposal that

in aggregate public consumption. As a consequence, the

Luis Videgaray, Mexico’s Finance and Public Credit Minister,

government concludes that the wholesale of gold and gold

presented to Congress on September 8, 2013, the Executive

products is a manifestation of wealth that should be taxable.

backs its suggested changes to the Income Tax Law in an

The aforementioned reform proposals have a particularly

extensive Statement of Purpose. This statement mentions

significant effect over the mining industry. However, it is also

that the current legislation offers mining exploration

crucial to analyze other suggested changes to Mexico’s tax-

companies non-equitable treatment with regards to other

collecting framework that affect all sectors. Among them,

taxpayers. While companies that are not dedicated to

mining companies should keep in mind the proposed 10% tax

mining exploration and exploitation have to distribute their

over dividends, the elimination of the “fiscal consolidation”

deductions over a 10 year period, mining companies enjoy

regime (with its inherent tax exemptions), and the removal

the benefit of reducing their taxable income by performing

of the immediate tax deduction concerning investments. The

all pre operative expense deductions in the same tax year.

fiscal reform project contemplates constitutional changes,

The Statement of Purpose argues that this distortion to the

the creation of four new laws, the abrogation of 13 laws and

Income Tax produces inequality among Mexico’s industrial

decrees and the modification of 15 legal ordinances. Some of

sectors and reduces the country’s tax-raising potential.

these changes will undoubtedly impact the mining industry. Therefore, it is strongly advisable to include the proposed

The table below demonstrates how the mining sector can

changes and their potential effects in mining companies’

defer the payment of their income tax by re-investing their

financial plans and investment evaluations for the coming

profit in preoperative investments. The deduction scheme in

years.

force does not imply that the mining industry is currently exempt from the payment of income taxes The current

*Director General and founding associate of Velderrain,

legal framework causes only a temporary difference in tax

Sáenz y Asociados. This firm offers auditing services, fiscal

liabilities – caeteris paribus and without accounting for

consulting, and specialized assistance in corporate finances

adjustment measures and inflationary effects – because

and general estate planning.

Taxable income

Proposed tax regime

$1,000,000

$1,000,000

Pre-operative expense deduction **

$500,000

$50,000

Other authorized deductions

$500,000

$500,000

Fiscal profit

$0

$450,000

Loss from previous tax years

$0

$0

Tax result

$0

$450,000

Income tax (30%) ***

$0

$135,000

** Supposing a pre-operative expense of $500,000 during the fiscal year *** The percentage of Income Tax currently in force within the Income Tax Law

18

Current tax regime

Source: Velderrain, Sáenz y Asociados


EMPLOYMENT IN THE MINING INDUSTRY In 2002, the Mexican mining industry employed 256,000 people, who contributed to the generation of MX$26.1 billion (approximately US$2.1 billion) in total output

EMPLOYMENT IN MINING INDUSTRY (THOUSAND) 350 328

value. One decade later, 328,000 people work in Mexico’s

310

mining industry, supporting a production value of US$23 billion. The accelerated growth in the value of metals and

300

293

minerals over the 2002-2012 period created a need for more qualified personnel to support the expansion of the industry. The mining industry has successfully engaged

279

250

263

256

28% more employees in the last 10 years, and it is now the

248

257

273

264

284 269

direct source of one in every 50 formal jobs in Mexico.

2012

2011

2010

2009

2008

2007

2006

2005

2004

2003

2002

the mining industry is the economic sector that has created

200 2001

Sergio Almazán, Director General of Camimex, states that

Source: IMSS

the biggest number of jobs in the country. “Nowadays, more than two million Mexican families live by means of

average daily salary for a formal employee in Mexico was

the mining industry,” he remarks. In fact, in 2012 the mining

MX$270.91 (roughly US$21.52). Within the extractive

industry was the productive sector which generated the

industries, the average salary reaches MX$417.16 (around

highest percentage of new jobs in relation to the number

US$33.13) a day, or 54% more than the national average. The

of employees it had the previous year. According to

Employment Ministry reported that, during January 2013,

the Mexican Institute of Social Security (IMSS) and the

over 600 companies performed salary revisions, negotiating

National Institute for Statistics and Geography (INEGI),

pay rises that averaged 4.4%. However, mining companies

the number of people working in the extractive sector in

agreed on salary increases of an average of 6.9%. In total,

the past year was 15% larger than the number of formal

they complied with 101 collective labor agreements in force

employees during 2011. The mining industry’s spectacular

during 2012, and performed 113 salary revisions during that

growth in terms of employment during 2012 is far ahead

same year, thus raising the income and quality of life of their

of the second and third industries with the biggest growth

employees. Once again, this situation is replicated on a local

rate: the construction sector (6%) and the transport and

level. In Sonora, employees in extractive industries make

communications industries (5%).

36% more than the average salary.

The mining industry is also an important source of

Employment in the mining industry is also moving forward

indirect employment. The contractors, service providers,

in terms of inclusion. In an increasing number of cases, the

consultants, and other people who are indirectly employed

employment of an overwhelming proportion of men in the

by the mining industry add up to over 1.6 million people,

sector is a bygone practice. In the words of Patricia Salinas

according to Camimex. Ramón Dávila, President of the

Alatorre, Economic Development Minister of Zacatecas,

Education Commission of Camimex, explains that every

“Women now have a more relevant profile in the mining

direct job in the mining industry generates an average of

industry. Historically, it was believed that women inhibited a

five indirect jobs, whereas the ratio of direct to indirect jobs

mine’s productivity. Fortunately, this has changed.” This shift

within industries settled in urban areas is only of three to

is particularly important in the development of communities

one. The profound impact that the mining industry has over

surrounding mine sites, for women have been gaining an

the regions where it operates can be best seen through

increasing importance as breadwinners in Mexican families.

local employment figures. For example, the number of people employed in Sonora’s mining industry has increased

In general, the mining industry’s contribution to job

threefold from 2000 to 2012. Nowadays, the sector is one

creation and value generation within Mexico has increased

of the state’s main employers, accounting for 16,000 direct

substantially in recent years. The sector’s beneficial

jobs and 64,000 indirect jobs. Concurrently, the mining

impact in local economies is magnified by the nature of

industry generates 12% of the state’s GDP.

its operations. As Almazán expresses, “the mining industry provides employment and infrastructure in very remote

In addition to the employment it generates, the mining

regions that cannot be easily matched by other industries.

industry has a significant positive impact on the country’s

Mining is an engine for the development of our country, and

economy, because of the salaries it offers. In 2012 the

the employment it generates is inarguably very important.”

19


2012 LABOR REFORM IMPACT ON THE MINING INDUSTRY The mining industry is both one of Mexico’s biggest income generators and one of the largest providers of direct and indirect employment in the country. As such, Mexico’s labor law and the way in which it is administered and regulated are critical in deciding in what ways the sector can function and develop. The recent reform to the labor law is for the most part viewed by legal experts to have been a vital modernization that will lead to economic growth for the whole country, and given the direct impact it has on activity in the mining industry, the sector must

Left: Rafael Cereceres Ronquillo, Partner at C&V Abogados Right: Alfonso Rodríguez Arana, Director General of LegalMex

adapt to this new legal environment. to work if their employer is not fulfilling certain security The 2012 Labor Reform represented the long overdue

obligations, such as providing them with the proper

modernization of an outdated law that had been mostly

training, protective clothing, and equipment. Another

unchanged since 1970, and the new law better reflects the

positive development in this area is that those found to have

reality of Mexico’s current social and labor environment.

breached safety regulations, to the extent of potentially

According to the National Institute of Statistics and

resulting in the loss of life, can now be fined up to 5,000

Geography (INEGI), in the four decades since 1970 life

times the daily minimum salary (almost US$25,719). These

expectancy has increased from 61 to 76 years, and the

are changes that have the aim of, and hopefully will succeed

active working population as a proportion of the overall

in, improving the industry’s security record.

population has increased dramatically from just half to around two thirds. “The 2012 Labor Reform is a good

The general areas of reform, outside of the mining chapter,

opportunity for Mexico because it allows the country

also have an important impact on the way in which mining

to reorganize and improve employment relationships.

companies operate. Not the least of these is the tightening

In general terms it was necessary, given that the last

of regulations around outsourcing, which is common within

important amendment to the labor law took place in the

the Mexican mining industry, for example at the construction

1970s. It may seem like a very aggressive reform, but it

stage or in the provision of catering or cleaning services.

was a long-needed one,” says Rafael Cereceres Ronquillo,

Besides the obvious practical advantages of outsourcing,

Partner at C&V Abogados.

it often has the additional benefit of bringing costs down because Mexican companies are obliged to share their net

The reform proposal was exhaustive, addressing 80% of

profit with their employees, whereas such payments are

the law’s 1,010 articles and integrating all aspects of the

not made to those working for the outsourced company.

labor market, from contracting and discrimination to

Changes made under the 2012 Labor Reform, however, aim

salary payment and dismissal. The Legislative ultimately

to eliminate this practice. For example, companies may

approved modifications to a third of the Law’s original

now only outsource ‘specialist’ labor that is different to that

content. The mining sector is arguably one of the

provided by the company’s regular, contracted employees.

industries that will be more significantly affected by the

The law also states that the outsourced labor may not

labor law reform, principally because the law contains a

account for the entirety of the company’s operations. Placing

new chapter dedicated solely to mining (articles 343-A to

such limits on the conditions under which an organization

343-E). The focus of the legislation laid out in this chapter

may outsource will directly affect the ways in which mining

is to improve health and safety regulations for mining

companies conduct their business. “Most companies in the

operations in Mexico, based on requirements ranging from

industry contract services through external providers,” says

having a proper management system for health and safety

Alfonso Rodríguez Arana, Director General of LegalMex.

issues and informing workers of the risks inherent in this

“In many cases the staff provided through these channels

type of work, to making both concession holders and

play a direct and immediate role in the core business of the

mining operators responsible for ensuring that mines are

company, even though they are subcontracted.” According

managed in compliance with all safety regulations.

to Rodríguez Arana, those companies that hold a mining concession without having a single employee are greatly

20

The mining chapter of the labor law also gives workers

affected by these changes and will need to restructure as a

a more active role in the upkeep of health and safety

result, if they have not already. If they do not do so, mining

standards. Article 343-D gives workers the right to refuse

companies that are found to have created false institutions


with the aim of reducing their labor expenses will now be

This is especially important considering that, in Mexico, such

sanctionable by law.

trials last – at best – three years, during which the employer had to pay the full amount of the plaintiff’s wage as if he

Outsourcing represents one way in which the labor reform

or she were still working for the company.” Mexico’s labor

has served to improve the balance of the employer-

litigations are carried out by a Workers’ Compensation

employee relationship. While it has tightened the law in this

Appeals Board (JFCA), which currently has a severe lag

area, the reform has simultaneously opened up in the area

in case resolution and takes an average of 51 months to

of contracting. Employers can now hire workers through a

resolve a trial. An amendment to the law means that if an

number of different contracting schemes – including trial

ex-employee brings a case of unfair dismissal against its

contracts, temporary contracts, and seasonal contracts –

former employer and wins, the employer will be obligated

and it is now also possible to hire employees at an hourly

to settle unpaid wedges equivalent to the worker’s full

rather than a daily rate. It should be noted that, whatever

salary for 15 months, plus a 2% interest over every month

the length of the contract or number of hours worked, all

that passes until the trial is resolved. In addition, lawyers

employees share the same right to the national minimum

and public officials who deliberately delay trials will be held

salary and to receive social security benefits as specified by

liable and sanctioned. This is welcome news in particular for

law. Employees may also work overtime at double the rate

small- and medium-sized mining companies that previously

of their usual hourly wage. However, overtime hours should

could have had to pay many years’ worth of back payments

not exceed three hours per day and cannot surpass three

whenever faced with an unfavorable sentence in labor trials.

consecutive days. These changes afford employers much

The reform will undoubtedly prevent many companies from

greater flexibility in meeting their companies’ staffing needs,

facing financial difficulties or even closure due to costly

reducing the risk of overcommitting to long contracts that

legal disputes.

may not be required in the long term. It is also now easier for either party to terminate the contract before it expires.

Another key development on the labor front is the country’s ratification

of

the

International

Labor

Organization’s

Despite some reservations about potentially increased

Convention 176 on Safety and Health in Mines, which was

costs for mining companies operating in Mexico - resulting

written in 1995. However, in 1998 Mexico’s Labor and Social

from new outsourcing regulations and having to spend

Welfare Ministry recommended that it not be ratified by

more on increasing security provisions - the 2012 Labor

Mexico because the country did not yet have the legal means

Reform is generally viewed by legal experts as being

to comply with its terms. Nevertheless, in August 2012 the

beneficial for the industry. Indeed, many experts think that

Ministry suggested that the necessary process be begun to

it will even increase productivity across all industries. The

reconsider its ratification. Although this convention is yet

Mexican Institute for Competitiveness (IMCO) predicts

to be ratified, the fact that the Labor and Social Welfare

that, as a result of the reform, Mexico’s GDP will increase

Ministry has recommended that the government now do

by between 1 and 1.5% annually.

so is a clear indication that the labor law and the country’s legal framework in general have become more developed

Cereceres Ronquillo views the Labor Reform as a positive

and internationally competitive. By committing to such

step forward that provides a good opportunity for Mexico’s

conventions, Mexico stands itself in good stead for attracting

mining industry to improve its employment relationships.

further foreign investment into its industrial sectors.

The biggest improvement for Cereceres Ronquillo is that the government has now increased its surveillance, making

While recent reforms and their consequences represent a

sure that the new rules and regulations are being properly

challenge for mining companies operating in Mexico, in the

implemented across industries. “The new government is

long term they will prove to be a positive step forward for

working very closely with the Labor and Social Welfare

the industry. LegalMex has successfully advised its mining

Ministry to ensure that mining companies are complying

clients on the reform’s risks and benefits, and along with

with their labor and safety obligations, as employers. This is

his partners and expert associates at LegalMex, Rodríguez

a positive change, and one that was needed,” he says. In fact,

Arana helps further clients’ business by promoting a

mining companies that apply international best practices

preventative approach to labor conflicts. “This implies

can benefit greatly from the reforms made to Mexico’s

the modification of contracts, the verification of legal

Federal Labor Law. Among them is the opportunity to hire

relationships with suppliers, and many other due diligence

employees under new recruitment schemes, including trial

changes. We have deeply helped our clients in the mining

periods and temporary training programs. The law also

industry and this is why we fortunately have a lot of

protects employers against potential abuses from former

work,” he adds. Despite the speculation around the exact

employees. In the words of Rodríguez Arana, “one of the

potential that the 2012 Labor Reform has to improve the

most transcendent issues addressed by the reform is the

development of Mexico’s mining industry, its full impact

imposition of a limit to wage payment during labor trials.

will only be revealed in the coming years.

21


GLOSSARY OF TERMS

22

AIMMGM: Mexican Association of Mining Engineers,

FIFOMI: Government Trust for Mining Development

Metallurgists and Geologists

GDP: Gross domestic product

CA$: Canadian dollars

ILZSG: International Lead and Zinc Study Group

Camimex: Mexican Mining Chamber

IMSS: Mexican Social Security Institute

Canacero: Mexican Iron and Steel Industry Chamber

INEGI: National Institute of Statistics and Geography

CBA: Technical Training College for Agriculture

IPICYT: San Luis Potosi Institute’s for Scientific and

CEO: Chief Executive Officer

Technological Investigation

CFE: Federal Electricity Commission

ISR: Income Tax

CGM: General Coordination of Mining

LGEEPA: General Law of Ecological Equilibrium and

CIATEQ: Advanced Technology Center

Protection of the Environment

CONAFOR: National Forestry Commission

LNG: Liquefied Natural Gas

Conagua: National Water Commission

MEG: Metals Economics Group

CSR: Corporate Social Responsibility

MIA: Environmental Impact Assessment

DGDM: General Directorate for Mining Development

MX$: Mexican pesos

DGRM: General Directorate for Mining Regulation

NAFTA: North American Free Trade Agreement

ERA: Environmental Risk Assessment

NGO: Nongovernmental Organization

ERP: Enterprise Resource Planning

NOMs: Official Mexican Norms


Q&A: Question and Answer

Metric Terms

Q&T: Quenched and Tempered

Co2: carbon dioxide

RAN: National Agrarian Registry

ha: hectare

ROI: Return on Investment

hp: horsepower

SEDENA: Ministry of National Defense

km: kilometer

SEMARNAT: Ministry of the Environment and Natural

kW: kilowatt

Resources

kWh: kilowatt hour

SGM: Mexican Geological Survey

l: liter

SHCP: Ministry of Finance and Public Credit

m: meter

SLO: Social License to Operate

m2: square meter

STPS: Ministry of Labor and Social Welfare

m3: cubic meter

UASLP: The Autonomous University of San Luis Potosi

MW: megawatt

UAZ: The Autonomous University of Zacatecas

oz: ounce

UNAM: The National Autonomous University of Mexico

pH: measure of acidity or basicity

US$: US dollars

rpm: revolutions per minute

USGS: United States Geological Survey

t/d: tonnes per day

VP: Vice President

t/hr: tonnes per hour

23


24


HISTORY & OPERATING ENVIRONMENT

2 Mexico’s rich mining history has played an important role in shaping the way that the industry functions today. 500 years of mining activity gave way to the construction of some of the country’s main cities, as well as being a leading source of wealth from Spanish colonization up until the present day, with mining now representing the fourth largest sector in Mexico’s economy. The country has maintained a rich mining culture throughout the different regulatory and operating frameworks that have governed the industry, from periods of nationalization and liberalization to different cycles in the global metals market.

This chapter looks at the evolution of mining in Mexico, from the country’s historical mines to the current day operating environment. It provides insight into the perspectives of the country’s leading legal and industry specialists, while analyzing the current reality of conducting mining projects in Mexico, as well as its overall attractiveness as a place to do business. Furthermore, it looks at the permitting processes and land access issues that companies must address in order to begin a project, as well as the legal requirements that guide the operations of mining companies, service providers, and suppliers that operate in the country. This chapter also offers an overview of the essential role that mining has played in the history of Guanajuato, and the main mines that are operating in the state today.

25


*

*

26


CHAPTER 2: HISTORY & OPERATING ENVIRONMENT 28

Hunt for Gold and Silver in New Spain

29

Center of the Silver Mining Industry

31

The Rise and Fall of Mexico’s Mining Towns

32

The Mining Code of 1884

33

Salvador Treviño: Life at the Center of the Mining Industry

34

Evolution of the Mining Law and Industry Governance

36

VIEW FROM THE TOP: Refining Mexico’s Mining Framework

38

The Mining Law Explained

39

VIEW FROM THE TOP: Lobbying Mexican Authorities on Behalf of the Industry

40

VIEW FROM THE TOP: Adapting to a Changing Legal Environment

41

VIEW FROM THE TOP: Envisioning a Better Mining Framework

42

Preventative Approach to Land Ownership Disputes

43

Clear Communication Proves Critical in Legal Processes

44

VIEW FROM THE TOP: Agrarian Law and the Mining Industry

45

Ejidos: Legacy of the Mexican Revolution

46

Community Relationships and Effective Negotiation

47

Local Relationships Crucial for Successful Mines

48

Legal Framework for Obtaining Mining Concessions

49

EXPERT INSIGHT: Federico Kunz Bolaños & Baltazar Solano Rico

50

VIEW FROM THE TOP: Improving the Environmental Framework

50

The Effectiveness of Mexico’s Environmental Laws

51

Local Expertise Facilitates Foreign Mining Investment

52

VIEW FROM THE TOP: Operating within Mexico’s Framework for Foreign Investment

53

Historical Impact of Mining on the Mexican Economy

54

Union Influence in Mexico’s Mining Industry

54

Legacy of the 1906 Cananea Strike

55

Changes on the Labor Front

56

Impact of the 2012 Labor Reform on the Mining Industry

58

STATE PROFILE: Guanajuato

59

MINE PROFILES: Guanajuato

27


HUNT FOR GOLD AND SILVER IN NEW SPAIN Gold and silver mining was not just the main motivation

de Nuestra Señora de Zacatecas was the first large mining

behind the Spanish colonization of the Americas; it sealed

settlement in New Spain. During this period silver production

the fate of many towns and cities in Mexico and Latin

in Mexico was greater than production in the rest of the

America for years afterwards. The Viceroyalty of New

Americas, and almost equaled the total production from all

Spain was established following the Spanish conquest

other parts of the world. According to the law in place at

of the Aztec Empire in the 16th century. One of the main

the time, all of the mineral resources located underground

reasons for the rapid colonization of the newly-discovered

were property of the Crown. Nonetheless, exploitation

territories was the hope of finding precious metals. The

was open to private investors, who could start extracting

lands that were brought under Spanish rule were of

minerals after registering their digging rights by means of

unprecedented mineral wealth, and after the discovery of

a legal procedure. The Crown charged investors a fifth of

a large number of silver and gold mines the Viceroyalty

their proceeds, though as the costs of investment rose the

of New Spain became the principal source of income for

amount was later reduced to a tenth.

Spain, out of all of its colonies. Metals accounted for more than 75% of New Spain’s total exports (increasing to 90%

In New Spain, mining centers were the place where

during the 16th and 17th centuries). The mineral discoveries

the majority of agricultural trade took place and taxes

created a system of forced native labor called encomienda,

derived from mining activities helped to fund the colony’s

and minerals became the core of New Spain’s economy.

bureaucracy. The mining boom that started in the 16th

The hunt for gold and silver in the Americas started after

century went through a difficult period in the first half

the first silver mines were found in Taxco in 1534, and

of the 17th century. Between 1650 and 1750, mining

flourished with the discovery of large mineral ore deposits

production in New Spain became stagnant and was not

in Zacatecas (1546) and Guanajuato (1550) in Central

able to compete with Peru’s production levels. While the

Mexico, and the Potosi silver mine (1545) in the highlands

Taxco mines started to struggle, the mines in Zacatecas,

of Bolivia.

Fresnillo and Catorce maintained good production levels, which resulted in the founding of important mining towns

‘Silver Fever’ led to a rapid rise in the populations of mining

such as Durango and Chihuahua. The second half of the

towns, and by the end of the 16th century the colonial

18th century saw another great boom in the production of

mining industry had entered its golden age. The process

silver, which was a result of the discovery of new deposits,

of dry amalgamation of silver with mercury, introduced

a reduction in taxes, and the reopening of abandoned

by Bartolomé de Medina in 1557, was the most common

mining areas.

method for obtaining silver. The process had revolutionized the way in which silver was extracted in Europe, despite

Metal production in New Spain made an important

its adverse effects on miners’ health. Although mining

contribution to the global trading system of the time, and

workers were free to move to other places, unlike hacienda

silver imports supported the process of monetization in

laborers, in the majority of cases labor conditions at the

Europe. The Real Colonial Español became the standard

mines were uncertain and dangerous. Mining activities

Spanish silver coin in the colonies of the Americas and in

brought unquantifiable benefits and economic prosperity

the Philippines, as well as the world’s leading currency.

to Spain and its colony. Many of the luxurious buildings

Given New Spain’s incredibly large silver production,

and haciendas still standing in some of Mexico’s colonial

the first mint in the Spanish colonies was established in

cities are the perfect illustration of this. However, the

Mexico City and remained one of the most important mints

mining boom also generated negative consequences in the

throughout the course of the colonial period. By the end of

form of reckless adventurism and commercial speculation.

the colonial period there were over 500 Real de Minas. The

The mining industry of the time was characterized by an

most important ones were Guanajuato, Catorce, Zacatecas,

element of luck, and the majority of discoveries came

Real del Monte, Pachuca, Taxco, Fresnillo, Sombrerete,

about by chance. Moreover, mining profits were rarely

Tamos, and Parral. The most productive mine in New Spain

reinvested in the industry.

was La Valenciana in Guanajuato, which for 250 years produced 20% of the world’s silver and over the same

28

Mining activities led to a very particular system of social

period delivered as much silver as the entire Viceroyalty

organization. The system’s core was known as ‘Real de

of Peru. The mining industry declined dramatically in the

Minas’, which was an urban center encompassing the

19th century as a result of Latin America’s independence

settlers and mines within an eight to 24km radius, and which

wars, the Second Industrial Revolution in Europe, and the

also served as an administrative entity. The Real de Minas

depreciation of gold and silver currencies.


CENTER OF THE SILVER MINING INDUSTRY The history of Taxco, the oldest mining center in the

Silver production in Taxco did experience temporary

Western Hemisphere, begins in 1530. Some silver deposits

setbacks. During the 17th century mining activities in Taxco

in Taxco have been exploited since pre-Hispanic times. This

were more exploratory than productive. In those years,

indigenous settlement, known as Tachco, was the place

the Spanish Crown asked silver producers for frequent

where the tin that the Aztecs used as a form of currency was

donations, firstly to subsidize the funeral of King Philip

extracted. When the Spaniards arrived, Cortés discovered

IV and later the ascension to the throne of Charles II of

that many of the metals that Moctezuma received as a

Spain, as well as the wars that took place during that time

tribute came from Taxco, which prompted him to send an

period. In the 18th century new mines were discovered

expedition there. In 1528, a mining camp was established in

and some old mines were restored. As the mines grew

the area, although it was not until 1531 that the Spaniards

deeper, the quality of the mineral diminished, production

subdued the native inhabitants. By 1570 there were already

costs increased, and extracting the mineral stopped being

three Real de Minas in Taxco: Tetelcingo, Cantarranas and

profitable. This caused many mine owners to go bankrupt.

Tenango. In that same year, the Real de Minas of Taxco was

However, the use of new technologies such as explosives,

founded. The large quantity of minerals extracted from its

as well as the access to more financing, contributed to a

mines made Taxco one of the most important mining centers

new stage of prosperity in Taxco. The Bourbon Reforms

in New Spain. Unlike the majority of towns in New Spain’s

that took place at the end of the 18th century encouraged

southern region, Taxco, which is located in a mountain region

mining activities in New Spain, which helped mining

in the north of the current state of Guerrero, was an important

production in Taxco to remain high, and in 1791 the town’s

silver producer throughout the colonial period. Within a few

population was approximately 6,000 people. The majority

years of starting production the number of mines in the

of metals extracted in Taxco were sent to Mexico City,

region had increased significantly. The implementation of

and later the silver was transported to either Veracruz or

the amalgamation method in the production of silver also

Acapulco, where it was shipped out of Mexico in order to

helped to increase the quantity of minerals being extracted.

be traded in Europe or Asia.

Although some of the Spanish mine owners used African

The War of Independence halted production in Taxco, and

slaves, the majority of them thought that native people were

many Spanish mine owners chose to destroy their mines

naturally skilled to conduct mining activities. However, a

rather than lose them to the rebel forces. As a result,

large number of indigenous people died as a consequence

silver mining in Taxco came to a standstill for some time.

of the germs that the Spanish conquistadors brought with

Nevertheless, the 20th century saw the rebirth of Taxco

them. To compensate for the decline in forced labor, the

as Mexico’s silver capital, though this time around Taxco

colonizers established a system called Repartimiento de

was no longer an important site of silver mines as it had

Indios, which consisted of assigning certain indigenous

been for centuries; it instead became the most famous

groups to work in each of New Spain’s different mining

location for silversmithing in Mexico. Nowadays Taxco

centers. As a result, laborers from Cuernavaca, Cuecalan,

is an important tourist hub, with its magnificent colonial

Xochimilco, Malinalco, and other nearby towns, were sent

buildings and narrow streets serving as reminders of its

to work in Taxco.

former glory.

29


30


| THE RISE AND FALL OF MEXICO’S MINING TOWNS

MINERAL DE POZOS

REAL DE CATORCE

The town of Mineral de Pozos is located in the northeast

Located in San Luis Potosi, Real de Catorce became one

of Guanajuato state. First settled in 1565 with the name

of the largest mining centers in Mexico after the first

of Palmar de Vega, it was later renamed Mineral de

vein was discovered in the 18th century. The town was

San Pedro de Pozos and later Ciudad Porfirio Díaz.

founded in 1778 as a result of the discovery of mines

The first mine in Mineral de Pozos – also considered

rich in silver. In 1803 Real de Catorce had become the

the oldest mine in Guanajuato – was Santa Brígida,

world’s second largest silver producer, and experienced

which extracted mercury and small amounts of gold,

a very successful period up until the start of the War of

silver, copper, lead, and zinc. The town became the

Independence. The wealth of its mines was renowned,

most important mining center in Guanajuato during

and many foreign immigrants congregated there. After

the presidency of Porfirio Díaz, and by 1895 Mineral

Mexico became independent from Spain, foreign - mainly

de Pozos counted 306 operating mines and 70,000

British - companies began to take an interest in the mines

to 80,000 residents. The Mexican Revolution marked

of Real de Catorce, and significant investment started

the beginning of the decline of mining activity in

flowing into the town. During the presidency of Porfirio

Mineral de Pozos, and the combination of fighting, the

Díaz, Catorce experienced a second boom, largely due

subsequent flooding of the mines, and the fall in the

to the technological improvements implemented in

global silver price ultimately resulted in the closing

Catorce’s mines. Electricity was first introduced to the

of the last operating mine in 1927. By the 1950s the

Mexican mining industry with the installation of lighting

population of Mineral de Pozos had declined to several

systems, electrical pumps, and winches in Catorce’s

hundreds of people, and it was not until the 1990s that

Santa Anita mine. At the start of the Mexican Revolution

the town experienced a rebirth and became a tourist

work was suspended and the population of the town

destination, as a result of its “ghost town” reputation

began to decline. In 2001 the town was named a Pueblo

and the recently awarded Pueblo Mágico status.

Mágico and became a tourist hub.

ALAMOS

REAL DEL MONTE

Alamos was founded at the end of the 17th century

Located in the state of Hidalgo, Real del Monte was one

following the discovery of silver deposits in the

of the first mining provinces in colonial Mexico. Situated

surrounding Promontorios and La Aduana towns.

over 2,600m above sea level, it is one of Mexico’s highest

Alamos was the first municipality in the state of Sonora

inhabited areas. Although the exact date of the town’s

to become a city and it remained one of the region’s

foundation is unknown, the first mines in the area were

most important settlements until the end of the 19th

registered in 1552. In the 18th century Real del Monte

century. Following Mexican independence, it was the

became one of the most important mining centers in

capital of the state of Occidente for a period of time,

New Spain. Pedro Romero de Terreros, Count of Regla,

a province which was later divided into Sonora and

owned almost every mine in the town, and he became

Sinaloa. Silver wealth was the driving force behind the

the wealthiest man in New Spain as a result of mining

colonial architecture the town proudly displays today,

production. As with the majority of mining dependent

though gold, copper and turquoise were also extracted

communities,

from its mines. At the peak of its prosperity Alamos had

population left after mining activities became stagnant

a population of 36,000, which was made up of Mexican,

during the Mexican War of Independence. In March 1824

Chinese, Japanese, English, and French inhabitants.

a group of British investors arrived in Real del Monte

After the Mexican Revolution the mining boom ended

and bought several mines from the descendants of the

and the population of Alamos dwindled to 7,000. The

Count of Regla. The English legacy remains to this day,

town was granted the status of Pueblo Mágico in 2005

in the buildings and culinary traditions of Real del Monte.

as a result of its historical heritage, cultural wealth, and

Unlike other colonial mining towns, mining activities

natural beauty. Both this recognition and its proximity to

continued in Real del Monte well into the 1930s, at which

the US granted Alamos many international visitors, and

time the town remained one of the world’s largest silver

its current population exceeds 25,000.

producers.

a

large

percentage

of

the

town’s

31


THE MINING CODE OF 1884 After gaining independence from Spain in 1821 Mexico

The Mining Code established that mines and sandbanks

experienced a disastrous economic downturn, amid extreme

had a different legal status to regular land property. This

political instability. The numerous internal wars and foreign

meant that the mines and the land above their surface

military interventions that took place during the course of

were considered to be two different properties. It stated

half a century led the country to financial bankruptcy. In 1877

that ownership over a mine was obtained by means of a

Porfirio Díaz was elected President of Mexico for the first

concession, after a discovery had been reported to the

time. He was a general who had fought against the French

proper authorities. The duration of this concession was

invaders and, afterwards, rebelled against President Benito

unlimited, as long as the mineral resources were being

Juárez. As soon as he took office Díaz embarked on a process

exploited. This represented a radical move away from

of modernization for the country. The ‘economic miracle’

colonial regulations, because it transferred property

that Mexico experienced during the Porfiriato (the historical

rights over underground resources to the owners of the

period during which Porfirio Díaz was in power) cannot

land where the resources were located. Foreign nationals

be understood without appreciating the large amount of

were allowed to purchase a mining property under the

foreign investment that flowed into the country. Mexico’s

guidelines and restrictions stated by law. Regarding water

strongman provided foreign investors the political stability

access, mining exploitation was granted a public utility

they needed to invest in the country. Díaz tried to avoid the

status and, for that reason, concession holders were also

preeminence of US capital to the greatest possible extent,

entitled to use underground waters.

and promoted investment coming from other nations. Within the first four months after the 1884 Mining Code was Mining activities played an important role within Díaz’s

passed 847 applications were made to consolidate property

economic development program. His plan was to increase

titles. At the same time, the federal and state governments

the production of precious metals, which Mexico had

gave out free land to mining companies to incentivize the

been exporting since colonial times. Until 1889 the largest

construction of roads and railways near their concessions.

producing gold and silver mines in Mexico had been located

Foreign investment in Mexico reached unprecedented

in the central states of Guanajuato, Hidalgo, San Luis Potosi,

levels during the Díaz regime. American investors were the

State of Mexico, and Zacatecas. As the consumption of

first ones to enter the country, which was due to the fact

industrial minerals grew, more exploitation works started to

that Mexico had broken diplomatic relations with France,

be carried out in the north of the country. A new Mining

Germany, the Netherlands, and Great Britain in the 1860s. The

Code was enacted in 1884, which replaced the previous

growing presence of American capital alarmed European

one that dated back to colonial times, as part of the

nations and, eventually, those nations decided to normalize

industry’s modernization process. This code came into

their diplomatic relations with Mexico. Within a short time

effect in January 1885 and immediately opened the door

European investors began arriving in Mexico, but the US

to a wave of foreign investment in the Mexican mining

remained Mexico’s most important commercial partner

industry. It eradicated all rules and implications regarding

throughout the duration of the Porfiriato. It is estimated that

state property over the subsoil. The law also granted private

by 1910 American investors owned approximately 75% of all

parties irrevocable ownership rights over mining properties

active mines in Mexico. England and France were the other

in perpetuity.

two main investors.

Strategic advisory with global reach for the mining industry in Mexico . M&A Advisory . Debt & Capital Procurement . Asset Valuations . Early Stage Exploration Services


SALVADOR TREVIÑO: LIFE AT THE CENTER OF THE MINING INDUSTRY Don

Salvador Treviño, Founder of AIMMGM and Former President of Camimex

Treviño

industry, from both an insider and an outsider’s perspective.

was, in many ways, the

Salvador

In the mid-1950s Treviño was appointed General Manager

father

Mexican

of the Commission for the Promotion of Mining, where

mining industry, and his

of

he worked for 15 years. “At that time we were looking

passing away earlier this

to increase competition in mining. I made some difficult

year was a source of grief

decisions in my first year in the role of General Manager,

for

the

the

Mexican

namely in turning the Commission from an organization

mining industry. Through

entire

that owned mines into an entity that provides support

a

powerful

to mining,” recalled Treviño. “We started by becoming

he

held

an important sulfur producer. The Commission for the

number

positions

of that

during his life, such as

Promotion of Mining was an entity that was well known for

General Manager of the Commission for the Promotion

its financial integrity and it supported many mines, such

of Mining, President of Camimex, and the founder of the

as San Francisco del Oro, while at the same time helping

Mexican Association of Mining Engineers, Metallurgists,

to form other Mexican companies. The Commission also

and

helped in the Mexicanization of Minera Fresnillo, which had

Geologists

(AIMMGM),

Treviño

dedicated

his

professional life to bringing the industry to its full potential,

been experiencing financial difficulties.”

for the benefit of Mexico and its people. His passion and dedication led the country’s mining industry to where

Treviño later went on to become President of Camimex, a

it stands today, as one of the most attractive mining

position that he held for three periods. His role at Camimex

territories in the world.

came at a particularly difficult time for the industry, and for him the role of Camimex in protecting, promoting and

Treviño graduated as an Engineer from Texas Western

developing the industry was of utmost importance. During

College towards the end of the economic crisis of the

a time when the industry was facing financial difficulties

1930s that had crippled the US economy. He remained in

Treviño saw the process of ‘Mexicanization’, whereby

the US and gained a year’s practical experience working as

foreign funding of mining projects was limited to a

a mining engineer for Colorado Fuel and Iron Corporation:

maximum of 49%, as a concern for the industry. He was an

six months at its Wagon Wheel Gap property in Colorado,

advocate for the positive impact that foreign investment

and a further six months at its Sunrise property in Wyoming.

could have on Mexico’s mining industry, particularly during periods when the market was in a downward cycle. “I was

Treviño returned to Mexico in the middle of 1942, six

never opposed to foreign exploration. The Mexicanization

months after the Japanese attack on Pearl Harbor. As

process had focused on taking mining activities out of the

the US’s involvement in World War II was escalating,

hands of foreigners, but on the other hand they brought

Mexico’s mining industry was focused on supplying natural

money that was needed to search for new mines, and to

resources to the US in order to meet growing military

me that has generally been positive for the country,” he

demand. With the help of the contacts he had made in

remarked.

the US and his former Texas Western College Professor, Treviño secured his first job in Mexican mining. “The mine

Don Salvador Treviño maintained close links with Camimex

I started to work on in Mexico was an antimony mine. It

throughout his career. He attended the organization’s

was relatively small in comparison to other mines, but

meetings for 50 years, and would attend monthly lunches

nevertheless it was of great strategic importance given

with the Camimex Board, even after he had stopped

that antimony was needed for World War II and neither

holding an official role in the organization. Of the many

the US nor Canada produced a significant amount,” said

different ways in which Treviño shaped and improved

Treviño in an interview with Mexico Mining Review at

Mexico’s mining industry, for him the highlight of his

the end of 2012. “Over time I worked my way up in the

career was setting up the AIMMGM. “For me, my greatest

company, and it was precisely because of the increase in

success was the creation of the AIMMGM during the period

the demand for, and production of, antimony that I was

of Mexicanization in the mining industry. Having lived in

able to become Manager of four of the company’s mines.”

the US for 15 years, I wanted to form an association that would bring together all professionals in earth sciences

His experience in the US mining industry combined with his

and give them the value and respect that they deserve.

experience of managing four different mining operations in

The AIMMGM was born out of this aim, and up until this day

Mexico placed him well to understand the Mexican mining

it has been a great success,” said Treviño.

33


EVOLUTION OF THE MINING LAW AND INDUSTRY GOVERNANCE At various times during its lifespan Mexico’s Mining Law

activities were being carried out, in 1883 Díaz moved it

has been characterized as excessively liberal, nationalistic,

back to become the responsibility of the Mexican State,

and protectionist. Today it is considered to be an efficient

where it has remained ever since.

law with an effective regulatory framework that allows both domestic and international mining companies to

During his rule Díaz placed much emphasis on the

operate safely and with sufficient freedom within the

export market, whilst simultaneously failing to stimulate

industry, though it has taken many years of amendments

domestic production. By 1910 there were severe food

and adaptations to arrive at this stage.

shortages throughout Mexico, and Díaz’s administration was characterized by extreme poverty and expropriation

The mining industry has existed in Mexico for hundreds of

of communal land, and dissatisfaction was beginning to

years and it is natural that there has been so much change

show. The Mexican Revolution followed, lasting 10 years. In

around the question of how the law should protect or

the midst of the Revolution, in 1917, a new Constitution was

exploit the country’s vast mineral wealth. The framework

drawn up. Article 27 did away with the liberalism inherent in

has been largely influenced by the evolution of the

Díaz’s mining law, emphasizing state ownership of all mineral

government agenda over time. “From my point of view,

wealth in Mexican lands and waters. Foreign investment,

the legislation in place should correspond with the realities

however, was still not restricted and remained significant

of the industry that it regulates. I believe that Mexico’s

until 1961, when the mining industry was nationalized.

mining legislation has generally fulfilled this function, since

“Before the 1960s foreign investment in the Mexican

it has historically been linked to the economic and political

mining industry was allowed by the government,” explains

reality of the country, and it has regulated the mining

Abdón Hernández Esparza, President of the Legislative

industry according to that reality,” says Karina Rodríguez

Commission of Camimex. “However, starting in that decade,

Matus, Partner at PS&RM Abogados.

all tax incentives and subsidies were restricted to companies

“The mining law of 1992 was created to better meet the needs of the industry and it eliminated the excessive regulations of the 1975 law” Federico Kunz Bolaños, Partner at Kunz Abogados

History has shown this to be true. After a period of heavy

that were at least 51% owned by a national company.

mining during Spanish colonization that saw much of

Then, in the 1970s, a new, more restrictive mining law was

Mexico’s mineral wealth sent abroad and little regulation

enacted. This encouraged further government intervention

over the industry, the country has taken its time to develop

in mining activities. In order to create a mining company

a legal structure that balances making the most of foreign

the Undersecretary of Mines first had to grant approval,

investment and ensuring material benefit for Mexico.

and transferring a concession from one mining company

Under the rule of Porfirio Díaz (1876-1911) industry and

to another required permits from the Bureau of Mines. In

mining grew exponentially, and in 1884 he created the

general, regulations were tougher.” This period of decreased

Mining Code, considered by Rodríguez Matus to be the first

foreign investment and increased government control in the

Mexican mining law. This code was the most liberal mining

mining industry both reduced investment in the industry

law that the country has ever known. It placed no limits on

and increased bureaucracy. “The foreign exchange controls

foreign investment in and ownership of mining companies,

imposed by the López Portillo administration in particular

and while some of the wealth created from mining finally

led to international companies creating a number of

started to benefit Mexico, that wealth was concentrated

subsidiaries in order to carry out their operations in Mexico.

in the hands of only a few privileged Mexicans. The

As an example, at that time Peñoles had some 65 subsidiary

many foreign mining companies that flooded the market

companies,” adds Hernández Esparza.

also continued to send much of the profits from mining

34

abroad. Though there was a brief period during the mid-

Government regulation and protectionism remained a

19th century when mining regulation was placed under

permanent feature of the Mining Law in Mexico until the start

the responsibility of the individual states where mining

of the 1990s, when the government began to pursue a more


neoliberal agenda. “The Mining Law of 1992 was created to

more to do with the importance the federal government

better meet the needs of the industry and it eliminated the

places on the industry. We are not talking about a different

excessive regulations of the 1975 law,” says Federico Kunz

structure; we are talking about autonomy in decision-

Bolaños, Partner at Kunz Abogados and former head of the

making and in budget management.”

General Coordination of Mining. “There used to be a lot of rules for managing contracts and corporations; the former

While there is significant support for a change in the

law was a regulation-heavy one. Nowadays, the law follows

way that the mining authority is structured, there is

more neoliberal principles.”

no agreement over how the revised structure should look. For example, Rodrigo Sánchez Mejorada Velasco,

The 1992 modifications to the mining law put the wheels

Partner at Sánchez-Mejorada, Velasco y Ribé, agrees

in motion for a real change in the industry, which was

that a regulatory body with more autonomy and control

consolidated by the signing of the North American Free

over its own budget would be positive for the industry.

Trade Agreement (NAFTA) in 1994. NAFTA removed trade

However, his concern is that too much change would be

tariffs and stimulated trade between Canada, the US and

more disruptive than productive, and that whilst having

Mexico. The 1992 Mining Law also states that all mining

the different mining entities together under one umbrella

companies, whether carrying out exploration or exploitation

might seem more practical, it could lead to additional

work, can now be 100% foreign owned. Many companies

bureaucracy within mining processes. “I am not sure that

have taken advantage of this, with international investment

grouping substantially different activities within one entity

in mining in Mexico amounting to more than 40% of the

makes sense. Financing, for example, is a whole different

industry’s overall funding. For the first time, changes to

activity

Article 27 in the same year now permitted the lease or sale

granting concessions, or promoting mining. There will be a

of ejido land, which was a positive move for the mining

conflict of interest between lending money and promoting

industry, making much more land potentially available for

mining, and I fear that the pressure that will build up

exploration and exploitation.

will not allow the lending branch to work properly as a

from

geological

knowledge

acquisition,

or

financing institution,” he says. Where mining lawyers like The mining law has not changed significantly since 1992,

Kunz Bolaños, Sánchez Mejorada and Rodríguez Matus do

despite further changes that were made in 2005. For

agree is that mining would probably fit logically under the

example, exploration and exploitation concessions are no

Ministry of Energy as opposed to the Ministry of Economy.

longer separated, and are valid for 50 years on a renewable basis. Indigenous or farming communities are now also

For all intents and purposes the new administration

permitted to obtain mining concessions, and are given

appears to be conscious that mining should be given higher

preferential rights over other applicants, a significant sign of

priority; Peña Nieto has promoted investment in Mexican

progress for indigenous land rights given that concessions

mining during international trips, and made mining one of

are usually issued on a first come first served basis. While

the key areas for development under the Pact for Mexico.

the 1992 Mining Law marked a positive step for the industry, stimulating growth and renewed opportunity for investment, some criticize that it also marked a reduction in the priority given to mining by the government. It included the dissolution of the Undersecretary for Mining Affairs, and the repositioning of mining as the responsibility of the Ministry of Economy, where it still sits.

ARTICLE 27 OF CONSTITUTION Article 27 of the Mexican Constitution states that all lands and waters within Mexican territory are the property of the Nation, and that it is the Nation’s sole right to transfer ownership of property to private persons or entities. Landowners have property rights over the surface of the ground, but

There is a feeling among some in the industry that this is

all natural resources that lie beneath the surface of

not the right structure. Given that the mining industry is

the ground belong to the Nation.

the fourth most significant contributor to Mexico’s GDP, they believe that it should be given more importance in

In terms of mining, Article 27 states that the

the governmental hierarchy. There is significant support

exploitation,

for the transformation of the General Coordination of

resources belonging to the Nation is permitted only

Mining into a body that has more autonomy and more

by those in possession of a concession granted

control over its budget. Talking about what an improved

by the State. Whilst the article states that only

structure might look like, Kunz Bolaños says: “I do not think

Mexicans are allowed to own a mining concession,

it would be very different from the current structure of

foreign entities may also own a mining concession

mining authorities. The problem does not have to do with

provided that they are registered in Mexico.

use,

or

appropriation

of

such

the actual decision-making centers or organizations, it has

35


| VIEW FROM THE TOP

REFINING MEXICO’S MINING FRAMEWORK RODRIGO SÁNCHEZ MEJORADA VELASCO Partner at Sánchez-Mejorada, Velasco y Ribé

Q: What have been the highlights in the long mining

Q: If you were to have a discussion with other lawyers that

history of Sánchez-Mejorada, Velasco y Ribé?

specialize in the mining industry what would be the main

A: My great-grandfather founded the firm in Pachuca in 1884,

topics that would come up?

doing work for mining companies and individual miners.

A: The main problem we all share is surface rights, and

When he died in 1903 my grandfather continued with the

dealing with land access issues with the local communities.

firm, and was counsel for the Real del Monte y Pachuca

A big issue is the delays in mining authorities recording

Company, which was the biggest company in that area,

agreements and providing information on the compliance

from 1903 until 1952. My father, Carlos Sánchez Mejorada

status of concessions, and in cancelling them and opening the

Rodríguez, had earlier joined the firm and continued

ground for claiming. For this reason the General Directorate

working within the mining sector. Alfredo Elías Ayub, who

for Mining Regulation needs to modernize its system. Firstly,

held several important positions in the Federal Government,

information on the fulfillment of assessment work and

became Undersecretary of Mining during the Presidency of

payment of mining duties should be available online in real

Carlos Salinas de Gortari and, knowing that my firm had a

time; secondly, agreements should be quickly recorded in the

long-standing involvement with the mining industry, asked

Public Registry of Mining, and its online information should

me to draft the Mining Regulations of 1990. The goal was

be accurate; and thirdly, concessions should be quickly

to deregulate the industry as much as possible without

cancelled in the case of a lack of legal compliance, and the

changing the Mining Law and getting the government out

ground should be declared free for claiming in a matter of

of the mining business. Two years later, in 1992, we also

weeks, not months or even years as is currently the case.

prepared the draft of the current Mining Law. The 1990

In theory you can go to the General Directorate for Mining

Regulations and the 1992 Mining Law were drafted together

Regulation and obtain a certification on the legal status of a

with the then Director General of Mines, José Villanueva

concession, but in practice it takes months to obtain.

Lagar, and the then Head of the Public Registry of Mining, Sergio López Rivera. I have devoted most of my time to

Q: What are the main causes of these problems?

mining matters ever since. Sánchez-Mejorada, Velasco y

A: With regards to regulatory efficiency I cannot explain

Ribé has always been a small boutique firm that has had at

the government’s past failure to modernize procedures at

most three or four partners, but it has always maintained

the General Directorate for Mining Regulation. It is easy to

the staff and commitment to handle large clients.

blame everything on budgetary restrictions, but it is not necessarily the case. For example, after some important

Q: To what extent does Sánchez-Mejorada, Velasco y Ribé

amendments to the Mining Law it took the previous

work as a consultancy as opposed to a legal firm?

administration several years, instead of a few months, to

A: Sánchez-Mejorada, Velasco y Ribé is first and foremost a

publish the new mining regulations, which has nothing to

provider of legal services. However, when companies come

do with insufficient funding.

to us we do not only set up their company, propose the

36

most efficient tax structure and carry out the due diligence

With regards to surface access rights, the overriding

review of any concessions they are interested in; we also

problem is the weak rule of law in Mexico. The government

familiarize them with Mexican business customs, put them

has historically been averse to applying the law when

in contact with accountants suitable to the size of their

social conflict erupts. Thus, small pressure groups may

operations and foreign reporting needs, and introduce

block highways, burn buses or destroy property to achieve

them to environmental consultant and local service

their goals, knowing that there will be no real negative

providers. In some cases we also put them in contact with

consequences. There are, of course, cases where bona

the owners of the concessions they are interested in, or

fide dissatisfaction and protest may exist on behalf of

find parties that may be interested in properties that they

the majority of a population, but in most instances the

are seeking to dispose of.

majority is held hostage by a minority of activists and


the government’s unwillingness to respond to their illegal

training, and today these women drive heavy trucks, not

actions. This problem applies to all activities in Mexico, not

only making money to support their families, but also

only to mining, but it is very much an issue when a group

earning self-respect and the respect of their friends

illegally blocks access to a mining site, or refuses to allow

and neighbors. Thirdly, it is important to explain to the

trucking of ore unless it is by a certain haulage group, for

communities what you, as a company, are doing with the

example. There are a lot of cases where communities are

water, and to show them the true environmental impact

in favor of the projects, and only a small percentage of the

of your project. Many companies are doing a great job by

locals are against it. The issue is that this minority is usually

being open about these types of matters.

the activists, and if they are politically motivated no amount of involvement will assuage their opposition.

Q: What factors are critical in order for international companies to succeed in Mexico?

Q: Are many of these issues solved before they reach the

A: The most important critical success factor is for these

stage of becoming social unrest?

companies to be willing to recognize that they are in a

A: Almost all land problems are solved outside the

different cultural, business and legal environment. Even if

courtroom. Court cases may be brought by either

these companies have very good knowledge on technical

landowners or mining companies as a means to exert

matters, there is know-how that relates specifically

pressure, but disputes are usually settled by negotiation.

to Mexico that can be learnt much faster if they rely

Enforcing a court judgment regarding land usually requires

on reputable, good local consultants regarding legal,

the use of police force, and all levels of government are

accounting, tax and land issues, for example. I have seen

generally averse to using such force because they want to

many cases of foreign mining companies relying on the

avoid creating a social problem, especially when the court

advice of attorneys with limited legal skills or no knowledge

may order the occupation of ejido or community land.

of the mining industry, or on self-styled “old Mexico hands”,

The courts are more likely to enforce judgments against

such as foreign geologists who have worked in Mexico for

private owners or mining companies. This is part of what I

a long time and who have very limited legal knowledge but

consider to be one of Mexico’s main problems as a country,

use their English language skills to make the company feel

affecting all walks of life: the disregard for the rule of law

comfortable with their advice. It may sound self-serving, but

by government, which should enforce the law, and by

going to a good mining lawyer from the outset will serve to

citizens who should abide by it.

avoid future pain and problems.

Q: In terms of relations with communities, what advice do

Q: If you were invited by President Peña Nieto to advise

you have regarding best practices to prevent problems?

him on the changes that should be implemented in order

A: It is a complicated question to answer, given that each

to achieve quick results, what would you suggest?

community is different. Some may simply want jobs,

A: The Mexican mining sector is working well, obviously with

others may want services to be provided, and still others

some problems in addition to those I mentioned before, but

may want infrastructure improvements. But there are a

it is not broken. No new Mining Law is needed, nor a National

few others who just do not want the project to ruin their

Mining Commission. We do not need to reinvent the wheel.

agricultural or forest land. Depending on the motives there

The rule of law problem is a national problem, and in my view

are different approaches we can take. The experts on

probably the most important one, especially in view of the

community relations would be able to give a list of dos and

criminality which has affected the country for several years

don’ts. A few pieces of advice I would give would be firstly

now. It is a complex issue that would require a very lengthy

to look at the little details from the outset. For example,

analysis and discussion. However, the question of surface

do not use the name of a local community for your mining

access rights could be alleviated by communities clearly

lots, company or project. When a community member sees

benefitting from mining activity in their area. If mining duties

a mining lot monument with the name of his or her land on

are increased, or a government royalty is placed on mining

it he may assume that you are encroaching on his surface

production, care should be taken to ensure that a good part

land, and you will have started your relations with that

of those funds actually reaches those communities, giving

community on the wrong foot. Seemingly minor issues like

them a clear reason to protect such mining activities rather

this should be avoided in order to avoid angering people.

than to put them in jeopardy. As for the regulatory aspects,

Secondly, my advice would be that people generally want

I would suggest a modernization of all aspects of the mining

jobs, so give them jobs. It is also worth trying to involve

administration, making all administrative processes happen

local women. In several projects we have been involved in,

more quickly, mainly online in real time, and apply the law as

women who came in looking for cleaning jobs were offered

it relates to assessment work.

37


THE MINING LAW EXPLAINED The Mexican Constitution states that all minerals in the

mining law warn that while acquiring a mining concession

national territory belong to the state, and that their use and

and completing the formalities to gain permission to mine

exploitation is permitted only by individuals or corporate

in Mexico is straightforward, companies must be careful

entities that are in possession of a mining concession issued

to respect the country’s labor and environmental laws.

by the Federal Executive, via the Ministry of Economy’s

Following the 2012 Labor Reform, those deemed responsible

General Coordination of Mining. Although a condition of

for environmental damage on an industrial scale can be

owning a concession is that the entity must reside in Mexico,

sentenced to between six months and nine years in prison.

there is no limit placed on the company’s ownership, which

Criminal law can also be applied to companies that begin the

can consist of up to 100% foreign investment. Foreign

process of exploration before being issued with the proper

companies wishing to operate in Mexico have to either set

permits, so it is essential that mining companies complete

up a subsidiary company in Mexico, or register the company

all the necessary stages of registration in Mexico before

in Mexico with a Mexican business address.

they begin their operations. This process will also provide a better understanding of, and a greater ability to comply

According

to

Karina

Rodríguez

Matus,

Partner

at

with, the different areas of the applicable laws. “Companies

PS&RM Abogados, Mexican law is designed to allow the

need to know how the legal framework functions, the type of

mining industry to function both effectively and freely.

environmental impact permitting requirements they have to

“Generally speaking, the current mining law stimulates

meet, and what the land use or zoning regulations are,” says

the development of the mining industry, since it only

Federico Ruanova Guinea, Coordinator of the Environmental

regulates the essential aspects of mining concessions and

Practice Group at Baker & McKenzie. Further incentives for

grants significant freedom to the stakeholders, within the

caution regarding environmental law are also provided by

framework of a regulatory state. It might be necessary to

the legal reform of March 2012, which allows communities

update the law to take into account the current reality, but

to bring class action suits against mining companies where

in general it is a law that functions and serves its purpose

clear evidence of environmental degradation as a result of

well.” She adds that such freedoms are not, however,

mining works exists.

reflective of a negligent industry: “It is important to note that the mining industry, contrary to what people think, is

Article 27 of the Constitution states that the loan or

very regulated, and there is also legislation in other areas

expropriation of land is permissible for mining purposes that

that applies to the industry, such as tax, environment,

are in the public interest. This right is not always exercised;

labor, explosives, and many others.”

provided that the relevant communities are appropriately compensated some argue that there is no reason why this

Mining concessions are issued for land that is considered to

should not be happening. “The current agrarian law allows

be ‘free’, meaning that it is not protected, part of a national

for the development of any given project to be carried out

reserve, or already the subject of a concession belonging to

on social land. There is no need to change the Constitution

another party. In addition to obtaining a mining concession,

or the law, because there are no obstacles to carrying out

mining companies must register with and gain permission

extraction. The issue here is that companies wishing to start

from a number of government authorities before they

an extractive project need to know how to navigate the law,”

may begin mining operations (see box below). Experts in

explains Gabino Fraga Peña, Director General at Grupo GAP.

RELEVANT GOVERNMENT DEPARTMENTS AND THEIR FUNCTIONS Ministry of Foreign Affairs (SRE) – Submission of Corporate Charter and acquisition of legal status Ministry of Finance and Public Credit (SHCP) – Fiscal registration Ministry of Economy (SE) – Responsible for mining and the registration of foreign investment Ministry of Environmental and Natural Resources (Semarnat) – Conducts change of land use process and environmental impact statement (MIA). Additional approval is required if land is in a protected area National Agrarian Registry (RAN) – Land ownership National Water Commission (Conagua) – Authorizes the acquisition of water concessions or the transfer of water rights Mexican Social Security Institute (IMSS) – Medical and social security Ministry of Labor and Social Welfare (STPS) – Workers’ insurance and labor law Ministry of National Defense (SEDENA) – Permission to use explosives in work Source: Guide for Mining Processes, Ministry of Economy

38


| VIEW FROM THE TOP

LOBBYING MEXICAN AUTHORITIES ON BEHALF OF THE INDUSTRY ABDÓN HERNÁNDEZ ESPARZA President of the Legislative Commission of Camimex Q: What changes or improvements could be made to the

company has. This is understandable given the security and

mining law?

violence-related challenges the country is facing. Recently,

A: No specific changes or improvements are required in

explosives have been stolen from mining storage facilities,

the current mining law per se, but governmental action is

which has been a great source of concern.

needed on issues relating to land and water access, since these pose major problems. Most mining operations take

Q: What actions can the Legislative Commission of

place in arid regions like Sonora, Chihuahua, and Durango,

Camimex take to help the industry address these issues?

among other states that suffer from terrible droughts,

A: As the Legislative Commission, we are able to pressure

which often leads to physical, geological and legal

and lobby the government, and to negotiate any

problems. The National Water Law establishes that rivers,

amendments made to the legal framework that regulates

reservoirs, lakes, and some wells belong to the State, which

the industry. The Commission acts more as a reaction

means that water rights must be paid in order to extract

mechanism to laws that can disrupt the balance in the

the resource. A lot of mines have water, which can become

mining industry. For example, given the higher metal prices,

a problem because if the mine is flooded it is expensive

many congressmen and some NGOs believe that mining

to pump the water out to continue the mining operation.

companies are earning extraordinary profits. As a result,

According to the National Water Law mining companies

initiatives to introduce new taxes or royalties on mining

do not have to pay a fee for this water if they use it in their

activities are being pushed forward in Congress. The

processes, however, it also states that the remaining water

problem is that taxes and royalties will remain even when

has to be given to the municipality or to ejidos. A permit

metal prices go down, and might have a negative impact

is nonetheless still required, as established by a transitory

on the mining industry. The Legislative Commission also

article of the law, and our goal is to make this transitory

comments on amendments to the labor law, since there

article a permanent one. Water used in mines should not

is a chapter regarding mining that requires us to prepare

have to be paid for because of the investment and costs

arguments against the adoption of new laws if they affect

that companies incur when building the mine; electricity

the industry negatively.

is not cheap in Mexico and pumping water from below the surface can be very expensive. Mining operators agree to

Q: How have the changes that were made in 2005 to the

give excess water to the local municipality or pump it back

1992 Mining Law affected the industry?

underground; therefore, fees should ideally be waived and

A: The 1992 Mining Law received substantial amendments

water recycling should be incentivized.

in 2005. As a result of the UN’s concern about indigenous people’s rights, the Mexican government modified the

The access to and use of explosives, governed by the

Constitution to grant preferential rights to these groups.

Firearms and Explosives Law and controlled by the Mexican

These modifications are useful for occasions where several

Army and the Ministry of National Defense, is another

simultaneous concession applications are received for

important aspect that comes with several hurdles. Given the

the same area. Mining concessions are obtained on a

increasing security problems resulting from drug-related

first come, first served basis, but the amendment gives

violence caused by cartels, accessing and using explosives

indigenous groups priority over all other applicants for a

has become very challenging for mining companies.

concession. Another situation in which indigenous people

Companies need permits to buy, store and use explosives

have preferential rights is when the government grants the

granted by the Ministry of National Defense, which are

Mexican Geological Survey (SGM) permission to explore. The

very complicated to obtain because of the intricate

SGM has to declare the area to be explored a concession,

process involved and the fact that they have to be renewed

free land or national reserve. After this process, the SGM

annually. A monthly inventory is required, detailing how

can auction the land but the indigenous people have the

many explosive devices have been used, and how many the

preferential right to choose the best offer.

39


| VIEW FROM THE TOP

ADAPTING TO A CHANGING LEGAL ENVIRONMENT KARINA RODRÍGUEZ MATUS Partner at PS&RM Abogados Q: How would you describe the current environment for

The philosophy of PS&RM Abogados is that legal specialists

mining in Mexico, and how have recent legal developments

in this area should really understand everything about mining

impacted mining companies that work in the country?

operations. The perception of the lawyer as a professional

A: Mining has been one of the most significant industries

who must intervene only when there are problems needs

in the geographical and cultural formation of modern day

to change, and lawyers should instead be considered as

Mexico. Despite the fact that in the last 30 years it has

part of the team that plans the negotiations, and helps to

lost relative importance at the national level, we should

prevent problems that could come up during the process. It

not forget that many of the country’s most important

is better to take preventative measures than to fix problems

cities, such as Guadalajara, Zacatecas, Pachuca, Durango,

further down the line. It is our view that the lawyer should

and Chihuahua, were founded as a direct result of mining

be integrated within the business and seen as a constructive

activities, which in some of these cities have continued to

team player rather than an obstacle to a company’s work.

the present day. Mexico’s business environment, from a legal perspective, is positive. Despite the fact that mining

Q: What are PS&RM Abogados’ ambitions regarding the

is a highly regulated activity, the legislation that applies

mining industry in the coming years?

directly to mining does not generally constitute a barrier

A: We are certain of the need to strengthen the current

to entry. It is widely known that mining is cyclical and

mining authorities. Together with other lawyers we have

that it responds to market conditions that go beyond the

proposed the creation of a Federal Mining Commission,

borders of our country. It is possible to carry out mining

which would be an independent body under the authority

work in Mexico because of the great mineral potential,

of the Energy Ministry. This commission would be the

the qualified work force, and the regulatory framework,

regulatory body for the mining industry; it would be

which together contribute to the general development of

independent and responsible for administering its own

mining.

resources, and it would also have greater political weight. Within the commission the structure of the entire General

Q: What role does PS&RM Abogados play in the

Coordination of Mining would remain the same – that is

preparation, negotiation and execution of contracts at

to say that the General Directorate for Mining Regulation,

both the exploration and exploitation level?

and the General Directorate for Mining Development, the

A: The most important asset for a mining company is not

Mexican Geological Survey (SGM) and the Government Trust

its machinery, or its systems, but its mining concession -

for Mining Development (FIFOMI) would remain intact, and

you have to remember that without a concession there is

each one would be run by the commissioner, who would

no mine. The mining company is obliged to comply with

be named either by the academic, industrial or government

all requirements relevant to the concession. During the

sector. Essentially it would be a more democratic body, with

surveying and exploration phase we work on reviewing

more resources and more political power, much like the

the options available for acquiring a concession, gaining

other commissions that exist in our country.

access to the land, and securing environmental permits.

40

During the mine construction phase more permits of

Under the current structure, the mining authority cannot

different types are needed so we work on service contracts,

respond with the efficiency and effectiveness that the

labor contracts, and the acquisition of land. During the

mining industry needs. The mining authority needs to be

production stage a law firm’s involvement becomes a

restructured in a way that allows it to respond to the needs

daily thing, because we work together with the client on

of the growing mining sector, while at the same time having

communal contracts, we work with the service providers,

the necessary political weight that allows the mining sector

and we work on the upkeep and fulfillment of permits,

to be recognized as strategic to national development,

contracts and any other obligations that relate to the

thus stimulating the mining sector that for centuries has

environment, explosives, water or general infrastructure.

contributed to the formation of modern day Mexico.


| VIEW FROM THE TOP

ENVISIONING A BETTER MINING FRAMEWORK FEDERICO KUNZ BOLAÑOS Partner at Kunz Abogados Q: What is your perspective on the development of the

Q: If a Federal Commission for Mining were to be created,

governmental mining structure in recent years, and why

what should be its organizational structure, execution

would you like to see Mexico’s mining industry be given a

capability, and decision making power?

more prominent role within government?

A: One difference would be that the Mexican Geological

A: The adoption of neoliberalism with the introduction of

Survey (SGM) and the financial branch of the mining

the Mining Law of 1992 meant many changes for the mining

industry could be incorporated into the same commission.

industry. It seemed as if those changes were going to be

When I was the Director General of Mines for one and a half

very positive for the mining industry, and they were positive

years, the budget for our office was handled somewhere

from a regulatory perspective, but not from a political or

else and nothing was deposited into our account. Financial

social one. From a political perspective the mining industry

decisions were made elsewhere and based on other

lost support and importance within the government.

departments’ needs.

Given its importance for the Mexican economy the mining

Another organizational issue has to do with the Ministry

industry needs to become more prominent, even at a

of Economy’s State Delegations. In the past, with the

federal level. I believe the industry has been enjoying its

former organizational model, the General Directorate for

best moment in decades, but this is not reflected within

Mining had a Delegate in every mining state, who reported

the political context; sometimes companies have to put

directly to the Director General of Mines. Applications for

a lot of work into gaining support from federal and local

new concessions had to go through a Mining Agent, and

authorities when facing problems regarding water, land

then through another Delegate, and finally through the

access and local political issues, among other things.

Director General of Mines. Nowadays Delegates are not under the supervision of the Director General of Mines -

Nowadays, the General Coordination of Mining still reports

they report directly to the Federal Delegate of the Ministry

to the Ministry of Economy, but not directly; it falls under

of Economy, which shares an office with Profeco and every

the responsibility of the Undersecretary of Industry. The

other division of the Ministry of Economy. Mining is seen as

problem with that structure is that the mining industry

just another division.

needs to be treated separately, not because it needs preferential treatment, but because it is different from

Q: What do you think about the changes proposed by the

other industries. Firstly it involves working with national

new administration and the Pact for Mexico?

wealth as the basis of the production chain; and secondly

A: One problem with the Pact for Mexico is that the

the areas for carrying out mining activities cannot be

changes it proposes will mean more regulations and

chosen randomly - production must be done in the place

restrictions for foreign investors, and I do not agree with

where the minerals are located. Mining concession holders

that. My perspective is that we need to leave the mining

have the right to ask for expropriations or temporary

law unchanged. If we start to absolutely forbid mining

occupations of the land in question, which does not occur

activities in protected natural areas we will be putting a limit

in other industries. For these basic and practical reasons

on mining activities. There are also many environmental,

the mining industry is totally different from any other

political, and social problems and it is very challenging

industry and needs to be treated as such.

to obtain water rights and land access. We need to solve these problems, but not by imposing a general rule. That is

My main proposal would be to create a Federal Mining

why we insist that the mining authorities should have more

Commission, as well as designing a better strategy to

power. The law can be changed again, but if we do not

inform the general public and the media about the role of

have a political entity that has the power to make decisions

the mining industry, and improve the bad reputation it has

and is capable of taking action, the law will not be more

acquired.

than just written words.

41


PREVENTATIVE APPROACH TO LAND OWNERSHIP DISPUTES Land ownership has historically been a big topic in

or lease their land for the first time in Mexico’s history,

Mexico. The lasting memory of Spanish rule is one of the

opening up a significant proportion of Mexican land for

dispossession and exploitation of indigenous groups, which

potential exploration and exploitation. Another example

continued under the rule of Porfirio Díaz (1876-1911). At the

of the country’s mining-friendly legislation is a clause in

end of the Porfiriato, as his rule is known, it is estimated that

the Constitution that states that private property rights

only 2% of the population held titles to land, despite the fact

may be overridden in cases where the extraction of natural

that a great majority depended on the land for their survival.

resources would ‘benefit society’. Where this is the case,

In 1915, in the midst of the Mexican Revolution, President

landowners may be obligated to vacate the land, in the

Venustiano Carranza created the Agrarian Law, which

form of an expropriation, a temporary occupation or

aimed to redress imbalance in land ownership in Mexico.

easement. It should, however, be noted that despite being

This process took a number of years, and between 1915

endorsed by law, the Mexican government in many cases

and 1965 52.2 million hectares of land were redistributed to

has proved reluctant to resort to forced expropriation of

around two and a half million campesinos. The Agrarian Law

land. This reluctance can be attributed to damaging high-

was complemented by the creation of the new Constitution

profile legal cases with indigenous groups in the past, and

in 1917, which reestablished communal rights to land, and

fear of uprisings or reprisals from social organizations

created three categories of land type that are still in use

in response to a case of forced expropriation. Through

today: private, social, and national.

effective negotiation, the final product of which is a social license, most mining companies are able to avoid having to

The categorization of the land covered by any one

resort to legal action in order to access property. “Social

concession will affect the speed at which a mining project

licenses are fundamental in order to start a project,” says

can move to begin operations, because the mining

Gabino Fraga Peña, Director General of Grupo GAP. “They

concession provided by the government only gives the

establish the approval of those people living close to

holder permission to access and exploit the content below

where the project will take place, and even help companies

the surface of the ground, whereas the surface itself

protect themselves against third parties looking to create

remains the property of the landowner. Whether the land

problems. It is important to maintain a good relationship

is privately owned, nationally owned or social, the mining

with the community, but obviously, such a relationship

company must negotiate with the landowners in order

should be based on clear legal agreements.”

to gain permission to access and operate on it. There is much at stake during this process – landowners may refuse

Whether the land in question is privately owned, nationally

access until they feel that they have reached acceptable

owned or social, mining companies are better advised to rely

terms. As landowners do not receive royalties from mining

on a process of effective negotiation with the landowners.

companies, the negotiation process represents their single

Legal experts agree that resorting to expropriation should

opportunity to take advantage of the works that will take

rarely be necessary if the process of negotiation with land

place on their property. According to legal mining experts,

owners and local communities is correctly managed, and

negotiating with private landowners is usually preferable,

there exist many specialist law firms with expertise in this

because the process can be more direct and usually does

area. Securing access to land through negotiations that

not require the involvement of third parties, such as state

benefit all of the involved parties will also likely result in

or federal government. Mining on land that is classified as

a more positive overall reception and a better reputation

national or social will almost always be more complicated,

for the mining company than resorting to legal channels,

because by its very definition it requires the involvement

which can often take years.

of many more stakeholders in the negotiation process.

“Companies must develop great

As more than half of the land in Mexico is social or nationally owned, mining companies hoping to begin operations in Mexico should be aware of the significant - though surmountable - challenge of navigating access to the land they wish to use. Current Mexican legislation is designed to create an environment that is favorable to the exploitation of mineral resources found within the national territory. For example, in 1992 the law was changed in order to give ejido owners permission to sell

42

relationships with the communities. Given that both groups will be located very close to each other, any issues have to be addressed in the most sensitive way” Enrique Rodríguez del Bosque, Partner at RB Abogados


CLEAR COMMUNICATION PROVES CRITICAL IN LEGAL PROCESSES “There are many cases where projects fail due to a lack

Acquiring an explosives permit is another essential step

of legal advice, and where they do not fail it can lead to

in establishing a mining operation. The permission for

many complications,” says Pablo Méndez Alvídrez, Partner

explosives use must be applied for in Mexico City at the

at Bensojo, Chávez y Gutiérrez Consultores Legales, a law

Directorate General of Firearms and Explosives, regardless of

firm established in Chihuahua. “Legal counsel based on

which region of the country the explosives will be used in. If a

knowledge of the industry makes a big impact that could

mining project is located in a politically critical zone it can be

be the deciding factor in accelerating or slowing down

more difficult to get the necessary army and government’s

processes and permits.”

approval. Bensojo Rico considers this matter to be very

“The government has to facilitate the development of mining companies, so that more communities located in remote locations will receive economic benefits” Pablo Méndez Alvídrez, Partner at Bensojo, Chávez y Gutiérrez Consultores Legales

According to Óscar Bensojo Rico, the firm’s Founding

delicate in Mexico, because on the one hand it is considered

Partner, the laws that apply to the mining industry are

almost a taboo, due to their misuse, but at the same time

complex as a result of labor, environmental, land tenure,

they are required in many activities. This contradiction

concession regulations, and other issues related to the

creates a difficult scenario, both for the authorities that

federal government. Mergers and acquisitions is one

release the permits, and for the companies that require them

different legal discipline in which the firm offers counsel.

for their operations. There has, however, been some progress

For example, it worked on the acquisition of AuRico Gold’s

in the last few years, and greater understanding on behalf of

Ocampo property by Minera Frisco, made through a sale

the authorities that mining companies require explosives in

of shares amounting to US$750 million. The firm advised

order to operate. In order to successfully obtain an explosives

AuRico Gold on the transaction, including preparing to

permit for mining operations, they emphasize the importance

present the case to the Federal Competition Commission.

of interacting with the federal authorities as well as with the

As part of its litigation activities, Bensojo, Chávez y

military zone that corresponds to where the mining project is

Gutiérrez Consultores Legales also works on solving

located. “Both are essential contact points. In the case of the

community conflicts and was part of the first mining

army, being able to persuade them is very important, since

expropriation in Mexico, in another operation carried out

they are the first to verify that the requirements for the use

with AuRico Gold and the ejidos of Ocampo, Cerro Pelón,

of explosives are being complied with. The state also needs

and Nombre de Dios. Bensojo Rico considers this to have

to understand the economic impact of the project. The key

been a very complex operation: “The strategy of this project

is to have the state government present in the negotiations

consisted of clearly identifying all of the participants’

with the army. The military zone commander must know the

interests: members of the ejido, local, municipal, and

project and understand its impact,” Bensojo Rico highlights.

federal authorities, as well as the clients themselves.” The firm then mapped all of the parties’ interests in order to

Méndez Alvídrez points out that even though there has been

prepare the strategy, during which stage the aim was to try

a positive change in mentality towards the use of explosives,

to achieve the highest level of satisfaction for each party.

the Federal Law of Firearms and Explosives has not been modified and the Ministry of National Defense has become

“Our firm held multilateral negotiations until we managed

tougher about granting permits. “It is essential to always

to reach a consensus; we created safeguard mechanisms

have all documents up to date and valid. However, the key to

and did preparatory work in order to later begin with the

success lies in informing the army authorities of any problems

expropriation act,” he adds. Méndez Alvídrez believes that

that might occur during the operation, such as robberies,

the project was so complex because the negotiations for

labor strikes or misuse; everything must be communicated.

expropriation have a lasting impact. “The agrarian issue

There is no grace period for obtaining a permit, so everything

is very complicated in Mexico. However, we were able to

must therefore be done according to the law. Once all of the

expropriate 4,200 hectares after a long process that lasted

documentation is ready and the verification has been done,

two and a half years,” he says.

on average approval takes three to six months.”

43


| VIEW FROM THE TOP

AGRARIAN LAW AND THE MINING INDUSTRY GABINO FRAGA PEÑA Director General of Grupo GAP

Q: What are the implications of Mexico’s parallel legal

A: The agrarian law includes a chapter on expropriation

system for agrarian issues in the mining industry?

which grants the holder of a mining concession, by

A: Mining operators that enter into an agreement with an

means of an agreement, the temporary use of land until

ejido or community must fully comply with the agrarian

an expropriation decree has been issued. The problem

law, in particular with regards to temporary occupation

sometimes arises when companies arrive at a mining

agreements or land purchasing processes. An important

location with a resolution of temporary occupation or

change

constitutional

easement over the requested surface area, without realizing

amendment was the creation of the Agrarian Court, the

that sometimes that kind of document is not enough. In

purpose of which was to solve issues between ejidatarios,

order to avoid problems in the future it is important to

comuneros and private parties. If a problem arises

combine that document with a social license. Companies

companies have to go before the Agrarian Court to file

need to take into account that, for the duration of their

a lawsuit and the Court will solve the problem based on

project, the comuneros and the ejidatarios are going to

agrarian law rather than civil law.

be their neighbors and for that reason it is important to

brought

about

by

the

1992

maintain a good relationship with them. Q: A mining concession may be applied for together with a request for expropriation, temporary occupation

Through the social license, when a company offers to

or easement over the land in question. How does this

create jobs or to provide health services or medical

process work when the land in question is communal or

supplies to the community in exchange for their approval

ejido property?

of the project, everything must be clearly specified and

A: In these cases the mining law is applicable as a federal

explained to the communities, and the relevant legal

regulation; however, the agrarian law applies as well.

obligations must be complied with. In the case of leasing,

Agrarian law permits agreements that allow third parties,

payments have to be given to the legal representative

whether corporations or individuals, to use land belonging

of the community. It is important for the communities to

to the ejidos or the communities. But if the communities

understand that the company is not there to replace the

or the ejidatarios do not want to make an agreement, the

municipal or state governments as a provider of basic

federal legislation can then be applied, and this is where

services. Companies will usually end up offering some kind

a request for expropriation, temporary occupation or

of social program, but they have to be very upfront about

easement of the land can be applied.

what those programs will entail, as well as maintaining a permanent relationship with the community.

It is established by Mexican Law that the exploration and exploitation of mineral resources will be prioritized over

Q: Are there any regulations that have been specifically

other uses of land, however at this moment, due to the

designed to govern these kinds of deals?

authorities’ cautious attitude, a process of expropriation

A: Not specifically, but agrarian legislation does introduce

requires the acceptance of the community. There have

the concept of social agreements, known in Spanish as

been cases where land has been expropriated to start

Convenios de Colaboración Social. These agreements

mining projects in the past 10 years, but those expropriation

help the companies to diagnose what some of the most

processes have always involved the explicit approval of the

pressing needs of the communities are, so that the social

comuneros or ejidatarios.

programs that they offer will really help the communities. The way in which these agreements work is as follows: the

44

Q: An alternative to expropriation is to enter into a leasing

community or ejido organizes itself and forms a committee

or social agreement with the community in exchange for

called Comisión Auxiliar, the members of which are elected

the use of the land. What is the role of social licenses in

at an assembly. This committee serves as a contact point

these situations?

between the community or ejido and the company. Its


members meet with the ejidatarios or the comuneros in

Q: What are the main priorities of mining companies when

order to decide what the community wants and needs,

negotiating with ejidos and communities?

and they communicate those needs and priorities back

A: These change depending on the phase the project is

to the company. The company then evaluates whether it

at. For example, during exploration a company’s priority

is technically possible or financially feasible to offer the

when negotiating with ejidos or communities is usually

communities what they need, and if they have the necessary

to obtain the approval to start drilling quickly. During the

permits to do so. These committees also provide the benefit

construction phase, the concerns of the companies are to

of helping to improve social organization in the community.

obtain legal possession of the land, right of way, water and electricity rights, as well as the required environmental

Q: What are the main concerns of ejidos and communities

permits.

in negotiating land access with mining companies? A: The main concern of the communities is setting the right

Q: Does the agrarian law include any chapters addressing

price for their land. Transparent negotiation processes are

environmental or cultural issues?

very important and companies need to be very upfront

A: The agrarian law includes a chapter on the rights of these

about how much they can pay and how they are going to

groups, which the Agrarian Court takes into consideration

pay. The land in question will be used for mining purposes,

when communities and ejidos contest certain issues.

not for agricultural processes, and that is something that

Moreover, the judges study the cases that make it to the

needs to be taken into account. The negotiation processes of

Agrarian Court with certain social criteria in mind, such as

many of the existing mining projects only had the company’s

maintaining the environmental equilibrium, among other

best interests in mind, not the community’s; companies have

things. Companies must fulfill all legal requirements in

been known to pay close to nothing when they could have

order to show that they are not acting in bad faith against

paid more. Access to the land is very important, because

the interests of the comuneros or ejidatarios.

without land their mining project is simply not feasible, since a mining project cannot simply be moved to a different

Q: What are the main opportunities for the Mexican

location. Usually, when companies ask the community how

mining industry to improve its community relationships?

much they want for their land, the answer they get is ‘a fair

A: I think that the mining industry needs to communicate

price’. But what is a fair price? Companies understand that

better with the communities and the general public. It

the value of the project is not proportionately related to

needs to push for a better communication strategy that will

the value of the land, but they need to explain this to the

make the public more aware of the benefits the industry

communities. In the end, the ejidatarios and comuneros own

brings to the country, in order to change the negative

the land; we should not forget that.

perception that people often have of it.

EJIDOS: LEGACY OF THE MEXICAN REVOLUTION The decade-long armed struggle that took place in Mexico between 1910 and 1920 had profound effects that can still be seen in the country’s political, cultural, and economic reality. Perhaps the most evident inheritance from the Mexican Revolution is the country’s agrarian model. Under the principle that “the land belongs to the people who work on it”, an Agrarian Law was promulgated in 1915 with the aim of redistributing the great quantities of private land, known as latifundios, which previously were the land ownership model of Mexico’s countryside. It was not until the 1930s that this reform was effectively carried out, and the latifundios were split into ejidos. These areas of collectively owned land still exist today as a voluntary rural exploitation model run by Mexico’s communities. All rural towns of less than 3,000 inhabitants are known as communities. Not all communities own ejidos, but all ejidos are managed by a community. Communities that own ejidos organize collective assemblies where every member can vote on any matter concerning the use of their land and the resulting proceeds. The assembly also elects representatives for the ejido every three years. Since mining concessions grant the use and exploitation below the surface of the land, if the land above the surface is an ejido, the mining company must enter into a commercial agreement with the community that owns it. An ejido can be leased for renewable periods of up to 30 years through an affirmative vote from two-thirds of the assembly. All of these transactions are overseen by a representative of the Agrarian State Attorney’s Office, a representative of which must be present in all assembly meetings concerning agreements between the ejido and third parties.

45


COMMUNITY RELATIONSHIPS AND EFFECTIVE NEGOTIATION Whilst the process of negotiating land access is equally

and started providing legal support to the company, it took

important whatever the land type, negotiating with the

just six months to get permission to build the mine.”

owners of communal land can often be the biggest hurdle in beginning mining operations in Mexico. Negotiations

Investing the time at the beginning of a project to build

with such communities have to take into account a

a solid relationship with the community, based on mutual

number of different and more unique characteristics:

understanding and transparency, will be of long term benefit

the cultural peculiarities specific to each community; the

for the project. Legal specialists argue that, by getting the

greater significance that displacement or environmental

community on side with the project from the beginning,

degradation might have for such groups; and the need

wider support will follow naturally. Building strong and solid

to satisfy a greater number of people with differing

relationships with the community is a simple choice and a

priorities and interests. These elements can lead to a more

worthwhile investment because “If a company develops a

complicated and protracted negotiation process, though

good relationship with the community, the community will

with an appropriately tailored and informed approach

defend the company’s project against everybody”, says

reaching a fair agreement is almost always possible.

Alberto Vázquez, Partner at VSG Abogados.

Article 23 of the Agrarian Law grants ejido and communal

Legal specialists, however, warn against the common

landowners exclusive rights to the approval of contracts

error of overcommitting during the negotiation stage, and

or agreements with third parties relating to the sale or

rushing into making promises that the company will not

leasing of their communally owned land. Communities

eventually be able to keep. In this sense, transparency is

have the right to refuse entry to mining companies if they

absolutely essential. “Communication with the community

find the terms of their proposal to be inadequate, so from

prior to beginning operations is vital. By being transparent

a practical point of view it is very much in the interests

about every single one of the processes that will be carried

of mining companies to reach an agreement with the

out, the community will clearly see happening what

communities. Agreements between mining companies

was explained to them previously, and as such will gain

and communities are usually accompanied by a social

confidence in the project. It will also make them want to

license, which features some compensation on behalf of

become even more involved in the project,” says Adalberto

the company for environmental degradation or disruption

Terrazas, President of the Community Relations and

to community life. This will usually take the form of social

Development Commission of Camimex.

or community benefits in areas like health, education or employment. Through a thorough understanding of the

The social license is not currently compulsory, but it has

community’s wants and needs, the aim of the social license

become common practice. Through such agreements the

is to bring tangible positive benefits to the community,

industry is considered by legal experts to be more than

whilst often also committing to restore the environment to

fulfilling its corporate social responsibility duties and making

its original state on completion of the work.

genuinely positive impacts on communities that would often otherwise be out of reach of the social benefits that mining

Gabino Fraga Peña, Director General of Grupo GAP,

can bring, such as increased employment and health services.

maintains that, by taking a thoroughly well informed and

46

transparent approach to drawing up the social license,

At the end of 2013 the government will be introducing

mining companies can almost always be successful in

a mining royalty, a percentage of which will go to the

gaining access to land. Referring to an example of best-

municipality and state authorities. Experts fear that this

practice the firm followed in a previous case, he says:

will have the adverse effect of directing money away from

“Before Grupo GAP got involved, the people participating

the community and over time do away with the practice

in the negotiation process had no idea about how the

of the social license. The general feeling among those who

community was organized or about the needs and

have seen the transformative impact of social licenses is

expectations of that community. We analyzed how the

that such royalties are not necessary, given the significant

community or ejido was organized, who the leaders were,

contribution that mining companies are already making

what interests they responded to, as well as if there were

on the local level throughout Mexico. The way that the

any other parties involved in the conflict, such as political

new system will work is due to be confirmed in late 2013.

figures or caciques. The mining company had been trying

Whatever that system may be, it would do well to avoid

to obtain land access to start the project for over 12 years;

moving away from such practices, and should aim to retain

after Grupo GAP got involved in the negotiation process

this very grassroots level of impact.


LOCAL RELATIONSHIPS CRUCIAL FOR SUCCESSFUL MINES The success of a mining project depends heavily on how

that the mine is not permanent and will eventually close

well a company ingratiates itself in its local setting and

- this is always a big concern for communities. But this

builds effective relationships with the state and municipal

does not need to be a drawback, so long as there is a

government, as well as local communities. The structure of

strategy in place to create benefits that are long-lasting.

Mexico’s mining system provides two key moments at which

“All projects have a certain life cycle, and for this reason

the state government can influence the project. “There are

it is important for local people to gain expertise in other

very few state and municipal level requirements that mining

kinds of activities. We try to offer job creation but we also

companies must comply with, but those that do exist are

emphasize the importance of education. We try to support

essential. One is changing the land use status, which is

young people with scholarships because, in most rural

handled at the municipal level. The other requirement is to

areas in Mexico, going to school is a merit,” says Vázquez.

get permission for the use of explosives, which requires the

“One of our clients supported a project for members of

approval of both the municipal and the state government,”

the community to create a company that would provide

says Alberto Vázquez, Partner at VSG Abogados, a

the mining company with catering and laundry services,

boutique law firm with offices in Ciudad Juarez and Mexico

among others. The company was allowed to provide this

City. Without the support of local government departments

service to more clients as well. In this way these companies

in these areas a project cannot go ahead. Vázquez stresses

are creating additional opportunities.”

that this is an area well worth investing in, especially because local government does not always recognize the

Vázquez is pleased to see that establishing good

value that mining projects bring to their state. “The Mexican

community relations has become much more of a priority

mining industry is managed at the federal level, and given

for mining companies. However, the positive impact that

that state governments do not receive mining revenues

VSG Abogados has seen its clients’ programs have on

directly, sometimes they do not perceive tangible benefits

local communities causes him to doubt whether a new

from mining industry activity,” he says.

production tax, expected at the end of this year, is really

“What the government does not see is that companies have been paying ‘royalties’ to the communities for decades in other ways” Alberto Vázquez, Partner at VSG Abogados

Vázquez warns that developing a system whereby local

needed. “What the government does not see is that

authorities are kept informed of the plans, development

companies have been paying ‘royalties’ to the communities

and impact of a project is a must. “The majority of mining

for decades in other ways, through various types of social

projects need to appoint a person to be in charge of

programs. My concern is that, when companies are faced

community and government relations to inform state

with the possibility of having to pay an additional royalty

and municipal authorities about the benefits the mining

or tax, they will try to cut their expenses by reducing their

industry creates,” says Vázquez. This relationship building

social programs,” says Vázquez.

role also extends to other important figures in the community. “Local churches play a very important role in

Vázquez thinks the tax could not just put these tangible

rural areas. In most of the ejidos or agrarian communities

community

local priests have the last word. Though mining companies

macroeconomic benefits that mining brings to Mexico. “As

need to be respectful of the different belief systems

long as companies are investing in the country, they are

present in a community, maintaining good relationships

creating jobs. Imposing mining royalties would cause some

with the local leaders of the religions that have the most

projects to stop being profitable and as a result will reduce

followers is key,” advises Vázquez.

the investment that companies make in social development

benefits

at

risk,

but

also

the

broader

programs. The majority of companies operating in Mexico VSG Abogados has found that absolute transparency is

belong to international corporations and ultimately they

essential in communicating with the local community and its

have to prove to their headquarters that their business in

leaders. First of all, there needs to be an acknowledgement

Mexico is a profitable one,” he warns.

47


LEGAL FRAMEWORK FOR OBTAINING MINING CONCESSIONS According to Article 27 of the Mexican Constitution all

large companies that do not want them, or large potential

natural resources found in or beneath the surface of the

projects held by small companies that do not have the

land belong to the Mexican State, meaning that the use or

resources to develop them, the best way to get concessions

exploitation of any of these resources without the State’s

into the appropriate hands is to let the market operate freely.

permission is explicitly prohibited and considered illegal.

All efforts should be made to allow concessions to circulate

A concession represents the formal permission granted

quickly, and information on their legal compliance status

by the government to an individual, community or private

must be available for this to happen,” says Rodrigo Sánchez

entity to conduct activities that exploit these resources

Mejorada, Partner at Sánchez-Mejorada, Velasco y Ribé.

within a specified geographical location within the nation’s borders. Companies conducting mining operations in

Where concessions are owned not by the landowners or the

Mexico will need to acquire two separate concessions: one

mining company but by a third party, the concession holders

for the mining itself, and another for the use of water. These

serve as a sort of bridge between the mining company and

concessions must be acquired before a mining company

the landowners and can find themselves in a very favorable

may legally begin its operations.

position, financially speaking. “Concession holders can connect with the landowners and prepare very good

THE MINING CONCESSION

projects to sell afterwards to the large companies,” says

Mining concessions allow the concession holder to carry

Enrique Rodríguez del Bosque, Partner at RB Abogados.

out exploration activities with a view to the eventual

“They try to arrange deals with landowners in order to

exploitation, use or appropriation of minerals found within

create an attractive project. The best project is one where

a specified plot of land. The mining concession grants

a mining concession has already been granted and they are

access and rights to what is below the land only, and not

leasing or acquiring property from a private company and

to the land itself, which remains the property of the original

not from an ejido or a community.” Concession holders also

landowners. Therefore, acquiring concessions is only the

benefit significantly from the system as it currently stands,

first stage in the process of beginning mining activities –

which sees royalties from mining activities go to concession

authorization is also required from a number of different

holders rather than to landowners.

government bodies as well as the landowners, without whose permission the concession is worthless.The process of

All concession holders are required to be active on the land

acquiring a mining concession is relatively straightforward.

in question, and the government has the power to revoke

In order to be eligible, the law requires that the mining

mining concessions on land where no activity is being

concession holder either be of Mexican citizenship or a

carried out. There is general support for incentivizing

company that is domiciled in Mexico, and in either case the

activity on mining concessions, though there is a sense that

individual or entity must have been registered before the

more could be done to regulate and incentivize the use of

Public Registry of Mines. The company must apply to the

the land; the idea is that if the rules are being seen to be

General Coordination of Mining for a concession relating

followed, more companies will in turn follow them. “It only

to the land in question. Mining concessions are granted on

takes cancelling a few concessions for lack of performance

a first come first served basis, which means that there is

of assessment work to motivate people to comply with the

no bidding process and thus minimal opportunity for unfair

law, or to drop a concession, thus making it available to

advantage or corruption during the selection process. One

other miners,” says Sánchez Mejorada. He would also like to

exception to this rule is that indigenous groups are given

see a more efficient and modernized system for recording

priority over other entities.

which land is available and which is not, and a centralized, online database through which this information is made

Mining concessions can be freely sold and transferred, and

available. He also thinks that if the government becomes

the productivity of the mining industry depends in large

better at applying the regulations that already exist this

part on the efficiency with which mining concessions can

will improve the likelihood that companies will comply.

be moved into the hands of those that are able to invest

48

in and exploit the land. The more quickly and clearly that

THE WATER CONCESSION

the relevant government bodies are able to identify and

Mining companies do not require a water concession to

administer land that is suitable for mining, the more they

use water that is sourced from inside of the mine; they

will be able to stimulate the market and take full advantage

will, however, almost always require water from additional

of the vast mineral wealth that is present in Mexican soil.

sources. For this they will need a water concession, which

“When there are small potential projects in the hands of

is granted by Conagua, the National Water Commission.


Water concessions are issued in accordance with Article 27 of the Constitution, and the government is particularly

| EXPERT INSIGHT

concerned with ensuring that those holding water concessions will use the water in a sustainable way. This

There is not a specific formula for creating successful

will affect companies when they are applying for water

social licenses with local communities, though there

concessions, particularly in the drier northern states like

are some rules that need to be followed. Firstly

Chihuahua, Coahuila, and Zacatecas, where water shortages

the company needs to identify the leaders of the

have become common in recent years, and where Conagua

communities - not just the formal leaders but the de

has stopped issuing new water concessions. Concessions

facto leaders. This is a very important step. Sometimes

may be valid for anything between five and 30 years, and

companies try to talk to the mayor of the municipality

they permit the holder to use a fixed volume of water

or to the official head of the ejido, but it does not

within that time, which will vary according to the location,

work. You need to look for the real leaders, and the

nature and scale of the mining company’s operations.

people who influence the committee. Secondly the company’s negotiating abilities are very important,

Mining operations tend to require large quantities of water,

and the company needs to choose negotiators that

which in some parts of the country can pose a problem.

will be accepted by the communities. You cannot

Conagua must balance the industry’s water needs with

send in people who only speak English to deal with

limited water supply and its implications for the wider

the ejido leaders. It is preferable that companies hire

population. “Many regions in Mexico have experienced

male negotiators because ejido leaders still have an

very serious water shortages over the years, and in many

old-fashioned mentality and prefer dealing with men

areas it is difficult to secure a water concession from

to women. Even the city-type lawyers may not be the

Conagua,” says Federico Ruanova Guinea, Coordinator of

best people to negotiate with the communities. In one

Baker & McKenzie’s Environmental Practice Group. “One of

of the mining companies I worked for we used to have

the first things that a company must analyze is what types

a lawyer and an engineer as negotiators; the lawyer

of challenges it will face to secure water rights.”

was the son of an ejidatario, so he bonded with the community right away. Another rule is to always tell

Government concerns do not mean that mining operations

the truth when negotiating: do not promise anything

will not be possible in drier states, however, and need not

that you cannot deliver. Another piece of advice I can

put a stop to mining projects. According to Ruanova Guinea

give is to be aware that the time issue in rural areas is

there will usually be preexisting water concessions which,

very important: people there do not like to be pushed

through negotiation with the concession holders, mining

and pressured into making decisions.

companies would likely be able to use. If the mine itself is located close to an urban area they may also be able to enter

Federico Kunz Bolaños, Partner at Kunz Abogados

into an agreement with the local government to access their water supply, at a cost. Alternatively, for mining projects

There has been support from mining companies

that are located close to the sea, developing desalination

to

plants is also an option, though these incur high electricity

mining concessions for many years, though it has

consumption and thus can be a drain on financial resources.

not yet happened. There are some small, irregular

improve

Mexico’s

system

for

administering

concessions that date back a long time and must be Whilst some predict that water shortages on the national

treated separately, in terms of acquiring the rights to

level in the next 20 years will pose a serious challenge for the

them, for example. Putting together information on

government, which has already been illustrated by recent

the location of deposits and making it available to

droughts in Mexico’s northern states, and may have a knock-

the public has been a slow process. Some information

on effect on the cost of water for industrial use, they are also

is available on the General Coordination of Mining

quick to highlight that the importance of the mining industry

website, but while it is sometimes updated most of the

in Mexico is such that the government will do all it can to

time you cannot get hold of the maps you need. The

continue issuing water concessions to mining companies,

General Directorate for Mining will provide you with

and to ensure that the cost of water remains competitive.

a report that tells you the status of the concession in each of its seven or eight different departments, such

“The best way to get concessions

as whether all the paperwork has been submitted and

into the appropriate hands is to

two or three months to produce. .

let the market operate freely.” Rodrigo Sánchez Mejorada, Partner at Sánchez-Mejorada, Velasco y Ribé

whether it is titled. It is a good report but it can take

Baltazar Solano Rico, Director General of Terra Quaestum & Consultant at Behre Dolbear

49


| VIEW FROM THE TOP

IMPROVING THE ENVIRONMENTAL FRAMEWORK HÉCTOR HERRERA ORDÓÑEZ Partner at Herrera Ordóñez Abogados Q: Could you describe the current legal framework

their used water at all. That water floats to rivers, lakes, and

regarding water use and access, and its impact on the

then to the oceans, which generates a lot of problems. Water

mining industry?

treatment plants are expensive, and municipalities complain

A: Mexico has enough water to satisfy the needs of the entire

that they do not have the money to treat the water. The

country, but unfortunately most of the water is located in the

mining industry has been blamed for having polluted some

country’s southern states. The center, north and northwest

communities, and this is why the industry is subjected to

of the country, generators of 70% of the country’s GDP and

heavy regulation.

the regions with the best expectations for growth, suffer water shortages. In the next 20 years Mexico expects to face

Q: How are recent initiatives helping to create a cleaner and

a water crisis, with major impacts in the north of the country.

more efficient mining industry in Mexico?

The Mexican Constitution was amended last year to include

A: Mexico’s environmental legislation is qualified as positive

making access to drinkable water a human right for all

both in terms of encouraging companies to improve

individuals. As a consequence, Congress will enact new

production and practices related to preventing possible

legislation to ensure that every individual in the country has

damage to the environment. During the 1990s, Mexico had

access to clean, drinkable water. This will definitely cause

a very poor environmental framework and the law was

the cost of water to increase. The price will not increase

not enforced for many reasons. The NAFTA treaty had a

drastically; it will do so gradually and constantly.

lot of influence on environmental practices in Mexico; the agreement states that non-compliance with environmental

Many mining companies are treating their used water in order

legislation would imply a breach of the treaty. Since Congress

to reuse it in their own mining processes, but also to supply

enacted legislation and made environmental amendments

local towns. The law states that when the municipalities

that are much more aggressive, Mexico’s standards are

cannot provide water to their own populations, the private

approaching those of countries like the US, Canada or Europe

sector can be in charge of that service, even if it is at a cost.

in some aspects. The concept of criminal responsibility is relatively new, it was only introduced 10 years ago. Some

Q: Are there any other water-related issues you would

entrepreneurs, from both the public and private sector, who

identify as having consequences for the mining industry?

have been responsible for unlawful practices have already

A: Water pollution is an issue: there are more than 2,500

been sent to jail. This is a new and radical change in a country

municipalities in Mexico and about 60% of them do not treat

that never enforced its environmental legislation before.

THE EFFECTIVENESS OF MEXICO’S ENVIRONMENTAL LAWS There is broad consensus among different members of the mining community, from companies to legal professionals, that the legal framework in Mexico is solid. According to Rafael Cereceres Ronquillo, Partner at C&V Abogados, “the environmental laws and regulations that have been applied in recent years are of course extremely good for the mining industry. There have been many changes to the Mexican mining law, particularly with regards to the Official Mexican Standards (Normas Oficiales Mexicanas), and these have focused mainly on safety issues. It seems that every mining activity is well regulated,” he says. Though Cereceres Ronquillo praises these improvements to the country’s legal framework, there remain parts that can be improved. To take the environmental law as an example, Cereceres Ronquillo sees some processes that could be streamlined, bringing benefits to both companies and to the agencies that deal with them: “In the past it has been complicated to gather all of the documents required by the government in order to obtain environmental permits. The government will have to improve environmental laws, processes, and auditing in order to improve environmental standards in Mexico.”

50


LOCAL EXPERTISE FACILITATES FOREIGN MINING INVESTMENT Many foreign companies are not versed either in Mexican

completely different in each country. Mexican law follows

law or in the structure of the country’s mining industry,

a civil law tradition, and Canadian law follows a common

and therefore require expert consultation in setting up and

law tradition. I saw that there was a need for Canadian

running their operations, in order to ensure that they conduct

companies operating in Mexico to have a firm that would

their business legally and effectively. Arzola + Armendariz

clear up legal issues, and help companies to understand the

is one boutique law firm, operating out of Chihuahua, that

cultural dimension,” he adds. Both firms have recognized

meets this demand for local expert knowledge to ensure

the importance of having international experience, and this

the legal compliance of a project. “Arzola + Armendariz

has been one of their guiding principles in establishing a

has clients from China, Canada and the US, among others,”

firm that can effectively bridge two different legal systems.

says Carlos Arzola, the firm’s Partner. “The fact that we are

“All of our lawyers have been trained in Mexico, but also

a small boutique law firm has helped us because we have

have experience of Canadian law,” says Cruz. Arzola and

strong relationships with local government and are aware

Armendariz themselves have both practiced law in the US,

of local issues. Being local brings the advantage of being

and are complementing their services in Mexico with an

aware of programs or initiatives by the state or municipal

office in El Paso, Texas, that helps to bring them closer to

governments that can result in a synergy with our clients

their US clients.

and trigger the materialization of those programs to the benefit of all parties involved.” Many of the areas in which Arzola + Armendariz’s clients need consultancy lend themselves to having good local relationships. “The main areas in which clients seek our help are land access and surface rights; drafting and negotiation of exploration agreements, purchase or co-development agreements with owners of mining claims; incorporation of Mexican subsidiaries; compliance in different areas such as

“Around 210 Canadian companies currently

have

exploration

or

production operations in Mexico, but the legal tradition is completely different in both countries” Luis Guillermo Cruz, Managing Director of Cruz Herrera

water, explosives, land use and mining regulations; drafting and negotiation of general agreements with suppliers and

In the experience of both firms, the most common challenge

contractors; and government and community relations,”

for foreign companies starting operations in Mexico has been

explains Luis Armendariz, also Partner at Arzola +

negotiating access to socially owned land, which is why a

Armendariz. Being well-established in Chihuahua has

firm that has a thorough understanding of Mexican culture

therefore sped up many of these processes for the firm’s

and the country’s legal framework is essential. “60% or 70%

clients - for example, by being able to go directly to a local

of Cruz Herrera’s work is related to land access and land

mayor and tell him about the benefits that a mining project

tenure issues for Canadian companies in Mexico. In Canada,

will bring to the town. “We consider every governmental

companies would be used to dealing with First Nations

entity important, and we are able to connect with them to

people, but it is not simply a question of transferring the

explain the benefits that mining brings. In many cases we

same way of working to Mexico because it is a completely

help them to draw up contracts that respect the rights of

different context and the legal regime is entirely different,”

all of the involved parties,” adds Arzola.

says Cruz. Community relations have also posed the biggest challenge for Arzola + Armendariz’s clients, and for this

Arzola + Armendariz is not the only firm that has identified

reason the firm’s local network has proved invaluable. “Two

the growing number of foreign companies entering

years ago we were at the PDAC Convention and the CEO

Mexico’s mining industry as a serious business opportunity

of a junior mining company mentioned to us that they

and seized upon it. Cruz Herrera is a law firm that is made

were having issues accessing land in the town of Camargo,

up of Mexican lawyers, specializing in Mexican law, based in

Chihuahua. Right there on the spot we talked to the State

Toronto. “The firm provides advice to companies operating

Director of Mines who was attending the event, and it

in mining, manufacturing, and agriculture, as those are the

turned out that he was a close friend of the owner of the

key industries for Canadians in Mexico,” says Luis Guillermo

land. One week later, the CEO of the company flew into

Cruz, the firm’s Managing Director. “Most Canadian

Chihuahua and he was given full access to the land. This sort

involvement in Mexico is in the form of investment. Around

of thing happens often in Chihuahua – questions over land

210 Canadian companies currently have exploration or

access can often be overcome by using the networks that

production operations in Mexico, but the legal tradition is

are available,” says Arzola.

51


| VIEW FROM THE TOP

OPERATING WITHIN MEXICO’S FRAMEWORK FOR FOREIGN INVESTMENT ENRIQUE RODR�GUEZ DEL BOSQUE Partner at RB Abogados Q: How have the objectives and profile of foreign

mining companies who have good properties in hand and

companies entering the Mexican mining industry evolved

understand the needs of foreign mining companies. The

over the past decade?

last and final group is the concession holders, who have

A: The main change has not necessarily been the result

played the role of staking concessions for years. These

of new companies entering Mexico, but more of the fact

concessions usually go to the third group of former general

that large companies have more money available either to

managers. This is the most interesting sector in Mexico

buy smaller companies or to increase their own facilities

because the people who form it have experience running

and infrastructure. In the last four years we have advised

mining companies. These people usually graduated from

on major transactions involving billions of dollars, and

good universities in the US, and they have been hired

on the other hand smaller companies are joining larger

by foreign mining companies in the past. Whenever we

ones through mergers and acquisitions, which is another

need to carry out a transaction for a client, we do not go

area in which our firm specializes. We almost do not see

to the large companies or to the landowners but to this

inexperienced entrepreneurs coming into Mexico anymore.

group of people, because they have been involved in the mining industry their entire lives. If they had three million

A few years ago some companies had the mentality that

dollars they would buy land and start carrying out studies,

they would be able to enter Mexico, put their hand in the

because they know that those properties will eventually

ground and take out the minerals; they also thought that

become valuable and, when that happens, they know that

it would be easy to obtain mining concessions, which they

they will be able to rely on people like us who can connect

could later trade, or that they would only need to invest

them with foreign companies or help them to structure

a million pesos before the mines would start producing

a deal involving foreign public companies. We do these

silver. This is not the case anymore, and newcomers

kinds of transactions at least three to five times a year. I

are much more aware of the current mining business

would say that this is the best mining business model.

environment. There are some Chinese and Australian companies investing and some mining mutual funds have

Q: What do mining companies operating in Mexico need

recently been established. This is interesting because,

to understand about investing in their concessions?

instead of investing in gold or silver, they are investing

A: A typical person who is not involved in the industry and

in mining companies that have proven reserves of those

who inherits a mining concession often thinks that he has

kinds of commodities.

inherited land that is full of gold, and will just try to sell it and receive cash for it in one installment. We need to

52

Q: When a foreign company decides to enter Mexico,

explain to them what a mining concession is, and the time

is it more common for it to choose to create a Mexican

and money that should be invested in order to verify the

company or start a joint venture, and why?

feasibility of conducting a mining project on it. A typical

A: In order to hold a mining concession, foreign investors

agreement involves the investor putting money into the

must have a Mexican company that is established under

ground to develop the exploration phase because to

Mexican law, and which can have up to 100% foreign

assess the value of a project, a bit of cash should be given

investment. Foreign companies usually create a new

to the concession holder, and the concession holder should

Mexican company, since they prefer to buy the assets

receive shares in the listed vehicle (the parent company

rather than the shares of mining companies that hold

of its Mexican subsidiary). It takes three to four years for

mining concessions. There are four main groups within the

Canadians to come, explore, and develop a project. Even if

industry: the first consists of the big mining companies

they end up abandoning the project within the third year,

such as Grupo Mexico and PeĂąoles. The second group

the money they put into the field was well spent, because

is the older family owned mining companies. The third

at least the concession holder now knows the value of the

group is made up of many former employees of the big

project, in case he wants to sell it afterwards.


Q: How does project finance play a role within the mining

that gives the most credit to my clients is Scotiabank - this

industry, and how do the legal and tax frameworks affect

bank has offices here in Mexico, but it gives the money

this part of the process?

through its main office in Canada.

A: Tax implications are not that complicated, as Mexico follows an international tax and financial system with treaties

Many

that avoid double taxation. A foreign bank usually funds a

(Sociedades Financieras de Objeto Múltiple), through which

foreign company, and this company brings the money into

they bring money to start their own credit company and

Mexico, through a loan or capital contribution to its Mexican

facilitate loans to their mining companies. Big firms like

subsidiary. RB Abogados assists with the arrangement of

Caterpillar operate this way in Mexico, to meet their needs

property guarantees, pledging of shares and mortgages

when it comes to buying very expensive equipment.

companies

are

starting

to

create

SOFOMEs

with banks, which is how we secure the return of the money. Most of the financing does not come directly into Mexico, it

Q: What value proposition does RB Abogados offer on

goes to foreign companies.

major transactions before the Antitrust Commission? A: RB Abogados understands the industry’s assets, as well

I have not seen a Mexican bank providing money to mining

as Mexico and its authorities. We have a lot of experience

companies besides the Government Trust for Mining

in mergers and acquisitions, and we also handle issues

Development (FIFOMI), not even Inbursa, despite the fact

related to antitrust; every transaction of around US$80

that it knows the industry very well due to its relationship

million or more needs to go through this process and we

with Minera Frisco. Mexican banks do not understand the

know how best to obtain the permissions to make these

industry, which is unbelievable - they think that giving money

transactions. RB Abogados assisted Minefinders and

to Mexican mining companies is like throwing away money.

Pan American Silver with transactions of about US$300

Investment usually comes from foreign banks, mutual funds

million, and we were able to demonstrate to the Mexican

or from royalty companies, among other sources. The bank

authorities that this merger was not affecting the market.

HISTORICAL IMPACT OF MINING ON THE MEXICAN ECONOMY The development of Mexico’s most industrial regions either originated with, or was propelled by, the mining industry. According to José Enrique Santos Jallath, Head of the Mine Exploitation and Metallurgy Department at UNAM, the Bajío region’s strong and mature industrial diversity was developed thanks to the concentration of mining activity in Guanajuato. In the same way, states like Chihuahua and Zacatecas owe a good part of their economic strength to the mining activities that take place there. “If we closely examine the country’s history from colonial times to the present day, we will see that mining activity has always represented an important part of Mexico’s GDP and, in many regions, has been the motor for economic development,” he says. “Thanks to new technologies, a large part of Mexico’s mineral resources are currently being exploited. It can also be expected that the extraction of those natural resources that cannot be exploited right now might become economically feasible in the future. Mining is, and will continue to be, a key activity for the country’s development, and will provide endless opportunities to all earth science professionals.”

There is no doubt about the considerable financial benefits that the mining industry brings to Mexico today. As the fourth largest generator of GDP, and a huge generator of foreign direct investment, the benefits of a framework that successfully facilitates the process of foreign companies entering and operating in Mexico are self-evident for Rafael Cereceres Ronquillo, Partner at C&V Abogados. The Peña Nieto administration’s Pact for Mexico is viewed by C&V Abogados as a positive step for the mining industry. For the firm, the inclusion of a section on mining activities shows that the government sees mining as an important area to be addressed, and is an indication that the mining law itself is likely to be amended or replaced soon. “The mining industry brings a lot of opportunities for economic growth to Mexico. There have been a lot of positive changes, but there is still a lot to do,” says Cereceres Ronquillo. “In the last two years, Mexico’s mining industry has been affected by changes that have been made to the mining law as well as the agrarian, labor and environmental laws. These changes have improved general standards in the industry, making Mexican law more modern, and bringing it in line with international standards and practices.”

53


UNION INFLUENCE IN MEXICO’S MINING INDUSTRY The Mexican miners’ union is a private sector union that

affiliated either with the SNTMMSSRM or the National

wields significant power and influence in the country.

Mining and Metallurgical Union,” says Alfonso Rodríguez

Known as the National Union of Miners, Metalworkers and

Arana, Director General of LegalMex. “The unions play an

Allied Workers of the Republic of Mexico (SNTMMSSRM),

important role, and the leaders of these two unions work

or the National Mining Union (NMU), a 2011 estimate put

hard for the interests of their members.”

its membership at 260,000 miners and metalworkers throughout the country.

It is perhaps because of the level of power that they hold today that the mining unions are regarded with such

Whilst this represents a significant proportion of the

ambivalence by the industry. The SNTMMSSRM in particular

country’s miners and metalworkers, the number has

is considered to be aggressive and overly demanding,

declined as a proportion of the overall number of employees

often having been a source of conflict between workers

in the industry over three decades. This is attributable

and mining companies. Cases in which the Union has been

to a number of changes in the industry: unionization as

involved have led to mining projects being closed down

a declining tradition throughout Latin America; greater

and operations halted for a number of years, sometimes

infiltration of the market by foreign companies that have a

without resolution. This damages the industry in different

lesser culture of unionization; and the overall increasingly

ways: mining companies experience immediate losses as

negative attitudes towards unions and strikes. However,

a result of closed mines; reserves of mineral resources

even if the culture of unionization in Mexico is on the

remain unexploited; and the reputation of the industry and

decline, the SNTMMSSRM’s sway within the industry

the country more widely as a place to do business can also

cannot be underestimated. There also exist alternative

suffer as a result. The general perspective in the mining

unions to the SNTMMSSRM, such as the National Mining

industry is that the Peña Nieto administration must find a

and Metallurgical Union, and the National Mining Alliance.

way to balance the level of power that the mining unions have, to avoid the negative impact of such actions in the

For many of the industry’s workers, union membership is

future. “This is a delicate topic since mining unions are very

appealing because of the bargaining power that unions still

strong in Mexico. The government will be careful in dealing

hold in Mexico. The labor unions have a strong track record

with unions, and perhaps the new administration will try

making important gains for their members in negotiations

to push them to be clearer in the management of their

with mining companies in areas such as improving

finances, given the different amendments that have been

working conditions, increasing salaries, and raising safety

made to the labor law,” says Rafael Cereceres Ronquillo,

standards in mines. “The majority of mines in Mexico are

Partner at C&V Abogados.

LEGACY OF THE 1906 CANANEA STRIKE The Cananea Consolidated Copper Company (CCCC) was founded in Sonora by American businessman William Cornell Greene on September 30, 1899, to exploit copper deposits in the region. Greene owned the town of Cananea, as well as the mine itself and the surrounding farmland and forest. CCCC was run with over 7,600 employees, of which 5,400 were Mexican and the rest were American. On June 1, 1906, for the first time in Mexico’s history, Mexican miners went on strike after the company announced that it would pay wages based on piecework rather than by the hour. This was only the tip of the iceberg for the Mexican miners, who believed they were already subjected to unjust labor conditions and very low wages. Some of the workers’ pleas included the introduction of a minimum wage of MX$5 and an eight hour working day, as well as employing a larger number of Mexican workers. The strike was greeted with violent repression by the company and the Mexican government. Mexican troops and Arizona Rangers arrived at the scene with orders to crush the strike. In the end, 30 Mexicans and six Americans were killed, and dozens of workers were injured in the conflict. The workers’ leaders were arrested and held in the prisons of the San Juan de Ulúa fortress, in the state of Veracruz. Even though the strike ended with the defeat of those who had instigated it, it is considered to have triggered the Mexican Revolution, and Cananea has been regarded as the birthplace of the Mexican labor movement ever since.

54


CHANGES ON THE LABOR FRONT Between 1998 and 2012 over 500 reform initiatives were

changes can allow the mining industry to reap the reform’s

presented in Congress, aiming to modernize the Mexican

many benefits while minimizing the risks. He cites the

Federal Labor Law. On November 30, 2012, the latest of

example of mining companies that currently outsource the

these initiatives was successful. During his last State of the

vast majority of their employees. “In response to the legal

Union address, former president Felipe Calderón pushed for

reform’s impact on outsourcing and profit sharing, our

labor reform in his first and only attempt to capitalize on

firm has designed a series of solutions,” Rodríguez Arana

the new legal figure of a preferential initiative. After grueling

says. Other potential hazards or obstacles that the reform

discussions within both legislative chambers and a series of

brings for mining companies are the great powers that

modifications, 338 articles of the Federal Labor Law were

have been given to safety inspectors. These government

modified, added or abrogated. This represents over 33%

officials will now be able to suspend operations or close

of the content of the Law, which had remained largely

down a mine if they consider there to be a safety risk to

unchanged since 1970. However, the fast-track nature of this

the workers. Moreover, companies that fail to comply with

legislative change, together with the peculiar timing, took

occupational safety regulations established by the Ministry

many companies by surprise. In fact, President Calderón

of Labor will now be subject to higher sanctions. Fines

signed the Law on his last day in power. The changes

imposed as a result of breaches to the Ministry’s Mexican

came into effect one day later, on President Enrique Peña

Official Norms (NOMs) can now reach up to 5,000 times

Nieto’s inauguration day. Alfonso Rodríguez Arana, Director

the minimum salary, or the equivalent of US$25,719 under

General of LegalMex, states that many of his clients – among

this year’s average exchange rate. In spite of the increasing

them large mining companies operating in Mexico – did not

stringency of safety norms, most mining companies need

have the time to analyze the reform’s impact before it was

not to worry about the possibility of being sanctioned. Due

enacted. “In order to simplify its clients’ understanding of

to the serious consequences of accidents and the damage

the reform, LegalMex has elaborated a very succinct guide

they can cause to company and sector perceptions, the

summarizing the 123 pages of the bill, providing a complete

Mexican mining industry has gone to great lengths to

overview of how the regulatory changes could influence

promote a sustainable, responsible image based on

mining companies and their business in Mexico,” highlights

rigorous performance standards. Many companies have

Rodríguez Arana. He assesses that, even though some

been awarded the Ministry of Labor’s certification as safe

of the changes will invariably affect mining companies,

companies, and some of them are also listed in the Mexican

proper legal advice and preventative administrative

Stock Exchange’s Sustainable Index.

“Every single client is important for us” MINING During 20 years of experience in the field, VSG has become a leader firm in mining related issues, developing each and every one of the areas that conform this field. We understand and have grown alongside the mining industry in Mexico, we have a close relationship with the different authorities concerning: • • • • • •

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Av. Paseo de las Palmas No. 755-902 Col. Lomas de Chapultepec 11000, México D.F. avazquez@avazquezabogados.com vsg@avazquezabogados.com


IMPACT OF THE 2012 LABOR REFORM ON THE MINING INDUSTRY The mining industry is both one of Mexico’s biggest

to refuse to work if their employer is not fulfilling certain

income generators and one of the largest generators of

security obligations, such as providing them with the proper

direct and indirect employment in the country. As such,

training, protective clothing, and equipment. Another

Mexico’s labor law and the way in which it is administered

positive development in this area is that those found to have

and regulated are critical in deciding the ways in which the

breached safety regulations, to the extent of potentially

sector can function and develop. The recent reform to the

resulting in the loss of life, can now be fined up to 5,000

labor law is for the most part viewed by legal experts to

times the daily minimum salary (over US$25,000). These

have been a vital modernization that will lead to economic

are changes that have the aim of, and hopefully will succeed

growth for the whole country, and given the direct impact

in, improving the industry’s security record.

it has on activity in the mining industry, the sector must adapt to this new legal environment.

The general areas of reform, outside of the mining chapter, also have an important impact on the way in which

The 2012 Labor Reform represented the long overdue

mining companies operate. Not the least of these is the

modernization of an outdated law that had been mostly

tightening of regulations around outsourcing, which is

unchanged since 1970, and the new law better reflects the

common within the Mexican mining industry, for example

reality of Mexico’s current social and labor environment.

at the construction stage or in the provision of catering or

According to the National Institute of Statistics and

cleaning services. Besides the obvious practical advantages

Geography (INEGI), in the four decades since 1970 life

of outsourcing, it often has the additional benefit of

expectancy has increased from 61 to 76 years, and the

bringing costs down, because Mexican companies are

active working population as a proportion of the overall

obliged to share their net profit with their employees,

population has increased dramatically from just half to

whereas such payments are not made to those working for

around two thirds. “The 2012 Labor Reform is a good

the outsourced company. Changes made under the 2012

opportunity for Mexico because it allows the country

Labor Reform, however, aim to eliminate this practice. For

to reorganize and improve employment relationships.

example, companies may now only outsource ‘specialist’

In general terms it was necessary, given that the last

labor that is different to that provided by the company’s

important amendment to the labor law took place in the

regular, contracted employees. The law also states that

1970s. It may seem like a very aggressive reform, but it was

the outsourced labor may not account for the entirety

a long-needed one,” says Rafael Cereceres, Partner at C&V

of the company’s operations. Placing such limits on the

Abogados.

conditions under which an organization may outsource will directly affect the ways in which mining companies

The reform proposal was exhaustive, addressing 80% of

conduct their business. “Most companies in the industry

the law’s 1,010 articles and integrating all aspects of the

contract services through external providers,” says Alfonso

labor market, from contracting and discrimination to salary

Rodríguez Arana, Director General of LegalMex. “In many

payment and dismissal. The legislative power ultimately

cases the staff provided through these channels plays a

approved modifications to a third of the Law’s original

direct and immediate role in the core business of the

content. The mining sector is arguably one of the industries

company, even though they are subcontracted.” According

that will be more significantly affected by the recent Labor

to Rodríguez Arana, those companies that hold a mining

Law Reform, principally because the law contains a new

concession without having a single employee are greatly

chapter dedicated solely to mining (articles 343-A to 343-

affected by these changes and will need to restructure as a

E). The focus of the legislation laid out in this chapter is to

result, if they have not already. If they do not do so, mining

improve health and safety regulations for mining operations

companies that are found to have created false institutions

in Mexico based on requirements that range from having

with the aim of reducing their labor expenses will now be

a proper management system for health and safety issues

sanctionable by law.

and informing workers of the risks inherent in this type of work, to making both concession holders and mining

Outsourcing represents one way in which the 2012 Labor

operators responsible for ensuring that mines are managed

Reform has served to improve the balance of the employer-

in compliance with all safety regulations.

employee relationship. While it has tightened the law in this area, the reform has simultaneously opened up in the area

56

The mining chapter of the new Labor Law also gives

of contracting. Employers can now hire workers through a

workers a more active role in the upkeep of health and

number of different contracting schemes – including trial

safety standards. Article 343-D gives workers the right

contracts, temporary contracts, and seasonal contracts –


and it is now also possible to hire employees at an hourly

reform is the imposition of a limit to wage payment during

rather than a daily rate. It should be noted that, whatever

labor trials. This is especially important considering that,

the length of the contract or number of hours worked, all

in Mexico, such trials last – at best – three years, during

employees share the same right to the national minimum

which the employer had to pay the full amount of the

salary and to receive social security benefits as specified by

plaintiff’s wage as if he or she were still working for the

law. Employees may also work overtime at double the rate

company.” Mexico’s labor litigations are carried out by a

of their usual hourly wage. However, overtime hours should

Workers’ Compensation Appeals Board (JFCA), which

not exceed three hours per day and cannot surpass three

currently has a severe lag in case resolution and takes an

consecutive days. These changes afford employers much

average of 51 months to resolve a trial. An amendment

greater flexibility in meeting their companies’ staffing needs,

to the law means that if an ex-employee brings a case

reducing the risk of overcommitting to long contracts that

of unfair dismissal against its former employer and wins,

may not be required in the long-term. It is also now easier

the employer will be obligated to settle unpaid wages

for either party to terminate the contract before it expires.

equivalent to the worker’s full salary for 15 months, as well as a 2% interest for every month that passes until the trial

Despite some reservations about potentially increased

is resolved. In addition, lawyers and public officials that

costs for mining companies operating in Mexico - resulting

deliberately delay trials will be held liable and sanctioned.

from new outsourcing regulations and having to spend

This is welcome news in particular for small- and medium-

more on increasing security provisions - the 2012 Labor

sized mining companies that previously could have had to

Reform is generally viewed by legal experts as being

pay many years’ worth of back payments whenever faced

beneficial for the industry. Indeed, many experts think that

with an unfavorable sentence in labor trials. The reform

it will even increase productivity across all industries. The

will undoubtedly prevent many companies from facing

Mexican Institute for Competitiveness (IMCO) predicts

financial difficulties or even closure due to costly legal

that, as a result of the reform, Mexico’s GDP will increase

disputes.

by between 1 and 1.5% annually. Another key development is the country’s ratification of

“The 2012 Labor Reform is a good opportunity for Mexico because it allows the country to

reorganize

and

improve

employment relationships” Rafael Cereceres, Partner at C&V Abogados

the International Labor Organization’s Convention 176 on Safety and Health in Mines, which was written in 1995. However, in 1998 Mexico’s Ministry of Labor and Social Welfare recommended that it not be ratified by Mexico because the country did not yet have the legal means to comply with its terms. Nevertheless, in August 2012, the Ministry suggested that the necessary process be begun to reconsider its ratification. Although this convention is yet to be ratified, the Ministry of Labor and Social Welfare has recommended that the government now do so. By

Cereceres views the Labor Reform as a positive step

committing to such conventions, Mexico stands itself in

forward that provides a good opportunity for Mexico’s

good stead for attracting further foreign investment into

mining industry to improve its employment relationships.

its industrial sectors.

The biggest improvement for Cereceres is that the government has now increased its surveillance, making

While recent reforms and their consequences represent a

sure that the new rules and regulations are being properly

challenge for mining companies operating in Mexico, in the

implemented across industries. “The new government is

long term they will prove to be a positive step forward for

working very closely with the Ministry of Labor to ensure

the industry. LegalMex has successfully advised its mining

that mining companies are complying with their labor

clients on the reform’s risks and benefits, and along with

and safety obligations, as employers. This is a positive

his partners and expert associates at LegalMex, Rodríguez

change, and one that was needed,” he says. In fact,

Arana helps further his clients’ business by promoting a

mining companies that apply international best practices

preventative approach to labor conflicts. “This implies the

can benefit greatly from the reforms made to Mexico’s

modification of contracts, verification of legal relationships

Federal Labor Law. Among them is the opportunity to hire

with suppliers, and many other due diligence changes. We

employees under new recruitment schemes, including trial

have deeply helped our clients in the mining industry and

periods and temporary training programs.

this is why we fortunately have a lot of work,” he adds. Despite the speculation around the exact potential that

The law also protects employers against potential abuses

the 2012 Labor Reform has to improve the development

from former employees. In the words of Rodríguez Arana,

of Mexico’s mining industry, its full impact will only be

“one of the most transcendent issues addressed by the

revealed in the coming months and years.

57


| STATE PROFILE: GUANAJUATO

ECONOMIC DEVELOPMENT AMBITIONS BASED ON A LONG MINING TRADITION The state of Guanajuato

According

is located in the center

dedicated to large-scale mining have the capital and

of Mexico, inside what

required technology but need support in creating the

is known as the Golden

social and legal environment that protects their long-

Triangle between Mexico

term and high-risk investments. “While the investor is

City,

and

developing infrastructure and exploring, we are generating

Guadalajara,

Monterrey.

Héctor López Santillana, Minister of Sustainable Economic Development of Guanajuato

to

López

Santillana,

foreign

companies

Guanajuato

– with state resources – a favorable environment in the

holds a privileged position

community or ejido, so that the benefits are felt before

on

economic

the exploitation stage begins. Our participation involves

map: 60% of the country’s

Mexico’s

providing services, education and different opportunities

population

located

for local empowerment, which will create a synergy

within 400km, as well as 80% of the Mexican internal

is

from which all parties will gain. If we manage to create

market, 70% of the country’s source of international trade,

favorable conditions, the exploration and exploitation

and 70% of the automotive industry. In 2012, Guanajuato

process will have no social issues,” he explains. On the

received US$497 million in foreign direct investment, with

other hand, small-scale mining is essentially in local hands

the manufacturing industry being the main recipient.

and has the aim of providing supplies to the construction industry. Formerly characterized by painstakingly long,

Gold and silver mining are considered to be synonymous

inefficient, artisanal processes, it is currently passing

with the state of Guanajuato, because of their intrinsic link

through a process of industrialization. Most small-scale

with the state’s history. Mining has played an essential role

mining is led by community members who used to be

in Guanajuato for over 500 years, spanning three centuries

farmers with no previous experience in this field. The

of colonial rule and Mexico’s two centuries of independent

state government is working to help small-scale mining

history. “The state was born because of mining, as was

become a profitable industry by encouraging ejidatarios

Mexico’s independence, since the main conspirators were

to organize and partner up to seek the required funds to

miners,” says Héctor López Santillana, Minister of Sustainable

start the industrial exploitation stage. The objective is to

Economic Development of Guanajuato. Throughout the last

develop industrialization, connectivity, and electrification.

five centuries, Guanajuato’s mining wealth has been based

58

on three systems: the Veta Madre vein, the Sierra veins and

In order to foster both large-scale and small-scale mining,

the La Luz veins. The first mining boom started only two

the government of Guanajuato has an office dedicated to

decades after the Spanish conquest of the Aztec empire,

the promotion and support of the state’s mining industry.

when a vein in the vicinity of San Bernabé was discovered.

It also provides property and agrarian law consultation

The beginning of the 19th century marked the decline of

and sociopolitical expertise, which facilitate the permitting

Guanajuato as a mining district, primarily due to social unrest

processes and provide the confidence and certainty

after Mexico gained independence from Spain. Nevertheless,

that investors require for exploitation. López Santillana

foreign mining companies continued operating mines such

explains that the state government guarantees investors

as La Luz and La Aurora, and by the end of the century

that they can confidently invest in the state. The continuity

production boomed and Guanajuato regained its status as

of government policy has enabled the transformation of

an excellent mining district. The Mexican Revolution halted

Guanajuato’s economy from being mainly agricultural to its

mining operations in the state during the first decade of the

current process of industrialization. “We have not reached

20th century and it affected mining companies for decades.

our goal yet, but we have been working under the same

Today, Guanajuato continues producing gold and silver

policy - no matter who has been in power - for 24 years,”

at El Cubo, Bolañitos, and Guanajuato mines. In addition,

López Santillana explains. He also emphasizes that the

many mid-tier and small producers continue exploring and

state has a favorable business environment and a proud

developing mining projects, while others hope to reactivate

mining identity. “We see a promising future for the mining

old mining sites with the aid of new and improved extraction

industry. We are very proud of this industry and we are

technologies. Guanajuato’s Ministry of Sustainable Economic

excited by the possibility of discovering new deposits,

Development operates parallel strategies for the development

which will continue to encourage the arrival of both

of the state’s large-scale and small-scale mining industries.

Mexican and foreign investors,” López Santillana affirms.


| MINE PROFILES: GUANAJUATO

GUANAJUATO 1

2

3

1

2

3

BOLAÑITOS, ENDEAVOUR SILVER Bolañitos is an underground silver-gold mine located 10km northwest of the city of Guanajuato. It consists of 2,470 hectares encompassing three operating silver and gold mines, located in two areas approximately 5km apart. The mining complex is located at a classic low sulphidation epithermal vein system. Mineralization consists of disseminations and fracture-fillings of pyrite, pyrargygrite, polybasite and, electrum in quartz-calcite veins ranging from 200m deep, and 1 to 10m thick. When Bolañitos was acquired in 2007, the operation was producing 300,000oz of silver a year. After Endeavour Silver’s investments, production costs were reduced and production more than doubled to 800,000oz of silver per year. In 2012 Bolañitos produced 1.7 million ounces of silver, an increase of 59% over the previous year, and produced 25,920oz of gold, an increase of 73%. Bolañitos mine and plant facilities were significantly upgraded in 2012, boosting production from 1,000 to 1,600 t/d. The operation employs around 500 people and engages 630 contractors, most of them from surrounding communities.

GUANAJUATO, GREAT PANTHER SILVER The Guanajuato Mine Complex is Great Panther Silver’s flagship operation, and consists of 32 claims totaling 2,621 hectares. The main claim block covers 4.2km of the Veta Madre vein structure, and extends for a known strike of 25km. The most important phase of mineralization in the Guanajuato district comprises epithermal silver-gold veins contained within northwest-trending, Cenozoic age faults. Economic mineralization is contained within tabular veins, vein stockworks, and breccias. The ore shoots typically range from 1m to 15m wide and from 50 to 400m long strike. The ore is processed to produce high quality, precious metal-rich concentrate, which is transported to smelters in Mexico and Europe. The processing plant consists of a three-stage crushing section, producing a fine ore mill feed, a grinding section consisting of three ball mills operated in parallel, and a conventional flotation circuit with a total capacity of 1,200 t/d.

EL CUBO, ENDEAVOUR SILVER El Cubo is a silver-gold underground mine located 6km southeast from the city of Guanajuato. The property consists of 61 mineral concessions covering 8,146 hectares in the second largest historic silver mining district in Mexico. The processing plant at the mine has existed for at least 150 years, and was the first mill site permitted to use cyanide in Mexico. The complex is based on low-sulphidation epithermal veins which are typically thousands of meters long, 400m deep, and 1 to 3m thick. Following the acquisition of the project in July 2012 Endeavour Silver launched a US$67 million, 18-month capital investment program. El Cubo produced 300,000oz of silver and 4,893oz of gold from July to December of 2012. Three mines feed a flotation plant that produces mineral concentrates, which feed a 400 t/d leach plant to produce doré bars. The mine has 965 employees and 202 contractors, making it one of the most emblematic mines of the state.

59


60


GEOLOGY & EXPLORATION

3 Exploration is the lifeblood of the mining industry, and Mexico is one of the world’s most attractive exploration investment destinations in the world. Technological advances are playing an essential role in finding ore deposits, and it is due to improvements in this area that companies are now able to find reserves with commercially viable concentrations of minerals more easily and cost effectively than they previously could.

This chapter examines the role of exploration in the life cycle of a mine, from the early stages of prospection, laboratory sample analysis, and geophysical modeling, to the later stages of conducting airborne geological surveys, drilling services, and other techniques. Business leaders from junior, drilling, analysis, and mining companies discuss the different factors that have ensured that the US$1.2 billion invested in exploration last year has been allocated optimally to deliver the desired exploration results. It also analyzes the ambitions and strategies of the people that drive Mexico’s exploration success, assesses the impact of the financial crisis on exploration activities, and provides an overview of the main projects currently at the exploration stage in Mexico today.

61


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62

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CHAPTER 3: GEOLOGY & EXPLORATION 64

Global Exploration Trends

65

Exploration in Mexico & EXPERT INSIGHT: Jaime Lomelín

66

VIEW FROM THE TOP: Unlocking Mexico’s Geological Potential

68

Project Generation Focused on Joint Ventures

69

Advantages of the Prospect Generator Business Model

70

Mineralization Meets Management Expertise

71

The Value of Outsourcing Exploration Expertise

72

Geophysical Services for Substance Information & Speed and Accuracy in Sample Analysis

73

Time Saving in Quantifying Mineral Reserves

74

Technologically Advanced Aerial Surveys

76

VIEW FROM THE TOP: Improving Digital Maps for the Mining Industry

77

National Talents for National Projects

78

VIEW FROM THE TOP: Exploration Strategies for a Challenging Market

79

Refining Exploration Programs to Improve Effectiveness

80

VIEW FROM THE TOP: Best Practices for Prefeasibility and Feasibility Studies

81

Refining Properties to Generate Value

82

Delivering Quality and Speed in Mineral Analysis

83

VIEW FROM THE TOP: The Economics of Mining Entrepreneurship

84

VIEW FROM THE TOP: A Modern Approach to Drilling in Mexico

86

EXPERT INSIGHT & Overview of Drilling Techniques

88

TECHNOLOGY SPOTLIGHT: Reverse Circulation Drilling

89

Finding Opportunities During the Exploration Downturn

90

Increased Rig Productivity Key to Energold’s Growth

91

VIEW FROM THE TOP: Applying Technology for Better Quality Drilling

92

Designing Drills to Minimize Cost and Optimize Safety

93

Building Versatile Rigs to Expand Horizons

94

Small and Portable Drill Platform Strategy & Improving Exploration through Exclusive Technology

96

Key Factors in Water Management Services

97

Specialized Drilling Fluids to Optimize Performance

98

Innovative Approach to Geological Sample Analysis

99

Mining Boom Triggers Diversification and Growth

63


GLOBAL EXPLORATION TRENDS Despite the global economic slowdown and political and

GLOBAL EXPLORATION INVESTMENT BY COUNTRY

economic uncertainty in the US as well as the European Union, global investment in exploration for non-ferrous metals in 2012 was not affected, as investment increased by 18% compared to 2011 to reach US$21.5 billion, setting

18%

a historical record for the mining sector. Canada attracted the largest amount of investment with 16% of global

33%

exploration spending, ahead of Australia with 12% and the US with 8%. Mexico was ranked fourth with US$1.23

12%

billion (6%), confirming the country’s position as the first destination for exploration investment in Latin America. In terms of targeted minerals, exploration for gold captured 42.2% of total investments, followed by copper with 22.9%,

3%

uranium with 4.3% and zinc with 4.2%. Silver exploration

8% 3% 6%

3%

received an investment of US$825.5 million (3.8%), though

4%

an important proportion of its exploration is conducted

5%

5%

together with the exploration for gold and base metals. Last year’s record exploration investment figure could represent the peak in the mining industry’s boom, which started in 2002 driven by rising mineral prices, and which came largely as a result of China’s accelerated economic growth. Although the rapid expansion of the industry came to a halt as a result of the financial crisis of 2008, resulting in a steep drop of 42% in global exploration investment the following year, the industry recovered quickly from

Canada

China

Australia

Russia

US

Brazil

Mexico

Argentina

Chile

Other

Peru

Source: Metals Economics Group

this shock and most metal prices started rising within six months after the crisis had started. After the drop

While most juniors succeeded in raising the required

in exploration investment in 2009, the upward trend in

funds for exploration programs in 2012, investors have

metal prices led mining companies to increase exploration

become more selective in the allocation of their funding.

investment by 56% in 2010, 37% in 2011, and 18% in 2012.

While companies with advanced exploration projects or properties in highly prospective areas have managed

Junior companies have played an important role in the rise

to secure financing, other junior exploration companies

in exploration investment, accounting for almost half of the

have struggled to make ends meet. The financial woes of

total investment. Nevertheless, the global macroeconomic

these companies are creating acquisition opportunities for

impact of the financial crisis on market conditions in the

financially healthy juniors while also reducing the future

financial sector have made it more challenging to raise

flow of world class development projects that could be

funds for mining exploration through equity financing,

transformed into producing mines, and which have been

despite relatively high metal prices.

the lifeblood of Mexico’s major mining companies.

GLOBAL EXPLORATION INVESTMENT (US$ BILLION) 25 21.5 20

18.2

15

12.6

5

11.5

9.9

10

7.1

2.2

3.5

7.3

4.9

0 2003

2004

2005

2006

2007

2008

2009

2010

2011

2012 Source: Camimex

64


EXPLORATION IN MEXICO

| EXPERT INSIGHT Jaime Lomelín, one of the Mexican mining industry’s

During the first semester of 2012 the Mexican mining

key leaders and the former CEO of Peñoles and

industry was able to maintain its dynamism. Sound

Fresnillo, views consistent spending on exploration

macroeconomic policies and positive perspectives on

as essential to a company’s survival. During his time

the approval of structural reforms regarding labor, fiscal

as CEO of Peñoles-Fresnillo, Lomelín introduced the

regime, political transparency, and education have given

strategy of making fixed investments in exploration

Mexico an added value that has helped the country

activities each year, regardless of market fluctuations.

continue attracting foreign capital. A good indicator of

According to Lomelín, many companies have made

how Mexico is perceived as a destination for worldwide

the mistake of adjusting exploration investments

mining investment is the Fraser Institute’s annual survey of

depending on commodity prices. “After 25 years of

mining companies. In 2012-2013 the Institute gathered the

spending on exploration, Peñoles-Fresnillo has a

views of 742 companies that between them invested a total

tremendous pipeline of exploration projects that no

of US$6 billion in exploration in 96 jurisdictions worldwide,

other company in Mexico could match, and this has

and measured country investment attractiveness based

allowed the company to grow in a completely organic

on 17 political factors. The results of this survey were

way. Mining companies should never stop investing in

compiled and turned into a Policy Potential Index (PPI), in

exploration efforts. If you stop exploring, sooner or

which the Eurasia zone occupied four of the top 10 spots,

later you are going to die,” he warns. This steady and

with Finland advancing from second position to first. Latin

consistent approach to exploration has played a key

America’s PPI scores reflected certain concerns related to

role in establishing Peñoles-Fresnillo as one of the

‘resource nationalism’, which translates to opposition to

most experienced and successful leaders in Mexican

mining activities in some regions. This caused Chile to fall

mining.

from position 18 to 23 and Peru from 56 to 58, while Mexico dropped from 35 to 42. The survey also created the Mineral

“The strategy of some mining companies is to

Potential Index (MPI), which reflects the perception of

diversify, looking for a wider range of minerals but

respondents regarding geological potential (taking into

within the same macro deposits; they do not tend

account current regulations and restrictions to land use), in

to consider the smaller deposits. Focusing on fewer

which Greenland occupied the first position, Chile moved

metals or minerals, and on smaller deposits, can

down from position 5 to 11, and Mexico fell nine positions,

be more successful,” says Lomelín. Persisting with

now occupying the 30th slot.

exploration on its existing mines has also been an extremely successful strategy for Peñoles-Fresnillo.

Despite being outranked by countries such as Chile and

The company aims for the lifespan of each of its mines

Peru in the abovementioned survey, Mexico received

to surpass 10 years, and in the case of its biggest silver

the largest amount of exploration investment in Latin

mine Fresnillo, which the Group has operated almost

America in 2012, which is arguably the best indicator for

continuously since 1920, it has more than satisfied this

a country’s mining investment attractiveness. Exploration

objective.

investment in Mexico also more than doubled between 2008 and 2012, increasing from US$494 million to over

Jaime Lomelín, COO of Grupo BAL

US$1 billion, according to Camimex statistics. Around 70% of this exploration investment was made by foreign mining companies, with Mexican companies accounting for the remaining 30%. In 2012 the General Directorate for Mining Development registered 439 companies exploring 1,172 projects in Mexico. This means that exploration activities are only carried out on a small proportion of the total 26,071 mining

MEXICO EXPLORATION INVESTMENT (US$ MILLION) 1,200 1,007

1,000

922

800 600

494

concessions that had been awarded by the end of 2012, which altogether cover 30,872,574 hectares and represent just over 15% of Mexican territory. According to data

663

599

561

400 200

provided by the Mexican Geological Survey (SGM), 61.1% 2012

2011

2010

2009

2008

Sonora, Durango, Chihuahua, Zacatecas, and Coahuila.

0 2007

of these concessions are located in the Mexican states

Source: Camimex

65


| VIEW FROM THE TOP

UNLOCKING MEXICO’S GEOLOGICAL POTENTIAL RAFAEL ALEXANDRI RIONDA Former Director General of the Mexican Geological Survey (SGM)

Q: While geological research institutions are becoming

digitalized and sent to our database. There is no other

smaller in many countries, the Mexican Geological Survey

geological survey with such an advanced mobile application.

(SGM) is expanding its operational reach. What is driving

In the past four years 13.6% of the Mexican mineral value

this change?

came from projects generated by SGM.

A: About five years ago we were doing what any other geological survey would do: improving national

Q: How do SGM capabilities for processing and displaying

cartography, conducting geophysical trials, and doing

geographical information compare with those of the

geochemical mappings, even though Mexico was not

private sector?

getting anything truly worthy out of it. What SGM did

A: SGM does not compete with the private sector. SGM

was to transform the work that the country had already

is more efficient at exploration than private companies

spent a lot of money on. Geologists have now been trained

because we have all of the state of the art tools necessary

in such a way that the information they obtain through

to perform in-depth exploration. Normally, companies

cartography can also be of economic interest to Mexico.

need to hire geophysical studies services and will then need to go to a lab to carry out different analyses. Some

This experience has added value to our research work as

people believe SGM is competing with junior exploration

well as serving a double purpose: providing a good basis

companies, but we look at exploration from a different

of scientific knowledge about the country and a database

perspective. SGM is the best partner any junior mining

to be used by the private sector in order to promote

company in Mexico could have, since it has the basic

investment. Today, the Survey is able to transfer projects

geological information for the whole nation.

to the private sector through bidding processes. SGM is doing almost the same as junior companies do, which is

Q: It is often said that Mexico still holds over 70% of

to take a finder’s fee and royalties. The positive thing is

unexplored land. Why has SGM not adopted measures to

that through this type of procedure SGM acquires funds

carry out exploration projects that take advantage of this

to support its programs. As a matter of fact, 68% of SGM’s

untapped potential?

budget is self-generated.

A: SGM has carried out the mapping of 100% of the country on a scale of 1:250,000. Not many countries have done

Q: What are the main changes that SGM has undergone in

this. When it comes to geophysics, even less countries

the last year and how have these changes contributed to

have covered their entire territory using aeromagnetic

its self-improvement?

cartography. We have mapped about 34% of the country’s

A: SGM is not cutting down on the number of cartography or

territory on a scale of 1:50,000, which is one of our main

exploration programs, on the contrary, the Survey generates

focuses. SGM is always looking for potential territories to

more than 50 charts per year. SGM’s data is fully digitalized;

be transformed into mines. It is not only looking for gold,

traditionally,

geological,

silver, and copper but also for any other mineral with an

geophysical, geochemical, and topographic maps, as well

economic value, such as phosphorite, base metals, lithium,

as satellite imagery, which is very hard to transport and use

titanium, and rare earth elements, among many others.

in field. To facilitate access to this material for geoscientists

SGM has to carefully allocate its budget to ensure that it

we created Mapa Móvil, which contains 22 maps or layers

is used in a way that maximizes value creation for Mexico.

geologists

required

printed

of information and is used by all SGM geologists. When a

66

geologist is running a field survey, he or she has a series

Q: What do you consider to be SGM’s most important

of protocols that need to be followed in order to gather

strengths

specific information such as color, texture, mineral content,

organization into what it is today?

rock type, structures, and other classifications. When this

A: Technologically speaking, SGM is ahead of many

information has been collected, the data is immediately

institutions

and

what

working

factors

within

have

mineral

transformed

exploration.

the

SGM


geologists

work

with

epipolar

imagery

and

three-

the Survey have over 30 years of experience, so it was

dimensional entries no other geological service does this.

just a matter of updating the potential of our employees,

It has an airplane with hyperspectral imagery, which is quite

individually and as a team. This group of people transformed

spectacular. Usually, geological surveys use satellite imagery

this institution in a short period of time.

with four bands, but our system uses 320 bands, high resolution airborne magnetic-radiometric methods, TEM,

Q: What is the outlook for the Mexican mining industry in

Hylogger, electron probe microanalyzer, ground portable

the coming years?

spectroradiometers

analyzers,

A: Mexico is very well positioned in the global mining

SURPAC geological modeling, open hole geophysical

and

x-ray

fluorescence

industry. It will remain the number one producer of silver,

probes, mass spectrometers, and nontripulated aerophoto

but will also become an even more important player in the

planes, among others.

gold and copper markets. In terms of discoveries Mexico still has a lot to offer, and SGM believes that it will also

In terms of human resources, SGM has doubled its capacity

challenge other producers in the realm of non-metallic

while employing the same number of people. We needed

resources. In the last two years the silver resources of the

only to enhance the creativity of our staff and to challenge

country have been increased to more than 550 million

them. A good percentage of geoscientists working at

ounces and gold resources by more than 4.1 million ounces.

MEXICO’S GEOLOGY

scattered, porphyrys and breccias of Cu, Mo, Au

phosphorus

scattered, veins and stockworks of Au, Ag, Cu

strontium

mantles, pipes and veins of Zn, Pb, Ag, Cu

iron

massive sulfides of Au, Ag, Zn, Cu, Pb

coal

precious and basic metals

fluorite

injection, deposits and Fe replacement Source: SGM

67


PROJECT GENERATION FOCUSED ON JOINT VENTURES Junior exploration companies looking for big discoveries are

ground, make cash payments and share issuances with Alta

in need a constant flow of cash to finance their operations.

Vista Ventures, and become shareholders in the companies

In the absence of positive cash flow they have to regularly

exploring the properties. In theory, the shares will increase

raise capital in the financial markets through equity

in value as success is achieved. Foreman highlights that this

offerings, which results in share dilution and therefore

way Alta Vista Ventures has not needed financing for three

a lower return on an eventual discovery. To address this

years, and has been able to avoid dilutive financing.

issue, some companies use the project generator business model. This involves obtaining a property, and right after

The combination of having good connections in the industry

making an initial discovery turning it over to a joint venture

and the expertise for finding and generating projects has

partner that makes the investment to investigate the

allowed the junior company to expand its current portfolio. “In

discovery and over time takes increasing ownership of the

the instance where an optionee was to find a good deposit on

property. Although this business model dilutes the eventual

our property our shareholders benefit greatly, because their

ownership property, it does not dilute ownership in the

ownership value will increase as we are also shareholders in

project-generating company. Nevertheless, among junior

the partnership. In this way we are able to create what we

exploration companies the project generator model is less

like to call a ‘war chest’, which is our investment portfolio,”

popular than the prospect generator model.

Foreman explains. According to him, exploration is sometimes more of an art than a science, having the right mixture of

Alta Vista Ventures, an exploration and development

highly qualified staff and a large network of people, not just

company, builds value using the project generator business

in Mexico but also outside maintaining connections. “Mineral

model. The company decided to adopt the model because it

exploration is inherently a very high risk industry, so you have

had a number of good projects and did not want to be forced

to take some chances,” he adds.

to drop any of them because of cash constraints. Any property not being explored is a liability because taxes on the property

Alta Vista Ventures is currently focusing on leveraging itself

must still be paid. The company therefore creates conceptual

to be able to take advantage when the market turns again.

ideas for gold or silver systems and spends its own money to

“It is a cyclical industry and it will come back, we just do

bring the project to the stage where geophysics or drilling

not know when,” Foreman says. “We are always talking to

is needed. “At that stage we find optionees to come in, and

companies about our un-optioned properties, trying to get

by working together we can reduce the risks significantly for

their interest. One thing that is difficult about our business

our investors,” explains Ian Foreman, President and Director

model is that you cannot get too attached to a project. We

of Alta Vista Ventures. Cost will increase as the project moves

are in the business of exploration, so any project we do not

forward and therefore the company needs to find optionees

have any operations or an optionee on therefore represents

that are willing to spend their money on a certain property.

a liability that have to manage, weighing the positives and

This method allows these companies to earn a percentage

the negatives. Furthermore, we are always on the lookout

of interest in the property by spending money on the

for new projects: it is the lifeblood of the company.”


ADVANTAGES OF THE PROSPECT GENERATOR BUSINESS MODEL Evrim Resources is a mineral exploration company operating under the prospect generator business model. “This model works by allowing Evrim to focus on early stage exploration projects and then attract partner companies to explore those projects with us,” explains Stewart Harris, Vice President of Exploration at Evrim Resources. Through this method the company invites those partners to earn a majority interest in the project by conducting the more capital intensive phases of exploration. The goal is to make an economic discovery and create value for the company’s

Left: Stewart Harris, VP Exploration at Evrim Resources Right: Rob Duncan, VP Business Development at Evrim Resources

shareholders, while keeping the company financially healthy and sustainable over the long term.

as a whole is facing a shortage in human talent that results in a lack of capacity to undertake this challenge, and Evrim

Rob Duncan, Vice President of Business Development at

can offer that capacity.”

Evrim Resources, explains that when being involved in exploration projects, the chances of making an economic

Evrim Resources is focused mostly on copper, gold and

discovery are slim. The prospect generator model increases

silver projects. Harris emphasizes that the company’s

the chances of success and lowers the risk of failure, since

business model allows them to pursue any commodity it

more projects can be explored at a lower cost. “If you work

has expertise in, as long as they can find a partner. The most

as an exploration company, trying to do everything on your

advanced project it currently has is Suaqui Verde, located

own increases your risk and expenses, resulting in a lot of

in Sonora, a porphyry copper project that is optioned to

share dilution, as you need new capital to finance your

First Quantum Minerals. “Our exploration program there has

activities,” he details. “We are happier to allow our partner

consisted of geophysics and diamond drilling. It was very

companies to earn a majority interest in each individual

successful finding long areas with copper mineralization;

project and have Evrim retain a minority interest if we

it was sufficiently encouraging to start a second phase

make a discovery.” With this model, the key advantage

program that is already underway testing more targets. The

for partner companies and possible future partners is that

goal there is to find a more than 500 million tonne porphyry

they earn a majority interest in the project in exchange for

copper deposit,” adds Harris. Currently, all of the company’s

taking on larger exploration risk. Another advantage is that

projects are located in Mexico, because Evrim Resources

they can get a chance to test a good quality exploration

originated when it purchased exploration assets in the

target without going through the expenses and time of

country from Kiska Metals Corporation. The company sees

generating their own. Duncan also comments that a key

many opportunities remaining in Mexico, especially because

consideration is the qualified human resources necessary

it is significantly underexplored, but that is not preventing

to achieve those exploration targets: “The mining industry

them from looking for other opportunities globally.


MINERALIZATION MEETS MANAGEMENT EXPERTISE Every company has a core strength: some are top explorers

advancing the project to the feasibility level and working on

and others are great operators. Geologix Explorations is

project financing for the construction. It is our philosophy

a hybrid of both, applying its exploration expertise with

to maximize the in-country expertise as much as possible to

a strong focus on eventual development. According

ensure positive results” Craig comments.

to Dunham Craig, President and CEO of Geologix Explorations, the company’s policy is to “begin with the

Geologix Explorations’ operations in the country are 100%

end goal in mind.” As such, the company systematically

Mexican at this time and the company is planning to continue

identifies the size and production capabilities of its mining

this policy as it builds its construction and operation team.

targets in order to make a realistic design according to

“We find that the local mining capabilities are very high and

the existing deposit. “We have often seen explorers and

maximizing benefits to the country where we operate is very

developers that try to go big, no matter what the deposit

important for us,” Craig remarks. The company has reviewed

is actually capable of. We are a bit different in this sense,

hundreds of projects in Mexico and will continue to do so,

so we try to size the geology first and then trim the best

taking into consideration that the country is its favorite

fit for positive operating economics. Many companies

jurisdiction. “We have learned that you have to be patient

attempt the reverse of this and then fail trying to make

and identify the right geological potential that matches the

their operations work,” highlights Craig.

management team and the company’s philosophy. In 2009

“We have often seen explorers and developers that try to go big, no matter what the deposit is actually capable of” Dunham Craig, President and CEO of Geologix Explorations

Since the acquisition of the Tepal Copper-Gold Porphyry

we identified that the mineralogy in Mexico was very simple

Project in Michoacan, a greenfield exploration target,

for processing and we liked that. In mining, simple things

Geologix

work and we have stuck with it,” he adds.

Explorations

has

carried

out

aggressive

exploration, resource expansion, and infill drilling programs to quickly develop the property to the pre feasibility study

The company is always looking for new places to explore,

stage. The project presents excellent potential operating

although it has found a territory that provides all the

costs and is believed to be able to produce over 100,000oz

opportunities it is searching for in Mexico, ranging from

gold and 50 million pounds of copper per year. When the

the right type of mineralization to the highly qualified

company acquired the project there were few resources

personnel required to perform operations successfully

and it was valued as a greenfield exploration asset. In four

and without major complications. “Exploration companies

years Geologix Explorations has turned the property into a

should always go to where the geology leads them

highly engineered development project with an after tax net

worldwide. Having said this we would prefer to continue

present value (NPV) a 5% discount of US$412 million and

exploring properties in Mexico since they could make a

an internal rate of return (IRR) of 28%. “We are currently

great adition to our existing operations,” Craig emphasizes.

TEPAL COPPER-GOLD PORPHYRY PROJECT The Tepal Project is a copper-gold porphyry with silver and molybdenum property located in the state of Michoacan. Since Geologix acquired a 100% interest in this greenfield exploration project from Arian Silver Corp., the company has carried out aggressive exploration, resource expansion, and infill drilling programs to advance the property to the prefeasibility study stage. Target production is 100,000oz of gold and 50 million pounds of copper per year.

70


THE VALUE OF OUTSOURCING EXPLORATION EXPERTISE Though mining activities

likely to end in finding a successful property because of the

have

conducted

greater expertise of the prospect generating company.”

for

This is particularly important at a time like now in Mexico,

in

been

Mexico

centuries,

Luis Villanueva, Country Manager of Riverside Resources Mexico

70%

many of

the

when the highest potential land has already been taken,

country’s territory remains

and the areas which have not yet been explored have less

unexplored. The outcome

potential. A company like Riverside Resources is able to

of previous drilling and

significantly reduce the risk inherent in this process by

mining projects on the 30%

using its well established network of contacts in order to

of land that has already

find the best potential properties available.

been explored reveal a lot about Mexican geology

Riverside Resources works mostly with international

and can help to create more successful strategies for finding

companies, but it tries to find partners that have some prior

and operating on new deposits. “At Riverside Resources

experience in Mexico, or at least a clear interest in working

technical, geological, and country data for each project is

here. The types of companies that it partners with also

safely secured and accessible for learning. In this way, the

depends on funds; for many companies making a prospect

company’s ‘technical experience’ is saved in our database

generation investment is simply not within their budget. “If

of projects,” says Luis Villanueva, the company’s Country

we find the property that our partner agrees to take on as

Manager for Mexico. Riverside Resources, a Canadian

a project, then either we acquire the property or we take

prospect generator working mostly with international

the property as a designated project. Therefore, they must

companies, counts this database as one of the company’s

commit to a US$5-25 million investment in the first four or

biggest strengths, along with its vast experience in Mexico.

five years. Many mining companies these days are not able

“Our competitive advantage is our Mexican expertise and

to come up with this level of financing. So money is the main

our management and professional team. Although we

restriction,” explains Villanueva. Whilst commissioning this

hire consultants from everywhere in the world, our group

service requires a considerable down payment on behalf of

of geologists is Mexican and has broad experience and a

a mining company the rewards can be very large. Knowing

wide network here. These two advantages, plus our projects

the significance that such an investment represents, offering

database, are what make us stronger,” explains Villanueva.

as high a return on investment as possible is extremely important for companies like Riverside Resources. “We

The company has built up a significant portfolio of

work towards creating the best return on investment for our

projects

northernmost

clients. It is well-known that exploration is the highest risk

to the southernmost states. This decision to diversify

activity in mining, and historically it has been junior mining

geographically is based on its strategy to focus on the

companies that have explored projects for major mining

quality of properties rather than their location. This strategy

companies. But the expectation of investors has started to

has recently taken Riverside Resources into less traditional

move away from junior mining companies, given their lack

mining states such as Chiapas. “The strategy is to find good

of financing,” says Villanueva

throughout

Mexico,

from

the

prospects, so we move according to opportunities. We do not necessarily aim to go everywhere in Mexico. There

One thing that can have a negative effect on the return on

are interesting gold prospects in Chiapas, and we will try

investment is the time taken to complete various pieces of

to exploit those using our expertise and our community

paperwork. “Exploration is getting complicated in Mexico,

relationships programs; these will help the people to

in terms of the time it takes to process documentation. We

understand that we are not there to hurt their land, but to

recently received a drill permit after waiting for six months.

bring opportunities to them,” explains Villanueva.

The longer time you wait for these permits the more money gets spent, which works against any project’s return on

Riverside Resources has partnered with large mining

investment. One of Riverside Resource’s advantages is that

companies such as Hochschild Mining, with whom it is

we get things done in Mexico in a very competitive amount

currently working to find a gold or silver property. “They

of time,” says Villanueva. For Villanueva and Riverside

do not have the people or the resources needed to carry

Resources, there still exists huge potential in Mexico, even if

out intensive exploration in Mexico, therefore we reduce

it is becoming more challenging to find it. “Our ambition is

their risks by exploring on their behalf. We both finance

at least to find a 1 million ounce gold deposit. We will achieve

the project, avoiding the dilution of the company’s

this with a lot of hard work, and obviously with the assistance

stakeholders,” says Villanueva. “This approach is more

of a very good team of people,” concludes Villanueva.

71


GEOPHYSICAL SERVICES FOR SUBSTANCE INFORMATION In

situations

Zonge revisits the information gathered from previous

geological studies can be

certain

geological studies at each stage and recommends

insufficient to accurately

survey methods to its clients that can add value to their

determine

exploration and ultimately identify new zones of interest.

the

of

mineral

to

fully

the

or

The methods employed by Zonge guide mining companies

understand

targets

through interactive processes, integrating the geology

layout

of

underground that

Francisco Romero, Senior Geologist at Zonge International

position

the

and geochemistry with the initial geophysics results,

structures

which are then combined with historical and new data in

contain

Geophysical

them.

order to provide ongoing assessment throughout the life

techniques

of the operations. This process of continuously refining

are becoming increasingly

geological information and geophysical models is integral

used in exploration programs, and are designed to help

to mining success. “If it was not for our services, mining

outline and map areas rich in minerals when traditional

exploitation would face even more challenges that result in

geology is not enough. “Thanks to geophysical studies

operational deficits,” Romero remarks.

mining companies are able to deal with complex geological problems,” says Francisco Romero, Senior Geologist at

The geophysical techniques Zonge employs to directly

Zonge International.

detect minerals and map structural features include: induced polarization (IP) methods using time and frequency

By incorporating advanced geophysical methods at the

domains for detection of disseminated sulfides; controlled

outset and throughout their projects, mining companies

source audio-magnetotelluric (CSAMT) investigations to

can reduce risks and generate more value for their

detect massive sulfides, silicified zones or map subsurface

investments. However, given that geological hypotheses

lithology; transient electromagnetic (TEM) investigations -

have to be proven by geophysical prospecting methods,

surface and borehole - for mapping conducting features;

the best techniques for carrying out the selected study

and integrated ground magnetic/GPS surveys for rapid

need to be chosen. “Customers require advice on which

investigation of local subsurface structure. There are

techniques to use in specific situations. It is almost like

certain types of reservoirs that are not difficult to analyze,

a doctor-patient relationship; geologists point out the

and for this reason it is not always necessary to conduct

structural problems that need to be overcome and we

deeper studies. Nonetheless, some reservoirs have still not

determine if such problems have to do with folds, faults,

surfaced in the valleys and only the sediments deposited

grabens or other geological behaviors that cannot be

there are recognizable. For these kinds of reservoirs it is

easily identified, and we solve them,” Romero stresses.

necessary to use more precise geophysical techniques.

SPEED AND ACCURACY IN SAMPLE ANALYSIS The extended upwards cycle

Development Manager at Skyline Assayers & Laboratories.

of metals prices in recent years

“What we offer to the mining industry is guaranteed

both

laboratory services for the geological exploration process,

and

Nancy Gracia-Gungor, Business Development Manager at Skyline Assayers & Laboratories

increased mining

exploration

activities

and

and we have collaborated with several mining companies

boosted the demand for base

here in Mexico. We have worked with Cobre del Mayo, with

metal, ferrous and non-ferrous

Grupo Mexico right after the end of a three year strike

analysis. Whilst the equipment

at its Cananea copper mine, and Timmins Gold is also an

and processes involved have

important client of ours. We have also carried out laboratory

developed significantly over the

analysis with Canadian junior mining companies,” she adds.

years, making analysis today

72

much quicker and more accurate, the service is age old and

The company started off in Colorado, but expanded into

mining companies may outsource this service to any number

Mexico after identifying the business opportunities that

of different laboratories that draw on decades of experience.

exist here. Based in northern Mexico, the company is

“We have over a 100 years of experience analyzing base

strategically located nearby the majority of the mining

and precious metals,” says Nancy Gracia-Gungor, Business

activity being carried out in the country. “Thanks to all of


TIME SAVING IN QUANTIFYING MINERAL RESERVES Mineral resource and reserve estimation is a continuous

their projects,” Luna Espinoza explains. The company was

process that begins with the exploration and compilation

founded to save time for its clients by providing them with

of information and is followed by geological interpretation.

fully integrated geological services. “We noticed that many

The quantity of reserves an ore deposit holds is the most

companies were providing individual geological services,

important factor for mining companies, since it determines

but none of them were integrating them. SPM wanted to

its economic viability and will directly influence the life

innovate by integrating services ranging from prospection

cycle of the mine and its annual production. It is clear that

to exploration and reserve estimation,” he adds. One of the

resource estimation is of vital importance in the success

most noticeable services SPM provides is reserve estimation

of mining investments, for which the estimations and

and certification. Reserve certification is crucial for public

calculations have to be as reliable and accurate as possible.

mining companies looking to raise funds, since their

“Mineral reserves are the base of any mining company. Our

shareholders need to see validated information to continue

job is to quantify them and guarantee to our customers

investing in the mining projects. A correct estimation is of

that they do count such reserves,” says Ramón Luna

vital importance to both certainty in feasibility studies and

Espinoza, Operations Director of Servicios y Proyectos

for daily mining programs. According to Luna Espinoza

Mineros (SPM) a nationwide geoscience consultancy.

there are only five Mexican companies capable of certifying

“Mining companies are in need of high quality interpretation and estimations that are backed up with high quality data” Ramón Luna Espinoza, Operations Director of Servicios y Proyectos Mineros

reserves under international standards. “The Americans and Canadians have been responsible for performing such tasks, the fact that our staff has this capability has given us a true advantage over our competitors in the market,” he says. Reserve estimations are normally based on a single set of grade and tonnage figures, without taking into account the possible errors that these measurements can have. There are many mistakes that can be made during reserve estimation

SPM provides exploration and geological services, from

that can seriously endanger the success of extraction plans,

basic prospection to advanced exploration, drilling, and

especially during the sampling, assaying and interpretation,

reserve estimation. The company has over 40 geologists

and estimation of mineral ore deposits. “Mining companies

and a drilling team capable of quantifying and certifying

are in need of high quality interpretation and estimations that

their clients’ reserves. “SPM has gathered experts in different

are backed up with high quality data. If a company is planning

geo-scientific areas to provide our customers with integral

on making a sound investment or operational decision they

services that go from exploration to the development of

must base it on accurate and reliable information,” he adds.

the existing Canadian investment in Mexico, as well as to

other laboratories to see if those results are correct. We

the amount of exploration that is currently taking place, we

provide quality work and we try to follow up on each and

have had the opportunity to participate in many projects.

every result, so that the customer can be sure that the data

The Mexican government has worked very hard to make it

he is getting is right. This guarantees that a company does

easier for foreign companies to explore and invest in the

not have to go through the same process twice or even

country, and there are a lot of companies that are ready

a third time, which saves time and money,” says Gracia-

to invest in Mexico and interested in doing the necessary

Gungor.

studies to understand the value of mineral resources,” says Gracia-Gungor. Sample analysis is an essential process for

Skyline believes that investment in this area of the mining

mining companies. This is even truer during difficult times

business will continue and even grow, because it offers a

such as these, when companies cannot risk spending their

valuable return on investment. “Companies will always need

squeezed resources on an incorrectly valued deposit. In

earth studies to know what they will be mining,” says Gracia-

fact, mining companies are more often spending extra

Gungor. “Companies look into their budgets and understand

money on corroborating analysis results with different

that they have received a great service with quality results

laboratories. “Companies must have reliable data in order

at a very low price.” Gracia-Gungor is therefore positive

to prove their hypotheses about the value of the ore

about Skyline’s trajectory in Mexico, which will continue to

deposits they find. Many times, we compare the results of

play a very important role in the company’s overall business.

73


TECHNOLOGICALLY ADVANCED AERIAL SURVEYS Photogrammetry has become an indispensable element for

equipped with the most advanced camera systems, like

all mining companies looking to attain a better and faster

the Zeiss RMK TOP with forward motion compensation

understanding of the topographic conditions surrounding

(FMC) or the Vexcel UltracamD, which has one of the

their operations. For many decades, conventional methods

highest resolutions and shortest intervals between images

such as distance-angle measurements with total stations or

among all existing digital cameras. “International contracts

leveling equipment dominated the scene. These methods

require us to have the latest equipment in the market and

provide valuable and reliable information but when they

to comply with high accuracy requirements. These high

are compared with modern aerial surveys their deficiencies

standards also help our national clients who sometimes

become apparent. Today, aerial photography provides

do not even request the highest precision or the highest

the most efficient and precise geomatic system for

resolution,” says Kost. Another cutting-edge technology

recovering geographical or spatial reference information.

GeoAir applies in its aircraft are modern navigation systems

“Conventional methods take up a lot of time. They can

for aerial surveys, called CCNS4. Their Differential Global

be dangerous and can even pose an obstacle to mining

Positioning Systems (DGPS) increase the accuracy of

operations. The big advantage of aerial surveys is that

block adjustments during the aero-triangulation process.

they move rapidly in the air, making it possible to cover

The DGPS technology was first introduced to Mexico by

a mine with 3D aerial photos in less than an hour,” says

GeoAir.

geographer Wolfgang Kost, the founder and President of GeoAir - one of the most technologically-advanced aerial

Aerial photography is often challenged by weather

survey providers in Latin America.

conditions - such as wind currents - that destabilize the

“The incorporation of LiDAR into GeoAir’s mapping products will give mining companies accurate surveys, executed in a timely manner and at a reasonable price” Wolfgang Kost, founder and President of GeoAir

74

Mining companies need a range of applications and high

aircrafts, provoking image distortion. GeoAir’s fleet is

precision mapping to see and analyze their infrastructure,

equipped with gyro-stabilized mounts to compensate

such as access roads, buildings and dump areas. Other

for such movement. The aircraft is also equipped with

companies may want to know the volumes of the excavated

Inertial Measurement Units (IMUs) which register the

minerals and the exact measurements of their open pits.

exact position of the camera several hundred times per

Accuracy in mining projects can be a deciding factor in the

second, thus saving a lot of time and money during the

success of the operations, and slight mapping errors can

aero-triangulation process. GeoAir has also implemented

translate into a significant loss of time and money. “The

the most advanced LiDAR technology in Mexico, known as

most important advantages GeoAir provides to its mining

Leica ALS60, which is capable of generating a high density

customers are the leading technology we use and our skill

point cloud at high altitudes with impeccable accuracy.

level, based on many years of national and international

During flights over mines, this modern LiDAR is registering

experience in aerial surveys,” Kost mentions. GeoAir’s

millions of points, which are used for the calculation of

experience of working in over 33 countries worldwide

precise DTM, DSM, contour lines, spot heights, break lines

has helped the company to open towards new mapping

or infrastructure like roads, buildings and power lines.

methods and state of the art technologies. Their decades-

When these types of flights are executed periodically, the

long experience has also showed the company how to

airborne lasers can provide mining companies with spectral

manage projects efficiently and how to execute them

information layers that help field engineers calculate the

accurately.

remaining ore volumes.

The company possesses a variety of aircraft models,

Usually, the time frame for aerial surveys and mapping

cameras,

cover

services is tight in the mining industry. There is an ever-

any need mining companies could have in relation to

and

geopositioning

technologies

to

present sense of urgency to collect the necessary

photogrammetry. All of the company’s aircrafts are

information and resume productive activities as soon as


possible. “We are well aware of the urgency of our mining customers to get the job done. We understand that we

LEICA ALS60

are gathering the basic data for very important projects,”

Leica ALS60 is a compact laser-based system

Kost says. One of GeoAir’s advantages is that it has all the

designed for the acquisition of topographic and

equipment installed or ready to be installed in its 1,000m2

return signal intensity data from a variety of airborne

hangar in Mexico, allowing the company to mobilize in

platforms. The data is computed using range and

a short space of time. “GeoAir is the only company in

return signal intensity measurements recorded in

Mexico that is really working internationally with aerial

flight, along with position and attitude data derived

survey flights. This has helped us stay one step ahead of

from airborne GNSS and inertial subsystems.

the competition. We win international tenders due to our

The ALS60 falls into the category of airborne

compliance with the required standards and thanks to our

instrumentation known as LIDAR (Light Detection

competitive edge on a worldwide level,” Kost remarks.

and Ranging). This turn-key airborne mapping

“The investments GeoAir has made in equipment and

system

people stand as a true advantage for mining operators. No

necessary to produce latitude, longitude, elevation,

other aerial survey provider in Mexico has four aircrafts,

and intensity output by measuring the location and

two large-format digital cameras, gyro-stabilized mounts,

attitude (roll, pitch and heading) of the aircraft, the

DGPS and four IMU systems. Moreover, the incorporation

distance to ground and determining the scan angle

of LiDAR into GeoAir’s mapping products will give mining

for the impact point of each laser pulse. An XGA-

companies accurate surveys, executed in a timely manner

resolution digital camera is included in the scanner.

includes

all

post-processing

software

and at a reasonable price.”

75


| VIEW FROM THE TOP

IMPROVING DIGITAL MAPS FOR THE MINING INDUSTRY KRASSIMIR IANKOV CEO of Sistemas Avanzados y Proyectos (SAP)

Q: What were the gaps in the aerial survey market that led

calculations. Aerial mapping is very important and has many

to the foundation of the company?

advantages - it gives historical material for comparison and

A: In the past all mapping was done using traditional survey

it is more accurate, helpful and complete.

techniques and equipment, covering the terrain on foot and taking measurements using GPS. That posed certain

Q: What have been the main factors that have led to SAP’s

security problems, due to the vulnerability of geologists

success in the mining industry?

mapping vast terrains in sometimes hostile environments.

A: We paid a lot of attention to the post-flight process and

SAP saw the possibility of avoiding such issues by

to the people we employ, as well as to the flights themselves.

conducting its work from the air. SAP was also the first

Ideally you make each flight in excellent conditions so that

company in Mexico to have a digital photogrammetric

you do not have to repeat it, which is expensive, especially

work station, and offer digital photogrammetric scanning.

if the project is far from where the company is located.

Since 2006 we have had a digital photogrammetric

The flight is the most important part of the process, and

airborne scanner, which allows us to produce digital maps

several things might lead to having to repeat the flight, for

on various scales accurately and efficiently, producing

example if the equipment fails. SAP sends its equipment to

aerial photography, contour lines and survey maps. The

be calibrated by the manufacturer every year. Producing

company rents a helicopter and owns two aircrafts, the

accurate final maps depends on the operator as well; making

Cessna 206. The company’s most advanced equipment

a manual version of the map involves several processes that

consists of a laser scanner mounted on the aircraft to

essentially rely on the capabilities of our workers, so human

which we added a digital image sensor, so that aerial

resources are very important.

photography, contour lines, and volume calculation can be collected simultaneously.

Q: How does SAP ensure the quality of the mapping solutions it provides while maintaining a competitive

76

Q: How does SAP’s work benefit the Mexican mining

cost?

industry?

A: SAP operates at a very competitive cost and has the

A: The work that SAP does provides useful material for all

best aircrafts for what we are doing - the Cessna 206

of the different activities that mining companies may carry

single engine aircraft, which is the most popular aircraft in

out. There are several areas of the mining process that the

the US and Mexico. It is cheaper to operate with a single

digital map serves to improve. Our work helps to analyze

engine aircraft, though the cost of maintaining aircrafts is

environmental impact, to predict disasters and to assist in

high, not only in terms of the fuel cost but also in terms

the mine design process. SAP’s work is most valuable for

of maintenance and spare parts. On board the flights

mining companies working with open mines. On our flights

we have the pilot and an engineer who manages the

we use laser scanners and image sensors to produce very

equipment – the laser scanner, the computer and the state

accurate maps. This is particularly valuable in mining projects

of the art system that allows them to geo-reference the

where the surface of the land is being excavated every day.

image as well as the laser points. The equipment comes

By performing flights at different times, SAP can produce

from different countries - the AIMU is an American product

further maps of the surface and compare them, allowing

but the GPS is Canadian, the laser scanner we use is from

very accurate volume calculations. Most mining companies

Austria and the digital sensor is Russian. With this top class

traditionally use survey engineers to measure the ground on

technology we work with various map scales and altitudes.

foot, but it is impossible to produce a sufficiently accurate

We start with a 1:500 scale, which is extremely accurate

image of the terrain using 20m measuring intervals. We can

and the best scale we can provide. There is also the 1:1,000

produce the same outcome, going down to the smallest

scale, which is accurate up to around 12cm, and 1:2,000

detail. It does not matter if it is complicated terrain with

which is accurate up to around 20cm, all depending on the

big cuts or vegetation, we can still produce exact volume

customer’s needs.


NATIONAL TALENTS FOR NATIONAL PROJECTS Though the ground may be rich in natural resources, those

resources of our customers, as well as our own. Mining

resources are not distributed consistently in the earth’s crust,

companies hold huge parcels of land that they do not

making their discovery a true challenge for any company

really need to fully explore; what they need is a partner to

looking to exploit them. “We have the know-how to help any

show them where it is best to focus their efforts,” he says.

company from the early stages of prospecting and finding a parcel of land that has minerals of economic worth. The

As mining projects grow they require more services to

perfect project for us is one that starts from zero. We can

support the administration and execution of their operations.

proceed with in-depth exploration, to define the ore bodies

The information provided by geological studies is not only

that are deposited there,” says Juan García Dobarganes,

valuable at the initial stages of mining operations, but also in

Consultant at Geotecx, a geoscience consultancy based

each of the different engineering scenarios during the stages

in Guanajuato. The company offers support to mining

of exploitation and remediation. “We offer the opportunity to

operators, offering services such as topography, aerospace

transform our clients’ companies and we can also help them

analysis using GIS software, environmental analysis, and

to maximize their profits, thanks to the cost advantages

other types of specialized engineering services such as

we offer in comparison with Canadian companies,” García

searching for ground water and active faulting.

Dobarganes adds.

“The potential that the historic mining districts hold is enormous, and they should not be left behind” Juan García Dobarganes, Consultant at Geotecx

Many of Mexico’s obvious mineralized outcrops have already

The

been found and exploited in the past, leaving behind only

by Geotecx are invariably carried out using geospatial

deposits that are not evident to the common human eye.

information systems (GIS) called TNTmips Pro®, which

This has required mining companies to keep looking for

enables mining companies to incorporate all of the

more advanced techniques and technologies to find such

information recovered from geological studies into their own

deposits. As scientific knowledge and technologies progress,

platforms. “There are a lot of GIS systems available today,

mineral deposits that in the past were once overlooked

some of which might be more technologically advanced,

or disregarded can now be economically profitable and

but very few of which really understand the true needs

therefore transformed into mines. “The potential that the

of a geological researcher in the way that TNTmips Pro®

historic mining districts hold is enormous, and they should

does,” García Dobarganes asserts. By integrating geospatial

not be left behind. Thanks to the knowledge we have

technology Geotecx can provide complete and integrated

obtained about the ore deposits and geology of Mexico, it is

solutions that may be required by any client; it can generate

possible to explore, with greater success, territories that we

in the field or digitally all of the data and information

would never have previously imagined to contain mineral

that the company might require, such as environmental,

deposits” García Dobarganes comments.

geochemical, sampling, exploration, geophysics, drill holes,

projects,

studies

and

developments

undertaken

agriculture, inventories, and surveying. In order to find mineral ore deposits near ancient mining districts, or anywhere else in Mexico, it is important to have

Geotecx is listed in the Registry of Environmental Service

vast experience in the geoscience arena, and to be familiar

Providers, before the Guanajuato State Ecology Institute,

with the lithology that characterizes Mexico’s main mining

with specializations in environmental impact evaluation,

states. Geotecx, throughout its 20 years of experience, has

ecological management studies, integral management of

adapted its geological understanding and technologies

urban solid residues, and feasibility studies for disposal

to offer mining companies a set of services with the

(SDF) and landfills. “Protecting the environment is the

potential to boost their exploration success. “At Geotecx

focus with which the mining industry is operating today.

we believe that by combining scientific knowledge with

Minimizing their impact in every process, from exploration

advanced technology we are able to innovate how we plan

to the closing of mines, is another area in which Geotecx is

and execute our projects; this allows us to optimize the

prepared to support its clients,” García Dobarganes adds.

77


| VIEW FROM THE TOP

EXPLORATION STRATEGIES FOR A CHALLENGING MARKET CRAIG GIBSON Technical Director at ProDeMin Q: What is the role that ProDeMin’s services have played

José mine is in production close to where we are exploring

in the mining industry since the company was founded in

and they have had a lot of problems with the community,

2009?

but we can go in and say that we are separate from them

A: Companies come to us for our expertise in running

and are doing things differently.

exploration projects, this is our biggest asset. The company is made up of about 20 geologists, most of whom come

Q: What is your approach to determining whether a viable

from San Luis Potosi, Guerrero, Chihuahua and Sonora.

mining project can be developed?

The best way to convince clients that they need to

A: You have to look at the surface characteristics, and all

invest in our services is by showing them results. These

of the data that is available. If you are lucky the land will

companies are usually ready to invest in improving their

have had previous work done on it, so you can access and

work at the exploration stage because they understand

review all of the data that is available relatively quickly to

that it is an essential part of their operations, and therefore

better understand the composition of the land. We tend to

a necessary expenditure. They have to know what they

use older exploration methods, and we still do things on

have if they expect to sell, enter into a joint venture, as

paper. We will probably make an investment in computers

well as decide which of these options is preferable.We

with specialized equipment for data collection in the field

offer services across all areas of geological services,

later this year in order to keep up with the competition.

including infrastructure, logistics, administrative services,

Everybody wants the latest methods, but walking on the

land work, camp management, and environmental work.

ground, collecting data and understanding it, is still the

ProDeMin usually withdraws when the property moves

most important thing. Technology by itself is not what

into the development phase. If the client wants to sell the

is going to find an ore deposit - you need experienced

property, we can also act as a turnkey service provider in

personnel on the ground. Once you have found an ore

that process. In that situation, we can stay on and work for

deposit, or are close to it, that is when to start using

the new owners as long as they want.

technology to find more in the same area. Walking the ground and taking samples is still the most reliable

Q: What are the most promising states in Mexico for

technique for finding deposits.

exploration at the moment? A: Guerrero is one of the best new developing districts

Ideally we start working on a big plot and narrow it down

in Mexico; it has world class deposits and is becoming a

to the best areas. You might drop an area which another

world-class location for mining. Unfortunately, the state is

company later makes a discovery on, but a company has

also a hot bed for some of the country’s security problems.

to make those tough decisions in order to be successful.

It has not really affected us, but one of our neighbors there

You do not want to go broke trying to keep everything

had to shut down a project for two months, though it is

going, when focusing on one part of the land could make

back up and running now.

the company. You need to explain that to clients, and this is where our technical expertise comes in; we tell our clients

Q: What are your experiences in Oaxaca, where there are

when they need to drop something. Dropping land once

fewer mining operations, partly because of problems with

you have staked it is one of the hardest things to do –

land access?

people can feel like they are married to their properties

A: In Oaxaca we have not seen much anti-mining sentiment

sometimes, but there comes a moment when you have to

as such, but negotiating land access is more difficult there

focus on the best areas.

because of the importance that the land holds for indigenous

78

people. In our experience, people have preferred to turn

Q: What is your advice to junior companies, in terms of

down money in order to maintain control over their land.

employing an exploration strategy that allows them to

Negotiation is more sensitive in those situations. The San

survive difficult times?


A: Exploration is the base of everything going forward,

A: We are in a strange situation because metal prices are

and companies have to keep drilling because they will

still relatively high, but there is an adversity to risk-based

not find anything without doing so. We keep our clients’

financing at the moment. There is little money available for

costs down by helping them to drill the best holes possible.

financing juniors, which is mostly a problem of perception.

Our expertise lies in setting up a good drilling program in

The same thing happened in 2008, when many juniors

advance to test the geological concept. It is nerve-wracking

disappeared. This time it will be worse, because it seems

going to a property for the first time and setting up new

to be a larger trend and it is said that as many as 50% of

drill holes because you never know what you are going

juniors will go under if things do not change relatively

to hit, but usually we hit what we are looking for. I do not

quickly. It is actually a good time for companies that have

know how many service companies have had the autonomy

cash flow from operating mines, or do not have to raise

that we have had on some projects; this only comes based

money in the financial markets for other reasons. As a result

on confidence gained through mutual respect. We were

of the market’s recent behavior, there will be a lot more

successful in finding a good deposit for our client Newstrike

consolidation. Many early-stage projects will be acquired

Capital, and that is a good feeling for us.

by other companies, probably at fairly good prices. We are looking for and evaluating projects for clients that may

Q: What are the characteristics of the Mexican mining

want to acquire projects or companies that are struggling

industry that will allow it to survive the challenges it is

to find financing. The bigger companies will increasingly

currently facing?

get involved in currently devalued projects.

REFINING EXPLORATION PROGRAMS TO IMPROVE EFFECTIVENESS Now more than ever, choosing the right exploration and

Garibaldi Resources, with Gibson providing the technical

drilling strategy is vital for juniors that are trying to survive

expertise that informs its exploration strategy. Garibaldi

the financial downturn. Being focused and efficient is vital,

has four projects in Mexico - one in Chihuahua, which is

given the significant cost involved in drilling. “The current

currently dormant, two drillable deposits in Sonora, and

cost of drilling is around US$120 a meter, and once you

another project in Sinaloa. “Garibaldi Resources has some

get into difficult conditions it can be as much as US$250.

good properties, and we want to find a good area to mine

That is just for the drill, but there is also the cost of the

on those. We may want to go on and sell properties further

geologist, as well as analyzing the samples. For a 500

down the line, or enter into a joint venture. It depends on

meter hole, that gets extremely expensive,” explains Craig

the scale of what will be discovered,” says Gibson.

Gibson, a Director of Garibaldi Resources, a Canadian junior company. This impact is even more exaggerated when

As a part of its exploration projects Garibaldi Resources has

the concept is applied to companies that have multiple

conducted a number of imaging flights in the north of Mexico,

drill targets on multiple properties. Reducing a project

using hyperspectral remote sensing equipment. “It is similar

down to carefully selected targets will therefore improve

to geophysics, magnetometry and electrical methods, in that

the company’s chances of long-term survival. “Garibaldi

one is able to cover large areas of ground rapidly. This fixed-

Resources has a good land position on what was originally

wing based technology is similar to satellite methods but

a very large plot, which for the first five or six years was

with much higher resolution and more channels to capture

costing the company a lot of money. ProDeMin came in

more data at the same time,” explains Gibson. The purpose

and reviewed the land, making the recommendation to

of the flights was to inform and advance the company’s own

reduce it down to a manageable size, and focus on the best

projects, but when the 2008 crisis hit Garibaldi Resources

areas,” says Gibson. “Given the limited access to financing,

sold some of the data to other mining companies, in order to

Garibaldi Resources needs to pick the best projects, which

help cover the cost of the survey. “It made sense because we

they are doing now.”

had done the survey already, and we are still able to use the data now; it did not cost anything to provide it to others that

Garibaldi Resources has projects in both Mexico and

had land in adjoining areas, and it kept the company afloat

Canada. For two years, ProDeMin has been consulting

during a difficult time,” concludes Gibson.

79


| VIEW FROM THE TOP

BEST PRACTICES FOR PREFEASIBILITY AND FEASIBILITY STUDIES BALTAZAR SOLANO RICO Director General of Terra Quaestum & Consultant at Behre Dolbear Q: What role do companies such as Terra Quaestum, and

of different sources that may not be acceptable according

the feasibility and prefeasibility reports that they create,

to NI-43101 rules. One common problem is that most

play in the mining industry?

mining companies in Mexico have their own laboratories,

A: If a junior company goes to a bank to get financing

but in order to get a project approved the company has to

for a project the bank will require either a prefeasibility

be using registered laboratories that are commonly based

or feasibility study, or the signature of a recognized

in Canada or the US. Most mining companies will do the

consulting group which tells them that the project is sound

assaying in their own labs, but send a certain proportion

and that the mining company will be able to pay off the

to a separate certified and independent lab, which often

debt. Sometimes financial institutions call directly on our

shows their own analyses to be just as reliable as any.

consultancy services, but more often the mining company

Some of the larger companies will have assay certification

asks us to review its own projects before it goes to the

at several of their labs at different mining units and

financial institutions. Our reviews involve going to the site,

metallurgical plants. A lot of companies in Mexico now

checking the geology and making sure that the geological

have systems in place to follow the NI-43101 rules, making

model is reasonable. We review the reserve estimates and

consistency and reliability more common.

the mine design, we look at the geotechnical site report and the hydrogeology, and we conduct a financial analysis

Over the past 20 years, we have seen a constant increase in

of the whole project. Once all of this data has been audited

the use of dedicated programs for ore reserve calculations,

and validated, the following step is to review or develop a

mine planning and operations. In terms of exploration,

block model from which the reserves are calculated, if one

whether you spot a place through satellite imaging

does not already exist.

technology or through a property offer, there always needs to be someone on the ground who goes to check it out

Q: What are the criteria that potential financiers are

in person. In many cases it is the experienced geologist

looking for in a good feasibility or prefeasibility report?

who makes the site visit in order to ascertain whether the

A: In the end, the report has to show the profitability

property merits spending more money or not. There will

of the project, and reassure investors that the financial

always be the need to have someone doing that.

goals will be met and their debts paid back. They want to be reassured that their investment in the mine is not

Once you have gone through all of the exploration stages,

only reasonable but that the company will not exceed its

the final product will be the development of a resource

projected budget by more than 5-10%. That is where a

block model, which occasionally does not fit the geological

lot of properties fail – you commonly read in the papers

model developed. There has been a tendency during this

about projects that overspent by 50%. That is why a good

20 year period to do a lot more through the computer

feasibility study is essential to minimize the financial risk.

than through fieldwork, and while computers can help to create models, these will not necessarily be in line with the

Q: What are the main challenges that you and your clients

geological reality of the deposit. There is a need for close

face in the process of preparing feasibility or prefeasibility

communication between the geologist doing work in the

reports?

field and the person that is behind the computer doing

A: In some cases the company has done everything

the modeling. Both are essential, but without establishing

perfectly, but there are other cases where the clients put

good contact between the two there is a chance that the

together insufficient information, taking it from a number

eventual model will not be appropriate.

Behre Dolbear Group Inc. is one of the oldest continuously operating mineral industry advisory firms in the world. Since 1911 the firm has provided services to commercial and financial institutions, governments, public agencies, legal firms and other parties with interest in the minerals industry.

80


REFINING PROPERTIES TO GENERATE VALUE Reyna was originally founded in 2001 as a 100% Mexican

and easier to improve, and provides the opportunity to

company with a purely Mexican staff base. “At the beginning

add greater value to the company. You can change things

we were a service company providing consultancy on

around to create the optimum conditions for the mine, but

exploration, and how to acquire a concession and sell a

you need to have a good concept,” adds Berlanga Balderas.

property on after reaching production,” says José Antonio Berlanga Balderas, Director General and CEO of Reyna

Reyna’s first property purchase took place during a

Mining. “We soon learned that the main thing that people

downwards cycle in the industry, when big mining

were coming to Mexico for were assets, so we changed

companies such as Peñoles and Grupo Mexico were closing

our strategy and started looking for assets for our clients.”

down a number of their smaller mines; it was a joint venture

“With a very small investment we really optimized the operations on the La Negra mine, and within a short period of time, in 2006, production started up again at a rate of 1,100 tonnes a day” José Antonio Berlanga Balderas, Director General of Reyna Mining

Initially, the company had focused on consulting mostly

on a small Peñoles mine that had been closed: La Negra,

foreign clients in the areas of geology, exploration and

in Queretaro. “That was an interesting project because

production, especially in resource estimation, mine design,

the mine had been closed for a long time. Reyna was the

processing methods and mill design. Given the experience

driving force behind making an agreement with the local

and expertise that Reyna has in these areas, and the

community, solving environmental problems, and using

demand it was seeing amongst its clients for properties

our expertise to regenerate the equipment and the mine

that showed potential, not extending its business in this

itself. With a very small investment we really optimized the

way would have been a missed opportunity. “Reyna

operations on the La Negra mine, and within a short period

has mostly concentrated on finding medium-sized and

of time, in 2006, production started up again at a rate of

small properties that are easier to explore and put into

1,100 t/d,” says Berlanga Balderas. Reyna then went on to

operation,” explains Berlanga Balderas. The company’s

operate the mine until 2009, when it was sold to Aurcana

objective has been to take these smaller projects, turn

Corp., which still operates the mine today.

them into valuable properties, and sell them on. The focus on smaller properties has in part been the result of the

Because of the current aversion to risk in the market, most

proliferation in the industry of bigger mining companies

of Reyna’s clients are looking for more advanced exploration

that want world class projects. The smaller projects still

projects with known resources. Once the project has been

hold great potential, argues Berlanga Balderas, but there

acquired, Berlanga Balderas and his team tend to stay

is less competition in that part of the industry. “The bigger

on in a consulting role, particularly if the client is foreign.

mines in Mexico perform very well in terms of design, cost,

Reyna usually encourages its foreign clients to employ

and safety. Mexican mines are at the top level internationally

local staff, not just because of the benefits to the local and

in this way – the big companies set the standard for mining

Mexican economy, but also because of the significant and

in Mexico,” says Berlanga Balderas. “But medium or small

unnecessary cost incurred in bringing staff from abroad.

miners do have some deficiencies in their operations, in

This contribution to the country’s economy and human

terms of safety and recovery rates. These mines do not

capital will be key if the industry is to keep receiving support

use standard systems for resource information, resource

from the government, according to Berlanga Balderas. “I am

modeling, planning operations, mine design, equipment

optimistic about the future of the mining industry in Mexico

and processing.”

because I am sure that the government and Congress will understand more about the mining industry: that it goes

For these reasons, the smaller and medium-sized properties

through cycles; that it is a great generator of jobs and

provide Reyna real opportunities to use its expertise to add

infrastructure in isolated areas; and that the mining industry

genuine value. “When you are looking to buy an operation

can be the main generator of foreign investment in Mexico

that is efficient, you cannot do much to improve it. But a

and one of the driving forces for the development of the

small or medium-sized project with a bad concept is cheaper

country,” he says.

81


DELIVERING QUALITY AND SPEED IN MINERAL ANALYSIS Outsourcing geochemical analysis services to laboratories

significantly when Inspectorate’s parent company Bureau

is common practice in the mining industry, on the basis that

Veritas (BV) acquired AcmeLabs in 2012. “That opened

the expertise such laboratories provide allows the task to be

up great opportunities for the group, in terms of services

completed more accurately and efficiently. The promptness

in Mexico. AcmeLabs’s expertise lies in inductively coupled

with which geochemical analysis can be conducted on a

plasma mass spectrometry (ICP-MS) analysis that goes

company’s samples is vital – the sooner results are received,

down to ultra-lower detection limits, down to one part per

the sooner key decisions can be made and a project can

billion (ppb). AcmeLabs therefore brings to the group the

progress. The laboratories that provide this service must

possibility of providing a broader range of services,” says

balance time pressures with their commitment to quality.

Barragán. “We are excited to roll out AcmeLabs’s ultra-trace

“We have very strict quality assurance and quality control

packages across the group - this technology is allowing

standards, which we apply from the samples preparation

us to go to lower detection limits. Going to 1ppb was not

stage to the analysis stage. Our people are very well trained,

possible 10 years ago, but now the industry is moving

and we ensure that our samples are received and treated

towards parts per trillion levels. Several technologies are

with the strictest of controls,” says Marco Barragán, Mexico

important, but the ICP-MS technique is receiving more

Country Manager of Inspectorate’s Minerals department.

development attention. AcmeLabs’s research department

“There is no cross contamination. We have separate areas

led by John Gravel is constantly investigating and investing

for crushing, establishing these areas a distance away from

in new and improved techniques, which will continue to give

pulverization areas, and we have strict controls over the

the group a competitive advantage,” says Barragán.

setup of dust extraction systems.” The partnership has also improved the general reach of both Inspectorate was founded more than 125 years ago, and

companies throughout Mexico, as well as internationally.

has been working in the Mexican market since 1998. “There

Between them, Inspectorate and AcmeLabs offer their

was a big need in this huge market, and Inspectorate was

services through five preparation laboratories based

one of the first to seize the opportunity, which is one

strategically in the country’s biggest mining states: two in

of the reasons why we have been so successful,” says

Sonora and one in Chihuahua, Durango and Guadalajara.

Barragán. As an international company, Inspectorate

Their customers can submit samples in all five laboratories

maintains that consistency across of all of its laboratories

and select which analytical laboratory they would like to

worldwide is of paramount importance. “Our final results

be in charge of the analysis. Inspectorate’s commitment

are validated by a quality control department in our geo-

to transparency is also demonstrated in the company’s

analytical laboratories. In the case of any discrepancy the

‘Laboratory Information Management System’ (LIMS),

process is stopped and samples are re-checked. We also

which provides information on the analysis process from

routinely participate in third-party blind studies, called

start to finish. The information can be checked online by

Round-Robins. This allows our clients to see the accuracy

customers at all times through a secure online platform.

of the laboratory before they decide to work with us. We

The system allows them to see the history of any one job,

participate in this program all year round,” says Barragán.

and they can contact the client service to discuss the

Returning to the subject of speed, Barragán highlights

results if they so wish. By the end of 2013 Inspectorate’s

“We have a strong commitment to delivering results on time, and have very strict quality assurance and quality control standards” Marco Barragán, Mexico Country Manager of Inspectorate’s Minerals department

82

how important this is as a priority for the company. “We

LIMS will be integrated with AcmeLabs’s, which will bring

make a serious commitment to delivering results on time.

further benefits for customers of both companies. “This will

The number of samples does not matter - we have the

mean that we offer one national service, preparing samples

capacity to handle high volumes of samples in all of our

under the same standards and procedures, all under ISO,

laboratories in Mexico,” he says. The company’s ability to

and with the data saved under one single system,” explains

respond quickly to its customers’ requirements improved

Barragán.


| VIEW FROM THE TOP

THE ECONOMICS OF MINING ENTREPRENEURSHIP JESĂšS HERRERA ORTEGA Founder of Detector Exploraciones and Geoprocesos Q: What opportunities exist in Mexico for the discovery of

now occupying important positions within the Mexican

more superclass mineral deposits?

Geological Survey. It is nice to watch them develop

A: Mexico has a lot of untapped potential. Every year we hear

professionally with us and go on to succeed in their

about new mineral deposits that are among the largest in

careers. Something that I really treasure about my work is

the world, and companies like ours have contributed a lot to

that it reaches every single corner of the country. Our work

the discovery of these important ore deposits. Our territory

directly impacts growth in the communities wherever we

still presents a lot of opportunities; the only limits are human

operate. Sometimes we work in places with very precarious

capital capacity and investment budgets. Unfortunately,

conditions, but after a few years of the mineral deposit

when the sector reactivates we tend to lack the capacity to

being found these communities benefit from all types of

feed it. Mining companies, service providers, academia, and

services and an enhanced quality of life.

government have to work together to activate the potential of the Mexican mining industry. The mineral deposits are

Q: What is the most important lesson you have learned as

there, ready to be found, we just need to move adequately

a Mexican entrepreneur?

to capitalize on those opportunities.

A: Over the course of my career the most important thing I have learned is how to make good use of the

Q: What was the idea behind constituting two geological

companies’ funds. Over time I have seen a great number

consultancy companies, and what are the main services

of entrepreneurs fail because they did not manage their

that Detector Exploraciones and Geoprocesos provide?

resources well. A common error among Mexican SMEs

A: I decided to create two different business units in order

is that the owners think that the money the company

to win a greater share of the market and to separate the

generates belongs to them. I understood that the money

services we provide, and it has also helped to simplify the

my companies earn belongs to the organization and to its

administration. We provide our mining customers with

workers. One cannot receive money from the company

all of the information they need to fully understand the

and start spending it on trips and properties. Savings are

different features of the properties they want to explore.

fundamental to any developing company, and for any

When we conduct geological analysis and rock sampling

company looking to consolidate itself. Another common

we are able to predict where in the property the minerals

error, especially within the mining industry, is that a lot of

are more likely to be deposited. Having this information

company owners tend to employ their own relatives and

makes it easier to locate and explore mineralized areas.

friends. Being part of the family does not give you the

This type of analysis will save an enormous amount of time

right set of skills to make a company grow. I have seen

and money, because drilling is neither cheap nor quick.

a lot of companies fail as a result of this. The only way

After drilling we send our samples to laboratories so that

to be successful is to devote yourself to your duties, be

geochemical trials can be performed to determine if the

disciplined, and know how to save money.

projects are profitable or not. Our responsibility is to make sure that sampling is being carried out systematically and

The success of mining companies as well as our own

in the right locations, so that the information provided is

success will depend on how we allocate our resources. All

consistent and usable.

businesses are linked to developments in their country’s economy, as well as in global markets. For this reason, our

Q: What do you consider to have been your greatest

strategy will be to save resources in times of prosperity so

achievements in the running of your two companies?

that we can withstand the difficult moments. One of our

A: I am very proud that Detector Exploraciones and

ambitions is to create a more consolidated team that can

Geoprocesos together are currently employing over 140

continue to support our mining customers by helping them

people. What is also satisfying is seeing that many of

to find more economically viable mineral deposits that will

the young trainees that worked with us in the past are

be profitable in the long term.

83


| VIEW FROM THE TOP

A MODERN APPROACH TO DRILLING IN MEXICO LEFT: Víctor Díaz, Director General of Globexplore Drilling RIGHT: Marc Kieler, Director General of Globexplore Drilling

Q: In light of increasing international competition in the

margin. We could see the potential long term benefits of

drilling market in the country, what is the advantage of

the partnership so we called them up and offered to lower

being a Mexican drilling company operating in Mexico?

our contract price. The client was shocked - it had never

A: As a Mexican company we understand the culture and

had a contractor offer an unsolicited discount. It is this type

the way of working here very well. This allows us to take

of honesty and fairness that helped us earn our customers’

the best approach to training and motivating our team in

respect and build a lasting partnership. To us it says a lot that

ways that create the highest quality of work. Interaction with

every client we have ever worked for would recommend our

Mexico’s local communities is extremely important, since

service and hire us again.

exploration projects tend to be in remote locations. These communities often do not differentiate a drilling company’s

Q: What are the main reasons your clients work with

employees from a mining company’s, so any problems with

Globexplore, and what do they value most about the

our staff would not only risk our drilling contract but more

company?

importantly can risk our client’s reputation as well. All of

A: Our clients appreciate that we do not create profit centers

our employees understand that our actions can actually risk

for every challenge that arises. Drilling deep into the earth

the potential of a future mine. We run a 100% alcohol and

is an unpredictable venture and we take the responsibility

drug free operation, and we maintain this rule even during

of finding technical solutions that deliver the results our

off hours. This is not just for safety reasons but also for the

clients need, without taking advantage of them along the

responsible image it promotes to clients and communities.

way. Most of our clients have similar concerns and we make

To build a positive relationship with the local communities,

sure we meet or exceed their expectations in every possible

we take environmental cleanliness as seriously as being

way. Globexplore is also small enough for the owners to be

courteous at the local gas station, motel or machine shop.

intimately involved in every project, and not in a boardroom

Small details like driving slowly to keep dust to a minimum,

in another country. At the same time, we are large enough to

closing ranchers’ gates or offering to repair a rancher’s

have a first class company supporting our field operations

tractor all help to build a good relationship with the local

at every level.

community. In one case a client asked us to stop the drill while they waited for assay results, so our crews drilled a

Q: What role do technology and innovation play in

water well for the local town. We also try to hire locals

improving efficiency on drilling projects?

whenever possible. This gives us a competitive edge over

A: There is so much more to achieving the desired results

foreign companies that do not always understand how best

than just a new drill and an expert driller. At Globexplore

to work with local people.

we have developed the High Tech infrastructure that is required to properly support that new drill and expert

84

Q: To what would you attribute the company’s success?

driller. The brains behind our new headquarters in

A: We believe the fact that we are still operating at 85%

Hermosillo is our Globexplore Management System (GMS).

during this downturn validates our positive reputation.

Using smartphones, tablets or laptops this elaborate

We have proven with actions, not words, that Globexplore

system captures and shares real-time data on every aspect

offers genuine value that cannot easily be found elsewhere.

of our operations, providing data that answers questions

We have had some contracts where we lost a lot of money

such as: which driller is the most efficient? Are we on

due to unforeseen challenges, but we never walked away

schedule to meet our client’s target completion date? Are

from the commitment we made to that client. We finished

all employees up to date with their safety training or drug

the job as promised and earned that client’s trust. In another

testing? It alerts us when a driver exceeds the speed limit

example, working with one of Mexico’s largest producers

and it generates accurate daily drill logs for the client to

we improved our productivity and cut our operating costs

review. The system helps us run our operations with much

to a point where we were making a higher than normal

greater efficiency by reducing the chance of human error,


and allows us to operate safely and at a more competitive

with low staff turnover. We have developed a large family

cost.

that shares common goals, and our staff are proud to wear our logo on their chest.

Q: What are your technology and performance strategies for selecting rigs, and why does your fleet look the way it

Q: How will you balance Globexplore’s growth ambitions,

does today?

whilst maintaining the quality of your services?

A: We are proud to run the most High Tech and modern fleet

A: We were very aggressive when we first started and grew

available. All of our rigs were built within the last five years,

the company by 100% every year from 2006 to 2012. We

which ensures the latest technology, performance, reliability

could sustain that level of growth then because we were

and safety standards. We purge our fleet as it ages and keep

smaller and the increments were easier to deal with, but

no equipment past six years. We have standardized our

given our current size it is not intelligent to maintain that

fleet, which helps us maintain the rigs and keep a sufficient

pace. In mid-2012 we halted new rig purchases and focused

stock of spare parts. We can move drillers from project to

on upgrading our infrastructure. We built a state of the art

project without the delays and risks associated with a new

headquarters and mechanics shop and polished up our

learning curve. Should there be a time consuming repair we

training programs. We also improved our supply chain

can swap out the entire rig if necessary. Most importantly

and preventative maintenance departments, and created

our drillers get the training and experience needed to

reliable procedures for the most important tasks. We now

maximize the capabilities of the rig.

have the foundations to grow and expand as soon as the market demands it. However, we know that being bigger is

Our diamond rig fleet was designed by drillers for drillers,

not always better and we have a simple rule that we will not

and offers top class power to advance through challenging

add a new rig or take on a new contract unless we are 100%

ground or reach targets as deep as 1,700m, whilst remaining

sure we can maintain our high level of customer service.

small enough to be transported by helicopter and fit in a drill pad as small as 4x8m. Our reverse circulation fleet also offers some of the smallest footprints in the industry, requiring a pad size of as small as 6x8m. This helps us access tighter, more remote areas and lowers the cost, time and environmental impact of constructing larger drill pads. With depths of up to 450m, production is often higher than on rigs twice their size. Engineered with automated rod loaders and breakout systems with remote control operations, we have eliminated the most common causes of injury. Our rigs can be mounted on a variety of options to suit different client needs, with truck, skid, buggy or tracks, and we offer both Diamond and Underground RC rigs. Q: Your staff play a key role in your success; what is your strategy to building and developing your team? A: The talent of drilling is acquired over time; hiring, training and retaining the best team we can is the biggest challenge we face and the part of our business that receives most attention. We have developed a culture that

Q: What should the company look like in five years’ time?

motivates our people to work as if they were the owners of

A: With a solid foundation in place we are now ready to

the company. We compensate our people by paying above

further expand our rig fleet. Our next purchase will be custom

industry averages, with a bonus program that incentivizes

designed Underground RC rigs that a client has requested.

our staff, based on a combination of safety performance,

We have opened a nonprofit charitable company called The

innovation, and high productivity. Employees are rewarded

Globexplore Foundation, which will be running some exciting

if they develop a new procedure that helps us save money

charitable programs. Everything we do drills towards the

or work more efficiently, or if a supervisor operates an

company’s vision statement, which is: ‘Globexplore will be

accident-free project. This strategy helps us to attract the

the most valued and respected drilling company, through

best people in the industry and maintain a consistent team,

industry-leading quality, performance and integrity.’

85


| EXPERT INSIGHT

Exploration activity has matured in Mexico, it is no longer a case of simply going to a historic high-grade mine, and looking for immediate extensions. The easy mines have been found. The challenge now is finding blind deposits. Exploration has evolved more into the conceptual and semi-conceptual stage where applying the right geological model to find new deposits is crucial.

Tawn Albinson, Managing Director of Minera Boleo

Mexico has been a mining country for centuries but its vast territory has still tremendous opportunities to find new ore deposits. Mexico for sure will keep its leadership in silver and will become one of the 5 main gold producers in the coming years. These potential needs

to be explored and then drilled, creating a tremendous opportunity for service providers to exploration companies.

Luis Silva, CEO of Ingetrol Group

| OVERVIEW OF DRILLING TECHNIQUES

86

ROTATORY AIR BLAST DRILLING

REVERSE CIRCULATION DRILLING

Rotatory Air Blast drilling (RAB) is the most common

Reverse Circulation drilling (RC) is similar to air core

drilling method used in the exploration industry. The

drilling in that the drill cuttings are returned to surface

tool itself, also known as a down-the-hole drill, uses

inside the rods. This type of drilling utilizes much

a pneumatic reciprocating piston-driven hammer to

larger rigs and machinery and depths of up to 500m

energetically drive a heavy drill bit into the rock. The

are routinely achieved. RC drilling ideally produces dry

machine recovers cuttings to the surface through

rock chips, as large air compressors dry the rock out

pumping compressed air down the center of the drill

ahead of the advancing drill bit. It is slower and costlier

system. The drill bit is hollow, made of solid steel and

but achieves better penetration than RAB or Air Core

has 20mm thick tungsten rods protruding from the steel

drilling. On the other hand, it is cheaper than diamond

matrix as buttons, which are the cutting face of the bit.

coring and therefore is preferred for most mineral

RAB drilling is used primarily for mineral exploration,

exploration work. Reverse circulation is achieved by

water bore drilling, and blast-hole drilling in mines. Large

blowing air down the rods. The differential pressure

diameter core drilling is recommended for bulk sampling

creates air lift of the water and cuttings up the inner

and where core samples are required. If it encounters

tube, which is inside each rod. It reaches the divertor at

water, RAB drilling at extreme depth may rapidly clog the

the top of the hole, and then moves through a sample

outside of the hole with debris precluding removal of drill

hose which is attached to the top of the cyclone. The

cuttings from the hole. However, this can be counteracted

drill cuttings travel around the inside of the cyclone

with the use of stabilizers, also known as reamers, which

until they fall through an opening at the bottom and

are large cylindrical pieces of steel attached to the drill

are collected in a sample bag. Although RC drilling is

string and made to perfectly fit the size of the hole

air-powered, water is also used to reduce dust, keep

being drilled. These have sets of rollers on the side that

the drill bit cool, and assist in pushing cutting back

constantly break down cuttings being pushed upwards.

upwards, as well as when collaring a new hole.


In exploration you have to begin with the end in mind in order to be successful.

Companies should systematically identify the size and production capabilities of their targets and then realistically design the mine according to the existing deposit.

Dunham Craig, President and CEO of Geologix Explorations

Mexico is a very geologically-diverse country with a large land base and a rich tradition in mining and exploration. We see many opportunities remaining in Mexico and we believe that the country is significantly underexplored.

Rob Duncan, VP Business Development at Evrim Resources

If you want worldwide investors to come, you have to first show them what you have to offer by exploring the geological wealth of your territory. Rafael Alexandri Rionda, former Director General of the Mexican Geological Survey (SGM)

” ”

DIAMOND CORE DRILLING

PERCUSSION DRILLING

Diamond Core drilling uses an annular diamond-

Direct push technology includes several types of drilling

impregnated drill bit attached to the end of hollow

rigs and drilling equipment that advance a drill string by

drill rods to cut a cylindrical core of solid rock. The

pushing or hammering without rotating the drill string.

diamonds used to make diamond core bits are a variety

While this does not meet the proper definition of drilling,

of sizes, fine to microfine industrial grade diamonds,

it does achieve the same result: a borehole. Direct Push

and the ratio of diamonds to metal used in the matrix

rigs include both Cone Penetration Testing (CPT) rigs

affects the performance of the bits cutting ability in

and direct push sampling rigs. These types of rigs are

different types of rock formations. The diamonds are

typically limited to drilling in unconsolidated soil materials

set within a matrix of varying hardness, from brass to

and very soft rock. CPT rigs advance specialized testing

high-grade steel. Matrix hardness, diamond size, and

equipment and soil samplers using large hydraulic rams.

dosing can vary according to the rock that must be

Most CPT rigs are heavily ballasted (20 tonnes is typical)

cut. The bits made with hard steel with a low diamond

as a counter force against the pushing force of the

count are ideal for softer highly fractured rock, while

hydraulic rams, which go up to 20kN. Alternatively small

others made of softer steels and high diamond ratio

and light CPT rigs and offshore CPT rigs will use anchors

are good for coring in hard solid rock. Holes within the

such as screwed-in ground anchors to create the reactive

bit allow water to be delivered to the cutting face. This

force. In ideal conditions, CPT rigs can achieve production

provides three essential functions: lubrication, cooling,

rates of up to 250–300m per day. A cylindrical steel cone

and removal of drill cuttings from the hole. Diamond

is pushed hydraulically into the soil to identify soil types

drilling is much slower than RC drilling due to the

and groundwater migration pathways. Through the use

hardness of the ground being drilled. Drilling 1,200 to

of electronic strain gauges that measure physical soil

1,800m is common, and at these depths the ground is

properties, the acquired data produces a continuous, real

mainly hard rock.

time stratigraphic record or sounding.

87


| TECHNOLOGY SPOTLIGHT

REVERSE CIRCULATION DRILLING Mining and exploration companies often prefer Reverse Circulation (RC) drilling to Diamond Core, due to the fact that RC drills provide approximately twice the sample size and speed rate at approximately half the cost of core drilling; in most cases RC also delivers 100% of the sample, whereas core drilling sometimes cannot. It is often essential for companies to receive the complete sample. For example, in the cases of coarse, nuggety gold, or very fine grain gold flakes that are loosely held along fractures and which can be washed away with drilling fluids or water, it is often difficult to make an accurate grade evaluation using Core Drilling. In these cases RC is the preferred drilling method, due to the larger sample size and complete sample recovery that it provides.

Because traditional RC drill rigs tend to require a large footprint of up to 20x20m, this often limits the options for mining and exploration companies as well as adding to the cost of expensive road and drill pad construction, along with creating additional issues with the government and property owners relating to the potential negative environmental impact.

Globexplore Drilling has worked with its rig builders in the US and Canada to design a series of RC rigs with footprints as small as 6x8m that solve these problems. This new series of drill rigs offers the same high power capacity as the more traditional truck-mounted rigs, yet they are roughly half their size, as well as being equipped with a host of modern technology features, such as automated rod loaders and remote control operations. Globexplore has two self-propelled Track- and Buggy-Mounted rigs, both of which can turn in a complete circle within their own footprint, allowing quick moves between holes. The rig tows a separate air compressor, which can be run up to 150m from the rig on a separate pad or at a different elevation, for example. The company also recommends running the compressor as a separate, replaceable component to the rig, because mechanical failure on that component is the most common cause of downtime. “If a compressor goes down we can swap it out and have the rig back up and drilling in a couple of hours,” says Armando Lucero, RC Operations Manager at Globexplore.

The small size of the rigs offers a powerful solution for companies looking to capture 100% of their sample from the surface or from underground applications in a safe, quick and economical way, while minimizing the environmental impact of RC drilling.

88

“Reverse

Circulation

drilling

can sometimes find deposits that Core Drilling can miss. With new technologies in size, speed, and safety, the appeal of RC is growing in our industry”


FINDING OPPORTUNITIES DURING THE EXPLORATION DOWNTURN At a time when exploration activities have significantly

targets or poor sample recovery can end up costing the

reduced in Mexico, companies are asking the same question:

client much more in the end,” he says. “Should the program

‘How can we make a more attractive value proposition to

go on longer as a result of low production or poor sample

clients and potential clients than our competitors?’ One

recovery, the client’s overheads will easily outweigh the

company that has continued to have the majority of its drills

initial savings. When there is so much at stake our clients

in operation while drills around the country have stopped

want quality and performance balanced with fair value, and

turning is Globexplore Drilling, based in Hermosillo. Fully

we deliver that,” he says. For this reason, the performance

aware of the need to remain competitive in today’s industry,

of the equipment and having experienced personnel are

Globexplore has focused on strengthening the key areas of

absolutely essential. “Primarily, our goals are to produce

its business in order to make the very best value proposition.

the most accurate samples as safely and quickly as we

A big part of this strategy comes down to customer service,

can, while maintaining our environmental and social

and working hard to exceed clients’ expectations at every

responsibility at an economically competitive value. We

opportunity. “We operate every aspect of our business

achieve each of these goals with the most modern fleet

with good old-fashioned customer service; we apply the

of drill rigs available, operated by the most professional

‘customer comes first’ attitude,” says Marc Kieler, Director

people in the industry,” says Kieler. “Exploration drilling

General of Globexplore Drilling. “Nothing can substitute for

can make or break a project and we take our responsibility

clear communication and planning ahead. We make sure

as an integral part of our clients’ success very seriously.

we meet with the client as much as possible to make sure

Results last forever.”

we clearly understand their goals, and we plan our services accordingly,” he adds. Kieler’s view is that each new client should be approached with the aim of creating a lifetime partnership; you have to help the client succeed even if that means losing money in the near term, but keeping your customer happy in the long-run will eventually reap rewards. “We believe the fact that we are still operating at 85% during this downturn validates our positive reputation. Our entire company operates with a deep understanding that the client is the priority to focus on every hour of every day. We have had some contracts where we lost money over a long period of time, but we never walked away from the commitment we made to that client. We finished the job as promised, and in doing so we earned a client for life, for as long as we continue to perform,” says Kieler. Part of gaining lifelong customers comes down to a drilling company’s willingness to keep working with its client to continually reduce

The final point Kieler makes relates to the importance of

expenditure while improving results. Keenly aware of this

community. This has to do not just with the company’s

fact, Globexplore offers a simplified invoicing system,

relationships with the local communities where they

rather than charging its clients extra for solutions to the

drill, but also with the mining community more generally.

challenges that commonly arise during drilling. This allows

Globexplore has become involved in several state and

the mining company to focus on the geology, rather than

national mining associations and has established strong

be keeping track of consumption.

relationships with all levels of the industry. “This is a huge industry by way of dollars, but a small industry by way of

In Kieler’s experience mining companies are usually aware

people involved, so this has been a great way for us to

that a cheaper initial cost can often come to represent a

network with many important decision makers within the

false economy in the long-run. “The experienced client

private and public sectors. In addition, we have sponsored

knows that the drilling company with the cheapest

several events, such as earth science courses at university

contract price per meter is not always the least expensive

level. These students are the next generation, and they will

option by the time the drilling is finished. Many factors

influence and run important parts of our industry; we want

such as mechanical downtime, low productivity, missing

to help and be a part of their future” says Kieler.

89


INCREASED RIG PRODUCTIVITY KEY TO ENERGOLD’S GROWTH As exploration activities

the versatility of its machinery, meaning that no significant

have increased in Mexico

changes are needed for different drilling processes.

over

Jesús Herrera, Country Manager of Energold Mexico

the

last

decade,

and many international

One of Energold’s main priorities is to create a skilled team

companies have seized

that has the training and experience to approach drilling

the resulting opportunities.

projects efficiently, though finding the right people for the

Energold

over

job has not always been easy. “The challenge is to find the

230 drilling rigs in 22

operates

perfectly trained people for the job. One cannot commit

countries worldwide, and

to a job without having good drillers, because this can

the

received

lead to lost time and money. Behind our drillers we have a

company

significant demand from

team of engineers that are waiting for the samples in order

junior Canadian companies, as well as big operators, for

to begin the process of analysis. We must have qualified

projects in Mexico. “At the end of 2005 we only had two rigs

drillers we can rely on, because otherwise it can affect the

in Mexico, one in the State of Mexico and another in Chiapas,”

whole production chain. This is why it is so crucial for us to

says Jesús Herrera, Country Manager of Energold Mexico.

have a capable team that is able to create value both for

These served as a platform from which to expand throughout

our company and for our clients,” explains Herrera. “For

the region, and the company is now well-established not just

this reason we have created a training center in Mexico,

in Mexico, but also in the Dominican Republic, Haiti, Peru,

where we send all of our workers for training.”

Chile, Argentina, and Nicaragua. Energold’s work in the Latin American region is complemented by its presence in Africa,

Energold’s approach to building its team in Mexico has

Asia, the Middle East, and North America.

clearly paid off, as the company now has 32 rigs in the

“We overcome the challenge posed

country and its operations here represent 30% of its total global operations. It has also developed strategies

by fluctuations in metal prices

to overcome other challenges associated with beginning

by increasing our productivity,

logistical, and administrative matters. “In order to be able

enabling us to reduce our prices” Jesús Herrera, Country Manager of Energold Mexico

operations in a new country, in areas such as transport, to operate we require gas or diesel powered generators to light up the camp during the night shift. Last year an engineer from the Tecnológico de Durango joined our ranks, helping us to design solar plants, which provide

The success of a drilling company such as Energold relies

us with a constant source of pollution-free energy for

on the stream of business coming from junior companies

these sorts of purposes,” says Herrera. “While working we

and mining companies carrying out exploration programs.

take environmental regulations very much into account,

“The advantage of the Mexican market compared to other

whether we are working with a junior, medium or large

markets in Latin America such as Haiti and the Dominican

company. It is not because our clients require us to do so,

Republic, is that Mexico offers more security and legal

but rather it is something that we impose on ourselves.”

certainty for investment,” says Herrera. The added value that

90

Energold has brought to the Mexican market has been the

Another key priority for Energold has been the improvement

technological advancement of its drilling equipment. “We

of its processes. The company is continuously measuring

do not need to construct roads or cut down trees, all we

the productivity of its rigs, with the aim of reducing

need is a 5x5 meter space in which to install our machinery

operational costs and thus the costs for its clients. “The

and begin drilling,” he adds. This is a particular advantage

mining industry changes depending on the price of

given that many other drilling technologies use larger

minerals. We overcome the challenge posed by fluctuations

machinery, requiring a larger space in which to operate and

in metal prices by increasing our productivity, enabling us

thus having a bigger impact on the environment. Given its

to reduce our prices,” says Herrera. “By earning the trust of

size, our machinery can also be transported via even the

companies that have projects at the production stage and

most challenging roads and terrain. “Energold has strived

working together with them we can guarantee a constant

to improve its technology and be innovative. This is why

flow of work for ourselves. Despite suffering a blow as a

we have a specialized facility in Vancouver that works

result of global metal prices these companies never cancel

exclusively on improving our equipment,” explains Herrera.

their exploration programs; they may be exploring less but

As a result of the research it has done Energold has increased

they never stop completely,” he concludes.


| VIEW FROM THE TOP

APPLYING TECHNOLOGY FOR BETTER QUALITY DRILLING ÓSCAR ZAMARRÓN GARZA Director General of OZMAQ

Q: What were the market opportunities identified by

Brokk offers ongoing online training to its distributors and

OZMAQ’s founders that led to the company’s creation?

clients, sharing with them the best international practices.

A: After five years of positive results as Sales Manager for

Thanks to this and to several on-site training programs

Primsa Mexico - manufacturer of the Clark Michigan wheel

given to the operators, many technical issues can be solved

loaders used in the construction and mining industries -

remotely. At one point, a mine in Tamaulipas requested our

Primsa gave me the opportunity to independently manage

technical team to visit because the equipment was losing

its brand distribution for the states of San Luis Potosi,

power. Thanks to the international best practices available

Zacatecas, Queretaro, Aguascalientes, and Guanajuato.

in Brokk’s online database, OZMAQ was able to identify

We decided to start OZMAQ in 1982, equipped with just

the three main causes for the malfunction and found a

one vehicle as capital, a line of credit with Primsa, and

solution over the phone. Brokk’s equipment is equipped

most importantly with extensive commercial knowledge

with 100% digital technology. Its electronics are reliable,

about how the industry works. We started our operations

distortion free, and have solid circuits in which there will

from San Luis Potosi, where we had the opportunity

be no particles, dust or humidity. In the case of an accident

to work with Minera Autlán, which asked us to supply

the electronic board can be replaced easily. In order to

wheel loaders with bigger dimensions. After successfully

perform maintenance analyses all components are scanned

completing the first order, Minera Autlán then entrusted

by trained OZMAQ operators. The operator is responsible

us with its subsequent orders. OZMAQ then took on other

for the analysis and for reporting equipment failure to

projects within the cement industry, starting with Cementos

the report center where we work out the solutions, or

Anáhuac and Cementos Mexicanos, and then moving on to

replacements if necessary.

the Government Trust for Mining Development (FIFOMI), to whom we supplied several parts. In an effort to enter

Two key arguments for choosing OZMAQ over conventional,

the American market Volvo purchased the Clark Michigan

perhaps cheaper equipment, are productivity and safety.

line of products, which made it hard for Primsa to stay

Brokk’s technological strength lies in its high power

competitive, ending in an offer to distribute the Clark forklift

capacity and compact dimensions. These features allow it

trucks in Mexico, and distancing us from the mining industry

to provide high productivity in difficult to access areas. For

for a few years. OZMAQ’s real mining industry comeback

example, the B260 weighs 3 tonnes and has the hydraulic

came in 2011 when my son Oscar, Commercial Director for

power of a 12 tonne excavator that would never be able

OZMAQ, started finding strategic partners for the company.

to access the confined spaces that can be reached using Brokk. In addition, most of Brokk’s models are electrical

Q: OZMAQ is distributing state of the art Swedish robotic

and are connected to a diesel generator with regulated

demolition technology. How is this technology adding

revolutions, which has low emissions in an outside area,

value to the mining industry in Mexico?

resulting in a cleaner and better ventilated working

A: With the Brokk demolition line clients will be quick

environment, releasing less CO2.

to start reaping safety and financial benefits. Instead of spending time cleaning materials after blasting, the

Q: How will OZMAQ continue to grow and take advantage

operator can be sitting in a safe place while the Brokk

of opportunities in the Mexican mining industry?

equipment is in the front line, in the most dangerous places,

A: As we continue to look for equipment that complements

working with accessories such as drum cutters, jumbos,

our current portfolio and offers the best performance and

and hammers. Drawing on enormous hydraulic power, it

productivity levels, Brokk represents OZMAQ’s inspiration

can be controlled remotely to remove any materials. The

for growth. Our strength lies in our ability to understand,

robot does everything: it carves, drills, hammers, handles,

maintain and apply technologically advanced equipment,

and manipulates materials.

and preserve our clients’ profits.

91


DESIGNING DRILLS TO MINIMIZE COST AND OPTIMIZE SAFETY As technology advances, success for a drilling company

Tecmin Servicios’ personnel play an extremely important role

becomes more and more related to being able to do more

in delivering in all of these areas, from safety to productivity.

for the customer with less. “One of the biggest demands in

To improve performance, operators and supervisors take a

today’s market is to obtain bigger samples and drill deeper

two month training course with content delivered through a

holes with more compact technologies,” says Marcos Loya

mixture of online and in-house sessions. “The strategy today

Farfán, Operations Director of Tecmin Servicios. “New,

is people. Through this course we train the best project

more challenging pieces of land are being explored, and

supervisors that are capable of managing the whole job,

companies want to be able to move their equipment more

from the technological side to the human resources side,”

easily and more safely. Our main focus is on productivity: to

says Loya Farfán. Having well trained staff is essential to

do more with less. Tecmin Servicios develops HQ dimension

delivering successful projects, both on an operational and

drills that allow the drilling of deeper holes, while always

a financial level. “Drilling is very complicated and expensive.

continuing to develop reliable, simple to use equipment

Operators must be well trained in order to recover the

“We ultimately want to export the drills that we manufacture all over the world, and it is a very exciting moment for our company. We are ready to seize other markets” Marcos Loya Farfán, Operations Director of Tecmin Servicios

at the best price.” With these objectives in mind Tecmin

minerals, since 50% of the operation comes down to the

Servicios both manufactures its own drills and conducts

handling of the equipment, or the experience of the staff,”

drilling for its customers. “Our engineering team is now

he adds. For Loya Farfán, the other 50% comes down to

working to make the first design for an underground drill

the way in which the assets are managed, and that is where

smaller whilst improving its performance. We want to

the in-house training program is so important. “This is

respond to our clients’ needs with innovative technology

something new, and we want to move it forwards, perhaps

at a competitive price,” explains Loya Farfán. Because the

by contacting local universities to propose internships, or

company constructs its own drills it is not only able to

collaborating with their technological and research services

develop the machines according to general market demand,

in order to figure out the best way, for example, to comply

but also adapt them according to the requirements on each

with any possible stricter environmental regulations.”

drilling project. “We want to provide simplicity in both the use and maintenance of the machinery, so the technology

The investment that Tecmin Servicios is making in its staff

is simple. Therefore, spare parts are available anywhere in

is also a positive step for an industry that has seen heavy

Mexico to avoid having the drills on standby,” says Loya

foreign influence. “All of our staff is Mexican; we brought

Farfán. Avoiding the breakdown of the machines is one of the

in Canadians previously, but not anymore. We are bringing

company’s key objectives, because of the cost implications

in people from Chile and Peru to introduce new practices

for its clients. Tecmin has specific maintenance procedures

if needed, but we intend to continue creating an expert

and a series of checklists that help to identify which parts of

technology base here in Mexico,” says Loya Farfán. He also

the machine are malfunctioning, and subsequently decide

believes that the Mexican workforce has a lot of knowledge

which spare part is required.

and experience that can be shared with its counterparts elsewhere in the Americas. “South American drillers have

92

Tecmin Servicios takes the safety performance of both its

been sharing lots of drilling expertise, but they have actually

machinery and its staff extremely seriously. “In 15 years

also learned a lot from our Mexican drillers, given that the

Tecmin Servicios has not had any fatalities,” says Loya

environmental requirements in Mexico are quite stringent,”

Farfán. An important part of the company’s increasing

he says. Tecmin Servicios has the ambition to expand into

emphasis on safety comes in the form of its “Safe Meters”

Latin America, and to increase the distribution of its own

campaign, through which the company works with its

equipment, both in Mexico and further afield. “We ultimately

clients to improve safety standards, raise awareness about

want to export the drills that we manufacture all over the

safety issues, and eliminate potential accidents during the

world, and it is a very exciting moment for our company. We

diamond drilling process.

are ready to seize other markets,” says Loya Farfán.


BUILDING VERSATILE RIGS TO EXPAND HORIZONS Drilling companies have little freedom to choose the

as we drilled. We are the only company that went deeper

location of their projects; the geologist makes a prediction

than the 80 meters and kept going,” says Carranza.

of where minerals may be found, and based on that selects

Carranza attributes her team’s success on this project to

the locations for drilling. Those drilling targets may be on

the company’s approach to communication: “The key is

flat land next to a highway, or in the middle of nowhere,

for the field to be in contact with the office. The drillers

accessible only by air. Drilling companies therefore need

sometimes get frustrated, naturally, but if they run out of

to have a flexible approach to their projects, and be ready

ideas they can call the office or other branches that have

to tackle the natural challenges that they will no doubt

been in similar situations and get advice from them. Falcon

be presented with. “You need to work according to the

has excellent communication, not just in the field but at the

space you have, so there is a challenge there,” says Brenda

corporate level as well.”

Carranza, General Manager Mexico and Executive Director Global Marketing at Falcon Drilling. As a result of the

One of Falcon Drilling’s key objectives in order to remain

different types of challenges that the company has faced

competitive in a squeezed drilling market is to be

in the field, it has made flexibility one of the key features of

continuously offering its customers bigger samples and

its products. “Because of the adaptability of our drills we

smaller drills. To this end, the company is currently working

can access difficult and remote areas. We can put the drills

on the design of its own version of the commercial drill.

on skids and move them around, or we can put them on a

“A company might have very large drills, but this will be

unit, in a truck, on a crane, or transport them by helicopter,”

no good for a company that does not have a large area

says Carranza. Falcon Drilling was founded by two brothers

in which to set them up. On our current drills the engine

from Canada who are experienced pilots, and the company

alone weighs around 600kg, and the whole drill can weigh

has one helicopter in Mexico. This makes the company

up to 10-12 tonnes, depending on the model, and including

much more adaptable on these types of projects where

the skids and all of the other accessories. The commercial

a lack of infrastructure makes access by road impossible.

drill is portable and can be moved around by the workers.

“Mining and drilling are different types of businesses. The drilling procedure requires specific knowledge, a lot of equipment, accessories, and spare parts, which are expensive” Brenda Carranza, General Manager Mexico & Executive Director Global Marketing at Falcon Drilling

The company manufactures all of its own drills, which

It weighs around 1,000kg, with a tower of 200kg. Whilst

means that it has a thorough understanding of the

it is not going to drill holes that are as deep as the bigger

equipment it provides, and can adapt each drill to the

drills can, it has other features that better meet our clients’

needs of customers, and the drilling location. “The drills

requirements,” Carranza explains.

are manufactured internationally but our staff is trained to change the setup of the drill - to increase its power, change

While drilling companies are in constant competition

the gear or attach any kind of accessory. It is important for

amongst themselves, Carranza has noted that in recent

Falcon to be able to modify our drills in these ways because

times mining companies have started to perform this

in different areas and circumstances the drills need to be

service in-house to save costs. In Falcon Drilling’s

configured differently. Our mechanic will decide whether

experience, where the company does not have sufficient

for example in certain weather a certain modification will

drilling experience this can represent a false economy.

be necessary,” says Carranza.

“Mining and drilling are different types of businesses. The drilling procedure requires specific knowledge, a lot

Falcon Drilling has certainly not shied away from the more

of equipment, accessories, and spare parts, which are

challenging drilling projects. In Tepehuanes, Durango,

expensive. You need to be prepared to spend money at the

the company took on a project that four other drilling

outset and wait some time before you get the return on the

companies had previously tried unsuccessfully to drill.

investment, and you really need to know the business and

“The first 80 meters were extremely difficult. What we did

understand it. In order to do this you need to have a good

was to cement the area, and we went slowly, cementing

team on your side,” warns Carranza.

93


SMALL AND PORTABLE DRILL PLATFORM STRATEGY In the 2013 edition of Worldwide Exploration Trends, the

Ingetrol Group is now present in all of the world’s regions,

Metals Economics Group (MEG) estimated that the mining

and has rigs in 42 countries. Luis Silva, CEO of Ingetrol

industry’s total budget for nonferrous metals exploration

Group, believes that the unique design of the company’s

increased

Exploration

products is the key to its success. “Listening constantly

expenditures rose in all regions of the world during 2012,

to feedback from our customers to innovate our designs

with Latin America receiving 25% of total exploration

and the utilization of the best quality components have

investment and remaining the world’s most popular

been key factors in our success,” he adds. The company

exploration destination. The region’s geological potential

has opened offices in four countries – Mexico, Peru, Chile,

has spurred the development of its exploration drilling

and Colombia - in order to serve its customers better. “The

services sector, including both local companies and global

only way to really support these markets is being close by

players that operate in various Latin American countries.

with trained technicians and with capabilities to overhaul

Ingetrol is a provider of exploration equipment and

our own rigs,” Silva states. Ingetrol also extends its product

services that belongs to the former group. It was created in

and service offering through a distribution network that

1990 after company founders Luis Silva and Marilú Málaga

covers 13 countries.

to

US$21.5

billion

in

2012.

detected that the difficult geography of the Andean mountain range demanded the use of portable diamond

The company detected several opportunities in the Mexican

core drilling machinery with advanced capabilities. The

market. First and foremost, the country’s geological

company has since developed innovative water drilling and

potential and the industry’s boom attracted Ingetrol. Silva

exploration drilling products and has focused on offering

believes that, while Mexico has been a mining country

two crucial solutions for the mining industry: portability,

for centuries, its vast territory still offers tremendous

to avoid having to build access roads in remote areas,

opportunities to find new ore deposits. “Mexico for sure

and having the smallest drill platforms in order to reduce

will keep its leadership in silver and certainly will become

environmental impact. The company has also developed

one of the five main gold producers in the coming years.

rigs dedicated to drilling monitoring wells and portable

This potential needs to be explored and then drilled, and

rigs designed for permeability tests. This latter product

that creates tremendous opportunities for Ingetrol to serve

uses a combination of hydraulic push techniques and

the exploration companies,” he affirms. Furthermore, the

seismic instruments to measure the velocity of soils and

company’s experience in other countries has enabled

thus ensure slope stability.

Ingetrol to better handle its projects in Mexico. “There

IMPROVING EXPLORATION THROUGH EXCLUSIVE TECHNOLOGY When mining companies

success of the industry, since the geological data gathered

rely on other parties to

from the drilling programs will be decisive in corporate

conduct their exploration

decision making. “Our customers rely on us a lot, a great

activities,

their

only

deal of their success depends on our skills and technology,

concern

need

be

so we have to make sure that we are applying best practices

interpreting the recovered

to deliver the expected results,” says Luis Sánchez Murguia,

cores

Administration Manager of Intercore Perforaciones.

them. Luis Sánchez Murguia, Administration Manager at Intercore Perforaciones

94

and

analyzing

Therefore,

mining

companies are looking for

One of the most common challenges that can reduce

drilling

that

competitiveness within the drilling industry are the repair

companies

can guarantee an efficient

and maintenance costs of the drilling rigs. During its first

and continuous exploration process based on technologies

year, Intercore Perforaciones encountered some problems

that ensure better recovery rates of the extracted core and

with its machinery, which let the company to rewrite its

high quality samples to obtain reliable information about

business strategy and search for new and innovative drilling

minerals, precious metals and rock formations found in the

rigs in the market. “We studied the brands and compared

sub-surface. These elements play a fundamental role in the

the characteristics of different drills in the market, according


“Listening constantly to the feedback from our customers to innovate our designs and the utilization of the best quality components have been key factors of our success” Luis Silva, CEO of Ingetrol Group

are a great deal of similarities between the Andes and the

“There are always better ways to do something and special

Sierras of Mexico,” Silva says. “Geologically speaking, the

techniques to resolve a problem, so we never assume that

stratigraphy of Mexico has suffered less compression than

we have all the answers and we are willing to listen to our

the Andes. Therefore, the drillability of the formations is

clients.”

different and you can drill faster. As a consequence, the axial force and the running speed become critical to really

This philosophy has led to the development of state of

improve productivity.”

the art equipment that allows exploration companies to increase productivity and reduce the cost per meter drilled.

Mexico also offered Ingetrol commercial and technical

Ingetrol has a permanent R&D area that is continuously

advantages, which is why the company opened an office

developing and testing new technology. “We invested in

and a manufacturing plant in Torreon. “After visiting several

the development of aluminum engines in the US, and tested

potential locations we found that Mexico was best able to

different materials for frame construction. We are currently

meet all our requirements. It is one of the countries with the

launching a research project to dramatically increase the

highest number of free trade agreements, which gives a big

productivity using an approach that is different to what

advantage in exporting,” Silva remarks. He also highlights

our industry has been doing for the last 100 years,” Silva

that the quality of the country’s professional environment

comments. Ingetrol’s solutions are inspired by reality, and

– with an established base of metal workshops that can

by the everyday problems exploration companies face.

provide high quality frames and mechanized components

“We have several success stories but the most dramatic

– and the availability of good, hard-working technicians,

are when acrobatic drilling has been required in very steep

were critical in Ingetrol’s decision. Today the company has

conditions,” says Silva. “While exploring in the Sierra Madre,

instilled its philosophy in its Mexican employees. “Probably

we brought in special rigs, which we customized in order

one of the most important characteristics that we try to

to get large cores from shallows holes in very confined

enforce in our teams is that we are operating in an industry

underground sites. These are challenges that nobody but

where learning is a continuous process,” Silva explains.

us has coped with and succeeded in.”

to availability, drilling depth, engines, cost of components,

According to Van Kamp people are always very impressed

and value for money; this is how Cortech come out on top,”

with the resilience of its machines. “One day a customer

comments Harmen Van Kamp, Head of Sales at Intercore.

called us to report that his drill was not working at optimal

“With the technology Cortech provides, Intercore has less

performance. We visited the client and went through the

problems and can achieve greater drilling efficiency.”

drill stats and maintenance books. We realized that it had not been serviced for 18 months, while normally every 14

Intercore built a strong reputation and was offered

days oil and filters should be changed. Even after neglecting

Cortech’s official and exclusive distribution of drilling rigs

its maintenance like that, the drill was still running, which for

in the Americas. Intercore’s success in the Mexican mining

us was a remarkable sign,” he remarks. The majority of the

industry has been directly related to the technological

components Intercore uses in its drilling rigs are oversized to

advancements

Cortech’s

reduce the strain on the rig itself and improve performance,

technological innovation center is the driving force behind

the

drilling

rigs

provide.

drill faster, and require less maintenance. This is of special

its enhanced operational performance, and the mechanical

interest to many mining companies, since less maintenance

components used in the rigs are all manufactured by well-

is equal to less downtime in exploration programs and

known international brands such as Rexroth, Sauer-Danfoss,

therefore delivers faster results. Nevertheless, since drilling

Cummins, and Linde. “They are very well-engineered drills,”

rigs are mechanical, no one is expecting them to never fail.

Van Kamp emphasizes. Another important feature that has

Intercore provides its customers with the continuity of the

helped Intercore improve its drilling operations is that rigs

operations. “As a dealership we will always have spare parts

can be modified with diverse technologies, depending on

for everything, and we are able to get drills back up and

the conditions found at the drilling sites.

running within 24 hours,” Sánchez Murguia comments.

95


KEY FACTORS IN WATER MANAGEMENT SERVICES The year 2012 marked a historic record in mining exploration

Farco performs a series of water management services in

investment

the

Mexico, such as hydrogeology, well drilling and supervision,

country attracted over US$1,165 billion in mineral resource

de-watering, well test pumping and development. The

exploration during that year. This positioned Mexico as the

company also supplies industrial pumps, electric motors,

world’s fourth most important exploration destination, after

gear drives and a variety of accessories. These products

Canada, Australia, and the US. This position is the result

and services help mining companies to access and manage

of a steady double digit growth in exploration investment

water resources in every stage of their operation, from de-

since 2002, when the country attracted US$120 million. The

watering while performing exploration drilling to water well

exploration boom in Mexico resulted in international players

abandonment while performing mine remediation. “We use

successfully opening subsidiaries in the country. This was

some of the same equipment in the US and in Mexico, and

the case for Farwest Well Drilling & Pump Company, which

we are providing the same services in both countries,” says

expanded into Mexico in 2011, under the name of Farco

Vaught. “Mexico’s environmental activity seems to be going

Perforaciónes y Bombeo. “The mining community in Mexico

the right way. Quality control is directly tied to efficiency,

has a need for water development and de-watering services,

which in turn is tied to the return on capital investment of

so expanding our operations to the country was a natural fit

mining operations. When the right balance is struck and

for Farco,” states Clark Vaught, founder of both companies.

maintained, there is a much better picture. By combining

With only two years in the country, Farco has established

expertise, knowledge and the youth of many of our

itself as a service provider that is completely independent

employees, we will take advantage of the many opportunities

from its parent company in the US, and is on its way to

that the mining market offers,” he asserts.

in

Mexico.

According

to

Camimex,

becoming the biggest water development contractor in Northern Mexico. “Farco considers itself a Mexican company. Our employees are Mexican, with supervision from both countries. By being an American contractor, we bring with us the safety requirements, training and ability to reduce the risk factor in our operations. To challenge our Mexican workforce, we also employ Mexican nationals who have been trained in America,” states Vaught.

“Quality control is directly tied to efficiency, which in turn is tied to the return on capital investment of mining operations” Clark Vaught, Founder of Farco Perforaciónes y Bombeo

Comprometido siempre con el desarrollo sustentable económico y social de la comunidad donde nos desempeñamos.

96

www.metalmasterindustrial.com


SPECIALIZED DRILLING FLUIDS FOR OPTIMIZED PERFORMANCE Financially speaking, exploration is inherently one of the

are looking for new types of additives like the ones provided

riskiest stages within the mining value chain. Mining operators

by Fluídos Mayan Star and JC Portal Drilling Supplies in

set very high standards for their drilling activities, since the

order to quickly advance exploration. The application of

information recovered from each drilled meter will determine

drilling fluids can be complicated and even challenges the

whether a mining company needs to raise funds to continue

most experienced drillers. “It is very common that drillers do

its activities. In the Mexican drilling market, companies supply

not take advantage of the capacities of their drilling fluids,

different drilling rigs with varying and unique advantages but

if the behavior of polymer is irregular it can considerably

the reality is that the effectiveness of the drilling does not

increase costs, and if the product is not mixed and applied

depend entirely on the machinery, but also on the drilling

properly the driller will end up using an unnecessary amount,

fluids used to enhance operational performance.

but if they know how to use it adequately they will be able to save up to 50% of the costs in their applications, and at

The soil composition in Mexico is varied, and the geological

the same time be able to drill a lot faster,” says Elizarrarás.

diversity forces drilling companies to face a great number of

One of the main challenges during exploration is the lack of

challenges when looking for mineral deposits. “The Mexican

knowledge some drillers might have regarding the use of

lithology is very rich. You can find all types of clays, gravels,

complementary products for drilling rigs such as perforation

sands, and silts, for this reason companies providing drilling

fluids. According to Talamantes Reyes a great deal of the

fluids need to have a very consistent inventory, in order to

responsibility lies with the drilling fluid providers, because

help drilling companies face these challenges,” says José

of their immediate sales strategy. “We have detected a lack

Talamantes Reyes, Director General of Fluídos Mayan Star.

of quality in technical field services and a general ignorance

According to Talamantes Reyes drilling companies have to

regarding drilling fluids. It is our responsibility as providers

pay a lot of attention to the geological conditions found

to make sure that the clients know all about the product if

where they operate and to the drilling products they use

we want them to succeed,” he remarks.

in order to avoid any kind of entrapments or cave-ins. “If drilling companies try to drill deep and fast, it is vital to

As technology develops, it becomes more and more

make sure that they are using the right fluids to guarantee

difficult to keep up with modern exploration techniques.

the drill hole walls are clean and stable, otherwise the holes

Drillers need constant training programs to benefit from

are likely to collapse and they will have to be drilled again.”

the products they are using. Product application will vary

“The Mexican lithology is very rich. You can find all types of clays, gravels, sands, and silts, for this reason companies providing drilling fluids need to have a very consistent inventory in order to help drilling companies face these challenges” José Talamantes Reyes, Director General of Fluídos Mayan Star

Effective drilling fluids provide the advantage of having open

depending on the soil and weather condition where drilling

holes clean and lubricated in order to help the drillers achieve

is taking place, therefore continuous assessment is essential

better core or sample recovery. Many drilling companies

to achieve the best possible results. “In order to help

are used to only using one additive, which is generally the

customers drill faster and achieve a high recovery rate under

combination of water and bentonite, used to create solid

any geological condition, drilling fluid companies need

walls during the drilling process. “Most of the time we go

to show them how to create a special recipe that adapts

to a project where the core recovery rate is between 50

to those conditions,” Elizarrarás explains. For example,

and 60% and we run some tests to try to increase it to 80

if companies have to drill clays they will need to apply a

and 90% by adding drilling fluids. Mining companies need

polymer that is specifically designed to drill this type of

to have recovery at every meter so they can know exactly

soil. If the drilling will take place in solid rock, additive or

what is underground,” stresses Victor Elizarrarás, Operations

lubricant will be needed to reduce the torque and avoid

Manager of JC Portal Drilling Supplies.

causing damage to the drill bits. Exploration is a challenging and complex science; companies rely more than ever on

Every day mining companies require faster drilling and

fluid technologies to enhance their efficiency and to gain a

better recovery rates, and for this reason drilling companies

competitive advantage over their peers.

97


INNOVATIVE APPROACH TO GEOLOGICAL SAMPLE ANALYSIS “Sometimes it is hard to find

being movable to different locations as exploration targets

available and qualified people in

change. The company also offers mobile laboratories,

a country like Mexico, so often

which can be moved around on wheels. At the same time,

it is beneficial for a company

SGS Minerals helps mining companies to improve their

to

subcontract

of

own processes, through on-site process optimization and

Clark,

audits. “Many mining companies face challenges with their

former Business Manager of SGS

own laboratories, and these laboratories play a key role

Minerals in Mexico. The company

in the operations of a mine; every mine has a laboratory.

expertise,” Leslie Clark, former Business Manager at SGS Minerals Mexico

says

this

kind

Leslie

has developed a portfolio of

We have the expertise, so we can help them produce

services ranging from geochemical surveys and analysis,

more accurate and precise results,” says Clark. “Aside from

core drilling, and feasibility studies at the exploration stage

process optimization and audits, we can assist in process

to on-site laboratories, plant services and mill support at the

control, logistics and scheduling expert systems, sampling

pre-production stage, and modular or mobile laboratories

and monitoring, flowsheet development and piloting,

and environmental services at the production stage.

among other things,” she adds.

Mining companies have different options to collect

Despite its already broad service offering, Clark says that

and analyze their geological samples: they may create

SGS Minerals has every intention to continue growing in

their own on-site laboratories, or send them off to

Mexico. Part of this growth will hinge on the company’s new

an outsourced company for external analysis. “A big

laboratory, which is currently being built in Durango. “Today

advantage is that mining companies will use our labs not

we have a very good laboratory providing geochemistry

only for production samples, but at the same time for their

and metallurgy services, but we have decided to build a

exploration samples, since SGS is independent,” explains

new facility that will give us room to expand in the future.

Clark. The company currently has four on-site laboratories,

This new facility will not only be a little larger, it will also

and one commercial laboratory. Three out of the four on-

have more efficient systems, automated processes, and

site laboratories are fixed in a permanent building and one

more technology. It will not only improve efficiency, but

of them is modular, which brings the added advantage of

safety and quality too,” says Clark.

Williams Scotsman Mexico 2013.pdf

1

5/21/13

11:57 AM

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Tú lo imaginas, nosotros lo construimos

98

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MINING BOOM TRIGGERS DIVERSIFICATION AND GROWTH Construcciones Cihuacoatl faced the last mining boom

permits. “It is currently almost impossible to get explosives

with almost three decades of experience under its belt.

permits, given the security issues in the country. The

During that time, Rafael Gutiérrez Badilla, Founder and

government is cautious and restrictive in terms of whom it

Director General of the company, identified opportunities

can give the explosives to. If you are careful in handling the

in the drilling market and started Itzcoatl Drilling &

material there are no problems. But we are being asked not

Services together with his son, Rafael Gutiérrez Medina. “A

to store explosives, and instead to only apply for explosives

lot of people in the area knew Construcciones Cihuacoatl

to be used on a one day basis. That translates to high costs.

as a construction company that provides great service.

We have found other alternatives, but they do not allow us

Therefore, they were convinced that Itzcoatl would do

to operate as quickly as we can with explosives,” he adds.

the same great job that Cihuacoatl had done. We can provide the two services, and our clients just deal with one

“For years we have successfully dealt with environmental

contractor,” Gutiérrez Badilla highlights.

and safety matters, and we can therefore provide reliable services to our clients on these very important matters.

Having survived more than one mining market downturn,

The same happens in drilling, where we are not just the

Construcciones Cihuacoatl has been able to diversify to

company that drills, but we also provide quality samples,”

manage the inherent risk in the market. The company is

Gutiérrez Badilla says. “Personalized service is what makes

focused on the exploration stage of the industry, for which

us different. We are always in touch with our clients

it can do most construction work. “When mining goes

because we believe communication is key to moving a

well, a lot of projects are available and employment is

company forward in this sector. We adapt easily to our

created,” explains Gutiérrez Badilla. It has been thanks to its

clients’ needs,” explains Gutiérrez Medina.

exploration and mining clients that the company has been able to break into the Chihuahua, Sonora, Nayarit and Baja

Even though many juniors have exited the market since

California markets. “We are the first ones to work on a new

they have not been able to raise the necessary capital

project, building access. This is the reason why we were able

for exploration, diversifying their portfolio has enabled

to start Itzcoatl Drilling & Services, which started operating

both companies to work with well-established mining

in February 2011 and now has two teams in Minera Largo, a

companies such as Fresnillo and Peñoles. “For example,

subsidiary of Golden Minerals, in Zacatecas.”

Grupo Mexico was very satisfied with our service on the Nacozari project because of the high production rate we

“The initial growth of Itzcoatl Drilling & Services was the

achieved. We gave them excellent productivity levels, and

result of a combination of our human talent and the mining

what is even more important: quality service,” Gutiérrez

boom, which allowed us to invest in the company. It was a

Medina adds. For both Construcciones Cihuacoatl and

very drilling friendly period and that helped us to position

Itzcoatl Drilling & Services, being small Mexican companies

the company and expand our team to five drills,” says

has proved to be a double-edged sword. On the one hand,

Gutiérrez Medina, Director General of Itzcoatl Drilling &

most exploration capital is foreign and the lack of an

Services. Currently, the company has five active drills and it

international reputation has proved to be a disadvantage.

is in the process of adding its sixth. “We perform diamond

On the other hand, the companies have the clear advantage

drilling and focus on making our equipment more versatile

over foreign companies in terms of project control and

and adaptable to our clients’ needs. We have HQ, MQ and

management. “We are locals, we speak the language, and

PQ equipment by diameter order, and a capacity of 800m

we can supervise the operation at any moment. That has

to 1,300m, depending on the angle and drilling conditions.

a direct impact on operating costs and effectiveness,”

The industry is asking for 600m and 800m up to 1,300m

Gutiérrez Medina observes.

drilling holes; these are dimensions that our equipment covers,” he adds.

As Construcciones Cihuacoatl has survived the cyclical nature of the mining market, Itzcoatl Drilling & Services

One of the biggest challenges Construcciones Cihuacoatl

benefits from its years of experience. “The market is

constantly faces is the harsh terrain it is asked to operate in,

stabilizing slowly. We have clients that are willing to

such as in the Sierra Madre, where it is very difficult to drill.

increase their workload, and when they are ready Itzcoatl

In these cases the company’s ability to use different types

will have the necessary human capital and structure to

of explosives in steep terrain and difficult topography to

provide them with the best service. Currently, our goal is to

access logistically difficult sites is an advantage. Gutiérrez

work on training our people,” Gutiérrez Medina emphasizes.

Badilla notes that the hardest part is getting the required

99


100


DEVELOPMENT & ENGINEERING

4 Significant investment in exploration activity in Mexico over the past few years has created a strong development pipeline, with new projects expected to start production in the coming years that are destined to strengthen the country’s position as the world’s leading silver producer, transform Mexico into a top 10 gold producer, and vastly expand the country’s copper production. Of course, for these ambitions to materialize, current and future development activities at mine sites around the country will have to be executed in an optimal way.

This chapter will focus on some of the 15 mining projects that are currently under development and will begin operating between 2013 and 2015. It also presents the many contributions that Mexican and international suppliers and service providers aspire to make to the cost-competitive development of Mexico’s future mines, and analyzes which products, services, solutions, and technologies are best positioned to capitalize on the opportunities created by the forecasted US$2.585 billion investment in new developments in 2013. At the end of this chapter you will find an overview of the main mines in the state of Durango.

101


102


CHAPTER 4: DEVELOPMENT & ENGINEERING 104

Development Activity in 2012

105

MINE PROFILES: New Gold Projects

107

MINE PROFILES: New Silver Projects

108

MINE PROFILES: New Copper/Zinc Projects

109

VIEW FROM THE TOP: Commitment to Quality in Mine Development

111

Applying International Mining Standards to Mexico

112

MINE SPOTLIGHT: El Cubo

114

TECHNOLOGY SPOTLIGHT: Vulcan 3D Modeling and Mine Planning Software

115

Helping the Mining Industry Step into the Future

116

VIEW FROM THE TOP: Building Access to Deeper Deposits

117

VIEW FROM THE TOP: Leveraging Extensive Experience in Vertical Shaft Construction

119

Return to Industrial Blasting for the Mining Industry

120

VIEW FROM THE TOP: Finnish Philosophy for Underground Mining

121

Energy Supply Must Anticipate Power Requirements

122

Mining Technology that Meets Military Standards

123

Applying Cross-Industry Experience to Mining Projects

124

Productivity Gains through Ground-Engaging Tools

125

Business Leaders Revive Nuevo Leon’s Mining Industry

126

Embracing Quality Mexican Manufactured Spare Parts & Quality Material Handling Solutions

128

The Value of Understanding Industry Needs & Streamlining Mining Projects with Plant Design Software

130

Optimized Grinding Media Use Enhances Productivity

131

Reducing Costs Through Aftermarket Services

132

MINE PROFILES: Durango

133

STATE PROFILE: Durango

103


DEVELOPMENT ACTIVITY IN 2012 Following exploration, the development stage of the mining

investments (an equivalent of US$4.2 billion) towards

industry’s value chain includes assessing the potential of a

the development of their assets. In spite of the metal

mine and, in case of a positive assessment, securing funds

market’s current situation, Camimex expects its members’

to finance the project and continuing with construction.

expenditures to increase by almost 6% throughout 2013.

This crucial stage determines whether or not the mine

Development-oriented investments are projected to go up

will be a financial and operative success. Prefeasibility and

by 19%.

feasibility studies, mine planning, excavation and removal of waste material, dewatering, construction, development

GOLD DEVELOPMENT PROJECTS

of metallurgic extraction facilities, installation of field

Some of the most important gold mines whose development

labs, acquisition of high-quality, efficient equipment and

stages were completed during 2012 were owned by Minera

securing sufficient supply of energy are just some of the

Frisco. The company’s Concheño gold-silver mine, located

factors that need to be tackled during this stage. Moreover,

in Chihuahua, started producing in mid-2013. A dynamic

the aforementioned aspects must align towards a single

leaching plant with a processing capacity of 15,000t/d

goal: enabling metal or mineral production with healthy

was installed in this open-pit mine. Frisco also expanded

financial margins while meeting all environmental, social

operations at its El Coronel and San Felipe assets last year,

and occupational safety requirements that will make the

in order to incorporate a heap leaching process to the

project sustainable and stable in the long term.

former and increase overall production in both mines. The company also completed the development phases of its

As shown by the information contained in the previous

Porvenir and San Francisco del Oro assets – respectively

chapters, Mexico’s abundant mineral deposits and the

located in Aguascalientes and Chihuahua – and built

country’s legislation encourage investment and generate

flotation and leaching plants capable of processing 10,000

significant interest in the development of mines in Mexico.

t/d in each mine.

Additionally, the country has many suppliers and service providers that can help mining companies accurately

US-based company Argonaut Gold started development

assess the feasibility of their projects, plan their mines

works at its La Colorada project during the first trimester

efficiently and develop the entire infrastructure necessary

of 2013. Production at this mine, located in Sonora, was

to reach and extract ore deposits in record time. Mexico’s

reactivated during the same year, yet the company

workforce is not only cost-competitive but also qualified.

expects to increase gold output in 2013 by introducing

The country’s strong mining tradition and the existence

new metallurgical processes and facilities in what was a

of world class engineering programs in its universities

high-grade underground gold mine during the Porfirian

guarantee the availability of capable workers and highly-

era. Another Sonoran mine where development and

specialized technicians. All these factors encouraged

construction works began during 2012 is Agnico Eagle’s La

the mining industry to invest over US$15 billion in the

India unit. The company started its operations at the project

development of new projects in Mexico during the 2007-

during 2013, after completing all necessary permitting. The

2012 period. The return on this investment is already

mine is expected to start commercial production by 2014,

becoming tangible. Data from the General Directorate for

and is expected to generate an output of over 900,000oz

Mining Development shows that, in December 2009 there

per year until 2022. Additionally, two mega projects are

were 262 Mexican companies backed by foreign capital

expected to help Mexico climb on the world ranking of gold

operating 692 mining projects in Mexico. As of December

producers during the coming years. Torex Gold completed

2012 there were 285 mining companies with foreign capital

prefeasibility and feasibility studies at its Morelos Norte

operating more than 853 projects in the country.

project, which is located in the Guerrero Gold Belt on which the current NI 43-101 mineral resource estimate

104

According to the Mexican Mining Chamber (Camimex), the

stands at 4.8 million ounces of gold in the measured and

total investment made by Mexico’s mining sector during

indicated category plus an additional 600,000oz of gold

2012 reached US$8.043 billion. Companies affiliated to

in the inferred category. The company expects to start

Camimex brought in 93% of this total investment. These

construction of two open pits for this project in the last

companies also made expenditures of over US$711 million

months of 2013. In the state of Durango, the Sierra Madre

in project expansion activities, and they also invested

Gold Belt also hosts a promising mega project. Chesapeake

around US$1.8 billion in the development of new mining

Gold’s Metates asset holds reserves of 18.5 million ounces of

projects. The acquisition of equipment and machinery

gold. In 2012 and 2013 the company carried out advanced

almost matched this last figure, with a total sum of US$1.72

exploration activities and full feasibility studies are expected

billion. All of the above investment decisions imply that

to be completed by early 2015. By 2020, this mine could be

mining companies directed at least 59% of their total

producing up to 25% of Mexico’s total gold output.


| MINE PROFILES: NEW GOLD PROJECTS

14 9

2

10

6

5 15 16 13

11 3 7 8 4 1 12

Project

Company

State

Production (thousand ounces)

Start date

1

Angangueo

Grupo Mexico

Michoacan

N.A.

2014

2

Buenavista del Cobre

Grupo Mexico

Sonora

21

2015

3

Camino Rojo

Goldcorp

Zacatecas

N.A.

2016

4

Cerro del Gallo

Primero Mining/Goldcorp

Guanajuato

62

2015

5

Concheño

Minera Frisco

Chihuahua

N.A.

2013

6

El Arco

Grupo Mexico

Baja California

105

N.A.

7

El Coronel (enlargement)

Minera Frisco

Zacatecas

N.A.

2013

8

El Porvenir

Minera Frisco

Aguascalientes

N.A.

2013

9

La Bolsa

Pan American Silver

Sonora

38

2013

10

La India

Agnico Eagle

Sonora

90

2014

11

Metates

Chesapeake Gold

Durango

845

N.A.

12

Morelos

Torex Gold Resources

Guerrero

128

2015

13

San Antonio

Argonaut Gold

B.C.S.

63

2014

14

San Felipe

Minera Frisco

Baja California

N.A.

2013

15

San Fco. del Oro

Minera Frisco

Chihuahua

N.A.

2013

16

San Julián

Fresnillo plc

Durango

1.3

2014 Source: Camimex & SGM

105


SILVER DEVELOPMENT PROJECTS

BASE METAL DEVELOPMENT PROJECTS

First Majestic Silver Corp. completed development of the first

Grupo Mexico led the development of copper projects

section of Del Toro mine in 2012, and has progressed with

during 2012. The construction of concentrator plants, SX-

the second section throughout 2013. The unit is expected to

EW plants, and the expansion of the Buenavista del Cobre

process over 2,000 t/d by the end of the year. This asset is

mine, located in Sonora, are the main projects for Grupo

located in the Silver Belt of Zacatecas and its probable and

Mexico, and US$2.835 billion will be invested with the aim

proven resources surpass 90.3 million silver ounces.

of increasing annual copper production from 202,000 tonnes to 515,000 tonnes. In 2015 production is also set

In October 2012 Fresnillo plc finalized feasibility studies

to begin within the company’s Angangueo project, with an

for its San Julian silver project, which is located in the

output of 10,000 tonnes of copper. Other copper projects

bordering area between Chihuahua and Durango states.

whose construction phases advanced during 2012 are El

Construction at this site is already underway, which will

Boleo, located in Baja California Sur and operated by Baja

enable the company to reach an output of 9.6 million ounces

Mining-KORES, and Tayahua, operated by Minera Frisco,

by the end of 2014. Much like Fresnillo, two other mining

which undertook the expansion of this unit last year and

companies with Mexican capital are developing attractive

expects to begin producing in 2014. Other promising

silver projects in the country. On one hand, Grupo Mexico

copper mines that underwent feasibility studies during the

is reactivating mining activities in Angangueo, Michoacan,

year are Grupo Jinchuan’s Bahuerachi asset and Mercator

by developing an underground gold, silver and zinc mine

Minerals’ El Pilar project. The operators expect to invest

in the area. The Angangueo project has silver reserves of

US$900 million and US$350 million, respectively, to

3 million ounces and production is expected to begin in

develop these mines over the coming years.

2015. The expansion of its biggest mine, Buenavista del Cobre, will also give Grupo Mexico access to silver deposits

Durango’s zinc deposits attracted significant investment

of over 2.3 million ounces during the coming years. On

from Industrias Peñoles, which spent US$203 million during

the other hand, Minera Frisco’s Concheño and Porvenir

2012 to launch zinc production at its Velardeña asset earlier

are expected to produce 2.7 million silver ounces and 9.8

this year. Indicated and measured reserves at the site amount

million silver ounces, respectively.

to 46 million tonnes. Peñoles also completed the feasibility study of its Rey de Plata project, located in Guerrero, and

Besides having the potential to become Mexico’s biggest

expects to invest US$268 million to fully develop the site

gold mine, the Metates project is also one of Mexico’s

before 2015. Zinc and molibdenum production is also

most promising undeveloped silver assets. It has reserves

expected to increase over the coming years thanks to the

of over 526 million ounces of silver. Chesapeake Gold

presence of these metals as by-products in other projects.

expects to produce a yearly volume of 25.1 million ounce

While zinc production at KORES’ and Baja Mining’s El Boleo

of this metal by the second year of this mine’s production

is foreseen at 25,400 tonnes, Grupo Mexico’s Buenavista

phase. Likewise, Torex Gold’s Morelos Norte project is

del Cobre will produce 2,000 tonnes of molybdenum and

also expected to deliver a significant amount of silver

Mercator Minerals’ El Crestón asset will produce 11,000

production by the end of the decade.

annual tonnes of this same metal after 2016.

DEL TORO The Del Toro mine, owned by First Majestic Silver Corp., is located in the Chalchihuites silver mining district in Zacatecas, at the border zone between the physiographic provinces of Sierra Madre Occidental and Mesa Central. Del Toro reached phase one commercial production on April 1, 2013, just nine weeks after the completion of the mill construction, consisting of a 1,000 t/d flotation circuit producing both silver-lead and zinc concentrates. Phase two of mill construction, on schedule to begin early in the third quarter, will include the addition of a 1,000 t/d cyanidation circuit for a total milling capacity of 2,000 t/d. The cyanidation circuit will enable the company to produce its own silver doré bars, which will further reduce third party smelting and refining charges. The third and final phase of construction, consisting of 2,000 t/d flotation and 2,000 t/d cyanidation circuits are scheduled for initial production by the third quarter of 2014. At the combined rate of 4,000 t/d, Del Toro is estimated to produce approximately 6 million ounces of pure silver, plus significant amounts of lead and zinc annually, making it the company’s largest producing silver mine.


| MINE PROFILES: NEW SILVER PROJECTS

3

9 6 2 14 11 10

4

7

13 8 5 1 12

Project

Company

State

Production (million ounces)

Start date

1

Angangueo

Grupo Mexico

Michoacan

3.0

2014

2

Bahuerachi

Jinchuan

Chihuahua

N.A.

N.A.

3

Buenavista del Cobre

Grupo Mexico

Sonora

2.3

2015

4

Camino Rojo

Goldcorp

Zacatecas

N.A.

2016

5

Cerro del Gallo

Primero Mining/Goldcorp

Guanajuato

1.0

2015

6

Concheño

Minera Frisco

Chihuahua

N.A.

2013

7

Del Toro

First Majestic Silver

Zacatecas

N.A.

2013

8

El Porvenir

Minera Frisco

Aguascalientes

N.A.

2013

9

La India

Agnico Eagle

Sonora

N.A.

2014

10

La Joya

SilverCrest Mines

Durango

N.A.

N.A.

11

Metates

Chesapeake Gold

Durango

25.1

N.A.

12

Morelos

Torex Gold Resources

Guerrero

0.11

2015

13

Rosario

Sta. Cruz Silver Mining

San Luis Potosi

N.A.

2013

14

San Julián

Fresnillo plc

Durango

5.7

2014

Source: Camimex & SGM

107


| MINE PROFILES: NEW COPPER / ZINC PROJECTS

6

2

4 5

3

8

10

7

1 9

NEW COPPER PROJECTS Project

Company

State

Thousand tonnes

Start date

1

Angangueo

Grupo Mexico

Michoacan

10

2015

2

Buenavista del Cobre

Grupo Mexico

Sonora

188

2015

3

Bahuerachi

Jinchuan

Chihuahua

N.A.

N.A.

4

El Arco

Grupo Mexico

Baja California

190

N.A.

5

El Boleo

Baja Mining/Kores

B.C.S.

57

2015

6

El Pilar

Mercator Minerals

Sonora

35

2014

7

Tayahua (extension)

Minera Frisco

Zacatecas

43

2014

Company

State

Thousand tonnes

Start date

Grupo Mexico

Michoacan

9.7

2015

NEW ZINC PROJECTS Project

1

Angangueo

5

El Boleo

Baja Mining/Kores

B.C.S.

25.4

2014

8

Metates

Chesapeake Gold

Durango

86.2

N.A.

9

Rey de Plata

Peñoles

Guerrero

N.A.

2015

10

Velardeña

Peñoles

Durango

70

2013

Source: Camimex & SGM

108


| VIEW FROM THE TOP

COMMITMENT TO QUALITY IN MINE DEVELOPMENT RAFAEL VILLAGÓMEZ Director General of Cominvi

Q: Cominvi was founded 10 years ago, what led to your

Q: How do you make sure that your company attracts and

decision to establish the company?

retains the best people?

A: Shortly after my grandfather started managing the El

A: Our company’s slogan is “our strength is our people”.

Cubo mine he asked me to start providing services to the

We have one of the lowest rotation rates in the industry,

mine, and given the business potential we decided to start

and we attribute this to the fact that everyone is treated

a company with just 12 people. In 2005 my grandfather

equally and is respected. People who in the past wanted to

decided to sell the mine to Metales Interamericanos, a

work for the older, larger Mexican companies like Peñoles

subsidiary of Gammon Lake, and the company quickly

or Grupo Mexico are now turning to us. The money is almost

realized the quality of the work we were doing as a mining

an added bonus – more than anything we want to create

construction company, as well as the competitive prices that

a working environment where our team members feel that

we offered. This opened up an opportunity for Cominvi to

they are part of the family. In addition, Cominvi always tries

start working on the Ocampo mine - a project that triggered

to hire people from the areas we work in. Particularly in the

the expansion of the company’s reach, now serving not only

areas of administration and services we hire people locally;

national but also international mining companies.

warehouse workers, secretaries and drivers, for example. Depending on the location of the mine we also try to

Q: What have been the critical success factors in the

acquire lodging or catering services locally.

growth of your company during this time? A: The key to being successful is doing the right thing, and

Q: How do you respond to the industry’s constant risks?

Cominvi stands out for the development work that it does,

A: We have worked with companies such as Goldcorp,

from engineering to construction, that helps our clients to

Yamana Gold and Peñoles that have very high safety

reach their goals in the safest and most economical way.

standards, which have become our own standards. Whether

In Mexico Cominvi is recognized as a young company that

we are talking about maintenance or operations, our

is taking care of its people and acquiring new equipment

health and safety department is operating independently,

for each new project. In the early 1990s companies were

so the safety manager visits all of the projects, applying

not as clever with their investments – they would buy

best practices, and has the right to stop work if any risk is

old equipment and put it to work, and they would be

identified. We have also created the ‘Delta Team’, which is

surprised when it would break after three or four days. This

made up of 30 experienced multi-disciplinary experts who

was clearly an opportunity to do a better job with more

start every project up, taking care of the operations, safety,

reliable equipment. From the beginning we invested in new

and maintenance. The most recent delta project we started

equipment, sometimes buying equipment such as jumbos

up was in Oaxaca for Don David Gold. At the end of last

and scooptrams before we had a project to use them on.

year we also created a quality department. We now have one

Working with companies like Sandvik and Atlas Copco has

industrial engineer on each project who is not involved in the

also helped in our success. In addition to our development

operations but monitors standards and productivity, looking

work, we are also offering production services to Goldcorp,

for ways to enable the team to do more with less.

Peñoles, Endeavour Silver and First Majestic. Q: What are your main ambitions and how will the company Q: Which companies have you worked with and what has

succeed in growing despite the industry slowdown?

been the most challenging project?

A: We know our growth in Mexico is secured with the

A: We worked with Gammon Lake, Trafigura, Vane Minerals,

civil engineering and exploration services we have begun

Coeur d’Alene, Genco Resources, Minera Frisco, First

offering. We also want to move into Central and South

Majestic, Peñoles, Fresnillo, Yamana Gold, Goldcorp, Great

America because many of our clients already have

Panther and Endeavour Silver. All of our clients and projects

operations there. We will grow step by step, without losing

have been relevant for our business.

our identity or stopping paying attention to current projects.

109


www.cominvi.com

R E D CO M

ISO

Y

R EG

TE

N PA

IS

Somos reconocidos como la empresa líder, con más de 10 años de experiencia en el Desarrollo y Explotación de Obras Mineras Subterráneas, que tiene como ejes rectores el Crecimiento de su Capital Humano, Seguridad, Calidad, Productividad, Ecología e Innovación.

9001 2008

Av. Prolongación Campestre No. 2502 Torre San Mateo 1 Piso 3 Col. Refugio del Campestre León, Gto. México C.P. 37156

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T+52(477) 104 35 66 (477) 104 35 64

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110


APPLYING INTERNATIONAL MINING STANDARDS TO MEXICO Many mining providers that have started from scratch have

providing our services based on these high quality and

built successful businesses by focusing their initial efforts

safety standards at Grupo Jomargo, seeing that there was a

on one big client. This strategy offers the opportunity to

great demand for better quality equipment and innovative

work closely with one company, get to know its needs,

solutions,” says Martínez Flores. “This is a strategy that Grupo

and adapt and build the business according to these

Jomargo has taken seriously, and the company now has 20

needs. Once the business has a solid base, it can then be

different programs for safety, ranging from explosives safety

expanded to the wider market. “My father is the founder

and underground safety to environmental safety. In the 25

of Grupo Jomargo, and he was an employee at Peñoles

years during which we have been operating, the company

until he decided to start a contracting company,” says José

has not had a single fatality.” Grupo Jomargo is similarly

Martínez Flores, Operations Director at Grupo Jomargo,

committed to its environmental responsibilities, which is

which provides exploration, design and construction

reflected by its environmental certification from Semarnat

services for underground mines. “Peñoles was our first

and its ISO 14001 system. This positions the company well

client, and the first projects we did for them were small

to respond to the growing demand for mining suppliers that

tunnels, with a size of 2x2m, or 2x2.5m.” The company went

are committed to reducing their environmental impact to

on to work with Luismin, which later became Goldcorp,

the absolute minimum. “Most companies are looking to get

working with the company as it started up the Tayoltita

these kinds of certificates because they need environmental

mine, one of its most important properties in the 1980s.

studies in order to obtain permits for mine exploitation. Our

“Many projects in Mexico lacked good communication, so we installed satellite and database systems. We were the second company in Mexico, after Peñoles, to have this kind of communication technology” José Martínez Flores, Operations Director of Grupo Jomargo

by

people are accustomed to taking care of the environment

broadening its services portfolio and taking on new clients.

and make sure not to discard pollutants in water or on

Having been in business for 25 years, Grupo Jomargo

land. We have also conducted reforestation programs with

now provides exploration services, equipment, people,

kiri trees, which grow quickly and help the environment by

administrative services, and construction services to large

absorbing carbon. We want to grow as a company, while

and small underground mining companies, and has worked

being ecologically friendly. This is the culture we are trying

with some of Canada’s main mining companies, such as

to create in our company,” says Martínez Flores.

Grupo

Jomargo subsequently began to expand

Yamana Gold, Goldcorp, SilverCrest Mines, AuRico Gold, and Agnico Eagle. “We offer the initial services required

When Martínez Flores started working for the family

to start mining operations, which can go from exploring to

business he made technology his priority. “When I

developing, and even exploiting the mine, constructing the

came into this company I focused on introducing new

plants, bringing in machinery and administrating the people

communication technologies. Many projects in Mexico

extracting the ore,” explains Martínez Flores. Grupo Jomargo

lacked good communication, so we installed satellite

prides itself on its dedication to the highest international

and database systems. We were the second company in

environmental standards, and has drawn on its experiences

Mexico, after Peñoles, to have this kind of communication

of working with Canadian companies to create solid safety

technology. It has helped us to integrate information,

and environmental procedures. “For example, while working

complete projects on time, and make us more competitive,”

with Agnico Eagle on its Pinos Altos project the client asked

says Martínez Flores. Grupo Jomargo also uses a special

Grupo Jomargo to send its people to Canada to receive

enterprise resource planning (ERP) administrative system

quality and safety training,” Martínez Flores explains. Safety

and databases in order to manage its maintenance

standards in countries like Canada and the US were much

processes. “The ERP system gives us a complete solution

higher than in Mexico, which has brought both benefits and

for administration; we take the data and interpret it to find

challenges to Mexican service providers since companies

the most adequate solutions. Companies in Mexico are not

from these countries are applying the same standards to

generally used to these kinds of processes, especially in

their operations outside of Canada or the US. “We began

the mining industry,” says Martínez Flores.

111


| MINE SPOTLIGHT

EL CUBO Endeavour Silver acquired El Cubo mine in July 2012 as part of its strategy of buying and rejuvenating struggling old mines in historic mining districts. Unlike Guanaceví and Bolañitos, the other two producing mines in Endeavour Silver’s portfolio, that had low throughputs and no reserves when acquired, El Cubo offered the potential to quickly begin producing at a rete of 1,000 t/d. El Cubo has many mine adits, ramps, and shafts, as well as a 400 t/d leaching plant to produce doré bars. The processing plant at El Cubo goes back at least 150 years, and was the first mill site permitted to use cyanide in Mexico. Recognizing that this is an old facility, ripe with risks and challenges that date back to a time before sustainable mining standards and practices were in place, Endeavour Silver launched a rebuilding program to address any of the facilities’ shortcomings and to modernize the operations. In the third quarter of 2012 Endeavour Silver launched a US$67 million, 18 month capital investment program at El Cubo, to explore and develop the mine and to rebuild and expand the plant, tailings facility, water supply, electrical supply, surface buildings, and surface infrastructure. Located only 6km southeast of the city of Guanajuato, in the southeastern part of the second largest historic silver mining district in Mexico, El Cubo is only 15km from the Bolañitos project, which creates significant operational synergies between El Cubo and Bolañitos. Although El Cubo has until recently been a low grade, high cost mining operation, it is already showing improved throughput, grades, and mineral recoveries as a result of Endeavour Silver’s operational initiatives. The El Cubo property consists of 61 mineral concessions covering 8,146 hectares. Some 38 individual veins have been historically mined, and 16 additional exploration targets outside of the existing mines at El Cubo offer potential for new silver and gold vein discoveries. Endeavour Silver’s exploration review identified 28 prospective target areas in and around the existing mines at El Cubo, that have the near-term potential to delineate new reserves and resources. Since acquiring the property the company has undertaken mapping, sampling, permitting, and drilling to start testing the high priority targets. More than 50,000m of core drilling is planned over the next two years. After producing 300,000oz of silver, 600,000oz of silver equivalent, and 4,893oz of gold in 2013, Endeavour Silver is expecting to produce 900,000oz of silver, 1.7 million ounces of silver equivalent, and 13,000oz of gold in 2013 at cash costs per ounce that are significantly lower than the company achieved in 2012.

113


| TECHNOLOGY SPOTLIGHT

VULCAN 3D MODELING AND MINE PLANNING SOFTWARE 3D modeling technologies have become a common tool in

platform for the creation, visualisation and manipulation of

mining prospects exploration and mine planning designs.

intricate block designs, with the capabilities to accurately

With the knowledge provided by this type of software, mining

model geological contacts and boundaries. With the

companies are able to improve operational performance while

included options for triangulation, grid mesh modeling and

substantially improving the profitability of their operations.

contouring, it is possible to enhance the understanding of engineering setups.

Maptek Vulcan is a 3D mining software solution that allows

114

users to validate and transform raw mining data into

Vulcan Open Pit and Underground Mine Modelers provide

dynamic tridimensional models, accurate mine designs

tools for mine engineers to design, evaluate, and maintain

and operating plans. This software provides users with

daily mine operations. Surfaces and design lines can be

high quality interactive modeling and planning packages.

easily updated with the latest operation data to generate

From haulage profiles to grade controls, the system

daily production reports. Users can design pits phases

delivers functionality, efficiency and improved productivity

and dumps with multiple ramp systems to transform

to mining companies worldwide. Vulcan is an integration

non-operational optimized pit shells into mine designs

platform for all types of spatial geological data. This

that meet engineering and geotechnical criteria. The

geological modeling and mine planning software enhances

use of grade interpolation by inverse distance method

the visual understanding of very complex structural

for resource models and the determination tools for

relationships,

powerful

volumes and tonnages contribute to quickly evaluate

assessments of the conditions found on mining projects.

designs for economic, quantitative or volumetric factors.

The

enabling

users

to

perform

comprehensive

For underground mine construction users it can generate

packages designed to help mining companies address

optimized design for rooms, pillar ramps, blocks for cut

their needs throughout the full mining cycle, ranging from

and fill, and sub-level stoppings for each mining scenario.

exploration, geological modeling, and resource estimation

Another interesting feature integrated in Vulcan is the

to mine design, scheduling, and rehabilitation.

Scheduler application, which is a specialized package for

Vulcan Modules allows geologists to access and view 3D

mine scheduling. Besides all the design tools and modeling

drillhole data, define geological zones and accurately

options of Vulcan, the Chronos Scheduler is at the core

model ore bodies and deposits. These modules contain

of the package. The Chronos Scheduler can be used for

all the geostatistical tools widely used in risk analysis,

short, medium, and long term scheduling as well as for

uncertainty assessment, and bivariate simultaneous grade

equipment scheduling. The visualisation of results from

estimations. The block modeling features create geological,

scheduling decisions through virtual mining animations

structural and grade-quality models for stratigraphic

and the capacity to work with modules in a spreadsheet

and non-stratigraphic applications. They can be used to

environment to store, schedule, manipulate and report mine

perform face mapping in the field, structural modeling or

production information, promotes efficiency and increases

to calculate preliminary resources. These features provide a

operational profitability.

program

incorporates

different


HELPING THE MINING INDUSTRY STEP INTO THE FUTURE Technology plays a key

if required, they can go the mine site. If the client needs to

role in the mining industry.

create a new development or option in the software Maptek

State of the art software

is open to considering these additional changes.

is part of every stage of

Alberto Ramírez, Maptek Branch Manager for Mexico and the Caribbean

the mining activity: from

During the planning stage Chronos, a module of Vulcan

exploration to planning,

that helps in determining the mine schedule, comes in

operation and production.

very handy. It works within an object-oriented spreadsheet

Nevertheless, international

on

an

environment to store, manipulate and report mine

level

the

production information on a daily, weekly, monthly or

Mexican mining industry

annual basis, as well as how much is going to be extracted

is experiencing a lag in

and how it can be optimized with the available resources.

this area. “The sector is mostly behind in technical issues

“The best way to extract the resources depends on what

compared to mining industries in other countries,” says

type of mine it is. Vulcan allows the user to develop tasks,

Alberto Ramírez, Maptek Branch Manager for Mexico and

telling them how much will be produced throughout the

the Caribbean. “Many companies are still working with

life of the mine, depending on the equipment being used.

traditional 2D printed maps. They still have not realized all

The system automatically optimizes, offering immediate

of the benefits that acquiring 3D software brings.”

benefits,” Ramírez says. “Considering different variables such as cost, price, discount rate, and optimization can

With over 30 years of experience, Maptek provides 3D

be simple or complex, depending on each client’s needs.

modeling, spatial analysis and design technology to the

The main objective is to provide information on the

sector. The Australian company decided to venture into the

maximum benefits that will be obtained, according to the

Mexican market in 2005, opening an office in Cancun, which

information available on a certain deposit. If new studies

also served as a gateway to the Caribbean. The first two

are done the quality of the data improves and the system

years were focused on gaining the sector’s trust. “Thanks to

is automatically updated, to provide the maximum benefit.

Maptek’s global recognition, by 2006 the first investments

The financial side of a mine operation always has to be

slowly started coming in. Those first clients were our main

taken into account, as well as the desired profitability when

marketing strategy to encourage other companies to look

a very large investment is made.”

towards our products,” Ramírez recalls. “We used the experience of working in Chile, Peru and Brazil, among other

An

countries, and considered adapting our products to local

improvement can be found in BlastLogic, an accuracy

requirements, always providing high quality tech support.

management system that streamlines processes in open cut

It was not very difficult adapting to the market because we

drill and blasting operations to improve mineral recovery.

already had the experience of entering the Chilean market;

Ramírez explains that Maptek delivers tools for designing

the only variable to consider was the time companies in

and planning open pit and underground mining operations,

Mexico needed in order to acknowledge our work.”

including making drilling design diagrams and determining

example

of

the

company’s

continuous

product

the amount of explosive used to exploit a deposit. Maptek has two signature types of software: Vulcan and I-Site. Vulcan is a general mine planning software package

Given how long the company has been working in

that provides 3D modular software visualizations for

Mexico, Ramírez considers Maptek to be well positioned

geological modeling and mine design and planning. I-Site

in the market. Gaining a greater market share presents

is a complete software and hardware 3D laser survey

challenges: “Our goal is to provide our clients with great

technology. “Vulcan is a product that enables mining

software that allows engineers and geologists to develop

companies to grow and develop. I-Site is a high quality, high

their tasks in an easy and simple way, while offering

resolution product, which means a bigger investment for

high quality technology and customer support, and

companies. This is the reason why it is used as widely, even

other consulting services, and this is a complicated task.

though it also gives great benefits,” Ramírez explains. During

However, as I mentioned, innovation is a crucial element of

the exploration stage Vulcan makes it easier for geologists to

our growth strategy, and Maptek is always developing new

determine the amount of resources the deposit has. As part

technologies. We have research and development teams in

of the technological support the company provides, a team

Denver, Chile and Australia that are constantly searching

of engineers and geologists, located in Denver or Chile, is

for new products and making improvements on existing

available to help the clients. The team is available online or,

ones, based on the feedback we get from our clients.”

115


| VIEW FROM THE TOP

BUILDING ACCESS TO DEEPER DEPOSITS LEFT: Ivan Arriagada, President of EDC Mining Limited RIGHT: Mike Arriagada, Sr. Mechanical Engineer at EDC Mining Limited

Q: How did EDC get started, and which of EDC’s projects

in the Madero mine, is going to be a success. With all the

are you most proud of?

safety concerns in mining, and the present geology of the

IA: One of the reasons the company was started was

most important ore bodies – with rocks and sandstones –

because generally speaking mines are getting deeper and

this new method could contribute a lot. The process is like

deeper. Development by ramp was the traditional way of

constructing a parking lot from the top down. You open the

reaching bigger depths in Mexico, but as the mines got

top layer, pour in a concrete floor, and drill in order to insert

deeper, constructing ramps became more expensive.

posts for the floor that would go underneath. Next, you drill

Peñoles was one of the first companies we developed

the following slice, mine the rock, backfill it with cement,

new shafts for. When they had to put in their first shaft at

and build the floor and posts for the third slice. In this way,

Milpillas, in around 2005, the only companies that could

when you go underneath again, you have a concrete layer

do this type of work were foreign companies, mostly from

over you, which means that there is no need for rock bolting

Canada, the US, South Africa and Australia. At the time, I

or similar processes. Furthermore, when you are drilling the

was working with a Canadian cementation mining company

posts for your next floor, you will know whether you have

and we got the contract. While we were constructing the

ore or waste, so you are assessing the geology right there.

shaft, Armando Sánchez, one of the Directors at Peñoles, had the vision of developing a contractor in Mexico that

MA: Double post mining can be compared to room and

could do this type of work. Ricardo Cárdenas from Minería

pillar mining; instead of leaving 20% of the ore as your

Castellana agreed to do the job as long as we provided the

pillars you use prefabricated concrete posts, which allows

engineering and the expertise. I decided to take the plunge

you to remove 100% of the ore. Also, you are working

and left Wardrop Engineering to set up EDC.

under a reinforced concrete roof, so it eliminates some of the safety hazards involved with underground mining.

On the El Saucito project of Fresnillo we were the first Mexican company to build a shaft in Mexico. The need for

IA: Recovering all of the ore extends the life span of the

shafts had not yet existed, but the ore bodies here started

mine. The cost is also reduced after you get underneath

at 600m below the surface, which would require 11km

the first concrete floor, because you do not have to do

of ramp just to reach them. As a result, it was no longer

any ground support and you can carry all the ventilation

economical to build a ramp. Time was also was a big factor

through the stopes.

since the rate of advancement was about 70m or 80m per month for a ramp while we were advancing 60m per

Q: EDC is also evaluating narrow vein mining, what do you

month sinking a shaft straight down.

see as the main opportunities for this technology in Mexico? IA: We are trying to innovate narrow vein mining, too. We

EDC stands for Engineering, Design and Construction.

are in contact with a friend in British Columbia who has

We are a certified company with professional engineers,

developed a system for narrow vein mining, and we are

but apart from that we do the design and construction as

currently helping him put it into operation. Barrick was

well, and we provide the supervision on the projects we

interested and they were going to try it in Tanzania, but they

undertake. We build circular concrete shafts, and they are

decided to put the project on hold because of the changes

maintenance free. Thus, for a mining company, even if the

in the economic situation. We are hoping to introduce this

initial cost is elevated building a shaft with us entails a long

system soon; most of the silver and gold mines in Mexico

term economic gain.

are narrow veins, so it is an idea worth trying. We have seen the prototype for this new, safer system and we know it

116

Q: EDC specializes in double post mining. How does this

will work. With the proposed system you can turn with the

technique work?

veins and follow them, thus making sure you get minerals

IA: Our double post mining project, which is underway

instead of chunks of waste.


| VIEW FROM THE TOP

LEVERAGING EXTENSIVE EXPERIENCE IN VERTICAL SHAFT CONSTRUCTION OSCAR GAVIÑO General Manager of Grupo Necaxa Q: After a long history of working with Fresnillo, what

continue working with the Robbins raise boring machine

were the key steps that allowed Grupo Necaxa to find new

and reach a depth of 470m. Peñoles and Fresnillo have

business opportunities?

both relied on our experience for years. In 1990 Grupo

A: Grupo Necaxa has worked continuously with Grupo BAL,

Necaxa developed a rail transportation system at Fresnillo’s

starting with the Fresnillo mine in 1984 and later on with

main production line at a depth level of 695m, which just

Peñoles in the Sabinas and Milpillas mines. Throughout

recently First Majestic has used on its La Parrilla project.

these years we have successfully developed three vertical

Generally speaking, one of the most challenging situations

shaft models, with RV-57 being the most recent, before we

that we face is the “blinded vertical shaft”, where we are

decided to seize the opportunity presented by the mining

not sure whether we will find water or caves. In such cases

boom to diversify our client base in 2010. We ventured

development begins at the base of the Galloway, 2m from

into both national and international markets, particularly

the bottom of the shaft. We once encountered an opening

targeting Canadian and American companies. Grupo

of water that was releasing water at a rate of 20 gallons per

Necaxa is a strong engineering and development company,

second, making it impossible to continue and dangerous for

with unique skills in the construction of vertical shafts, and

the workers. The first thing we did was to create a pumping

our commercial team was rapidly able to prove to different

system that pumps water from the bottom of the shaft up

mining companies, such as First Majestic at La Parrilla and

into side deposits until it reaches the surface. Although

Del Toro, that we are the best choice. We are Fresnillo’s oldest

accumulation was no longer an issue, we then had to cover

contractor and we have always had the financial security

the shaft with concrete rings and install hose strips that

and construction expertise to accompany expansions, and

were also interconnected to the pumping system.

assure that production at our clients’ assets can continue uninterrupted. The company has always exceeded its

Q: How is technology helping Grupo Necaxa to outperform

clients’ requirements in terms of quality, service and safety,

its

starting with Fresnillo’s main shaft, and continuing with all

procurement strategy bring for your clients?

clients. We are proud that, since 1983, Grupo Necaxa has not

A: Grupo Necaxa has advanced in the area of technology by

had any fatalities.

creating strategic alliances with Atlas Copco and Fresnillo,

competitors,

and

what

advantages

does

your

for both state of the art technology and technological Q: What enables your company to provide the highest

support and advice. Thanks to our rehabilitation workshops

quality service, and what types of creative solutions do you

we are able to adapt current technology, such as scooptrams,

offer to help the industry address operational challenges?

jumbos, low profile trucks or even pickup trucks, to any type

A: Our people are our core asset, and our development

of working environment. Grupo Necaxa has strategic price

plans and training programs help the company to maintain

agreements with cement and steel suppliers, allowing the

people with over 30 years of experience, which in turn

company to offer its customers stable prices, which allows

attracts mining companies to come to us for advice. In

our clients to project their operating costs with certainty.

Angangueo, for example, the client requested different construction processes, one of them being an emergency

Q: Given the large number of exploration projects in the

staircase in a vertical shaft, with 3m resting points between

mining district of San Luis Potosi, what opportunities do

transportation points. After explaining the risks, we

you expect to present themselves in the coming years?

designed a zigzag structure with resting points every 1.5m,

A: We have worked with the region’s leading mines, such as

which made it easier to see and to keep the space clear.

Minera San Xavier, Mexichem, Charcas, and IMMSA, and we are looking forward to seeing the Real de Catorce project

We did a simple but creative job for First Majestic, which

become a reality for First Majestic. We are also confident

consisted of installing a sliding structure that redirected

that other new projects will start flourishing in the next five

the material as the shaft was deepened, allowing them to

to seven years.

117


www.isdamar.com 118


RETURN TO INDUSTRIAL BLASTING FOR THE MINING INDUSTRY With over 30 years of experience in the business of

in turn are defined by the mining and construction sector,

earthworks for the construction of underground and open

allowing the size of rock that has to be obtained for the

pit mines, quarries and roads, Isdamar started operations

carry equipment and crusher to be determined.

with a small mill, which later became a grinding plant where metals were crushed before being sent abroad to

As Meave Flores highlights, safety is a necessary priority

be smelted. The company later started working on mining

in all of Isdamar’s operations. Defining the perimeter of

projects for different Mexican companies constructing

the area where the blasting will take place plays a central

tunnels and shafts, among other activities. At the beginning

role in the safety procedures. “We put up signs and

of the 1990s, the company identified a new business

posters to let the community know about our activities,

opportunity in the development of Mexican highway

and we have our personnel close the roads that lead to

infrastructure, and Isdamar acquired many drilling and

the area. Afterwards, a siren rings for 10 minutes before

blasting contracts. Though mining work continued, 80% of

the blasting begins. When the siren ends the area is

its activities were focused on road construction because

inspected, and if there are no further complications the

of the depression in the metal market during that decade.

job is allowed to continue,” he explains. Another important

“We participated in construction projects in Mexico and

aspect of blasting activities is environmental preservation.

Central America, including a project for the Panama Canal,”

Isdamar trains its employees to respect and preserve local

recalls Hugo Meave Flores, President at Compañía Isdamar.

vegetation. “In the past no precautions were taken, but

“In 2003, when metal prices started to look promising

most importantly there was no ecological conscience,”

again, we considered going back to our roots. It was in

Meave Flores highlights. However, times have changed and

2004, once metal prices turned around, that we eventually

companies are now obligated to protect the environment.

created a new team and acquired the equipment to

Isdamar has developed solutions to avoid impacting local

perform drilling and blasting work for mining companies.”

flora and fauna, and is proactive about conservation and

Isdamar has worked in some of the main mining sites in

protection, while following the environmental regulation

Mexico, such as Cananea in Sonora, Mezcala in Guerrero,

that is currently in place. The company’s goal is to obtain

Moris, Ocampo, Dolores and Palmarejo in Chihuahua, El

the ISO 14000 certification and be recognized as an

Coronel in Zacatecas, and El Porvenir in Aguascalientes.

environmentally responsible company.

“Our clients are satisfied with our operations and we have been able to position our group as one of the most reliable

Isdamar has received many international awards for its

companies in the sector,” he adds.

commitment to quality, such as the International Star for

“It was in 2004, once metal prices turned around, that we eventually created a new team and acquired the equipment to perform drilling and blasting work for mining companies” Hugo Meave Flores, President of Compañía Isdamar

“The company is completely responsible for blasting,

Leadership in Quality and the International Quality Crown,

taking into consideration all of the elements that form

both from the Business Initiative Direction, and The Bizz

part of the operation, with the goal of reducing cost and

from the World Confederation of Business, as well as

maximizing safety,” says Meave Flores. “Our experience

domestic recognition from the Mexican Association of

and knowledge of different materials are essential in

Mining Engineers Metallurgists and Geologists (AIMMGM),

guaranteeing the proper use of explosives and avoiding the

and the Mexican Company of the Year award from the Latin

loss of human life, which is our ultimate goal.” Blasting is

American Quality Institute. Meave Flores recognizes that a

defined by the use of high explosives and explosive agents.

critical success factor has been the company’s recruitment

The high explosives provide the required power and the

system, which has improved over the years: “Our team is

explosive agent delivers the energy to fragment the rock.

formed by young and experienced, talented people. This

“The success for a good load and carry operation depends

solid and disciplined team, combined with the passion

on both elements,” explains Meave Flores. The selection of

for our vocation, has made us one of the most trusted

explosives is geared towards the drilling templates, which

companies in the market.”

119


| VIEW FROM THE TOP

FINNISH PHILOSOPHY FOR UNDERGROUND MINING JAVIER PRADOS GONZÁLEZ General Manager of Normet Mexico Q: How has Normet’s distribution partner in Mexico –

is not only the case for Normet, but also for many other

Túneles y Minas – been able to break into the Mexican

companies that have shared their experiences in getting

mining sector?

full service contracts with us. Mines are independent units;

A: The person running Túneles y Minas is a mining engineer

they operate 24 hours a day, seven days a week, so they

who has worked very hard to become one of our official

must be able to solve any problems. Our main objectives

distributors. The company’s extensive experience working

are to convince our customers that we have the right

on mining projects has helped significantly to effectively

people and workshops to meet their every need.

network in the sector. His experience in underground operations, combined with his knowledge of our products,

Q: What is Normet’s strategy to training its personnel, and

made it easier to open the market for our technologies. The

how does this add value for the company?

quality of our machines, the price of our equipment, and the

A: I have never seen a company that cares more about

delivery times are all very competitive; this has certainly also

training its personnel than Normet. We have developed

contributed to our distributor’s excellent sales record.

a training program that takes place three times a year, in which we gather people from our operations around the

The key element that helped Normet’s consolidation in

world and place them in training programs in different

the mining sector is our experience in processes such as

cities around the world. Every technician we hire is sent

concrete spraying, charging and scaling. All of our workers

for a week to Finland or Chile to receive thorough training.

are experts in these matters, from how the concrete should

Normet has also started an online academy where people

be produced to the different techniques for applying it

working for the organization, or even clients, can study

in underground operations. Normet has also developed

courses to improve their knowledge in specific areas.

other lines of the business, such as additives for concrete

It is our priority to make sure companies that purchase

mixtures and anchors for mine galleries.

our equipment have the knowledge that allows them to perform at their optimal level.

Q: How are Normet’s modular platforms designed to suit a variety of surface challenges?

Q: How are current global trends impacting technology in

A: All of our products are designed to comply with

this industry?

international quality standards, and our machines can be

A: Increasingly stringent safety regulations are one of the

adapted to operate in any environment. We have over

biggest trends right now. In some markets, such as the US

3,000 options for customizing our machines, depending

or Europe, diesel machines are banned. For these types

on the specific needs of the operator, and they can

of countries electric engines are being used, so some

be adapted to any geological conditions, such as the

customers in Mexico are now also requesting this type

machines we recently sold to Endeavour Silver that will be

of technology, and Normet has certain technologies that

used in the company’s Guanajuato operations. We are an

allow our machines to be independent from the mine’s

international machinery provider and we have learned that

energy source.

every country presents different topography challenges; in order to contribute to the global mining sector we need

Normet has an outstanding research institute in Finland,

to develop machinery that can be adapted to different

where our engineers focus all of their efforts on designing

operating conditions.

the safest machines on the market. Security is one of our main priorities; we always look to design equipment that

120

Q: What is Normet’s approach to effective maintenance?

complies with safety regulations around the world, and

A: Many mining companies in Mexico have invested in

we are continuously looking to understand the needs of

workshops, tools and highly qualified personnel, making

our customers, so that we can deliver the best technology

it more difficult to sell a complete range of services. This

possible.


ENERGY SUPPLY MUST ANTICIPATE POWER REQUIREMENTS Mines are big consumers of energy and are usually located

wherever in Mexico the customer may be. “Because we

in isolated areas. Many mines are located off-grid, but even

have integrated systems with an extensive database we are

those that are on-grid tend to rely on a backup power supply

able to locate spare parts in any of our warehouses across

in order to ensure that their operations will be uninterrupted.

the nation, then through our highly qualified distribution

This backup will usually take the form of an engine generator,

force we are able to deliver any requested product to

or ‘genset’, which is a fuel-powered generator of electricity.

where it is needed quickly,” says Robles Hernández.

The main thing that mining companies are looking for in gensets is reliability; each time a mine loses its electricity

Branching out into machinery from being focused solely

supply the machinery stops, meaning that production

on energy supply was a natural move for Megamak, and a

cannot continue. “Reliability is one of the main services

logical business expansion considering the convenience for

that Megamak provides, particularly because in Mexico we

its mining customers of sourcing both types of products

know that there are not enough electrical substations to

from just one company. “The two sides of the business are

deliver energy to meet all of the customers’ needs,” says

very complementary. Nowadays, companies understand the

Pedro Robles Hernández, Mining Manager at Megamak.

value of obtaining both services from the same provider.

“Customers want to make sure that our technologies are

This reduces costs and minimizes planning in terms of

capable of supporting the electrical specifics, such as the

logistics, since we are taking a big share of responsibility

energy conversion rate and the temperatures they are

in the efficiency of the operations,” says Robles Hernández.

working at. Another common worry is the altitude, since it

Megamak works with other companies to innovate and

is very variable in this country and technologies need to be

upgrade the technologies that it has and keep improving

adjusted accordingly in order to perform at their best.”

its performance in this area. “We are always looking for the highest quality equipment that can help us to improve

Upkeep of the generators is important but also precarious;

cost-efficiency. Having the right tools has always been very

these are substantial pieces of equipment that represent

important for Megamak, but we also take into consideration

significant value for a mining company. “Most mines in

how comfortable our customers are with what we are

Mexico do not have access to the grid, so in those cases

supplying them,” says Robles Hernández.

the powerhouses that we provide are the biggest piece of equipment on the mine site, since they deliver all of

In the future, maintaining close relationships with its

the crucial energy for the mining operations,” explains

customers will remain a priority for Megamak. “Our

Robles Hernández. “If our customers do not have a good

efforts have to be centered on keeping and creating good

power source it is certain that they will run into a lot of

relationships with customers, establishing agreements

problems. It is essential to keep track of the mining process

with them, and investing in people with technical skills,

and anticipate the power requirements, so that we can

new technologies and spare parts. This is the strategy we

ensure that we provide the best solutions for keeping the

are following to encourage the growth of the company,”

operations running.”

says Robles Hernández, who is confident about upcoming

“Reliability is one of the main services that Megamak provides, particularly because in Mexico we know that there are not enough electrical substations to deliver energy to meet all of the customers’ needs” Pedro Robles Hernández, Mining Manager at Megamak

Besides solutions for providing energy supplies to mines,

opportunities to continue growing. “We are very well

Megamak also supplies engines and spare parts for

positioned, with several mining groups around Mexico,

cranes, trucks, drills and other types of machinery found

especially in the northwest area and in the Pacific, where

on mine sites. “We have all that is necessary to support

we have been able to consolidate our business. At the

the equipment and we take complete responsibility for

moment our biggest customers are Grupo Mexico and

the correct functioning of it,” says Robles Hernández.

Industrias Peñoles. By working on our relationships with

Part of Megamak’s commitment to its customers is to

those companies on a daily basis, we are able to help to

respond immediately to any problems with the machinery,

make this industry more efficient and rewarding.”

121


MINING TECHNOLOGY THAT MEETS MILITARY STANDARDS mining

Oldenburg is involved in several stages of mine engineering

companies to discover and locate mineral deposits far

and development, participating in these areas with a wide

below the ground’s surface, which require advanced

range of rock drills, drill jumbos, and roof bolters, which

technologies in order to be accessed and exploited.

have earned a reputation among mine operators for their

“Companies are keen to find the right innovations that

simplicity of use, rugged reliability, and low cost per

can boost their productivity and reduce operational risks,”

meter drilled. The company also supplies ANFO trucks

says Marcos Rosiles, General Manager at Oldenburg Latin

with maximum boom reach and utility vehicles that serve

America, a global supplier of engineered heavy equipment

as complements for cannon drills and bolters, which

and architectural lighting products.

have been purpose-built and designed to meet rugged

Modern

exploration

methods

have

enabled

environments such as those found in underground mining. The military industry is known to be at the forefront of

“Our mining clients are very pleased with our jumbo drills

technological innovation, and many of the most noticeable

and scalers because of the safety and efficiency they

technological innovations have been motivated by warfare.

provide,” says Rosiles.

Moreover, providing services to this industry is no easy task, since it entails the highest levels of engineering and

The company is very concerned with its personnel safety and

manufacturing quality. Since its inception in 1982, Oldenburg

of those operating the machinery. “Our safety philosophy

has supported the US Department of Defense and the US

goes beyond ISO certifications, this is what makes us a

Navy with its full range of engineering capabilities. After

military contractor and attractive to mining companies,”

several years of working for the military, the company decided

Rosiles highlights. Besides designing comfortable, robust,

to enter into other industries such as mining. Its ability to

and fireproof machines, Oldenburg ensures that all

comply with military standards and requirements helped

personnel count with technical capacities to operate the

Oldenburg to satisfy mining industry norms. “Our positioning

machines under the highest security standards. “We have

in the military industry has propelled our capacity to innovate

learned from the military industry, from the operators, and

in other markets. Every industry has its own challenges, but

even from our competitors how to improve our technology.

thanks to our technological capabilities we have been able to

For us there is nothing more valuable than life, so we work

help our clients overcome them all,” Rosiles remarks.

hard to protect it,” he adds.

Contacto: Ing. Jesús Herrera Ortega y/o Lic. Christian Roa Márquez Tel: (55) 57-54-83-70 (55) 57-54-88-48 www.detectorexploraciones.com.mx

Cartografía Geológica y Exploración Minera • Geología Económica, Evaluación de Lotes y Áreas Mineralizadas • Cálculo de Recursos Minerales • Exploración de Minerales Industriales, Rocas Dimensionables y Materiales para la Construcción • Descripción de Núcleos de Barrenación con Diamante y Ripios de circulación inversa • Interpretación de Imágenes de Satélite • Modelo Digital 3D • Prospección de Yacimientos Minerales • Investigación Cartográfica de áreas mineras de interés • Solicitudes de Concesiones Mineras. • Trabajos Periciales 122

• Asistencia Técnica, Legal y Administrativa • Levantamientos dinámicos en tiempo real con GPS para proyectos • Líneas base ligadas a la Red Geodésica Nacional Activa de INEGI • Localización y Georeferenciación. • Volumetrías • Modelados en 3D • Georeferenciación y cálculo de centroides • Control terrestre para fotogrametría • Obtención de características con atributos para bases de datos para Sistemas de Información Geográfica. • Sistemas de Información Geográficas (GIS) • Ingeniería Aeroportuaria


APPLYING CROSS-INDUSTRY EXPERIENCE TO MINING PROJECTS The experience of supplying products to and working within

The fact that in the industries with which Gates works

a number of different industries brings many advantages.

much of the power is driven by hydraulic systems exerts

New technologies applied in one market will almost

additional pressure to ensure that the company’s products

certainly bring value when applied in other markets, too.

are as reliable as possible, in large part because of the cost

One company that is taking advantage of its established

implications of equipment failure, but also because of the

presence across a number of different industries worldwide

environmental problems that can be caused by leakages

is Gates Corporation. Gates is a leading supplier of power

on hydraulic systems. “We cannot allow failures to occur

transmission products internationally, serving a number

in these industries because any forced shutdown due to

of different industries from oil and gas and mining to

failure on complex equipment in the mining or oil and gas

automotive and aerospace. “In many areas of the industries

industries immediately incurs the loss of millions of dollars.

we cover there is a certain crossover in applications. We

Failures can also lead to leaks and pollution. Our defective

can transfer our solutions from one industry to another,

rates, or the PPMs (parts per million) as they are referred to

which gives us the leverage to expand our solutions into

in the industry, are close to zero,” explains the company’s

different sectors,” says the company’s Director General

Director General for Mexico.

for Mexico and Vice President of the company’s North American Power Transmission Division.

Mining companies also pose similarities to the other industries Gates supplies in the remoteness of their

An example of the company’s innovation and versatility

operations. “Many of our customers in different industries

is the Gates Poly Chain GT Carbon Belt, or Carbon Drive

are in remote locations, and we stand out from the

System. This high tech belt replaces roller chains in power

competition because we have many field engineers working

transmission devices. “These state of the art bands are

in remote places, especially in the mining industry, in order

replacing metal chains in many industries, for example

to ensure that our customers’ operations can continue

Harley Davidson has been so convinced of the added

uninterrupted,” says the Director General for Mexico, for

value of this product that it has replaced all of its metal

whom this team of specialists represents the company’s

chains for Gates belts, in spite of the traditional image of

key asset. “In total we have five business sectors within

the motorcycle with a chain,” says the Director General

the company and we have specialists for each sector we

for Mexico. “The belt has a carbon core and incorporated

are involved in, because we understand that each sector

advanced nanotechnology, making it stronger as well as

has its own specific needs and requirements. As far as I

higher performance. This is a perfect example of how

understand, having a team of highly specialized technical

our technology provides alternatives for existing parts

staff continuously on-hand for our customers makes us

that you would never consider could be replaced.” The

unique in the industry.”

fact that the product was named the most innovative power transmission product of 2007 by Plant Engineering

In Mexico, Gates has leveraged its international success

Magazine is a demonstration of the impact it has had on

and premium quality guarantee to win contracts with the

the different industries it serves.

mining industry’s major companies, such as Grupo Mexico and Peñoles. “Our consumers are getting outstanding

Of the various products Gates supplies to different

performance from our products, in terms of productivity

industries, what ties them together is their focus on

and safety, and a good cost to productivity ratio,” says the

innovation and application. “The Gates philosophy of

company’s Director General for Mexico. “The key factors

achieving change through innovation has remained the

in Gates’s success have been innovation, quality, and high

key driver since the company was started, and many of the

level service. We do not consider ourselves to be selling

products we have launched have become the benchmark

products – we sell services that fulfill our customers’

for the different industries we are involved in. The material,

needs. We try to be one step ahead with innovative, high

design, and engineering invested in our products have

tech products that exceed our customers’ performance

helped us to stay ahead of the competition, by constantly

expectations.”

developing

higher

performance

solutions,”

says

the

Director General for Mexico. “If you look at the bigger

Mexico represents a unique and exciting opportunity for

picture, our products are the least expensive components

Gates, and the country will play an important role for the

of machinery, but they can make the difference between

company in the coming years. “Gates itself now exports

a plant or a mine running smoothly or facing costly

from its Mexican facilities to China, Canada, and Europe, and

downtime due to damages or maintenance.”

the country is a key part of Gates’s global business strategy.”

123


PRODUCTIVITY GAINS THROUGH GROUND-ENGAGING TOOLS

Arturo Angulo Kladt, Area Manager Mexico and Central America at MTG

“GETs are fundamental

ESCO Corporation, which

components

is

of

heavy

celebrating

its

100th

machinery that can cost

anniversary

millions of dollars. If these

is

tools are not adequate, the

leading

equipment will not perform

ground-engaging

correctly and subsequently

durable wear parts and

the investment made will

components

not deliver the expected results,” explains Arturo

Luis Castillo Burgos, Country Manager Mexico at ESCO Corporation

one

this

of

the

year, world’s

producers

of

tools,

for

the

mining,

construction,

aerospace,

and

power-

Angulo Kladt, who serves

generation markets. Luis

as Area Manager for Mexico and Central America at MTG,

Castillo Burgos, Country Manager for ESCO Corporation

a Spanish-based multinational with over 50 years of

Mexico, says that the mining industry is one of the primary

experience in the design, manufacturing and distribution of

focuses of the company’s business in the country. “Mexico is

GETs. Today, MTG is the leading provider of GETs in Europe,

an important mining market with significant growth potential,

and its wide service and distribution network extends across

and our top quality products and services serve this market

America, Africa, Oceania, and Asia. “We strive to offer safe

well,” he explains. He also attributes the company’s growth

and easy to use products made with high technology steel

in the Mexican market to ESCO’s good relationships with

that enhance productivity in the mining sector and correctly

clients and its comprehensive understanding of their needs.

support essential machinery,” Angulo Kladt says. MTG can control its own engineering and production processes, as

ESCO’s strong ties with the industry give the company a

well as quality standards, because the company possesses

clear understanding of miners’ constant search for ways to

its own smelters in Spain. “MTG focuses on fabricating its

maximize productivity. This knowledge led the company

own patented products,” highlights Angulo Kladt. “We can

to develop a revolutionary shroud system that integrates

produce highly-specialized solutions for the mining sector.”

teeth, lip and shrouds, all developed simultaneously in

Probably the most notable of these solutions is the StarMet

order to increase the efficiency of dredging machinery. “We

tooth-adapter fitting system, which can greatly increase

usually created the adaptors and points as separate product

both security and productivity in mines. Traditionally, tooth

offerings. This time, we thought about the whole process,

and cutting edge removal has been a dangerous and long

taking an integrated approach to cost reduction and safety.

process. Changing a single tooth usually required the use of

The goal was to ensure that the entire system performed

hammers in a painstaking job that involves several people

as a unit,” Castillo Burgos explains. This painstaking process

and causes the interruption of operations for several hours.

proved its worth once the Nemisys system entered the market.

StarMet’s hammerless quality allows the product to meet

Mining Magazine awarded ESCO in 2012 for its innovative

even the most stringent safety regulations and increases

and efficient design. Nemisys’ three-piece tooth and mining

productivity by reducing the time required to perform the

lip system enables excellent equipment performance with

removal procedure by up to 90%. MTG has created other

an average of 10% less force of penetration. “When you cut

product lines that incorporate the hammerless technology

with this, it is like cutting butter. We try to make it easy for

and offer higher resistance, such as RipMet. This is a

the machine to do the work,” Castillo Burgos explains. The

system for ripper machines, which often cause operative

Nemisys system is efficient not only in terms of productivity

halts in mining because they bend or rupture easily.

but also environmentally. “For starters, it weighs an average

“Because rippers are considered second-tier machines, the

of 7% less than other GET systems, thus allowing machines

industry often overlooks their importance,” Angulo Kladt

to use less fuel and reducing greenhouse gas emissions as

emphasizes. “However, we think that rippers are on the

a result. Additionally, the product is specially designed to fit

critical path of exploitation activity. A good ripper allows

heavy machinery in an optimal way and deliver results with

companies to improve their operating efficiency.”

less energy and force,” says Castillo Burgos. “ESCO’s focus has always been on helping our customers save time and

124

“The mining industry is looking to continuously improve its

money, including making sure their employees are working

productivity, raise its operating performance and reduce

safely. Our engineering team is continuously examining how

the downtime of its machines,” Angulo Kladt explains. “We

to make our ground engaging tools, buckets, lip systems,

offer this by developing new solutions in our engineering

truck bodies, and other products perform in the most safe

department and by providing a personalized service.”

and efficient manner possible.”


BUSINESS LEADERS REVIVE NUEVO LEON’S MINING INDUSTRY Because of its geological profile, the state of Nuevo Leon

is humid. This additive reacts with water and causes the

is not considered among Mexico’s most important mining

liquid to filter down and into the ditches. “We customize

states. However, Monterrey’s location along with the

concrete preparation depending on the degree of humidity

presence of important mining companies, such as precious

in the mine. With the combination of this technique we

metal producer Hochschild Mining and base metal national

prevent water from pushing down on the structure and

champion Minera Autlán, and various suppliers make it a

destabilizing it. We safely and efficiently reroute water into

land of opportunity for companies looking to enter the

the ditches,” Zavala explains. Even when humidity is not a

Mexican mining industry. One such company is Industrial

problem, INMSO’s expert personnel inject an epoxy resin

& Mining Solutions (INMSO), which was founded in 2008

into the rock veins and thus contribute to hardening and

by a group of local businessmen. Norberto Zavala, Director

further containing the mine’s structure. “Thanks to the use

of INMSO, explains that the company was born with the

of this additive we generate a solid structure at the interior

mission of building a trustworthy, efficient and socially

of the rock. This structure might not be visible but it gives

responsible

our miners greater support and safety,” Zavala asserts.

company

providing

quality

construction

services to mining companies all across the country and internationally. The company established a Board of

While INMSO has commercial relations with the main

Directors in order to better streamline decision-making

providers of specialized equipment in the sector, the

and create the basis for INMSO’s growth. “This has given

company is currently developing new solutions in order

INMSO a very important advantage in relation to other

to use equipment at 100% of its capacity. “INMSO is

companies in the sector. Many mining contractors in

now investing in the development of new solutions to

Mexico are family-run businesses where decisions are

take cement inside the mine, which is a problem we

made unilaterally. In contrast to those companies, having a

face constantly, as do our competitors,” Zavala asserts.

Board of Directors supports solid, rational decision-making

Because a mine’s width and height can vary a lot, INMSO

processes within INMSO,” says Zavala.

has equipment of many sizes in order to be able to work

“We wish to consolidate INMSO as a profitable, institutional, innovative, socially responsible, and dynamic company” Norberto Zavala, Director of Industrial & Mining Solutions

INMSO’s

and

in any project. However, efficiency is lost in the process.

concrete spraying of ramps under construction, as well

services

comprise

the

boring,

scaling

Therefore, the company is currently testing the adaptation

as other mining development works. The company offers

of a regulating pot into simpler equipment.

added value throughout these mine construction stages. INMSO believes that the quality of its services stem from

Zavala’s commitment to the development of the mining

the training of its personnel. “Our employees need to

industry has also led him, along with other partners, to

understand why they must spray concrete at certain

reopen the Mexican Association of Mining Engineers,

pressures and with certain amounts of cement. They must

Metallurgists and Geologists (AIMMGM) in Nuevo Leon.

quantify the significance of every activity they perform,”

The institution’s state district in the state is now presided

says Zavala. “We train all our personnel, starting from the

by Zavala, after almost two decades of inactivity. Together

person who prepares the concrete in the cement plant. We

with other mining executives, Zavala seeks to reactivate the

explain them their objective and their importance within the

mining industry in the state and foster the development of

company’s goals,” he continues. “As a company, we look for

the region’s geological cartography, which has not been

stable, tiered growth, based on the constant development

developed by the Mexican Geological Survey because there

of our human capital.” This comprehensive training allows

has been no pressure on the allocation of the Survey’s

INMSO’s personnel to successfully use specialized materials

budget for this end. Thanks to the reactivation of this district,

and additives that improve the safety and quality of the

Monterrey recently held its first Mining Sector Employment

company’s works. INMSO evaluates the quantity of water

Fair in collaboration with the Ministry of Economy and the

in the mine and adds a substance to every vein if the rock

assistance of the industry’s biggest companies.

125


EMBRACING QUALITY MEXICAN MANUFACTURED SPARE PARTS Most of the mining equipment and machinery used in the

maintenance too, which sparked Metal Master Industrial

Mexican mining industry is manufactured abroad. However,

to invest more in new and better equipment to work on

as the sector develops and grows, some local companies

mining sites. As time has passed, our engineering division

are taking this as an opportunity to manufacture spare

has strengthened in such a way that today we are able

parts, and even to make improvements in their designs.

to design and manufacture different types of gears,

Metal Master Industrial, a machinery and design company

herringbone gears, and pipes that adapt to our clients’

based in Nacozari, Sonora, is embracing the challenge of

needs,” says Aguilar Contreras.

servicing and creating its own designs to perform repairs and maintenance on its customers’ mining equipment.

There are few companies developing certain spare parts or machinery for the mining industry. Metal Master Industrial

The company started operations eight years ago, after its

got a big break when Grupo Mexico gave it the opportunity

founder and Director General, Rolando Aguilar Contreras,

to manufacture and improve a type of chain that was

had been in contact with the group that brought the

originally made in Finland, used in dredging processes to

first CNC lathes to Chihuahua: “After I heard about this

transport concentrates to the first stage of smelting. It was

equipment I was very interested. Suddenly, the idea of

a big challenge and the team had to work very hard to carry

starting my own workshop and working with all types of

out the improvements that Grupo Mexico was looking for.

lathe was born.” After a while, Aguilar Contreras realized

“Being able to comply with what was asked of us made our

that the industry was more demanding than he had

business and our reputation stronger,” Aguilar Contreras

originally thought; manufacturing pieces was not enough,

recalls. Another project that had a big impact on the

it was necessary to have installation and maintenance

company was its work at Cananea, where it manufactured

systems, too. At around the same time, the company

mill bins that had to be adapted to the specific needs of

started to do reverse engineering and to analyze pieces

the mine. The company also repaired and modified all of

coming from Finland, Japan and Germany, with the aim of

the installed pumps on the site. “We can say that we were

producing them locally in Mexico. “When manufacturing

in charge of maintaining the heart of the entire operation,

these pieces we identified improvements that gave an

because if the pumping system does not work nothing else

added value to our clients. Also, by producing them locally,

will. Fortunately, everything functioned as it was supposed

we were able to reduce cost and delivery time, without

to

jeopardizing quality. Once our clients felt satisfied with our

Contreras recalls. In order to perform its core activity,

products they asked us to take care of their installation and

which is servicing machinery, Metal Master Industrial has

and

operations

continued

successfully,”

Aguilar

QUALITY MATERIAL HANDLING SOLUTIONS Mining sites are usually

within their mining operations. Metro Precisión has been

located

and

providing quality material handling solutions to the

challenging areas where

in

remote

industry since 1985. Oscar Ayala Soto, Founder and General

hundreds

operations

Manager, has been leveraging his 20 years’ experience in

are performed by different

of

the cement industry to develop people with mechanical,

machinery and equipment

electrical, electronic and commercial skills. For over 20

on a daily basis, in order

years, Ayala Soto has been giving seminars on automated

to

mineral

pneumatic conveying solutions for the cement industry,

machines

and this experience has transformed into solutions for the

that handle the materials

mining industry, with the aim of avoiding downtime and

often

operational

operational risks. Its regional positioning in the heart of the

problems, resulting in regular maintenance and production

mining industry has placed it well to service and equip the

downtimes, which have a direct impact on the company’s

local Sonoran mining industry.

Oscar Ayala Soto, Founder and General Manager of Metro Precisión

exploit

deposits.

the

The

face

profitability. Mining companies want to focus on their core

126

business, so they often outsource specialized companies

Metro Precisión’s experience in Grupo Mexico’s copper and

that encompass experience, design, and technical skills,

gold mines, as well as its close contact with the industry

guaranteeing success and maintaining peak performance

more generally, has allowed it to deliver innovative


had to design and develop its own repair and maintenance

management to allow a better decision making process.”

equipment. “There are mills that have an average weight of

In the current market, Aguilar Contreras considers that it

80 to 100 tonnes, and it is practically impossible to get hold

is very important for his company to understand that its

of the equipment needed to repair this type of infrastructure.

competitors are allies, or business partners, for whom it

We therefore had to design a special rotating machine with

continually performs repairs or manufactures products.

a transmission for its assembly. We also developed a cutter

Technology and quality have also contributed to a steady

that, as it rises, sharpens the steel of the original structure,”

workload over time. In the past few years the company has

explains Aguilar Contreras. One of the projects that defined

performed many jobs for big mining groups such as Minera

the company’s place in the mining industry is the Concheño

Frisco, Goldcorp and Grupo Mexico. Currently, the company

Mine, where it was invited to check each piece of equipment

is focused on opening its Cananea office in order to provide

and, if required, do the necessary repairs. “Minera Frisco

the quality maintenance service the mine requires.

acquired all of its equipment in Canada. We had to separate each piece – there were mills, pumps, herringbone gears, and so on – and from there decide which ones needed maintenance. Complications arose when we realized that many of them had been worn down and needed to be replaced. It was not easy because we had to perform very delicate operations, where one little flaw could jeopardize the whole production and result in financial losses. But all of our company’s expertise was used and we designed a plan to do the job in the safest and most professional way,” says Aguilar Contreras.

“When

manufacturing

these

pieces we identified improvements that gave an added value to our clients. Also, by producing them locally, we were able to reduce cost and delivery time, without jeopardizing quality”

An essential feature in guaranteeing the quality of its products

Rolando Aguilar Contreras, Director General of Metal Master Industrial

is the post-delivery service it provides, through which the installed, manufactured or repaired equipment is monitored,

Aguilar Contreras is aware that the years to come will

allowing the company to guarantee proper operation.

consist of intense work, since Metal Master Industrial’s goal

Aguilar Contreras explains that even when another company

is to grow with its clients. “Our philosophy is that we want

installs its products, Metal Master Industrial asks its client to

to stay at their level, in order to be able to satisfy their

supervise the installation process: “All the herringbone gears

needs. We need to continue developing our equipment

of Cananea and La Caridad are being monitored by Metal

and keep up with state of the art technology, because new

Master Industrial. We have qualified personnel to perform

equipment requires new and better maintenance services,”

vibration studies and create reports that help company

he concludes.

solutions for the Mexican market via a broad range of

seminars in the mines we have been able to identify practical,

products from pneumatics conveying systems to spare

mechanical or operational problems, and subsequently

parts and high pressure laminated presses. Among the

find opportunities for improvements. By being present at

company’s different solutions is an automated 320 tonnes

the mine site we were able to apply solutions from day

per hour pneumatic conveying system and a 1.5 mile long

one that helped our clients to increase productivity by 25%

automated pneumatic conveyor system that transports

in specific processes,” says Ayala Soto. By being present

hazardous material at a rate of 800 grams per minute.

in the mines, companies can then analyze the different

Three years ago the company developed an automated

variables with specific measurement equipment, in order

sensor for secondary and tertiary crushing plants, which

to understand the real problems and provide the right

alerts the operators if any of the crusher’s teeth are

solutions. “Technology and maintenance are the key to

missing. This system allows the process, which goes up to

assuring that the equipment works optimally,” states Ayala

a rate of 1,400 tonnes per hour, to be stopped before other

Soto, who explains that technology on equipment such as

parts of the machinery are damaged. The company works

the Mechanalysis IRD:308 or 350 allows them to measure

with its clients to develop its products and services, which

vibrations, air supply, amperage or temperature of the

it then duplicates for other companies.

equipment, which in turn gives a much more complete diagnostic on the unit. As the industry continues to adopt

In the search for production efficiency, cost reduction

new technologies and working methodologies in order to

and

increase profits, opportunities for companies like Metro

modernization

opportunities,

service

companies

make partnerships with the mining operators. “By holding

Precisión will continue to arise.

127


THE VALUE OF UNDERSTANDING INDUSTRY NEEDS Understanding and meeting the customer’s needs is

making it easy for the clients to find one complete, yet

the point of departure for any good business. “Most of

specific solution. Incorporating new products into our

our resources and efforts are focused on strengthening

portfolio requires complying with the highest industry

our product support, both before and after sales,” says

standards, in terms of both the product itself and the

Enrique Desentis, Director General of Construmac. “We

support behind it,” says Desentis. “Construmac constantly

work together with our suppliers to fully understand the

has people from the brands themselves present in its

customers’ processes and problems. We bring experience

offices, and together with them we go to the mines to train

from similar applications in other parts of the world, adapt

the clients’ operators and service technicians.” For each

existing products to new applications, or even have the

brand that it sells the company has one specialist with an

suppliers design unique systems for the applications.”

in-depth understanding of the products and the industry’s

“Reliability, availability and productivity are in the end the most important concepts for our mining customers” Enrique Desentis, Director General of Construmac

The company started out providing heavy equipment

need for them. “We select, together with our clients, the

for large mines, but today it focuses more on equipment

range of equipment that will provide our clients with the

for specific processes within mining operations, such as

best performance and productivity rate, according to

shotcreting and backfilling high density solids, representing

the technical requirements of their operations. After the

brands such as Putzmeister, Wirtgen, and Terex. The

product is selected we provide advice on its operation

company takes a considered approach to its portfolio, with

and maintenance. We set up each and every piece of

a careful strategy guiding its decisions to stock each of

equipment that we sell, and revisit it until we are sure that

the products that it does. “Our machines have lower fuel

everything is in perfect shape, also making sure that the

consumption and emissions than the competition, and in

operator is ready to use it correctly,” says Desentis.

part that is thanks to computerized system controls that supply only the required power, making it more efficient.

The company has generally found that mining companies

Our different ranges of products complement each other,

prefer

to

conduct

maintenance

on

the

machinery

STREAMLINING MINING PROJECTS WITH PLANT DESIGN SOFTWARE “Mining companies have

“The main challenge in developing mines and plants is

grown a lot in terms of

to have clear and timely information, so that the mining

production, and increased

engineers are able to plan the mine structures and logistics

their

in

well in advance,” says Hernández. López “If mining operators

but

are involved since the beginning of the engineering process

the technology they use

and receive information in a timely manner, they will be able

has not changed much

to make changes along the way that will help optimize the

in

foreign

128

countries,

says

processes, and they will have enough time to train workers

Adrián Hernández López,

in mining-specific processes. We control all the systems

who serves as Director

that monitor the status of the project and manage the

General

Intergraph

information in real time with a master database, which helps

Mexico, a provider of engineering software for the design,

owners make smarter and faster decisions when needed,”

construction, and operation of processing plants.

Hernández López emphasizes.

Adrián Hernández López, Director General of Intergraph Mexico

a

investments

long

of

time”


themselves, but for this to be possible Construmac must

Technology plays an important role in Construmac’s

provide training. “We must make frequent visits in order to

products, and through its brands the company tries

perform this sort of training. We also do a lot of training on

to remain ahead of the constantly developing market.

the use of the machines, so that our salespeople become

“We represent specialized equipment, an area in which

consultants for the client,” says Desentis. “Given the

technology moves very fast, and we rely on our suppliers’

company’s swift growth in the last two years, from 100 to

commitment to innovation. They keep pushing to introduce

200 members of staff, providing training to our own staff

new

has become even more important.”

says Desentis. “We are moving forwards by training

equipment

and

solutions

for

our

customers,”

ourselves, the industry and our clients in the use of new The company has 11 branches throughout Mexico, allowing

technologies.” Construmac is also always on the lookout

it to make client visits as frequently as possible, which

for new ways to improve the service that it provides, and

brings advantages to both parties. Inventory is also kept

thus the productivity of its customers’ operations. “We

at each of the different branches, according to the needs

combine different services, such as finance and logistics,

of local customers, which means that the company can

in order to provide a genuine and complete solution

respond to demand more quickly. “Our strategy is to have

to the customer. For example, we are investigating the

national coverage. We make sure that the really important

possibility of providing a full maintenance service, with

parts are available at all times for our clients. We manage

parts and servicing included,” says Desentis. “We are

special equipment, the parts for which are not easy to

looking to introduce new products into our portfolio, and

get hold of, so we must ensure availability at all times.

we have the human capital needed to understand difficult

Reliability, availability and productivity are in the end

applications and complicated machines. This demonstrates

the most important concepts for our mining customers,”

Construmac’s interest in seizing business opportunities in

explains Desentis.

both the mining industry and elsewhere.”

SmartPlant is Intergraph’s software for 3D design. It is

the company is able to know which engine or electrical

an object and centric-based software where the rules

components are needed to operate the plant. This is mainly

of engineering are defined in the database. In the past,

used for the technical design of plant engineering; however,

companies used to have only a fine base graphic system.

once the plant is engineered and built, the operator can use

Intergraph’s software defines rules that all drawings and

the same tools for plant maintenance. “In the past, when

models must follow, which helps to reduce design errors

mechanics did not talk to electrical technicians or to the

and save time and money. “With the use of this technology,

piping masters, each of these experts would end up having

companies become 30% more productive thanks to

different information, so whenever they faced a maintenance

the time reduction element that the software is able to

problem it would be a nightmare to solve,” Hernández López

provide,” says Hernández. “When reducing interferences

explains. “The same software provides mining companies

created by unexpected errors, owners will save man-hours,

with the construction as-built data and the project data,

allowing them to invest in other things.”

which gives them the possibility of running feasibility tests before making any physical change to the plant structure.

Intergraph is able to coordinate and manage three of its

The main benefit for the mining operators is to run process

clients’ main areas: process, instrumentation, and data. The

simulations to anticipate the impact of any change or

software incorporates a system that publishes process data

adaptation on the mine, without the risk of making mistakes

that is obtained by the instrumentation area. As a result,

that could cost a lot of money,” Hernández López says.

129


OPTIMIZED GRINDING MEDIA USE ENHANCES PRODUCTIVITY The

size,

chemical of

density

and

diameters and components, such as carbon, chrome,

composition

molybdenum, and many other materials, the proportions

grinding

will

effectiveness,

of which we can play around with. It is then important to

its

maintain a consistent flow of steel balls to feed the mills,

the

because if the mills have to be stopped production will also

combination

be stopped, and that is something that mining companies

of these variables will vary

cannot afford to let happen,” Guerrero Elías points out.

according to the type of

Proesmma’s answer to preventing this problem is simple –

product

appropriate

Miguel Guerrero Elías, CEO of Proesmma

media

determine and

ground.

on each order that is placed with the company it acquires

Grinding balls are widely

being

a greater volume and stores the excess. The company also

used for the processing of

has its own transportation system, meaning that it does not

minerals in the mining industry because of their ability to

need to rely on a third party to deliver its product to the

significantly speed up the grinding process, thus reducing

customers. “This increases the speed and efficiency with

the amount of time the equipment must be operating,

which we can deliver our products. A company can call us

saving on operating costs and maintenance. “These kinds

in the morning and the product will have been delivered by

of industrial inputs are essential for the mining process. The

the evening,” says Guerrero Elías.

chemical compositions are the key to the strength of the products - different compositions provide different levels

Proesmma endeavors to maintain this level of service to its

of durability, and can increase the lifetime of the balls. We

customers even beyond delivery. The company provides

can play with the components based on the features of the

technical guidance to operators and managers at the mine,

mineral our customers will be grinding,” explains Miguel

in order to provide them with an understanding of the

Guerrero Elías, CEO of Proesmma, a Chihuahua-based

product and the role that it plays in their operations. “We are

company that supplies forged steel balls to be used as

constantly visiting our customers, training them and giving

grinding media to mining companies in the region.

them a productivity certification, which helps to improve production and productivity in their operations,” says

Proesmma is relatively young, having started out in 2008

Guerrero Elías. This service was started because Proesmma

with a contract for a major mining company. “We began

identified that its customers could use improvements in

by visiting the main mining companies here in Mexico and

certain areas that would boost their productivity. “We work

asking about their grinding needs, and understanding the

very closely with the customer in order to understand how

importance of the product for overall mining operations

their operational departments are managed, and in order to

is what allowed us to really establish ourselves in the area

be able to give recommendations to the leaders on how they

of steel ball supply. Another important factor that helped

can increase productivity,” explains Guerrero Elías. Being

us is that we have a world-class company backing us up,

based in the northwest of the country, at the epicenter of

which provides us with technical support and laboratory

the mining industry, has also positioned the company well

analysis,” says Guerrero Elías. This relationship allowed

to grow. “Chihuahua is the place to be. We are close to the

Proesmma to then go on and find the products that

top three mineral producing states in Mexico, and as such

meet those needs, which in Guerrero Elías’s experience

we are near the most important gold, silver and copper

have been endurance and impact: “If a company uses

projects. Since we are located in the middle, we can easily

less grinding media in order to maintain the same rate of

cover the region from east to west,” says Guerrero Elías.

milling, this will save a lot of money,” he points out. Guerrero Elías was also heavily involved in the founding of

130

The next job for Proesmma was to go out and sell. At the

the state’s Mining Cluster, and through that role is working

time there was a monopolistic market with only one or two

together with the Government of Chihuahua to introduce

forged steel ball suppliers, so Proesmma had to convince

and develop new technologies that maximize the State’s

mining companies of the benefits that its products could

industrial capacity. “Innovation is one of the main priorities

offer. “The way we were able to gain their trust was by

today, since we understand that development goes hand

showing them how our product is made, the durability of

in hand with technology,” he says. “In the end this is a

the balls, and the chemical composition that confirms their

production process, so it is very important to rely on the

quality” says Guerrero Elías. Proesmma has backed up this

most innovative technologies in order to be as efficient as

evidence of quality with a commitment to providing quantity.

possible. There are some techniques in the grinding media

“It is a matter of being prepared and having different

process that need to be constantly innovated,” he says.


REDUCING COSTS THROUGH AFTERMARKET SERVICES It is estimated that maintenance expenditures make up

moves towards a preventative approach to maintenance,

between 20 and 50% of mining companies’ production

the company also provides a series of aftermarket services

costs. At a time when metal and mineral prices are dropping,

that will extend the equipment life and thus lower global

the ability to minimize operating costs determines whether

maintenance costs. “We can prevent downtime and extend

the future of a mine is in jeopardy and mining companies

periods between maintenance work by looking after the

are therefore looking for varied solutions to enhance their

equipment’s parts,” says Cañamar.

maintenance performance. These solutions usually range from long-term maintenance contracts at fixed costs

The company uses its international experience to improve

to

maintenance

the quality of its service and train its personnel using global

software, or the integration of several maintenance

technologically-advanced

predictive

best practices. “We have over 40 years of experience in

services. However, mining companies often overlook the

the mining industry, and our engineering department is

cost-saving potential of aftermarket engineering services.

made up of qualified experts who can detect potential

“We can prevent downtime and extend periods between maintenance work by looking after the equipment’s parts” Porfirio Cañamar, General Manager at L&H Servicios Mineros

Jeff Wandler, Corporate Vicepresident at L&H Industrial,

weaknesses and prevent failures,” states Cañamar. David

an international aftermarket service provider, states that

Reyna, International Sales Manager for Mexico and Peru at

several engineering procedures and services can enhance

L&H Industrial, says that the company’s status as a global

equipment performance and reduce maintenance cost at

player with a presence in every major market in the world

mine sites. “We provide more options to deal with negative

enhances the quality it can offer in any location. “We have

situations that machines can run into,” he says. L&H can

brought in people from Wyoming who are very excited to

modify mechanical processes in order to allow machinery

come and teach our engineers in Mexico. We have hired

to perform additional tasks. It can also expand the life

young local people to participate in training programs and

span of components by introducing enhanced products

join our team. Similarly, we are able to use the labor that

that comply with stringent quality standards. Moreover, its

we have in Mexico for potential opportunities in the US,”

experience and knowledge allow the company to repair

Reyna explains. The company’s international presence has

broken components, thus avoiding costly replacements. “In

also allowed it to start manufacturing its own products,

sum,” says Wandler, “our clients are not held hostage by the

in order to better serve the mining industry with high-

original equipment manufacturers.” According to Porfirio

performance industrial components. “L&H Industrial has

Cañamar, General Manager at L&H Servicios Mineros, L&H’s

sales and support teams throughout the world. We can

Mexican subsidiary, the second largest cost of operating a

manufacture a product in Mexico and our solid business

machine – after the cost of the machine itself – is maintenance.

structure will ensure the product’s quality, as well as its

The sum of preventative and corrective maintenance costs,

economic competitiveness,” states Reyna.

plus the cost of interrupting production due to downtime, can truly represent a major financial setback for mineral

L&H Servicios Mineros is constantly developing in order to

exploitation projects. Therefore, L&H’s Mexican division has

offer the same services its parent company provides in the

gone to great lengths to offer comprehensive aftermarket

US. Thanks to Mexico’s geographical closeness to the US

services with the fastest response time in the market. “Our

and to the size of both countries’ mining industries, L&H

offices are located in strategic regions in Mexico”, Cañamar

has access to the advanced portable equipment it requires

points out. “We can cover all the needs of the industry in the

to do its work in Mexican mine sites. The company’s global

field and we can do so in a very short time, thus preventing

experience and its extensive pool of knowledge are being

prolonged interruptions to operations.”

leveraged to support the company’s expansion in the Mexican market. “Mexico represents around 25% of our

L&H does not only focus on corrective maintenance and

business, and it may grow up to 35% in the near future,”

emergency intervention. As the Mexican mining industry

Wandler adds.

131


| MINE PROFILES: DURANGO

4

5 7 2 6 8

DURANGO 1

1 2

132

3

TAYOLTITA, PRIMERO MINING The Tayoltita gold-silver underground mine is located on the border of Sinaloa and Durango, some 125km northeast of Mazatlán in central western Mexico. This mining complex comprises five underground zones: San Antonio West, Sinaloa Graben, Central Block, Tayoltita, and Arana Hanging Wall block. Its epithermal structures contain variable amounts of mineralization with concentrations of gold and silver. All of the San Dimas mines are underground operations using mechanized cut-and-fill mining methods. Primero Mining carries out all of its milling operations at the Tayoltita mill, which currently has a throughput capacity of 2,100 t/d.

LA CIÉNEGA, FRESNILLO PLC La Ciénega is a gold-silver mine located near the community of Nuestra Señora de la Ciénega in Durango. Fresnillo’s property consists of an underground mine and a flotation and leaching plant. The mine has ore bodies that include gold, silver, lead, and zinc concentrations, and has a current production of 59,644 ounces of gold and 2.188 million ounces of silver, with a workforce of 905 employees, including contractors. The mine has reserves of 830,000 ounces of gold and 54 million ounces of silver, and the estimated mine life is of 16.7 years. In addition, the mine produced 2,676 tonnes of lead and 2,919 tonnes of zinc in 2012. For 2013, a scoping study for the Las Casas project is planned, as well as the continued exploration of the Cebollitas cluster, a new mine satellite for La Ciénega.

3

LA PARRILLA, FIRST MAJESTIC SILVER

4

GUANACEVÍ, ENDEAVOUR SILVER

La Parrilla mining district is located in the physiographic sub-province of Sierras y Llanuras de Durango, and consists of several large vein systems. First Majestic has historically focused its exploration efforts on the Quebradillas, Vacas, San Marcos, and La Blanca mines and the Cerro Santiago, Viboras, San Nicolás, and Sacramento areas. The property began operations in October 2004. It recently underwent a fifth major development project that further expanded the mill to 2,000 t/d. The expansion was deemed commercially effective in March 2012, when the new parallel 1,000 t/d flotation and 1,000 t/d cyanidation circuits became fully operational. At the newly designed run rate of 2,000 t/d, La Parrilla will produce in the range of 3.3 to 3.4 million ounces of silver equivalent annually.

The Guanaceví mine is located 260km northwest of the city of Durango. The 4,100 hectare property operates in low-sulphidation epithermal veins that are typically thousands of meters long, 600m deep, and 1 to 5m thick. Endeavour Silver acquired Guanaceví in 2004 and since then the mine has produced more than 15 million ounces of silver and 38,000 ounces of gold. The operations include three underground silver-gold mines, a cyanidation leach plant, mining camp, and administration and housing facilities. They provide employment for more than 450 people and engage nearly 200 contractors. In 2012 Guanaceví produced 2.5 million ounces of silver and 7,874oz of gold.


| STATE PROFILE: DURANGO

The state of Durango has a long mining tradition that dates

companies operating in the state, totaling 91. That year

back to pre-Hispanic times, reaching its peak during the

the state’s metal mining production value amounted to

time of Spanish Colonization. In 1552 the Cerro de Mercado

US$900 million, representing 6% of Mexico’s total mining

iron deposit was discovered, and shortly afterwards the

production value. Regarding nonmetallic minerals, the

city of Durango was founded. By 1604 the region had 52

state is also an important producer of bentonite, marble,

mines and 23 processing haciendas. By 1897 this number

and perlite.

had grown to 709 mines and 89 processing haciendas. The main mineral deposits discovered throughout Durango’s

In 2010 Peñoles acquired the Velardeña project from

history have been La Ojuela, Topia, Canelas, Velardeña,

Grupo Mexico, and invested US$230 million in modernizing

Tayoltita, Cerro de Mercado, Bacis, Avino, Guanaceví,

the mine operation, which started production in the first

Magistral del Oro, La Ciénega de Nuestra Señora, La

semester of 2013. In 2011 Fresnillo expanded its Santiago

Platosa, Indé and Peñoles.

Papasquiaro processing plant, which operates by flotation at a capacity of 2,200 t/d Chesapeake Gold has invested

According to the Mexican Geological Survey there are at

US$3.5 billion in its Metates project, which is considered to

least 75 mining projects at the exploration and exploitation

be one of the largest undeveloped gold and silver projects

stages in Durango, which has 23 mining regions that

in the world. The prefeasibility study indicated a large

are usually associated with the magmatic formations

120,000 t/d open pit operation with a 20 year mine life

of the Sierra Madre Occidental, and less commonly in

and accumulated gold production of 17.2 million ounces.

the Sierra Madre Oriental. During 2011 Durango ranked

Over the course of the mine life the project is expected to

third in the country for the number of foreign mining

generate US$20.1 billion.

5

6

7

8

TOPIA, GREAT PANTHER SILVER The Topia silver-gold-lead-zinc property is located in the heart of the Topia mining district in Durango. The property consists of four discrete blocks of mineral exploitation concessions covering 6,438 hectares. The concessions are owned by Great Panther’s Mexican subsidiary Minera Mexicana El Rosario. The Topia silver-gold-lead-zinc mines are small narrow-vein underground operations utilizing a modified cut-and-fill mining method known as resuing. The ore is processed to produce separate high quality precious metal-rich lead and zinc concentrates. These concentrates are transported to the Pacific port of Manzanillo where they are sold to commodity traders. Production at this mine reached 555,710oz of silver in 2012.

EL CASTILLO, ARGONAUT GOLD El Castillo is an open-pit gold mine located 100km north of the city of Durango. The El Castillo mine lies in the Altiplano Subprovince of the Sierra Madre Occidental region of Central Mexico. Construction commenced in 2007 with commercial production reported in 2008. The project was acquired by Argonaut Gold in 2009 and within just one year of acquiring ownership of the property the production profile was brought up to a 72,000oz run rate. El Castillo produced 87,712oz of gold in 2012, but for 2013 it is expected that it will reach between 90,000 and 100,000oz per year. The El Castillo mine is a relatively low grade gold deposit that benefits from low strip ratio and disseminated mineralization that is complimentary to bulk mining activities and good heap leach recoveries.

VELARDEÑA, GOLDEN MINERALS The Velardeña mining district is located within the municipality of Cuencamé, in the northeast quadrant of the State of Durango, Mexico. The Velardeña mine is situated on the eastern flank of the Sierra Madre Occidental mineral belt, on the boundary between the Sierra Madre and the Mesa Central metallogenic provinces. The regional geology is characterized by a thick sequence of limestones and minor calcareous clastic sediments of Cretaceous age, intruded by Tertiary plutons of acid to intermediate composition. Golden Minerals installed two mills on this asset: a 300 t/d flotation sulfide mill located near the town of Velardeña and a 550 t/d cyanide leach oxide mill with a Merrill Crowe precipitation circuit and newly-installed flotation circuit. Golden Minerals suspended production on June 21, 2013, when the property was put onto a care and maintenance program to conserve the asset until operating plans and silver and gold prices indicate a sustainable cash margin for operations.

EL HERRERO, GRUPO BACIS El Herrero is an underground gold-silver mine located in the province of Barrancas in the state of Durango. In 2012 El Herrero produced 20,500oz of gold and 1.47 million ounces of silver; the precious metal concentrates are taken to Peñoles’ refinery in the city of Torreon, Coahuila to be processed.

133


134


GOLD

5 Although silver has historically been the protagonist in Mexican mining, over the past five years Mexico’s gold production experienced a dramatic increase and today the country is the world’s 11th largest gold producer. In addition to high gold prices, Mexico benefitted from the combination of good gold deposits, favorable conditions for heap leaching, and a historical and stable mining culture. Sonora, Chihuahua, and Zacatecas are the main gold producing states in the country, and have been key contributors to the 4.1 million ounce increase in gold production over the past two years.

This chapter provides an overview of the country’s main gold mines and presents the strategies, achievements and priorities of the most prominent gold mining companies operating in the country. Special attention is dedicated to the challenge of turning discoveries into operating mines in the current financial context, as well as the increasing industry focus on lowering production costs. We also present an overview of Chihuahua’s mining industry and the ambitions of the state government to attract increased mining investment with the aim of accelerating the state’s economic growth.

135


Delivering Success through Operations and Development

Two 100% owned

open pit heap leach operations (San Francisco/ La Chicharra)

www.timminsgold.com 45,000 hectare

land package with excellent infrastructure

and desirable location

Gold reserve

of 1.33 M ounces (72.3 M tonnes @ 0.572 g/t Au)

Targeted production

of 125,000 ozs Au

in 2013

136

Timmins Gold Suite 1900 - 570 Granville St Vancouver, BC, Canada V6C 3P1 info@timminsgold.com Tel:604-682-4002 Fax:604-682-4003

Mina San Francisco Blvd. Solidaridad #335 A Edificio ‘A’ Primera Planta Local 3 Col. Palmar del Sol Hermosillo,Sonora, Mexico 83270 arturo@timminsgold.com Tel: 011-52-662-218-1067 Fax: 011-52-662-260-3503


CHAPTER 5: GOLD 138

Key Trends in the Global Gold Mining Industry

139

Mexico’s Growing Prominence as a Gold Producer

140

VIEW FROM THE TOP: Momentum for Gold Mining Investment

142

MINE PROFILES: Mexico’s Main Gold Mines

143

Guerrero Gold Belt

144

Gold Production by Mine

145

Goldcorp’s Mexico Focus

146

MINE SPOTLIGHT: Los Filos

148

VIEW FROM THE TOP: Strategic Focus on High Quality, Low Cost Assets

150

Reactivation at Sinaloa’s Most Significant Gold Project

151

Cost Competitiveness Key in Extraction Processes

152

VIEW FROM THE TOP: The Roots of Mining in San Luis Potosi

153

Looking Beyond Cerro San Pedro

154

MINE SPOTLIGHT: Cerro San Pedro

156

Frisco Expects to Duplicate its Precious Metal Production

157

The Importance of Stakeholder Satisfaction

158

VIEW FROM THE TOP: Continuous Growth in Gold Production

159

Building Sound Mining Processes

160

Uncovering Mexico’s Underlying Gold Potential

162

MINE SPOTLIGHT: La Herradura

164

Focus on Mexican Gold

165

Federal Government Support for Mining in Chihuahua

166

VIEW FROM THE TOP: Paving the Road for Chihuahua’s Mining Industry

167

VIEW FROM THE TOP: Mining Investment as a Catalyst for Economic Growth

168

MINE PROFILES: Chihuahua

137


KEY TRENDS IN THE GLOBAL GOLD MINING INDUSTRY For much of 2013 talk in the mining industry has centered

The gold mining companies that will prove successful in

on the price of gold and its subsequent impact on the

surviving these uncertain times are those that recognize

prolonged boom that the industry has been enjoying.

the importance of keeping cash costs as low as possible,

Concerns were first raised in April when the price dropped

while also making a convincing argument to investors of

15% in just two days. Further volatility followed, with the

the healthy return on investment that can still come from

price dropping below US$1,200 in June 2013, for the first

investing in gold projects. The noteworthy performance of

time in almost three years. This represented a more than

a number of gold mining companies operating in Mexico

30% decrease since the 2011 peak price of US$1,895, and it

today demonstrates that the industry is still more than

is the precious metal’s biggest price drop in 30 years.

lucrative. Major gold mining companies such as Goldcorp and Fresnillo remain solid, with a number of gold projects

The decrease in gold demand worldwide and subsequent

at the production and exploration stages. What is perhaps

fall in price are attributed by the World Gold Council to a

more remarkable is the emergence of a number of small to

shift in US investor sentiment. Greater financial stability

medium-sized gold companies that are using their Mexican

in the US, the world’s leading economy, set the stage for

properties to consolidate their position in the market.

a decrease in inflation and improved interest rates in the

Companies such as Argonaut Gold, AuRico Gold, New

country, which in turn have caused investors to turn to

Gold and Timmins Gold have built success by minimizing

different, riskier investment strategies and away from gold.

the cash costs of production on high quality deposits

While speculation over the future trajectory of the gold

in Mexico. Due to the favorable conditions for mining in

price continues, investment in mining on the whole has

Mexico, for the most part these companies have been able

been impacted, on the assumption that lower prices will

to keep their total average cash costs below US$600; New

have a negative impact on miners’ profit margins. While

Gold has been particularly successful in this area, reporting

this speculation is a natural result of the recent volatility

a forecasted total cash cost for 2013 of US$350 on its

we have seen in the market, the current gold price must

Cerro San Pedro property, and after setting a record total

be taken in a broader context, and the vast opportunities

cash cost of US$115 per ounce in 2011. With the gold price

for continued profits on behalf of gold mining companies

still sitting comfortably above US$1,000, these companies

cannot be overlooked. “In spring we saw a big correction

therefore stand in good stead to continue generating

in gold and silver; percentage-wise, that was the biggest

excellent profits in Mexico, and there remains a great deal

the market has seen in a long time,” says James McDonald,

to gain from continued investment in these companies. In

President and CEO of Kootenay Silver. “A lot of people have

the face of continued volatility in the gold price, Mexico

withdrawn from the market, partly because they are afraid

is likely to maintain a prominent role in the portfolios of

of a second correction. But we have to maintain perspective

these gold companies, given the quality of the deposits

because the price of gold is still around US$1,300 and silver

that are still waiting to be mined in the country and the low

is around US$22, and those are good prices.”

cost at which they can be exploited.

GLOBAL GOLD PRODUCTION (METRIC TONNES AND PRICE (US$ PER OUNCE) 2,200

3,000

2,000 2,500

1,800 1,600

2,000

1,400 1,200

1,500

1,000 800

1,000

600 500

400 200

0

2008

2009

2010

2011

2012

2013

0

Source: InfoMine

138


MEXICO’S GROWING PROMINENCE AS A GOLD PRODUCER More and more, the international mining community is

GLOBAL GOLD PRODUCTION BY COUNTRY

starting to pay attention to Mexico as an important gold producer. Though it was gold that originally brought the Spanish colonizers to Latin America in the 15th century, it

13.7%

is silver that has been the protagonist in Mexico’s mining history, with gold being produced in much lower quantities

23.9%

and generally as a by-product of other mining operations.

9.3%

However, times are now changing and Mexico is emerging as a major gold producer in its own right. Between 2008 and 2011 the level of gold production in Mexico increased by

1.7%

55%. The dramatic increase in gold production continued

2.1%

again in 2012, with production 15.96% higher than it had

8.5%

2.2% 3.2%

been in 2011. This represents a faster growth rate than

7.6% 3.3%

overall mining production in Mexico, which grew at a rate of 12% in the same year.

6.3%

3.3% 3.5%

3.8%

6.1%

This increase comes in large part as a result of the sustained upwards trend in metal prices, which saw the price of gold reach US$1,688 at the beginning of 2013 before it declined to US$1,320 by September. It is also the natural result of the favorable conditions for gold mining that exist in Mexico, which combines good gold deposits, favorable conditions for the preferred extraction technique of heap

China

Uzbekistan

Australia

Ghana

US

Mexico

Russia

Papua New Guinea

South Africa

Brazil

Peru

Chile

Canada

other

leaching, and a historical and stable mining culture. The rise of Mexico as a destination for gold mining comes at a time when modern technology is improving the options available to mining companies for the exploitation of lower grade deposits at affordable prices, and this

Indonesia

is something that a number of mining giants are doing

Source: USGS

successfully in Mexico today. One of the great appeals of gold mining in Mexico is the amenability of its gold

Guerrero Gold Belt is also emerging as a major contributor

deposits to heap leaching techniques. In fact, nine of the

to Mexico’s gold production, with over 21 million ounces

top 10 producing gold mines in Mexico use heap leaching

of known gold resources, and only an estimated 0.5% of

techniques in their production processes. Heap leaching is

the state’s land having been explored. Mexico’s first and

a hydrometallurgical process that is used mainly on low-

second gold producing mines, Peñasquito in Zacatecas

grade deposits to separate the ore from the accessory

and Los Filos in Guerrero, both belong to Goldcorp,

minerals. The technique is relatively new, but generally

positioning the company as Mexico’s biggest gold

favored because it is one of the most economical

producer, accounting for 26% of gold production in the

production methods in gold mining operations. “In Canada,

country in 2012. With large gold mines such as Chesapeake

due to the formation of the deposits and the environment

Gold’s Metates in Durango and Goldcorp’s Camino Rojo

there are not too many possibilities for heap leaching. The

in Zacatecas currently in development, which between

deposits in Mexico are much more likely to be oxidized,

them have over 20 million ounces of proven and probable

making heap leaching processes more probable,” says Tom

gold resources, gold production in Mexico is on course

Burkhart, Vice President of Exploration at Argonaut Gold.

to continue growing in the coming years. “In the last two years the production of gold in Mexico has increased by

According to Camimex, 102.8 tonnes of gold were

more than 4.1 million ounces The country will remain the

extracted in Mexico in 2012, with the states that produced

number one producer of silver, but will also become an

the majority of that gold being Sonora (29%), Zacatecas

even more important player in the gold market,” says

(21.1%) and Chihuahua (19.2%). The Sonora Gold Belt is

Rafael Alexandri Rionda, former Director General of the

currently the leading gold producing region, however the

Mexican Geological Survey (SGM).

139


| VIEW FROM THE TOP

MOMENTUM FOR GOLD MINING INVESTMENT MARCUS GRUBB Managing Director, Investment of the World Gold Council

Q: What is the importance of gold in today’s global

following: control costs and implement capital discipline;

economy?

deliver on promises; improve returns; resist new projects

A: Gold plays a vital and diverse role in today’s global

or expensive acquisitions, even when prices rebound;

economy. Gold jewelry demand accounted for more than

and negotiate and manage resource nationalism. These

62% of global jewelry demand in Q1 2013. China and India

challenges apply to the whole extractive sector, but are

are the two major markets for gold, and along with a

certainly highly relevant to gold miners, too.

growing middle class and cultural trends, a more positive economic outlook contributes to positive consumer

Q: What impact do you expect the recent drop in gold

sentiment in these markets, demonstrating how intimately

prices to have on the gold mining industry in the short,

gold and the economy are related.

medium and long term? A: The rising gold price in the last decade has fueled an

Q: What makes gold continue to be a worthwhile

increase in expansion projects and exploration, but major

investment?

new finds have proved highly elusive. Mining stocks are not

A: Gold operates on the basic economic fundamentals of

immune to wider swings in the equities market, and can be

demand and supply. The World Gold Council’s view is that

affected by negative investor sentiment and fluctuations in

demand is strong while supply remains constrained, and

the spot gold price. In the short term, this has been evident

that this dynamic ultimately drives the long-term price and

in the recent price corrections seen in the gold market in

demand for the metal. From an investment perspective,

April and in June 2013. The current price environment

gold has a clear role to play as a strategic asset within

has resulted in many mining companies focusing on cost

a diversified portfolio that contains other riskier assets.

reduction and core assets, with less enthusiasm for riskier

Portfolios that contain even a small allocation of gold are

projects. It has also led to some companies reassessing

proven to be generally more robust and better able to cope

the levels at which ore grades are considered a viable

with market uncertainties than those that do not, showing

resource. Quality, rather than quantity, has become a basic

improved stability of returns. In relation to currency, gold’s

principle for many miners. In the current environment gold

unique foreign exchange-hedging characteristics offer

mining companies are seeking to secure future success by

significant additional benefits in optimizing risk-adjusted

focusing on core expertise and quality resources, cutting

returns during periods of extreme market stress and

costs, reporting in a consistent and transparent fashion, and

heightened currency tail-risk.

engaging with stakeholders to better explain the beneficial impacts of their operations. Despite the short-term impact

Q: What are currently the main priorities and challenges

that this may have on the mining industry, the underlying

for the gold mining industry?

positive case for gold remains robust. The long term

A: While the World Gold Council’s core mission is to

fundamentals of the metal point to a growing gold market

develop markets by stimulating and sustaining demand

across all territories, and if this persists, as we believe it will,

and we have therefore traditionally been less focused on

the industry should be able to reassert itself and continue to

mine production issues, in recent years we have sought

be both industrious and profitable in the long term.

to understand how we might assist in and contribute to

140

creating a more sustainable market on both the demand and

Q: How are you working together with your members

the supply side. With regards to the main challenges facing

to introduce the ‘all-in sustaining cost’ and ‘all-in cost’

gold miners, we note the recent findings published by PwC

metrics to report production costs?

in their annual review of the general mining industry (Mine

A: The World Gold Council has been working closely with its

2013: A Confidence Crisis), which highlighted the lack of

member companies to develop these non-GAAP measures,

confidence in the sector and suggested that to re-engage

which are intended to provide further transparency into the

investors, mining companies must do a combination of the

costs associated with gold mining, while also improving


investor understanding. The World Gold Council’s members

gold producing country in the world. This will undoubtedly

requested help to develop the non-GAAP measure, and as

mean that gold is increasingly significant to the development

a result we have been working closely with our members,

of the local economies in which mining occurs. The rapid

under the supervision of the Council’s Board, to develop

development of large scale mining projects in locations

this new approach. It is expected that these new metrics,

that may not previously have experienced major industrial

the ‘all-in sustaining cost’ and the ‘all-in cost’, will be

enterprise presents unique challenges that must be

helpful to investors, governments, local communities and

mindfully and effectively handled. However, if the impressive

other stakeholders in understanding the economics of

recent growth seen in gold mining in Mexico is coupled with

gold mining. The ‘all-in sustaining cost’ is an extension of

ongoing efforts to drive stability and endurance in the sector

existing ‘cash cost’ metrics, and incorporates costs related

from a global perspective, the outlook for the Mexican gold

to sustaining production. The ‘all-in cost’ includes additional

mining industry is extremely optimistic.

costs that reflect the varying costs of producing gold over the life-cycle of a mine. It is up to individual companies to

Q: What are your perspectives on the development of the

determine how they report to the market and to decide

gold industry in the coming five years, and what are your

whether their stakeholders will find these new metrics of

goals for helping the industry to reach its full potential?

value useful in understanding their business; it is expected

A: The World Gold Council looks at the underlying

that, since many companies report on a calendar year basis,

fundamentals and market sentiment for gold, adopting

they may choose to use these metrics from January 1, 2014.

a longer term view and a more considered approach. Despite recent variances in the price of gold, the World

Q: How does the World Gold Council view the position of

Gold Council believes that the long term outlook for gold

Mexico in the global gold mining industry?

remains positive.

A: Whilst we cannot claim to be experts in the local mining sector, the World Gold Council is certainly aware that gold

We actively engage in joint activities to promote demand

production has increased dramatically in Mexico over the

for gold in all its forms and are constantly reviewing

last decade, rising over 365%, from around 20 tonnes in

opportunities that aim to stimulate and sustain demand for

2003 to over 95 tonnes in 2012. It is now the ninth largest

gold and create enduring value for its stakeholders.

141


| MINE PROFILES: MEXICO’S MAIN GOLD MINES

33

10 3

26

16 18

12

9

36 22 5 20

28

4 17

29

11 15

40 41

35

8

27

14 37

13

1 39 42 24 19 6

23 7

38 25 34

32

31 2

142

1. Peñasquito, Zacatecas

15. El Sauzal, Chihuahua

2. Los Filos, Guerrero

16. El Chanate, Sonora

3. La Herradura, Sonora

17. Ocampo, Chihuahua

4. Pinos Altos, Chihuahua

18. Noche Buena, Sonora

5. Mulatos, Sonora

19. El Saucito, Zacatecas

6. El Coronel, Zacatecas

20. Dolores, Chihuahua

7. Cerro San Pedro, San Luis Potosi

21. El Águila, Oaxaca

8. La Ciénega, Durango

22. Santa Elena, Sonora

9. Mercedes, Sonora

23. NEMISA, San Luis Potosi

10. Soledad-Dipolos, Sonora

24. Fresnillo, Zacatecas

11. Palmarejo, Chihuahua

25. Bolañitos, Guanajuato

12. San Francisco, Sonora

26. Buenavista del Cobre, Sonora

13. Tayoltita, Durango

27. El Herrero, Durango

14. El Castillo, Durango

28. La Colorada, Sonora


| GUERRERO GOLD BELT

The Guerrero Gold Belt (GGB) is a northwest-southeast aligned trend of gold intrusions that span over 55km in the state of Guerrero. This mining district is typified by large and multiple deposits scattered over a broad area, albeit unified by the same geological characteristics. One of the most important features of the GGB – besides its obvious geological potential – is the infrastructure found near the district. The presence of highway infrastructure connecting Mexico City to Acapulco, access to water and electricity, as well as the availability of a qualified workforce, have made this district very attractive to investors. The GGB is described as an intrusion hosted skarn-porphyry style that includes a strong epithermal overprint and is associated with a series of magnetic anomalies along a 55km northwest trending strike length. The mineralization is associated with early Tertiary granodiorite porhyries that were formed in Cretaceous limestones and sandstones. In addition to their common iron or garnet-pyroxene alterations, skarns along the trend are also associated with other products such as quartz, sericite, clays, hypogene iron oxides, and sulfide minerals. Each of the gold deposits within the GGB often occur in clusters within or near the contacts of these intrusions and typically have deposits in excess of 3 million ounces of gold. The history of the GGB goes back to 1924, when Francisco Urias found an important gold deposit in Xochilapa. He operated a small family-owned mine and mill until 1988, producing a reported total of 360,000oz of gold. This discovery attracted the attention of many small mining companies looking for gold and other metals such as silver, lead, and zinc. Once these small

21

scale operations reported success, larger mining companies

30

came to explore the area. The original Nukay mine was a small underground cut-and-fill gold mining operation where about 500,000 tonnes of ore – grading 18 g/t of gold (290,000oz of gold) – were extracted between 1947 and 1964. The Morelos Mineral Reserve was created in 1983 by the Federal Mexican Government and consisted of 47,000 hectares, where many of 29. Alamo Dorado, Sonora

the current projects (such as Nukay, Xochipala, and Bermejal)

30. San José, Oaxaca

are located. After the privatization of the Morelos Mineral

31. Campo Morado, Guerrero

Reserve in 1998, the mining district saw a significant increase in

32. El Cubo, Guanajuato

exploration, leading to several new discoveries that rank today

33. San Felipe, Baja California

among the biggest mineral ore deposits in the country.

34. Guanajuato, Guanajuato 35. Guanaceví, Durango

During the 1990s approximately 250,000oz of gold were

36. Mexicana del Cobre, Sonora

discovered. This has since increased considerably. The discovered

37. Velardeña, Durango

5.4 million ounces at the Morelos project and the 13 million ounces

38. Asientos, Aguascalientes

at Los Filos mine, plus the 2.2 million ounces found at Ana Paula,

39. Tayahua, Zacatecas

push the GGB mining district up to over 21 million ounces of gold.

40. San Fco. del Oro, Chihuahua

These discoveries position Mexico as a prominent new source of

41. Santa Bárbara, Chihuahua

mega mineral deposits and possibly one of the key players in the

42. La Colorada, Zacatecas

gold market within the next five years.

143


Mine

Company

State

Thousand ounces

Peñasquito

Goldcorp

Zacatecas

411.0

Los Filos

Goldcorp

Guerrero

340.0

Fresnillo plc - Newmont

Sonora

314.5

Pinos Altos

Agnico Eagle

Chihuahua

234.8

Mulatos

Alamos Gold

Sonora

200.0

El Coronel

Minera Frisco

Zacatecas

168.2

New Gold

San Luis Potosi

137.6

La Ciénega

Fresnillo plc

Durango

125.3

Mercedes

Yamana Gold

Sonora

116.2

Fresnillo plc - Newmont

Sonora

107.3

Palmarejo

Coeur Mining

Chihuahua

106.0

San Francisco

Timmins Gold

Sonora

94.4

Tayoltita

Primero Mining

Durango

87.9

El Castillo

Argonaut Gold

Durango

87.7

El Sauzal

Goldcorp

Chihuahua

82.0

El Chanate

AuRico Gold

Sonora

71.1

Ocampo

Minera Frisco

Chihuahua

66.4

Fresnillo plc - Newmont

Sonora

63.1

Fresnillo plc

Zacatecas

45.2

Dolores

Pan American Silver

Chihuahua

43.5

El Águila

Gold Resources

Oaxaca

34.4

SilverCrest Mines

Sonora

33.0

NEMISA

Neg. Mra. Sta. Ma. de la Paz

San Luis Potosi

30.3

Fresnillo

Fresnillo plc

Zacatecas

29.6

Bolañitos

Endeavour Silver

Guanajuato

25.9

Grupo Mexico

Sonora

22.4

Grupo Bacis

Durango

20.5

Argonaut Gold

Sonora

20.4

Pan American Silver

Sonora

18.0

Fortuna Silver

Oaxaca

17.9

Nyrstar

Guerrero

17.4

Endeavour Silver

Guanajuato

13.3

San Felipe

Minera Frisco

Baja California

10.8

Guanajuato

Great Panther Silver

Guanajuato

10.3

Guanaceví

Endeavour Silver

Durango

7.9

Grupo Mexico

Sonora

7.8

Golden Minerals

Durango

6.4

Asientos

Minera Frisco

Aguascalientes

6.1

Tayahua

Minera Frisco

Zacatecas

5.5

San Fco. del Oro

Minera Frisco

Chihuahua

5.3

Santa Bárbara

Grupo Mexico

Chihuahua

5.0

Pan American Silver

Zacatecas

3.6

La Herradura

Cerro San Pedro

Soledad-Dipolos

Noche Buena El Saucito

Santa Elena

Buenavista del Cobre El Herrero La Colorada Álamo Dorado San José Campo Morado El Cubo

Mexicana del Cobre Velardeña

La Colorada Other

51.5 TOTAL

144

3,305.5

Source: Camimex

GOLD PRODUCTION BY MINE


GOLDCORP’S MEXICO FOCUS Goldcorp is one of the biggest and fastest growing senior

completed by the end of 2014, and which will overcome

gold producers in the world, with operating assets including

the key obstacle to resuming operation of the sulfide plant

five mines in Canada and the US, three mines in Mexico, and

at its designed capacity. The company is also currently

three in Central and South America. The Canadian company,

expanding the crusher capacity in Los Filos to improve the

which employs over 16,000 people worldwide, ended 2012

rate of recovery from 57% to 72%.

with record revenues of US$5.4 billion and gold production of 2.396 million ounces. Ian Telfer, the company’s Chairman,

In order to mitigate any concerns the local communities

wrote in his 2012 letter to shareholders that although there

may have regarding the mining operations, Goldcorp is

are many risks over which the company has no control,

working with them in order to understand and address

such as market prices, by focusing on achieving the lowest

their needs. The company’s strategy to hire locally when

possible production costs it will be possible to manage that

possible, providing employment opportunities for both

risk. Over the last decade Goldcorp’s strategy has been

local and state residents, has proved to be successful

based on acquiring high quality assets with large, low-cost

at Peñasquito where 72% of the current employees are

ore bodies in politically stable jurisdictions, and putting

originally from the state of Zacatecas. At this mining

qualified human capital in place to operate the mine sites.

location the company provides educational support programs that include scholarships as well as an adult

Currently, Goldcorp has three operating properties and

education program. The company has also funded the

two development projects in Mexico. Its Peñasquito mine

construction of a technical school that provides programs

in Zacatecas is the company’s second most productive

for mechanics and electricians, which accepts 135 students

operation after Red Lake, its flagship property in Ontario.

per year. At present, 50 students carry out professional

After having overcome a land dispute by the end of the first

practices at the mine site each year. The company also

semester of 2013, Peñasquito is considered a world class

runs a microfinance project that boosts small business

asset that is destined to be a key driver of the company’s

creation in the surrounding communities, including textile

cash flow and production growth for years to come. Last

production, mesquite woodcrafts, ecotourism, and small-

year, Peñasquito produced 411,300oz of gold, overtaking the

scale industrial sewing. In September 2013, UNAM and

Los Filos mine in Guerrero that produced 340,400oz, and

Goldcorp signed a collaboration agreement, in which the

staying far ahead of the El Sauzal open pit mine in Chihuahua

mining company donated US$250,000 for scholarships in

that produced 81,800oz. The combined production of these

the Earth Science department.

three properties amounted to 833,500oz of gold in 2012, which represents 26% of Mexico’s total gold production for

Safety plays a big role in the company’s sustainable

the whole year.

growth philosophy. After the 2010 fatality at Peñasquito, it focused on its program “Safe Enough For Our Families”,

Peñasquito began commercial operations in 2010 and has

based on three themes: care, think, act. The program has

since become the largest gold mine in Mexico, but also is the

reaped positive results, such as the incidence rate falling

fifth largest silver mine in the world, and the second largest

by 15% in 2012, and Los Filos becoming the first mine in

in Mexico. This has been possible despite several challenges

Goldcorp history to retain the Best Performance award for

the company has faced in relation to water availability at the

two consecutive years, by maintaining the lowest injury

site, which is expected to limit total production during 2013

rate in the company. Peñasquito also led the way for the

to between 360,000 and 400,000oz of gold. As part of

company’s other mines with several initiatives, such as its

Goldcorp’s production enhancement strategy the company

Safety, Environmental and CSR fare, and the introduction

plans to invest US$150 million in a water well that will be

of health activities into the daily work routine.

145


| MINE SPOTLIGHT

LOS FILOS Goldcorp, one of the world’s fastest growing senior gold producers, started commercial production in January 2008 on Los Filos’s two open pit mines – Los Filos and El Bermejal – and one underground mine. In 2009 Los Filos became Mexico’s largest gold producing mine, a position it maintained until last year when it was overtaken by Peñasquito, which will also be Mexico’s largest open pit mine. Los Filos is located in the Nukay mining district of central Guerrero State, approximately 230km south of Mexico City. In 2012, this mining complex produced 340,400oz of gold, with an average ore grade of 0.69 g/t. Total cash cost per ounce increased by 19% to reach US$551, while the mine reached an average realized gold price of US$1,663 last year. The ore bodies at Los Filos and El Bermejal consist of iron-gold skarn with minor amounts of copper and silver at the intrusivelimestone contact. Ore bodies also occur with endoskarn, and are disseminated within the hydrothermally altered intrusive rocks. At El Bermejal mineralization is distributed around a granodiorite stock, both at the limestone contact and within the intrusion. The Los Filos ore body is associated with a diorite sill. The Los Filos mine contained 7.43 million ounces in proven and probable gold reserves at the end of 2012, compared to 7.75 million ounces the previous year. Its strong potential for the discovery of significant new reserves in the current open pit and underground operations as well as in the new 4P project was confirmed by the 2012 exploration program, which ended successfully with an additional 0.5 million ounces in gold reserves confirming the extension of Los Filos pit to the south towards the 4P area, and El Bermejal pit to the north and south. Further drilling is planned at 4P with the aim of developing an open-pit mine that will be integrated into the existing operations.

GOLD GRADE (G/T) & GOLD PRODUCTION (OUNCES) 0.8

350,000

336,500

0.7

340,400

306,100

0.6 300,000

0.5 0.4 0.3

250,000

0.2 239,300

0.1

2012

2011

2010

200,000 2009

2008

0

213,600

Source: Goldcorp

147


| VIEW FROM THE TOP

STRATEGIC FOCUS ON HIGH QUALITY, LOW COST ASSETS LEFT: Scott Perry, President & CEO of AuRico Gold RIGHT: Luis Chávez Martínez, Sr. Vice President Mexico at AuRico Gold

Q: How do you view the current market conditions for

portfolio in the current market conditions, the company

gold mining companies?

would be in a less favorable position. We would have one

SP: If you look at the majority of gold mining companies

or two assets that would not be producing, and having to

their strategy has been to get bigger purely for the sake

address the resulting challenges would have distracted

of growth, with major managerial decisions being made

our management team from our better properties. This

based on the sole objective of producing more and more

strategic decision has put us in a very good position, and

gold rather than maximizing financial returns for the

we were very fortunate with our timing – if we would be

company’s shareholders. AuRico Gold’s management team

trying to do that in today’s market we would not be getting

started 2012 by adjusting its strategy in this area. We could

the same amount of consideration. In today’s market no

see that shareholders were becoming disenchanted with

one is trying to buy, everyone is trying to sell.

this constant pursuit of growth, so we decided that it was more important to trade up on the quality of the assets in

Q: Aside from the properties of the asset, what are the

our portfolio. Our definition of quality is based on four key

characteristics that AuRico Gold takes into consideration

criteria: location – we want all of our assets to be based

before acquiring an asset?

in North America; the quality and size of the deposit – we

SP: One of the items we would look at is the strength of

are looking for mines with good potential for longevity;

the operating team. We have been fortunate to have high

potential production cost – we are looking for assets that

quality teams at both our mines and this is a key criterion

are in the lower production cost quartile; and the potential

we consider during our evaluation. We look at other things

for internal or organic growth – if you look at the two

as well, such as existing infrastructure, proximity to a trained

assets that we currently have, the production is growing

workforce, access to local suppliers, and existing relations

year after year, so we do not have to acquire that growth.

with local communities, in order to make our assessment.

When we applied this filter to the properties that we had

Q: What role does Mexico play in the portfolio of AuRico

in our possession in 2012, two of them met these criteria

Gold, a Canadian company with mining projects in both

and the other four did not. Two of those four assets

Canada and Mexico?

were located in Australia and therefore did not meet our

SP: Young-Davidson in Ontario, is our biggest mine and

geographical requirements. The other properties, while

represents about two thirds of our production profile. In

located in top jurisdictions, were higher cost, lower margin

Mexico we have El Chanate mine, which represents the

assets with limited potential for increased mine life. We

other third. Mexico is very important from a production

were diligent in our analysis and determined that it was in

point of view: El Chanate is fully built and we expect it to

the best interests of the company and its shareholders to

have up to 10 years of profitable production. El Chanate is

sell those four assets, and in doing so we raised in excess

a simple open pit heap leach operation and it has a very

of US$1 billion. We now have a good asset base that is

low stripping ratio, which means that we do not have to

underpinned by a very good balance sheet. We have

use a large amount of materials in order to draw a good

approximately US$250 million in cash, no corporate debt,

amount of gold out of it. El Chanate has a very good

and are paying dividends to our shareholders. We have

operating cash cost per ounce: we expect to be producing

also bought back a number of our shares, thereby reducing

at an average of just less than US$600 per ounce this year,

our shares outstanding.

which still offers a good profit margin taking into account the current gold price. Based on what we have seen today,

148

Q: How has this change in the company’s portfolio

the mine will still be producing gold in 2024. El Chanate

impacted the way in which AuRico Gold works?

has great exploration potential and we want to grow our

SP: It has really simplified the company and streamlined

operation organically. Our shareholders prefer this type of

our operations. If we still had those four properties in our

growth because, with the great cash balance that we have,


shareholders know that we will be disciplined. Outside

Q: What do you expect to be the role of Mexico in the

of that mine we are focusing seriously on exploration in

global gold mining industry, and in the development

Mexico. There is a lot of potential here, and we have a lot of

strategy of AuRico Gold, in the coming years?

expertise and specialized personnel in Mexico that we can

LC: Despite the current difficulties in the market and the

leverage in order to access that potential.

lower price cycle, we are seeing a lot of companies coming to and investing in Mexico. These are mainly Canadian

Q: What efforts is AuRico Gold making to constantly

companies, but there are more Australian companies

improve its safety performance?

starting to come into Mexico as well. The assumption has

SP: We are constantly rolling out leadership training in

long existed that Mexico is underexplored, and this holds

safety. I would call it courageous leadership training,

true. This is partly because Mexico still lacks infrastructure

because at the heart of the concept is the idea that

– areas of the country are still highly isolated, and mining

everyone who is a part of the organization is a leader

companies will always start with the more accessible

when it comes to safety, and each and every person in

areas and go to the more difficult to reach places last. The

our company is responsible for each and every person’s

information being generated by the Mexican Geological

safety. It does not matter if you are the CEO or you are

Survey (SGM) and other bodies like it will also encourage

the person who takes care of mine site cleanliness, you are

more mining activity in Mexico.

responsible for everyone. Our core value when it comes to safety is ‘Home safe, everyday’, and that is a concept

Mexico remains at the top of our list – there are many

that we are trying to ingrain in everyone who works for us.

opportunities for new discoveries here. Under President Peña

Our staff go through many safety inductions and training;

Nieto there will be greater investment in infrastructure, and

before anyone starts any new activity or project they have

that will open up more and more of the country for mining in

to go through a five point safety system, which identifies

the near future. On the other hand, we still have the very old

the hazards and how they are being mitigated, and ensures

problem of surface land access; the problem is that nobody

that they have discussed the activity with their inspectors

has been willing to put together the Agrarian Law and Mining

or supervisors. The company holds itself to the highest

Law in order to make an integrated set of surface land

international standards, and our aim is to have zero

regulations that work. 60% of land in Mexico is ejido land,

accidents. If we have just one safety incident it affects the

and if companies do not have good negotiating abilities they

compensation of everyone in the company; we have a zero

will have to spend a lot of money in order to access the land.

tolerance approach.

We see a lot of problems emerging from this issue in Mexico.

149


REACTIVATION AT SINALOA’S MOST SIGNIFICANT GOLD PROJECT The Sierra Madre Occidental, a mountain range that

amount to 1.2 million ounces of gold, of which 40% are

covers the main mining regions of Sonora, Chihuahua and

indicated resources and 60% are inferred resources, located

Durango, is a famous destination for mining exploration

on 69,000 hectares of land. “Our plan is to go into production

investment. However, many mining companies fail to

at San José de Gracia by the end of 2013 or the beginning of

include the northeastern region of Sinaloa in their plans,

2014. Our plan is to start production at San José de Gracia

even though it is part of the resource-rich mountainous

by the end of 2013 or the beginning of 2014. Our annual

region. DynaResource, a US-based junior exploration

production goal is 50,000oz for the first two years, and

company, currently runs operations in one of Sinaloa’s

afterwards we are planning to produce 100,000oz per year,”

most important mines. The property is called San José de

states Terán Cruz. Before beginning operating the company

Gracia, which has a historic production of 1 million ounces

has already established good relationships with the people

of gold. Pedro Terán Cruz, the Mexico-based consultant

from the surrounding municipalities. “We have put together

for the company, explains that the business environment

a great exploration team consisting of our personnel and

in Mexico favored the acquisition of this property. “The

of local people, which has turned out to be a great source

support towards the mining industry from one state to

of knowledge on the terrain and on where to find the best

another varies significantly. Sinaloa provides a very fast

opportunities,” he explains.

response when companies try to obtain permits and does not impose any kind of restrictions, which is reflected

“The promising outlook on San José de Gracia has allowed

in almost every aspect of the relationship between our

DynaResource to go public on the TSX. We have been lucky

company and the government,” he mentions.

to find ourselves in a very promising scenario, and we have the

“Our plan is to start production

best project in Sinaloa at the moment. We have been doing great with government relations and, in terms of mining, we

at San José de Gracia by the end

are at an advanced stage of the process and are very close to

of 2013 or the beginning of 2014.

to have an initial productive life of 10 years, which will likely

Our annual production goal is 50,000oz for the first two years, and afterwards we are planning to produce 100,000oz per year” Pedro Terán Cruz, Mexico Consultant for DynaResource

starting production,” Terán Cruz says. The mine is expected increase as the company completes more exploration works at the site and its surrounding areas. DynaResource will also continue generating value through its San Juan project, also located in Sinaloa, and through another asset located in San Luis Potosi, close to the famous Peñasquito mine. “We are a team that delivers results and together we have many years of experience in the mining industry. We have a sound project and the right market opportunities exist for us to succeed and become a very profitable company. As soon as we start

150

DynaResource owns San José de Gracia through its Mexican

producing we are expecting a four-or-fivefold increase in our

subsidiary, DynaResource de Mexico. The projects resources

stock market share price,” he adds.


COST COMPETITIVENESS KEY IN EXTRACTION PROCESSES Barclays reported in August 2013 that the average cash

equipment, and our prices are very competitive. We call

cost of gold mining rose 0.8% in the second quarter of the

our service llave en mano (turnkey service), through which

year, while marginal costs sprung up 5% due to the fall in the

we provide a full solutions package,” García explains.

precious metal’s price. According to the bank’s estimations, the cost of producing an ounce of gold in Mexico averages

The engineering expertise provided by SECL ensures that

US$775 per ounce. A company’s ability to extract the

the company’s services adapt to the needs of each mine.

highest amount of marketable mineral at the lowest cost

Horacio Páez, General Manager of Kappes, Cassiday del

possible is what determines a mine’s profitability and

Norte (KCN), mentions a recent project within a gold mine

viability. Therefore, many mining companies are focusing

in Chihuahua, in which the company provided its EPCM

on “cost per ounce” instead of “cost per tonne”, in a clear

service for leaching, mills and washing processes. “This

sign that the core business is not just the extraction of ore,

was an interesting project from the engineering aspect.

but also the metallurgic extraction processes.

For example, the mine employed backwash instead of selective flotation,” he begins. Páez explains that KCN

Since 1972 Kappes, Cassiday & Associates (KCA) has

and SECL also knocked down rock formations and built

specialized in providing metallurgical processing services

a vertical natural wall in order to set the mine’s primary

to the international mining community. The company is

crusher more efficiently. “Due to the mine’s characteristics,

highly specialized in processes such as cyanide metallurgy

we eliminated the need to use mills in the design of the

for the treatment of gold and silver ores, copper and base

absorption plant, which lowered our client’s investment

metal leaching, solvent extraction, gravity concentration,

capital,” Páez continues. “The company was very pleased

and electrowinning. KCA also provides construction

with our performance, and this has motivated them to ask

management,

(Adsorption-

for our services on two other projects. We are pioneers in

Desorption-Recovery plants), and performs environmental

develops

ADR

plants

what we do. Moreover, our broad experience in leaching

testing and analytical services, supported by its laboratory

processes distinguishes us.”

in Reno, Nevada. As a result of its efforts in research and development, KCA also provides new solutions for the industry, such as an on-site system that converts carbon fines and used carbon to a clean dry ash. This system also captures mercury through a revolutionary absorption system, thus making mining processes more sustainable.

“Due to the mine’s characteristics, we eliminated the need to use mills in the design of the absorption plant, which lowered our client’s

Through its procurement and logistics subsidiary in Mexico, Servicios Especializados de Compras y Logísticas del Norte (SECL del Norte), KCA provides EPCM (Engineering,

investment capital” Horacio Páez, General Manager of Kappes, Cassiday del Norte (KCN)

Procurement and Construction Management) services and supports efficient and environmentally responsible

In order to offer attractive prices to its customers,

metallurgic extraction processes in the Mexican mining

SECL maintains good relationships with its suppliers.

industry. SECL provides integrated support to its clients

“We listen to each other and comply with each other’s

from the earliest stages of mine development, beginning

requirements,” explains García. “The same thing happens

with prefeasibility studies, which are conducted by highly

with our contacts in transportation and customs brokers.

experienced engineers based in Reno. The results of these

Our competitive prices are a result of our team work,” she

studies are sent to clients for approval prior to starting

states. These commitments have allowed the company to

EPCM activities.

grow organically and offer its services to an increasing number of mining companies all over Mexico, regardless of

After only six years of operation SECL has gained the

the remoteness of their location. “We are currently working

trust of important precious metal producers in the

on a project in Sonora, that is expected to conclude by the

country. Carmina García, General Manager of SECL del

last quarter of the year, and we are working as well on an

Norte, mentions that this has been possible thanks to the

ADR expansion project in Guerrero,” mentions García. “We

company’s focus on its clients’ needs. “In every case, I work

are waiting to secure an expansion contract in Sonora, and

with our team of engineers who are based onsite - very

it is almost certain that our services will also be required

close to the clients - in order to perfectly understand their

for an expansion project in Durango. The market is still

needs. We have always selected the right material and

growing, and so is the company,” she states.

151


| VIEW FROM THE TOP

THE ROOTS OF MINING IN SAN LUIS POTOSI ARMANDO ORTEGA Vice President of New Gold and Director General of MSX

Q: New Gold’s Cerro San Pedro mine is the company’s

now New Gold is very proud to have had more than 400

sole project in Mexico, and has been operating almost

days of work without lost time, and is about to reach 2

continuously since the 1600s. Can you tell us about the

million man hours without accidents. I would also say that

history of the mine and your operations today?

a company needs to be resilient, and rigorous in terms of

A: This mine is extremely important to the history of the

applying its protocols and systems. New Gold has an ISO

state of San Luis Potosi, and explains the very erection of

14001 certification, and has also been granted the Socially

the state’s capital city. It was a Spanish captain, Captain

Responsible Company (ESR) award four times in a row; at

Caldera, who found the ore body of gold and silver, and

the corporate level New Gold won the Developer of the

thanks to him the small city of Cerro San Pedro, and later

Year Award in January 2013.

the current capital, were established. Although the capital of San Luis Potosi was founded in Cerro San Pedro in 1590,

Q: What is New Gold’s overall strategy and how does that

following some problems with the water wells it was later

apply to its Cerro San Pedro mine?

decided that the capital should be in a different place,

A: New Gold’s main priority is to build a solid operation,

where water would be more readily available. They moved

based on the company’s high corporate standards, which

southwest of that little town to the site where the city of

are very stringent and go beyond any of the national laws

San Luis Potosi is now located.

in the jurisdictions in which we operate. In terms of the community, New Gold recently won the Viola R. MacMillan

The roots of mining in Cerro San Pedro are very deep and

Award for company or mine development, at the PDAC

go far back in history. The mine has been in operation

conference in Canada. The company is very proud of this

since the late 1500s, with some intermittent breaks due

award, which was given to New Gold in recognition of the

to technical and other problems, in the mid-1900s. It used

company’s very successful negotiations in dealing with

to be an underground mine, until the first years of the

First Nation communities. The company has an ongoing

1990s when a US company called Metallica confirmed that

operation near Kamloops, 300km east of Vancouver,

there were additional reserves and, due to the dispersion

and an exploration project in Blackwater, which is

of the ore grade, proposed that it should be an open pit

around 200km north of Vancouver. On both projects the

mine. Through different mergers and acquisitions New

agreements reached between New Gold and First Nation

Gold became the owner of the project in 2009, when the

communities have prioritized promoting development for

operation had just begun. We are very proud of the work we

the surrounding communities and conducting work related

have done on the mine – it is a very sound and sustainable

to education, for example.

operation, as well as being secure for our workers. New Gold has been able to show that the many tests

152

Q: How has the work New Gold has done as well as the

carried out on the water from different wells in Cerro San

attributes of the mine itself combined to make Cerro San

Pedro are trustworthy by having tests carried out in two

Pedro a successful operation?

different nationally and internationally recognized labs,

A: New Gold has very high standards in the areas of

with an additional Canadian expert overviewing both of

health, safety, environment, operations, and care for its

them. Through their environmental permit companies are

neighboring communities. These policies are applied

obligated to make what is called a ‘geobiological’ closure of

horizontally across all of the company’s mines and projects.

the mine, but this regulation does not extend more widely

As a result we have a very good mine. Since 2009 all of the

than the confines of the mine site itself. The company’s

company’s actions have been aimed at simply applying its

environmental obligations are spelt out in its Environmental

general corporate policies to a mine that is very good – the

Impact Statement, through which companies commit, up to

cash cost is very competitive, it is operationally efficient,

a sum of more than US$18 million, to do whatever needs

and it is an example of a very well designed pit. Right

to be done in order to clean up, mitigate, neutralize, and


remediate, after their mining operations are completed.

You have less weight on your shoulders in terms of your

If fulfilling this commitment is simply about meeting your

decision making process, as well as allowing more direct

obligations then New Gold wants to go beyond that and

communication with management. At New Gold we tend

do something that in the future we can look back upon and

to look at many potential projects, and for us the process

say ‘this is what we left for good in that community’. For

of reaching the main geologist and having his team come

example, there is a tourism project that New Gold is working

and lick the rocks to see whether it is a feasible project or

on with the municipal and state authorities, investing in a

not is probably easier than it would be if we were larger.

number of different areas, and thankfully Cerro San Pedro is now a better town with better facilities, and as a result there

New Gold is a very good company, and is managed by

are people who love to go there each weekend to visit.

experienced miners, and the members of our financial management team have been linked for many years to

Q: What are the benefits of being a smaller company, in

other large mines or to large companies in the mining

terms of fulfilling different responsibilities towards the

world. The company is being managed by people that

community, the environment, and the local government?

are sensitive to the industry. New Gold is very proud of

A: While having the support of a bigger corporation gives

its Cerro San Pedro operation and is working very hard

you certain luxuries, for instance having a bigger budget,

towards the crafting and execution of its sustainability and

I would say that a smaller company in general is able to

responsible closure plan. New Gold is always searching for

respond more quickly, and there is more flexibility to react.

new opportunities in Mexico and elsewhere.

LOOKING BEYOND CERRO SAN PEDRO New Gold’s Cerro San Pedro mine boasts a very

lifespans of the mines, especially at our Peak Gold Mines

competitive cash cost per ounce. This has allowed the

in Australia and also the C-Zone at the New Afton mine in

company to establish favorable profit margins, while also

Canada,” he adds.

strengthening its financial position through the diversity of its deposits. “We are fortunate to have significant by-

New Gold’s strong financial position is a result of the

product revenues from the copper and silver production

company’s

at our Cerro San Pedro and New Afton mines, which keeps

operations across the corporation. Portmann explains

our total cash costs low compared to our competitors,”

that there have been five main factors that have helped

says Hannes Portmann, New Gold’s Vice President of

the company to achieve financial success and its standing

Corporate Development. “This also helps us to offset

as an attractive investment proposition: owning assets in

certain cost pressures that would otherwise negatively

favorable jurisdictions; maintaining low cost production;

impact us. We are also pleased that, in general, our mines

having a peer-leading growth pipeline; controlling two

have maintained consistent grades over their mine lives.”

underexplored districts; and benefiting from a significantly

New Gold’s portfolio is looking strong, with four mines now

invested management team and experienced board

in production and generating revenue that can support the

of directors. Looking to New Gold’s future, Portmann

exploration and development works on the company’s

says that these criteria will continue to be central in the

three projects that are not yet producing. “We now

company’s success. Mexico, too, will maintain an important

have four producing mines, and our total cash costs are

place in the company’s future, even beyond the life of the

declining steadily. New Afton came into full production in

Cerro San Pedro mine. “When the Cerro San Pedro mine

2012 and, with its significant by-product revenues, this had

eventually closes we would like to be able to replace that

a positive impact on our cash costs for 2012, and will have

production, if another compelling opportunity arises. We

an even greater positive impact in 2013, after a full year

like mining in Mexico due to the country’s rich mining

of production,” explains Portmann. New Gold’s portfolio

history, skilled labor, and also the abundance of exciting

is further strengthened thanks to the average lifespan of

projects,” he says. “We believe that New Gold has a strong

more than 10 years of each of its mines, though Portmann

relationship with Mexico, its government, its communities,

is confident that with the exploration and expansion plans

and its people. We demonstrate this with our commitment

the company has that forecast will only improve. “We are

to sustainable production and by giving back to the

currently exploring additional resources to extend the

communities where we operate on a daily basis.”

strategic

approach

to

management

and

153


| MINE SPOTLIGHT

CERRO SAN PEDRO Cerro San Pedro is a gold-silver heap-leach operation located in the state of San Luis Potosi in central Mexico, about 20km east of the state’s capital city. The mine is wholly owned by New Gold, an intermediate gold producer, through its Mexican subsidiary Minera San Xavier. The Cerro San Pedro deposit is characterized by an upper zone of gold and silver mineralization within limonitic iron oxides and a lower zone of zinc and lead sulfide mineralization. Commercial production at Cerro San Pedro began in May 2007 with an estimated mine life of 10 years. The mine’s processing facilities are equipped with a lined heap leach pad that heads to a traditional Merrill-Crowe gold and silver recovery circuit. During 2012 Cerro San Pedro produced 137,555oz of gold at a total cash cost of US$232 per ounce, as well as 1.9 million ounces of silver. Gold production declined from 143,747oz in 2011, as a result of reductions in both ore grades and ore tonnes placed in the leach pad. Cerro San Pedro is forecast to produce 140,000-150,000oz of gold and 1.4-1.6 million ounces of silver in 2013 at a total cash cost of US$375-395 per ounce. The increase in gold production is driven by the higher gold grades more than offsetting an expected decrease in tonnes processed. At the end of last year the mine had 800,000oz of proven and probable gold reserves, and 1.7 million ounces of measured and indicated gold resources. The Cerro San Pedro Mine has a strong record of compliance with Mexican and international environmental, health and security standards. In recognition of the operation’s exemplary safety record, Cerro San Pedro received the prestigious Silver Helmet Award from Camimex, which is granted to the safest mining operation in Mexico in the category of open pit operations with fewer than 500 employees.

GOLD GRADE (G/T) & GOLD PRODUCTION (OUNCES) 0.8

200,000

0.7 0.6 0.5 150,002

0.4

150,000

143,747

0.3

137,555

0.2 118,708

0.1 108,325

2012

2011

2010

0 2009

2008

0

Source: New Gold

155


FRISCO EXPECTS TO DUPLICATE ITS PRECIOUS METAL PRODUCTION In 1984 Grupo Carso, presided by the world’s now

edge technology for locating, producing and processing

richest man Carlos Slim, acquired Frisco S.A., a Mexican

minerals, making the company stand out for its innovative

incorporated mining company that had been officially

techniques in mineralogy characterization, and improving

registered in 1962, though its mining operations in Mexico

the company’s profitability. Frisco cites its use of the latest

date as far back as 1913. Last year, as part of Minera Frisco’s

technology as essential in developing and improving its

growth strategy, the company completed the acquisition

overall operations. Alongside its commitment to technology

of a number of AuRico Gold’s Mexican mining assets for

the company also continues to develop strategies that

US$750 million, which represented the largest deal in gold

will allow it to reduce operational and production costs,

mining involving a Mexican company, and made Frisco one

investing for example in metallurgical research and the

of the biggest domestic mining companies. With a US$11

optimization of processes. The proximity between its Los

billion market value, Frisco is today Slim’s biggest holding,

Jarros, El Concheño, Ocampo and Venus projects will

after the wireless services provider America Movil and the

also allow the company to continue optimizing resources

financial services company Grupo Financiero Inbursa. The

and to lower its operating costs. Frisco has maintained a

company is also one of Mexico’s leaders in the production

solid commitment to social and environmental issues, and

of lead-silver and zinc concentrates, gold and silver doré

besides direct employment its mines also bring other direct

bars, copper cathode, and copper concentrate.

benefits to the areas surrounding the company’s mining operations. Several environmental initiatives have been

Frisco has an impressive list of properties: El Coronel,

carried out, such as greenhouses being installed in every

San Felipe, María, San Francisco del Oro, Tayahua, and

mining unit, in order to restore the native flora and fauna on

Asientos. It has added weight to its portfolio more recently

mining units that are no longer in exploitation. The company

with the acquisition of AuRico Gold’s Ocampo mine, as

works continuously to minimize the generation of residues

well as its Venus and Los Jarros projects, and through an

and optimize water and energy consumption, all the while

acquired 50% stake in the Orion mine in Nayarit State. The

compensating for any adverse environmental impacts.

company today holds eight mining units in the states of Aguascalientes, Baja California, Chihuahua, Sonora, and

Though

Zacatecas, and covers the most relevant mining regions in

projects could be subject to external factors, the size

Mexico with several exploration and development projects.

and strength of the company’s portfolio will ensure

the

successful

implementation

of

Frisco’s

that it continues to make a valuable contribution to the

156

Frisco is one of five major mining companies operating in

development of Mexico’s economy and mining industry

Mexico, and one of the few mining companies to be listed

in the coming years. With the progress the company has

on the Mexican Stock Exchange (BMV). Thanks to it being

made this year by acquiring the Ocampo mine, conducting

part of a bigger group, the company enjoys access to the

expansion projects at El Coronel and San Felipe, and

capital and resources of its sister companies, which presents

moving El Porvenir into production, among many other

an important advantage for Frisco to achieve continued

developments, Frisco expects to duplicate its gold and

growth. The company continues to invest in cutting-

silver doré bar production by the end of 2013.


THE IMPORTANCE OF STAKEHOLDER SATISFACTION By keeping their operating

strategy of adding accretive low cost ounces, in politically

costs

absolute

safe jurisdictions. We believe we demonstrated this with

minimum mining companies

our recently announced friendly agreements to acquire

can maximize their profit

Esperanza Resources and Orsa Ventures for approximately

and improve the return

US$69 million and US$3.5 million, respectively,” he says.

to

an

on investment for their

Jamie Porter, CFO of Alamos Gold

shareholders. Jamie Porter,

Alamos Gold’s financial success has, for Porter, been in large

Chief Financial Officer of

part attributable to the company’s approach to its people.

Alamos Gold, emphasizes

“People are the most important aspect of any operation,

the

and we believe we have assembled one of the strongest

company’s

objective

of

core a

management teams in the industry over the years, with a

leader in low-cost production, financial performance and

being

depth of experience across the board. We have recently

ultimately in delivering shareholder value. “Establishing

bolstered our management team with several key new

the first element will usually cause success to follow in

additions which we plan on leveraging as we embark on our

the others. For this reason, Alamos has focused first and

growth plans in Turkey and Mexico,” he says. The company’s

foremost on keeping production costs as low as possible.

emphasis on people has also extended to its interaction

We are continually exploring opportunities to optimize our

with the communities that surround its operations. “From

operations at Mulatos, whether it be through employee

the outset, we have made it a priority to work in concert

training or employing new equipment or technology,” says

with the local community to ensure there is an accurate

Porter. “We have made numerous operational improvements

understanding of our operations and that we have a

since the start of production in 2005, including increasing

positive impact on the local community and stakeholders,”

crusher throughput while reducing crush size; agglomerating

says Porter. Caring for the environment has its own part to

and then conveying ore on the leach pad to eliminate truck

play in this process, and Alamos has invested significantly

compaction; and more recently the addition of a 500 t/d

in minimizing the environmental impact of its Mulatos

mill to process high grade ore,” he explains.

project. This included the installation of a water treatment plant, which was not a legal requirement according to the

The mine Porter refers to is the company’s sole property

environmental standards in place at the time. “We built the

in Mexico; Mulatos is based in the Sierra Madre Occidental,

water treatment plant believing it to be an environmental

and has been instrumental to the company’s success.

best practice. We apply the same philosophy to our social

Having acquired the project for US$10 million in 2003, it

contributions, and have invested heavily in bettering the

was moved into production in 2005, and since then has

local community, in the form of direct investment into the

generated more than US$260 million in free cash flow.

community, employment and training opportunities, social

This has all been possible despite initial challenges relating

programs, and providing free medical care,” says Porter.

to the remote location of the mine, which Porter says the company was able to overcome through careful planning,

Alamos believes in Mexico as an excellent destination

engineering, training and supply management. Indeed,

for mining, and through these projects is making its own

these are problems that now seem to be a distant memory,

contribution to maintaining good relationships between

as the company has produced its millionth ounce and

mining companies, local communities, and government

generated its billionth dollar of revenue, with additional

authorities. “As a geopolitically stable mining jurisdiction

targets for expansion having been identified in other parts

with a strong government, stable economy, rule of law, and

of the concessioned area.

transparent mining code, we believe Mexico is one of the best countries in the world to build and operate a mine,”

Alamos Gold’s low-cost production success at Mulatos

says Porter. “We have treated all of our key stakeholders

enabled the company to deliver shareholder value. Together

in accordance with our key values of honesty, integrity and

with the company’s dividend policy and an active share

respect. We have created substantial direct and indirect

buyback program, this has made Alamos an attractive

employment and have paid over US$200 million in local,

financial prospect for current and potential investors. In

state and federal taxes since we started operations. In our

order to maintain its strong financial standing Porter stresses

view, the key to our success has been in establishing and

the importance of taking a responsible approach to growth.

maintaining open lines of communication with all levels of

“Despite our strong cash position we remain committed to

government, and we have been fortunate to have enjoyed

smart, disciplined and manageable growth, aligned with our

strong levels of support from the government of Sonora.”

157


| VIEW FROM THE TOP

CONTINUOUS GROWTH IN GOLD PRODUCTION ARTURO BONILLAS President & Director of Timmins Gold Corp.

Q: Timmins Gold was founded in 2006, and already has

Our initial aim had been to develop a property and then sell

one mine in production and six in exploration. How has

it on. However, when we optioned the San Francisco Mine,

the company achieved such swift growth?

our flagship property, we realized that we would require a

A: At the beginning the company consisted of two or

large amount of capital to develop the resource, because

three people, who started everything from scratch in the

the type of deposit requires intensive drilling, and to

basement of a house. The company has grown quickly, and

develop the property using public money would have made

today it has 350 direct employees, another 200 indirect

the company weaker. We saw San Francisco as a mine that

employees, and a yearly growth rate of 30%. Now, it

we could begin to operate on, and that is how we started.

generates almost US$200 million in sales per year, and a

The objective was firstly to generate cash, and secondly to

key element is that we have always been able to execute

develop the deposit. Once we had started operating the

decisions quickly. Timmins Gold’s management team stands

mine, the company started growing and we were able to

out for its fast decision-making process, and that gives us an

bring people with different profiles into the company.

advantage over large companies that have many different departments, slowing down that process.

Q: How has Timmins Gold’s funding model adapted to changes in the domestic and international financial

The most important ingredient is our team, which is mostly

market since 2006?

Mexican. Of course, we would not be where we are without

A: In 2008 we had enough money promised from an investor

foreign money. We joined forces with a Canadian securities

in a private placement of US$25 million, which was enough

lawyer, Bruce Bragagnolo, who is also our CEO. The Canadian

for Timmins to finish the construction of the San Francisco

team is responsible for the regulatory, promotional, and

Mine. In a first placement at approximately US$1 per share,

financial aspects of the company. In Mexico we take care

the investors came with US$15 million, and the plan was to

of the company’s development and exploration operations.

exercise warrants for the rest of the money. But then the

One side of the company cannot function without the other.

financial crisis hit and they decided not to exercise the

This has been an important division of responsibilities, and

warrants, leaving the company in danger of not being able

it has worked well for the company.

to complete construction and having to declare bankruptcy. We worked hard and obtained a value added tax return,

Q: As a gold producer, Timmins Gold operates in an

and that is how we were able to survive a difficult time in

inherently volatile and risky market. How do you view the

the financial market. In March 2009, we made a subsequent

current operating environment for companies like yours?

placement for the equivalent of US$10 million at 40 cents

A: We believe that gold prices will increase again, and we are

per share, and one of the groups that participated in the

betting on that. Right now we are not selling gold, we are

previous placements gave us a US$15 million gold loan,

simply storing it. We believe we will see higher gold prices;

which was more than enough for us to secure the project.

therefore, for the moment we will sell only the necessary

The gold loan later became a standard loan, and this money

amount to cover our essential costs. Exploration and mining

has now been converted into production.

are risky businesses, and fundraising at the initial stages of a

158

project is very difficult. Perhaps there will be some changes

The company’s original investors have now moved on,

when the new finance reform is introduced. Currently, only

for the most part, but they all made money. We have not

large companies are able to secure loans easily, usually in

raised money since 2009; we used the same money we

the form of revolving loan funds. Companies usually go to

had originally raised, together with the loan I mentioned, to

big international banks or make IPOs in order to finance

bring the plant up from 10,000 t/d to a current production

their projects. Mining is a very specialized area and we think

rate of 22,000 t/d. The plan is to increase that to 30,000

there will not be enough capital to explore and develop the

t/d in 2014. We are a dynamic company and we have a

country within the next few months.

keen eye on free cash flow; there are not many companies


that have the luxury of a similar level of free cash flow that

leaching, and while there are not many new discoveries

we have achieved. Ours has been a success story, and it

allowing the use of this technique, there are a lot of

taught us a lot; successfully surviving the 2008 financial

distressed companies, so there are opportunities available.

crisis has made the company more dynamic and more

But although we specialize in heap leach operations

audacious as a result.

on open pit low grade gold in Mexico, diversification is an objective for us. We are financially healthy, and if we

Q: What are the company’s aspirations for the coming five

discover the resources that we want now, we can put a

years and what will be its strategy for achieving them?

project directly into production ourselves.

A: The business model for us now is to acquire an operating company, as well as to achieve organic growth. We have

We want to become a 250,000oz producer in the coming

many exploration targets within our claims, and we will

three years, both through organic growth and by acquiring

begin drilling some very interesting targets within our claim

other advanced mining projects, with the aim of becoming

blocks soon, such as the one we have 10km north of our

a company with a production rate of 5 to 10 million ounces.

open pit mine in Durazno. It is likely that we will then look

If we reach a size of 250,000oz in three years, we keep on

to acquire operating projects in other parts of the region,

generating cash and we add 1 or 2 more million ounces, we

using similar processes. We would like to focus on heap

may even become a target for acquisition.

BUILDING SOUND MINING PROCESSES The San Francisco Mine, located 150km north of Hermosillo,

solid operation, in terms of cost management, that helps

is owned and operated by Timmins Gold. The property

us to overcome market downturns.”

comprises two open pit mines, though only the San Francisco pit is currently in commercial production, with a

The mining operation has a high level of automation,

rate of between 90,000 and 100,000 tonnes per year and

with new technologies facilitating the optimization of

an average ore deposit grade of 0.7 g/t. The La Chicharra

the design and planning processes, as well as reserve

pit will begin production at the end of 2013.

calculations. “This technological advantage has helped us to predict how the pit should be developed, and the zones

The production process starts with the unloading of the

from which we will be entering the mineralized areas,”

material from the trucks, which is then taken to the two

Herrera explains. “The network operation center (NOC) for

grinding systems. After being ground, both bulk materials

our grinding processes has highly technological systems

are mixed together and transported to the lixiviation yard

to control different variables on each piece of equipment.

to be processed with cyanide. This process takes around

With these systems we know, for example, each machine’s

90 days, acquiring a recovery rate of between 62% and

amperage, among other measures, and this allows us to

70% of the mineral in question. When the pad has been

maintain optimal control over the whole mining operation.

irrigated it is then percolated, leaving a liquid solution full

All data is deployed smartly to operators and supervisors,

of gold. The gold contained in the liquid is fed into two

who require it to evaluate and optimize operations and to

ADR plants in order to be absorbed through activated

be aware of which machines need preventive maintenance.”

carbon. The gold-loaded carbon is then isolated in a separate cyanide and caustic soda solution and, after the

Protecting the environment is essential in the operations

remnant enters the electrowinning stage, the mineral is

being carried out at the San Francisco Mine. Water use is

refined through electrodeposition. Once the process is

an important issue, and is handled efficiently to reduce

complete the gold is then deposited in the form of powder

consumption. Another relevant matter is the use of cyanide.

in electrolytic cell cathodes. The powder is left to stand and

“We put all of our efforts into ensuring that even the

is later washed, then collected inside an oven, where it is

slightest superficial discharge does not come into contact

smelted. “I believe Timmins Gold decided this was a good

with the soil. Our intention is to acquire certification for

deposit for investment based on production costs,” says

cyanide use, though in reality it is just a formality because

Rául Herrera, General Manager of the San Francisco Mine.

we already comply with all of the standards. Timmins is

“Despite high fluctuations in the price of gold the mine has

very committed to protecting the environment,” explains

great potential, due to the simplicity of its processes. As a

Herrera.

159


UNCOVERING MEXICO’S UNDERLYING GOLD POTENTIAL Both national and international experts are quick to endorse the geological and political potential for exploration projects in Mexico, and their perspectives are supported by the fact that the country is ranked as the fourth most popular destination in the world for exploration activities. “Based on my experience I believe that Mexico is among those countries that represent the greatest opportunities for exploration success,” says Tom Burkhart, Vice President of Exploration of Argonaut Gold. “Mexico is one of the few countries that is friendly to mining, and where you can

LEFT: Tom Burkhart, VP of Exploration at Argonaut Gold RIGHT: Alberto Orozco, Argonaut Gold’s Exploration Manager for Mexico

still find outcropping mineralization that has seen limited sampling and very little, if any, drilling.”

heap leach potential, and they are confident that many of these types of properties still exist in Mexico. “Argonaut

Founded in 2009, the Canadian mining company today

Gold is looking to find robust geological environments that

has two operating mines and two exploration properties in

have the potential to grow. We want to see clear potential

Mexico. In the four years since Argonaut Gold was started

for a minimum of 600,000oz of gold. It is just a matter of

the company has been busy: it has expanded operations at

being in the right place and carrying out the correct style

its two producing mines and increased resources on three

of program to identify them,” says Burkhart.

of its properties. It now has 12.5 million ounces of gold in measured and indicated resources throughout Mexico and

An important part of the assessment process involves

Canada. These achievements put the company on track

making a forecast on the operating cash cost of the mine,

to reach a production target of between 300,000 and

in order to assess what the return on investment will be. “To

500,000oz of gold by 2016-2017, and its goal of becoming

do this we look at the quality of the resources and geology

a mid-tier gold producer.

in a lot of detail. We want to know that even when the price of gold drops substantially a mine will still be profitable.

Burkhart and Alberto Orozco, Argonaut Gold’s Exploration

We do not want to create mines that will only work when

Manager for Mexico, attribute the rapid growth and swift

the gold price is at US$1,500 per ounce – they have be

successes of the company to the vast experience of its

profitable when the price gets as low as US$700-800 per

management team. “The company was created by the

ounce. That is how we can ensure that our investors will be

previous management team of Meridian Gold, which was

protected,” says Orozco.

extremely successful and was eventually bought out by Yamana Gold. Brian Kennedy, Peter Dougherty and Barry

“We are looking for value that exists on projects, but

Dahl were all part of Meridian and they bring years of

that has not yet been identified. Even when we may be

experience and success to Argonaut Gold; that is the first

looking at a project that has a determined number of

thing that should make investors see us as a competitive

ounces of gold, we look beyond that to see whether there

investment prospect,” says Orozco.

are other aspects of the project in which we could unlock extra value,” explains Orozco. At this stage Argonaut

160

Burkhart and Orozco between them have a solid

Gold feels that it is established enough, and has the

background in exploration, both in Mexico and further

necessary cash flow available, in order to fulfill this role.

afield in Latin America. They have developed exploration

“Fortunately, Argonaut Gold has a positive balance sheet

criteria for Mexico that, to judge by the company’s portfolio,

that can support an aggressive exploration program, and

have also been very successful. “There is a big difference

we have the geological expertise required to identify

between how advanced the projects we are looking at

these opportunities and hopefully make good acquisition

are - some have resources, and some have nothing. The

decisions in the current buyer’s market’,” says Burkhart.

common thread is that when we get to the site we want

By buyer’s market Burkhart means the lull in the metals

to see clear exploration potential,” says Orozco. For

market, and specifically the spring 2013 drop in the price

Burkhart and Orozco, ‘clear potential’ translates to obvious

of gold that has resulted in drilling activities slowing down

indications of mineralization. This might be in the form

significantly in Mexico, and some junior companies being

of outcropping mineralization, or previous drill holes on

pushed out of the market entirely. This places companies

mineralized land. Their ideal deposits would be medium

like Argonaut Gold, which have a portfolio of producing

to large oxidized low-grade deposits that have open pit,

mines and capital to spend, in a strong position to buy


exploration projects with good potential that struggling junior

that never reaches the exploitation phase, and that mining

companies are trying to sell off. Burkhart and Orozco do,

companies also improve the economy by bringing work to

however, acknowledge that they are not the only companies

more isolated places,” points out Orozco. “The decrease in

trying to do this. “We do know that the competition from

the gold price has also already impacted us to some extent,

other companies for the acquisition of quality properties is

so we are being more diligent about setting priorities and

increasing, and generally if we are looking at a project there

watching the budget,” adds Burkhart.

are other companies with similar acquisition criteria looking at it too. Clearly we are not the only ones who realize that

Returning to the subject of Argonaut Gold’s plans in Mexico,

Mexico offers good opportunities compared to most other

Burkhart and Orozco are positive about the potential for

countries,” says Burkhart.

new grassroots exploration projects. “Exploration has been conducted mostly around old known mines, where deposits

Argonaut Gold believes that it can continue to build its

and mines have been expanded. But really, in recent years

portfolio in Mexico and continue acquiring new properties

there has not been a great deal of grassroots exploration,

despite this competition. The company is also starting

especially during the junior cycle. The potential for Mexico

to look outside Mexico for further opportunities, as part

is therefore still very large,” says Orozco. As the best place

of a strategy to diversify the company’s portfolio. At the

for grassroots exploration they highlight Sonora, which is

end of 2012 it completed the acquisition of the advanced

also Mexico’s number one producer of gold and copper and

stage Magino exploration project in Canada, which was

has a strong mining culture. Durango also stands out as a

the company’s first property outside of Mexico. “This is

growing, attractive destination for future exploration for

going to diversify the way Argonaut Gold is working – it

Argonaut Gold. “We are fully staffed up in our exploration

lowers the risk and makes the company more stable, given

group, with a good exploration budget and a long term

that Canada is probably the most stable mining country,

view,” says Burkhart. “We will continue with our exploration

which is good for investors. This acquisition also doubled

methodologies and make adjustments to our criteria as

the company’s resources: the deposit has over 6 million

circumstances dictate. It has been my experience that

ounces of gold, and has the capacity to produce around

persistence and determination pay off and Argonaut Gold is

250,000oz of gold per year,” says Orozco.

well positioned in Mexico to stay the course. We have a very strong commitment to Mexico: we think it is the place to be.”

In terms of Mexico’s new mining tax, which is likely to be confirmed in late 2013, Burkhart and Orozco argue that the company’s solid foundations and low operating costs stand it in good stead to remain financially strong. “One thing in our favor is that our costs are low, so we will be protected in that sense. We also want the government to take into consideration the fact that the mining industry is cyclical, and that there has recently been a sharp drop in the gold price. The government needs to take into consideration the fact that a huge amount of money is invested in exploration

“Argonaut Gold is looking to find robust geological environments that have the potential to grow. We want to see a clear potential for a minimum of 600,000oz of gold” Tom Burkhart, VP of Exploration at Argonaut Gold

161


| MINE SPOTLIGHT

LA HERRADURA La Herradura is located in the state of Sonora, 125km northwest of Caborca, and is Mexico’s largest open pit gold mine. Fresnillo holds 56% ownership in the La Herradura mine and is the operator, while Newmont holds the remaining interest of 44%. The Herradura gold deposit occurs within a northwest trending belt of the Proterozoic metamorphic rocks conformed by greenschist, amphibolite, and granitoids. The deposit is hosted by a quartz-feldspathic gneiss bordered by faults and shear zones. Exploration in the Herradura district first began in 1988, and commercial operation began in 1997. The project has two open pit properties of over 18,211 hectares. The ore bodies consist mainly of gold and silver concentrates. In its first full year the mine produced 90,300oz of gold and was expected to reach full capacity at 150,000oz per year, with an expected mine life of 10 years. The original construction site was called Centauro and mineral extraction processes were initially due to stop in 2007. Total annual production reached 314,547oz of gold and 136,000oz of silver in 2012. La Herradura had an expected 6.6 years of remaining mine life at the end of 2012 due to successful exploration campaigns, continuous reserve replenishment, and efficient mining methods. Most of the run-of-mine is sent directly to a heap leach pad, which is insulated by a composite liner of compacted clay and geomembranes. Cyanide solution is dripped on the pile of rock and pregnant solution collected and processed in a Merrill Crowe plant through a process of clarification, deoxygenation, and zinc precipitation. The companies’ main ambitions are maximizing gold production, increasing volumes of ore deposited, increasing recovery rates of high grade ore with the construction of a dynamic leaching plant, conducting ongoing exploration at the Centauro Deep project, and evaluating the expansion of the Merrill-Crowe plant, as well as obtaining OHSAS 18001 certification.

GOLD GRADE (G/T) & GOLD PRODUCTION (OUNCES) 1.0

350,000

327,700

0.8

314,500 259,800

0.6

300,000

291,000 250,000

0.4 219,200

200,000

0.2

150,000 2012

2011

2010

2009

2008

0.0

Source: Fresnillo plc

163


FOCUS ON MEXICAN GOLD According

the

spotted the opportunity to use its resources and manpower

consulting company SNL

to

from Cerro Colorado in a place that is located only 150km

Metals Economics Group

away,” says Piggott. “This means that Goldgroup intends to

(MEG), almost 30% of the

transfer all of its resources from Cerro Colorado to Cerro

total value generated by

Prieto which already has all of its major permits, such as

the global mining industry

those for the environment and change of land use.”

in 2012 pertains to gold

Keith Piggott, Chairman, President, CEO & Director of Goldgroup

mining, while gold mining

Goldgroup considers itself a Mexicanized company, and

exploration projects made

this philosophy is the driving force behind its long term

up 47% of the world’s

growth strategy. Piggott himself has lived in Mexico for 15

total investment in mining

years, and an ever-increasing number of the company’s

exploration during the same year. Keith Piggott, Chairman,

shareholders are Mexican. “All of our projects are in

President, CEO & Director of Goldgroup, saw an opportunity

Mexico. We think that it is better to be Mexicanized so that

for gold mining in Mexico and has since surrounded himself

people feel that we are part of their community. We are

with an expert team in order to grow the company into

very community-orientated, community conscious, and

a large precious metal producer focused on Mexico. “It

committed to the country we work in,” Piggott mentions.

was about 16 years ago when I started focusing on gold in

“The mining industry brings wealth to surrounding

Mexico, after being involved in the gold mining industry in

communities. Given that mines are often located in remote

Australia for many years. My intention was to start a small

areas, they benefit the communities that are traditionally

gold mine in Sonora with technology I had developed and

neglected,” says Piggott. “Goldgroup has already started

patented in Australia,” Piggott explains. From there, the

installing access to water in some of the communities

company developed its Cerro Colorado asset, a heap-leach

near our Caballo Blanco project, and the communities

operation located in Sonora. “Cerro Colorado was a very

are very thankful for it. We introduced a mobile clinic

low capital-cost operation because we started it with little

with a doctor and for a lot of these communities this

money and we are experts in starting mines with very little

was the first time they had received proper medical care.

cash. In 2012, it produced approximately US$30 million of

We also make donations to schools and we carry out

revenue,” Piggott adds.

community development programs,” he says. “Nowadays, as more mines are being developed in Mexico, more local

To offset the output decline at Cerro Colorado, which is

professionals are developing the technical skills necessary

in the final stages of its productive life, the company has

to run those mines. Contractors are now becoming

acquired three other properties in the country: Caballo

Mexicanized, and this trend is gradually filtering back to

Blanco, located in Veracruz; a participation in San José de

equipment as well,” says Piggott. For example, all of the

Gracia, arguably Sinaloa’s most important development

heap-leach tanks that Goldgroup uses in its operations are

project, through a 50% interest in DynaResource de Mexico;

built in Hermosillo, Sonora. “The whole point of employing

and Cerro Prieto, located only 150 kilometers away from

Mexican service providers is that you are supporting the

Cerro Colorado. Goldgroup plans to start production on this

local economy. We have faith in the country, in its people

last project during the last quarter of the year. “Goldgroup

and in its government,” he says.


FEDERAL GOVERNMENT SUPPORT FOR MINING IN CHIHUAHUA The Federal Economy Minister has offices in each Mexican

large scale mining does not. However, the Delegation’s

state, as well as in other countries, to provide information

job is to facilitate the permitting process for both types of

on starting a business and securing funding, as well as to

mining operations, so that both activities thrive, communities

give advice and training to businesses and entrepreneurs

are strengthened, and work is provided to Chihuahuans.

that want to export, import, and invest in Mexico. The goal

One example of how small scale mining is supported is

of each delegation is to promote, guide, encourage and

the Luis Escudero Processing Plant, which was acquired

stimulate the development of micro, small, medium, and

by the state government to support small scale mining in

large businesses.

its mineral processing. In the past, small mining operations that produced small quantities of mineral could not process

David Dajlala is Delegate of the Federal Economy Ministry

it anywhere, but over 200 operations in the region are now

for the state of Chihuahua. “The most important challenge

benefitting from the plant. Through the state’s Economy

for the Delegation is to facilitate the permitting process so

Minister, and together with the Mexican Geological Survey

that big mining companies, whether domestic or foreign,

(SGM), the Delegation provides advice, helps companies with

invest in Chihuahua. We want to open the way for them so

their sampling, and supports laboratory-related activities,

that they do not hesitate to start their mining operations in

because usually they do not have the required equipment

the state. If we are able to facilitate the permitting process

to carry out the necessary analysis. The Government Trust

mining companies will be more efficient, and therefore

for Mining Development (FIMOMI) also provides resources

more productive,” he emphasizes.

so that the small operations have enough cash to continue

“Making permitting processes more efficient will have a positive impact on the mining industry; both large scale and small scale mining will benefit, as will the state and national economies” David Dajlala, Delegate for Chihuahua of the Federal Economy Ministry

Mining activities in the state are divided into two parts: large

working their mines. “The Delegation’s current objective is to

scale mining and small scale mining. Dajlala highlights that

lower permit-processing times. We are in charge of granting

each type of operation has different needs and requirements.

permits and concessions, and our aim is to reduce the time

Since Chihuahua’s mining cluster was created it has brought

that passes between a user placing a request and us giving

members of the large-scale mining group together. Small

them an answer. Making permitting processes more efficient

scale mining is therefore where most of the Delegation’s

will have a positive impact on the mining industry; both large

efforts are focused, since it requires funding, technology,

scale and small scale mining will benefit, as will the state and

advice, and help with permits, and involves hurdles that

national economies,” Dajlala says.


| VIEW FROM THE TOP

PAVING THE ROAD FOR CHIHUAHUA’S MINING INDUSTRY LUIS ALBA SOLÍS Director of Mines, Chihuahua Q: What does Chihuahua have to offer the mining industry,

stability, we have a good relationship with union leaders

and why have its reserves not been exploited to the same

and ejidatarios. We have promoted the continuation

extent that they have in other states of the country?

of operations and reduced strikes by managing the

A: In the past, mining as an industry in Chihuahua did not

relationship between both parties.

receive the attention that it deserved. With the attention that high metal prices brought to the industry, investors

The State Development Plan is very comprehensive in the

from around the world started to look for a mining paradise

area of mining. The government plays a proactive role:

like Chihuahua. The state provides social stability, political

we advise and support the industry in the state, starting

facilities, security, labor force, and world class deposits. The

with small scale mining. We bring them together and fund

current governor has made several modifications to the

them, and we also provide equipment, consulting services,

legal framework, allowing productive activities to be more

and facilitate the permit process. We have a bigger mining

easily performed. It is for this reason that many foreign and

budget than any other state government.

domestic companies are operating in Chihuahua.

Chihuahua has vast mineral wealth. It has mercury, silver, gold, copper, lead, iron, zinc, coal, and uranium, among many other minerals. We have around 4,100 mining claims, which is understandable given the number of deposits that exist in this region of the country. Chihuahua’s Sierra Madre Occidental is endowed with large gold and silver deposits. To the east, there are regions that are rich in zinc, lead, and iron. The geological formations in our state, as well as the veins and scattered deposits, result in the existence of projects of all scales.

Q: What role does the government of Chihuahua play in advancing the position of the state in the Mexican mining industry?

Q: What impact has the mining industry had in economic and labor terms, as well as at the social level? A: Mining in Chihuahua has brought great benefits to our community. The industry has promoted the development of local companies and has activated other productive activities. Mining has brought important economic benefits to regions where no other industry has been before. Very few states welcome mining companies, but in the Sierra Madre Occidental the industry is warmly received because there are few alternatives for economic development in this region. Fortunately, the biggest mining projects in the state are there. For example, we recently witnessed the contribution of over US$300,000 from a mining company to a local community to finance its sewerage system.

A: One of our most important achievements has been

166

government programs for infrastructure, such as the

Q: What are your expectations for the development of

construction of new roads and electric power infrastructure,

mining activities in Chihuahua in the years to come?

which facilitate mining projects. For example, the Piedras

A: We have three years left under this administration.

Verdes Mine currently has a capacity of 1,000 t/d, but

Thanks to the Governor’s support for mining, and because

thanks to new electrical transmission infrastructure it will

the industry is a priority in the State Development Plan, we

be able to increase its capacity to 3,000 t/d. We have

hope to set in motion at least three of the state’s biggest

also been able to simplify the process for the use and

projects. We want to move forward the El Cordero project,

storage of explosives for small and medium miners, which

which is the size of Peñasquito in Zacatecas, and we also

was a challenge in itself but has brought many benefits.

want to boost La Cigarra, which is in Parral. Another

Something else that is being considered is the construction

objective is to activate those claims that are not being

of a foundry, since there are none, forcing small producers

worked on. There are many claims that are not being

to sell their product cheaper. The current government is

explored in any way. Therefore, it is essential to work on

planning to build a foundry where iron balls for mills and

the legal framework so that the title owner is forced to

mineral concentrates will be processed. In terms of social

explore the land or let it go so that someone else can.


| VIEW FROM THE TOP

MINING INVESTMENT AS A CATALYST FOR ECONOMIC GROWTH ÁLVARO NAVARRO GÁRATE Economy Minister of Chihuahua Q: What are your priorities regarding the mining industry?

imported. This is where the cluster comes in, because it

A: The state government’s priority is for the mining industry

allows the government to work together with the industry

to be highly productive, socially responsible, and have

in an organized fashion, with goals and objectives, and

a low environmental impact. We are helping to increase

at the same time measure progress. There is a joint

profitability for investors, but on the other side we want

responsibility between the government, mining companies,

them to leave behind trained people who are able to supply

and academic institutions, which means that we work

services to other mining operations. The state government

together whilst respecting the autonomy of all members.

has brought training courses to the Sierra Madre to enable

We do not get involved in their activities, however we want

local communities to provide services to mining operations.

their operations to be highly profitable, highly socially

Through social responsibility initiatives we have been able

responsible, and to have low environmental impact.

to work with mining companies in order to achieve high productivity in mineral extraction. Through training, local

Q: What are the Ministry of Economy of Chihuahua’s

communities can become providers for the industry.

strategies to position the state as an attractive investment destination?

Mining brings investment, and through investment jobs and

A: We are attracting a lot of investment as Mexico regains

economic development are created. In other words, it brings

market confidence. Manufacturing companies that were

income to Chihuahuan families that are directly or indirectly

established in China are now coming to Chihuahua, and

involved with the industry. Millions of dollars are invested

we are investing in local infrastructure and logistics

in mining operations, but minerals are extracted and then

to attract even more investment. To raise Chihuahua’s

taken out of the country, leaving very little behind. That is

competitiveness, for example, we are opening new railroad

the reality. Through changes in the current legal framework

routes to connect the Asia-Pacific market through Sinaloa

we want to transform this, creating a bigger economic

with the Topolobampo-Mazatlan route. The goal is to

impact in the state’s mining regions. Our objective is to

provide infrastructure that will position Chihuahua as the

generate significant added value for mining operations.

Pacific entrance to the US. We are creating the required

This means that we want more mining processes to stay

infrastructure to stimulate trade and transform Chihuahua

in Chihuahua in order to achieve continued economic

into a highly competitive, efficient, and productive state.

development by creating jobs locally instead of just

These efforts translate to investments of over US$700

exporting raw materials as we currently do. We are creating

million, just in infrastructure.

opportunities for local businesses to become providers to the mining industry and add value to our mineral production

Q: How are you working to improve the perception of the

by having more processes done locally. Around MX$18

security risk in the state?

million (US$ 1.4 million) is spent on supplies for the industry

A: When the current governor César Duarte Jáquez took

daily. By integrating those processes into our local industry

office two and a half years ago, public security was a

Chihuahua will become more competitive, because mining

serious problem in the state. The governor advocated

companies will be able to acquire supplies locally at very

laws against organized crime and worked closely with the

affordable prices. At the same time, a just-in-time program

executive, legislative, and judicial authorities of the state.

will make companies more competitive.

These efforts led to a drastic reduction in the crime rate in the state. Today, Chihuahua has become an example for

Q: Around 90% of the machinery and supplies used in the

public security in Mexico. The improvement of the situation

mining industry is imported. How could the state government

has allowed us to change not only the perception of the

encourage the use of locally manufactured equipment?

state, but also the reality. Investors say that as a result of

A: It is exactly this that is our great challenge. We want

security and education indicators confidence has come

to transform that figure into 90% local content and 10%

back to Chihuahua, and with it investment, too.

167


| MINE PROFILES: CHIHUAHUA

8

CHIHUAHUA

2

4 3

5

1 9

6 7

1

2 3 4

168

PALMAREJO, COEUR MINING Palmarejo is the world’s fifth largest primary silver mine, located 420km southwest of the capital city of Chihuahua. Mining at Palmarejo is conducted both underground and on the surface. Coeur Mining’s wholly owned subsidiary, Coeur Mexicana, employs over 900 people at Palmarejo, while contractor employment totals about 150. The gold and silver deposits at the Palmarejo mine, typical of many of the other silver and gold deposits in the Sierra Madre, are classified as epithermal deposits and are hosted in multiple veins, breccias and fractures. Ore feed to the mill is from a combination of surface and underground sources. Ore is blended and fed through a primary crusher at a rate of approximately 6,000 t/d.

DOLORES, PAN AMERICAN SILVER The Dolores mine is located in the Sierra Madre Occidental mountain range, which comprises a long northwest trending volcanic plateau, approximately 250km west of the city of Chihuahua. The area of the concessions is 27,700 hectares. The mine uses conventional cyanide heap leaching technology to produce gold and silver doré. By the end of 2013, Pan American Silver will have produced at its Dolores unit between 3.25 and 3.45 million ounces of silver and between 63,500 and 68,000oz of gold.

OCAMPO, MINERA FRISCO Ocampo is located in Chihuahua in the Sierra Madre Occidental and it consists of one open pit and two underground mines. The mineralogy of the area includes gold and silver within low sulphidation and quartz systems. Ocampo mine produced 199,478oz of gold and 4.171 million ounces of silver in 2011 and has proven and probable reserves of 2.384 million ounces of gold and 56.63 million ounces of silver for the same year. This indicates a mine life of approximately 14 years. The facilities include a Merrill-Crowe mill and a heap leach pad. In 2012 the property was acquired by Minera Frisco, and it is expected that production will increase to 13,000 t/d by 2014.

PINOS ALTOS, AGNICO EAGLE Pinos Altos is located in the mountainous region of northern Mexico, 220km west of Chihuahua. Agnico Eagle poured its first gold in Pinos Altos in July 2009 and achieved commercial production in November of that year, while underground mining began in the late spring of 2010. The nearby Creston Mascota satellite operation was built in 2010 as a stand-alone pit and heap leach operation. It poured its first gold in December 2010, and achieved commercial production on March 1, 2011. Pinos Altos is expected to produce 159,000 ounces of gold as well as byproduct silver in 2013, and to average 148,000 ounces of gold per year from 2014 to 2015, with a mine life through 2029. In addition, Creston Mascota is expected to pour 32,000oz of gold in 2013 and to average 54,000oz of gold per year from 2014-2015, with an expected mine life to 2018.


5

NAICA, PEÑOLES The first concession in this area dates from 1794, and exploitation by local miners resulted in the founding of Saucillo in 1896. In 1900 Compañia Minera de Naica formally started mining operations on the mine, which were stopped by the Mexican Revolution in 1911. Today, Naica is operated by Peñoles, and has become the second largest lead mine in Mexico. In 2012 it produced 768,483 tonnes of mineral, 17.4% more than in the previous year with each metal growing as follows: lead (18,185 tonnes, +17.4%), zinc (16,963 tonnes, +30.0%) and silver (2.1 million ounces, +15.7%). Naica declared reserves of 337,591 tonnes of lead, 804,913 tonnes of zinc, and 50.054 million ounces of silver. The estimated mine life has grown to 21.8 years since reserves increased 89% between 2010 and 2012. During exploration activities at the Naica mine, the Cueva de los Cristales, filled with giant selenite crystals, was discovered by accident, in limestone rock at approximately 300m below the surface. These extraordinary selenite crystals were formed over thousands of years after the temperature of groundwater saturated with calcium sulfate stabilized at around 136°F, which triggered the conversion of minerals into celestite crystals.

6

7

SAN FRANCISCO DEL ORO, MINERA FRISCO San Francisco del Oro is located in the state of Chihuahua. The mining complex contains ore bodies with important concentrates of silver, copper, lead and zinc with minor concentrations of gold. Minera San Francisco del Oro was first explored from 1555 to 1563. Mining operations continued but it was not until 1961 that the mine became part of Minera Frisco. In 2012 the San Francisco del Oro mine produced 1.89 million ounces of silver and 5,341oz of gold. Additionally, the mine produced 9,030 tonnes of lead, 18,302 tonnes of zinc and 1,982 tonnes of copper. A new plant will increase capacity to over 10,000 t/d, and will enable San Francisco del Oro to produce bars of gold and silver, lead, zinc, and copper.

SANTA BÁRBARA, MINERA FRISCO Santa Bárbara mining complex is located in southern Chihuahua and consists of three underground mines and a flotation plant. The ore bodies are formed mainly by quartz veins, and ore can be found several kilometers in length and at least 900m below the surface. Operations at Santa Bárbara consist of different types of mining, due to varying conditions of the ore bodies, which are: shrinkage stopping, long-hole drilled open stopping, cut-and-fill stopping and horizontal bench stopping. The mine produced 4.5 million ounces of silver, 3,661oz of gold, 57,700 tonnes of zinc, 24,300 tonnes of lead and 14,600 tonnes of copper in 2011.

8

BISMARK, PEÑOLES

9

EL SAUZAL, GOLDCORP

The Bismark zinc-copper mine, located in the northwest of Chihuahua, has been producing for Peñoles since 1992. While the mill has a capacity of 800,000 tonnes per year, Bismark milled and processed 666,595 tonnes of mineral in 2012, 9.7% less than in the previous year. The reduction in the volume of ore processed and lower ore grades resulted in a 16.2% decrease in the production of zinc to a total of 39,504 tonnes, a 20.8% decrease in the production of lead to 1,824 tonnes, and a reduction in silver production to 283,706oz, a decrease of 11.1%. Copper production increased by 7.9% to 1,548 tonnes of copper due to higher ore grades. In 2012 the project to deepen the Felipe Ángeles shaft by 200m was completed in order to provide access to 5.8 million tonnes of mineral with better ore grades of zinc.

El Sauzal, a conventional open-pit mine and mill operation, has been a reliable, low cost gold producer. Production in 2012 was 81,800oz, which was in line with the expected 19% decrease compared to 2011 as a result of 15% lower grades and 4% less tonnage milled. With probable reserves of 220,000oz of gold at the end of 2012, exploration efforts are focused on identifying new gold reserves to extend the life of the mine, which has been an important foundation for Goldcorp’s Mexican operations.

169


170


SILVER

6 Although silver has historically been the protagonist in Mexican mining, over the past five years Mexico’s gold production experienced a dramatic increase and today the country is the world’s 11th largest gold producer. In addition to high gold prices, Mexico benefitted from the combination of good gold deposits, favorable conditions for heap leaching, and a historical and stable mining culture. Sonora, Chihuahua, and Zacatecas are the main gold producing states in the country, and have been key contributors to the 4.1 million ounce increase in gold production over the past two years.

This chapter provides an overview of the country’s main gold mines and presents the strategies, achievements and priorities of the most prominent gold mining companies operating in the country. Special attention is dedicated to the challenge of turning discoveries into operating mines in the current financial context, as well as the increasing industry focus on lowering production costs. We also present an overview of Chihuahua’s mining industry and the ambitions of the state government to attract increased mining investment with the aim of accelerating the state’s economic growth.

171


172


CHAPTER 6: SILVER 174

Global Trends in the Silver Market

175

Building on Mexico’s Silver Mining Legacy

176

MINE PROFILES: Mexico’s Main Silver Mines

177

The Silver Institute

178

Silver Production by Mine

179

VIEW FROM THE TOP: Extracting Value from Mexico’s Historic Silver Assets

180

VIEW FROM THE TOP: Long Term Low Cash Cost Strategy

182

MINE SPOTLIGHT: Fresnillo

184

VIEW FROM THE TOP: First Majestic’s Aggressive Development and Acquisition Plan

184

The Shared Benefits of Silver Mining

186

VIEW FROM THE TOP: Unlocking Mexico’s Potential to Create Long Term Value

188

MINE SPOTLIGHT: La Encantada

190

Pan American Silver Bases Growth Streak in Mexico

192

Diversifying the Portfolio to Minimize Risk

194

Results Keep Exploration Projects Moving Forward

195

VIEW FROM THE TOP: Production Decision for Pitarrilla

196

VIEW FROM THE TOP: The Value of Efficiency in Allocating Resources

197

Vertical Integration Strategy

198

MINE SPOTLIGHT: Palmarejo

200

MINE PROFILES: Zacatecas

202

VIEW FROM THE TOP: Silver Lining for the Economy of Zacatecas

203

VIEW FROM THE TOP: The Transformative Power of Clusters

204

VIEW FROM THE TOP: Developing High Quality Mining Talent

205

Clusmin Zacatecas

173


GLOBAL TRENDS IN THE SILVER MARKET Classified by chemists as both a transitional metal and a

11%. The daily high of US$37.23 for 2012 is also substantially

precious metal, silver has many uses. It is the best electrical

lower than the 2011 high of US$48.70. Furthermore, the

and thermal conductor among all metals, which makes it

London Bullion Market – where silver is predominantly

very effective in electrical applications. Silver’s properties

traded - calculates an average silver price of only US$25.14

are expected to secure long term silver demand, even if

for the first eight months of 2013, with a partial high of

some industries and sectors have decreased their use of this

US$31.11 during January and a partial low of US$19.71 for

metal due to structural or economic reasons. For example,

July. If prices remain at these levels, the industry could be

photographic film manufacturers – which demand very

looking at a 19% decrease in silver prices between 2012 and

high purity silver – have decreased their participation in the

2013. Additionally, while the price of silver has trailed down,

silver market due to the increasing digitalization of video

its volatility has also diminished. Its average fluctuation

and photography. However, silver is being increasingly

ratio stood at 34% in 2012, versus 64% in 2011. Overall

required for the fabrication of photovoltaic cells, an end

volatility during 2012 was 29%, in comparison to 61% the

use that could become an important source of demand for

previous year.

the precious metal in the future. Total silver supply rose by 0.9% in 2012, amounting to As the most plentiful among the precious metals - a group

1,048.3 million ounces. Mine production was the biggest

that also includes platinum, rhodium, palladium, iridium

component of this growth, with a reported 4% increase. This

and gold – silver is also the cheapest. Because of demand

growth countered decreased supply from other sources.

resulting from its industrial uses, the silver price is more

For example, net government sales experienced a dramatic

volatile than that of gold. On average, a 1% change in the

fall of 38% and registered a 15-year low. The secondary

gold price is matched by a 1.75% change in silver, both

production of silver – the recovery and recycling of old

upwards and downwards. Moreover, silver’s low recycling

silver scrap – also fell slightly by 1.6%. World silver mining

rate and the fact that it is often mined as a by product

production has reported sustained growth since 2003, with

make supply of this metal less responsive to market

Latin America as the main driver of this increase. However,

demand, thus giving silver a benchmark value that could

the production of silver as a by-product has increased

become a safety net for investors in the case of a dramatic

as a share of total silver production, thanks to the sharp

fall in metal prices.

increase in all metal prices throughout the past years. Only 28% of the silver mined in 2012 was obtained from primary

The price of silver came close to its historical nominal

silver deposits, while 39% of this metal was mined with

high in 2011, but has since fallen sharply. Then shown early

base metals lead and zinc. Copper and gold mining are also

signs of recovery. The World Silver Survey 2013 places the

significant sources of silver, with a respective participation

average price of silver in 2011 at US$35.12 per ounce, and

of 20% and 13% of total silver mining production.

at US$31.15 in 2012. This is a year-on-year decrease of over

GLOBAL SILVER PRODUCTION AND PRICE (US$/OZ) 50 45 40 35 30 25 20 15 10 0 2009

2010

2011

2012

2013 Source: InfoMine

174


BUILDING ON MEXICO’S SILVER MINING LEGACY Mexico is the world’s leading producer of silver, and the

GLOBAL SILVER PRODUCTION BY COUNTRY

Mexican Silver Belt (La Faja de Plata) is the world’s most productive silver district, with an annual production of over 10 billion ounces of silver and between 63 and 75 million 16.3%

ounces of accompanying gold production. This prolific silver

17.7%

belt extends for roughly 800km alongside the Sierra Madre Occidental mountain range and includes mining districts that have been in almost continuous production since the 16th

2.2% 4.4%

century, such as Pachuca, Hidalgo; Guanajuato, Guanajuato; Zacatecas and Fresnillo, Zacatecas; Tayoltita, Durango;

4.7%

15.8%

Francisco del Oro, Chihuahua; and Charcas, San Luis Potosi. The country is home to some of the world’s oldest and most

4.9%

sought after silver mining jurisdictions. It is believed that

5.4%

about one-third of all silver mined in the history of the world

14.4%

6.2%

has come from Mexico. But even with such a rich history, this

7.9%

country’s silver mineralization is nowhere near depleted. The predominant ore deposit types found in the Faja de Plata are veins, pipes, mantles, and stockworks of silver, gold, copper zinc and lead. The manifestations of mineralization are found almost all over the territory, with higher intensity in areas where metallogenic events were concentrated, forming deposits of great economic value.

Mexico

Poland

China

Chile

Peru

US

Australia

Canada

Russia

other

Production grades range from 5 to 30oz/t of silver with mining rates of a few hundred to 7,500 t/d. In terms of nonmetallic minerals it also produces oil aggregates, clay, sand, kaolin, gravel and dimension stones, among others.

Bolivia Source: USGS

Since the mid-1960s historic silver districts within the belt

is allowed, the region has the funds to use cutting deposits.

have yielded new ore zones. With new and more updated

There is still plenty of potential in this area, as mentioned

geochemical and geophysical techniques, mineral deposits

above; it was not until the 1990s that the region became

that were overlooked in the past are now being discovered

amenable to cutting-edge exploration technology in order

and transformed into mines. The majority of miners in the

to find new silver to unearth. In 2010 Mexico reclaimed the

region extract the resources through underground tunnels.

spotlight as the world’s largest silver producing country.

There are now dozens of junior exploration companies

According to INEGI, silver mining production doubled in

working hard in the region to find the next big silver deposit

Mexico between 2003 and 2012, and production levels rose

to attract foreign investment. Now that foreign investment

at yearly rates of 24% in 2010, 8% in 2011, and 12% in 2012.

Q: WHAT EXPLAINS THE PRESENCE OF SO MANY CANADIAN MINING COMPANIES IN THE MEXICAN SILVER MINING INDUSTRY? A: Canada has one of the best stock exchange systems in the world - the Toronto Stock Exchange - and approximately 80% of all money raised worldwide for mining takes place there. Financial institutions and banks are very comfortable investing through Canada because of the strength, transparency, and tough regulations that protect investors. This has resulted in investors from around the world going through the Toronto Stock Exchange in order to access growing companies that are active in foreign jurisdictions. Simply put, the Canadian financial system has made it easy for the creation of mining companies, in the same way that the Mexican regulation system, NAFTA, and the Mining Law, make it attractive for foreign companies to invest in and create businesses in Mexico. It is a win-win situation for both countries. Keith Neumeyer, President & CEO of First Majestic Silver Corp.

175


| MINE PROFILES: MEXICO’S MAIN SILVER MINES

46

22 40

42

45 25 39

47

14 9

17 15 5

19 3

34

24 16 29

33

41

43

2

11 6

13

27

8 10 1 4 28 36

37

32

31 48

18 21 26 38 35

30

7 44 23

176

1. Fresnillo, Zacatecas

17. Pinos Altos, Chihuahua

2. Peñasquito, Zacatecas

18. NEMISA, San Luis Potosi

3. Palmarejo, Chihuahua

19. Naica, Chihuahua

4. El Saucito, Zacatecas

20. San José, Oaxaca

5. Álamo Dorado, Sonora

21. Cerro San Pedro, San Luis Potosi

6. Tayoltita, Durango

22. Buenavista del Cobre, Sonora

7. Tizapa, State of Mexico

23. Campo Morado, Guerrero

8. La Colorada, Zacatecas

24. San Fco. del Oro, Chihuahua

9. La Encantada, Coahuila

25. Mexicana de Cobre, Sonora

10. Sabinas, Zacatecas

26. Bolañitos, Guanajuato

11. La Ciénega, Durango

27. Tayahua, Zacatecas

12. El Águila, Oaxaca

28. Cozamin, Zacatecas

13. La Parrilla, Durango

29. El Herrero, Durango

14. Dolores, Chihuahua

30. La Negra, Queretaro

15. Ocampo, Chihuahua

31. Charcas, San Luis Potosi

16. Guanaceví, Durango

32. Asientos, Aguascalientes


| THE SILVER INSTITUTE

The value and merits of silver, both as an investment tool and as a commodity, are widely acknowledged. From 2003 to July 2013 the price of silver increased by more than 300%, and despite the recent drops in precious metal prices silver retains its status. The Silver Institute plays an important role in this area; established in 1971, the Institute’s broad objective is to promote silver and silver market development by presenting research, fostering communication, and improving understanding of both the supply and demand for silver globally. For Michael DiRienzo, The Silver Institute’s Executive Director, the qualities and applications of silver are so diverse that the precious metal cannot fail to retain its importance in our lives. “Today, no metal is as indispensable to modern life as silver. It is beautiful, durable, malleable, and valuable. It withstands extreme temperatures, and is an excellent reflector of light and conductor of heat and electricity. It is also a better conductor of electricity than copper, and a natural antimicrobial agent,” he says. In recent years, the Silver Institute worked with a major bank as an advisor on the creation and launch of the iShares Silver Trust (SLV), a very successful exchange traded fund. “We have also created the Silver Promotion Service (SPS), which is designed to raise awareness about the fine work in sterling silver jewelry. That program also has a Mexican component, where prominent Mexican designers are showcased on the web site,” explains DiRienzo. The Silver Institute has conducted extensive research on supply and demand for silver, and holds a positive view of

20

12

what the future will look like for the precious metal. This is not surprising, when one considers that the global supply of silver has increased consistently, year on year, for the past decade. The main source of world silver is the mining industry, though the majority of that does not come from primary silver mining. “Silver is a byproduct of other mining activities. In recent years only about 30% or so of newly mined silver has typically come 33. Nuestra Señora, Sinaloa

from primary silver mines, with the vast majority being a by

34. Santa Bárbara, Chihuahua

product of lead, zinc, gold, and copper operations. Silver is

35. Guanajuato, Guanajuato

also recycled, especially from industrial catalysis processes,

36. Francisco I. Madero, Zacatecas

and comes from other sources such as scrap melt,” explains

37. San Martín, Jalisco

DiRienzo.

38. El Cubo, Guanajuato 39. Santa Elena, Sonora

As the world’s biggest silver producer Mexico has an important

40. San Francisco, Sonora

role to play in The Silver Institute; indeed, many of the most

41. Topia, Durango

prominent companies in Mexico’s silver mining industry

42. Mercedes, Sonora

appear in The Silver Institute’s members list. “Mexico has a

43. Velardeña, Durango

long tradition of silver mining, and its importance to the global

44. La Guitarra, State of Mexico

silver marketplace is unquestioned. Mexico is and will always

45. Bismark, Chihuahua

be a leader in terms of silver mining - I think that will be the

46. San Felipe, Baja California

case for centuries to come,” says DiRienzo.

47. La Colorada, Sonora 48. El Coronel, Zacatecas

177


SILVER PRODUCTION BY MINE Mine Fresnillo Peñasquito Palmarejo El Saucito Álamo Dorado Tayoltita Tizapa

Company

State

Million ounces

Fresnillo plc

Zacatecas

26.38

Goldcorp

Zacatecas

23.70

Coeur Mining

Chihuahua

8.20

Fresnillo plc

Zacatecas

7.05

Pan American Silver

Sonora

5.36

Primero Mining

Durango

5.13

Peñoles

State of Mexico

4.57

La Colorada

Pan American Silver

Zacatecas

4.43

La Encantada

First Majestic Silver

Coahuila

4.04

Peñoles

Zacatecas

4.03

Fresnillo plc

Durango

3.33

Sabinas La Ciénega El Águila

Gold Resources

Oaxaca

3.00

La Parrilla

First Majestic Silver

Durango

2.88

Dolores

Pan American Silver

Chihuahua

2.65

Ocampo

Minera Frisco

Chihuahua

2.56

Endeavour Silver

Durango

2.51

Guanaceví Pinos Altos NEMISA Naica San José Cerro San Pedro Buenavista del Cobre

Agnico Eagle

Chihuahua

2.31

Neg. Mra. Sta. Ma. de la Paz

San Luis Potosi

2.12

Peñoles

Chihuahua

2.06

Fortuna Silver

Oaxaca

1.95

New Gold

San Luis Potosi

1.94

Grupo Mexico

Sonora

1.91

Campo Morado

Nyrstar

Guerrero

1.89

San Fco. del Oro

Minera Frisco

Chihuahua

1.89

Mexicana de Cobre

Grupo Mexico

Sonora

1.83

Endeavour Silver

Guanajuato

1.67

Tayahua

Minera Frisco

Zacatecas

1.63

Cozamin

Capstone Mining

Zacatecas

1.58

Minas de Bacis

Durango

1.47

Bolañitos

El Herrero La Negra

Aurcana

Queretaro

1.37

Charcas

Grupo Mexico

San Luis Potosi

1.35

Asientos

Minera Frisco

Aguascalientes

1.25

Nuestra Señora

Scorpio Mining

Sinaloa

1.18

Santa Bárbara

Grupo Mexico

Chihuahua

1.02

Guanajuato

Great Panther

Guanajuato

1.00

Peñoles

Zacatecas

0.96

First Majestic Silver

Jalisco

0.96

Endeavour Silver

Guanajuato

0.73

SilverCrest

Sonora

0.58

Francisco I. Madero San Martín El Cubo Santa Elena San Francisco

Timmins Gold

Sonora

0.56

Topia

Great Panther

Durango

0.56

Mercedes

Yamana Gold

Sonora

0.49

Velardeña

Golden Minerals

Durango

0.46

La Guitarra

First Majestic Silver

State of Mexico

0.39

Bismark San Felipe La Colorada El Coronel

Peñoles

Chihuahua

0.28

Minera Frisco

Baja California

0.14

Argonaut Gold

Sonora

0.13

Minera Frisco

Zacatecas

Others TOTAL

178

0.02 24.69 172.28


| VIEW FROM THE TOP

EXTRACTING VALUE FROM MEXICO’S HISTORIC SILVER ASSETS BRADFORD COOKE CEO of Endeavour Silver Q: Could you please describe how Endeavour Silver

would generate lower costs and higher profits if they were

achieved eight consecutive years of accretive growth?

leached at Guanaceví, to produce similar doré silver-gold

A: Endeavour Silver’s main focus is on growing our

bars. This vertical integration of the two mines helped to

business in an accretive way: finding, acquiring, building,

keep our operating costs down. Since we acquired El Cubo

and operating quality silver mines that create real value

mine not far from Bolañitos, and the El Cubo plant also has

for our shareholders. Endeavour Silver specializes in

a mineral leach circuit that produces doré silver-gold bars,

acquiring under-performing mines in historic districts that

we now have the opportunity to produce doré bars from

are struggling to survive. We bring the money and expertise

Bolañitos concentrates at El Cubo instead of Guanacevi,

needed to turn the operations around and bring them back

which also helps to reduce trucking costs.

to being profitable, then unlock their full potential by making new high grade discoveries and fast-tracking new mines to

Q: What are Endeavour Silver’s ambitions regarding its

production, in order to drive annual growth. For instance,

social and environmental responsibility?

our first two mines at Guanaceví in the state of Durango

A: Endeavour Silver has been one of the most proactive mining

and Bolañitos in Guanajuato were small, tired old mines

companies in Mexico regarding sustainability programs for

when we bought them but we recognized that they each

community, health, safety, and the environment. We call it

had attractive modernization, exploration, and expansion

corporate social integrity. Our actions are a reflection of

potential. Today they are large and profitable core assets that

who we are and what we do. The path to success anywhere

are still growing. Our model for success has also diversified to

in the mining world goes right through the heart of better

include the discovery of new silver-gold deposits in historic

safety, better health, better community benefits, and higher

mining districts where there are no operating mines, such

environmental standards. In all of our company’s activities

as our Terronera find at San Sebastián in Jalisco. Endeavour

we consider how to maximize potential benefits for our

continues to focus on capturing opportunities that play to

stakeholders and minimize any possible negative impacts

our strengths, and that works to our competitive advantage.

coming out of our operations.

Q: Why did the company choose Mexico as the main pillar

Q: What are the next steps for Endeavour Silver to become

of its growth strategy?

a senior silver producer?

A: When we started the company in 2003 we wanted

A: At each of our non-producing exploration properties in

to get into the silver mining sector, and we had to decide

Mexico – Parral, Arroyo Seco, Pánuco-Labertino and Lourdes

which country offered the best mineral potential, with the

– we see good potential for new silver-gold discoveries, so

fewest issues that could negatively impact mining. We chose

our challenge is to do the exploration work and find new

Mexico for several reasons, and that decision turned out to

ore bodies, and our opportunity will be to turn any new

be a very good one. Mexico clearly has exceptional mineral

discoveries into profitable operating mines. In order to

potential, as evidenced by the growth of its mineral resources

achieve our production targets for 2013 we need to complete

and production in recent years. Even 450 year old historic

a modernization of El Cubo mine and plant and turn the

mining districts have not been fully explored by modern

operation around from losing money to making money;

methods, which is why Endeavour has been able to make

continue expanding mine production at the Bolañitos mine;

new discoveries in some of these districts almost every year.

and improve the production grades at the Guanaceví mine. To become the next senior silver mining company Endeavour

Q: What has been Endeavour Silver’s strategy to keeping

also plans to find or acquire at least two new silver projects

operating costs low at Guanaceví and Bolañitos?

that we can develop into our fourth and fifth mines. In

A: Since the Guanaceví plant has a mineral leach circuit that

fact, our San Sebastián project alone may indeed have the

produces doré silver-gold bars, we recognized in 2008 that

potential to make Endeavour Silver a 10 million ounce per

the mineral concentrates produced at our Bolañitos plant

year senior silver producer.

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| VIEW FROM THE TOP

LONG TERM LOW CASH COST STRATEGY OCTAVIO ALVÍDREZ CEO of Fresnillo plc

Q: What have been the main accomplishments during

cycle, but we maintain this investment, which is the lifeblood

your first year on the job as CEO of Fresnillo?

of our company. When Fresnillo was listed in London five

A: For Fresnillo the transition from Jaime Lomelín Guillén to

years ago, we had approximately 1 billion ounces in silver

myself came naturally, so I did not need to make any drastic

reserves, and today we have reached 2 billion ounces. We

changes because the business was and still is going very

have also grown our gold resources from 11 to 27 million

well. We place great emphasis on efficiency and cost, and

ounces. With this exploration success we have also laid the

what I have done is to really focus on which projects could

groundwork for continuous growth. Sustainability is also

grow better and be productive in the downwards cycle the

very important. We have the objective of attaining five zeros:

industry is currently in. Fresnillo was born on the London

zero new professional illnesses; zero fatal accidents; zero

Stock Exchange, when the Chairman and Board of Peñoles

major environmental impacts; zero community conflicts; and

strategically decided to split the Group into two companies.

zero labor issues. All of this provides the framework for our

Since then there has been a clear strategy for Fresnillo: it is

sustainability approach. In each aspect of our business model

a company focused on precious metals and growth, with

we look out for, identify, and measure the risks in each part

a simple and solid business model and an experienced

of the process.

management team. My first year has been very much oriented towards continuing with this strategy.

Q: What would be your advice for Mexican mining companies to make them more resilient to the market cycles?

Q: In just five years, Fresnillo has become the largest

A: Exploration is key, and chances are that if you

primary silver producer in the world. To what do you

continuously invest in exploration you will succeed. Of

attribute this success?

course, you also have to have a team of good geologists.

A: We are very careful about how we evaluate projects, as

Having spent so long in the country, we have mining

we do not want to dilute the quality of our current mines. We

concessions in the areas that have the best potential. One

are very proud of our operations, and our main criterion is

key aspect of our exploration model is that we first explore

the low production cost potential. So while we are exploring,

around our existing operations, so that every ounce we find

we concentrate on those projects that combine growth

in these areas has more value, because we already have the

potential with cash cost of production in the lowest quartile.

infrastructure and personnel in place. You can see that, as a result of this strategy, we found El Saucito near Fresnillo. In

Q: How has Fresnillo been able to outperform its peers in

the case of La Ciénega we also found San Ramón, and in the

selecting high potential projects that can be developed

case of La Herradura, which was our initial open pit mine, we

into low cost, world class mines?

found Soledad-Dipolos and then we acquired Noche Buena.

A: This comes with the experience and knowledge gained

Investment in exploration is certainly the key.

from being in the business for so long. We extract and

180

optimize efficiencies at all steps in the process. The strategy

Q: By 2018, Fresnillo aims to have produced 65 million

we follow depends on the situation at each one of our mines.

ounces of silver and 500,000oz of gold. What are your

To give you an example, the main pillar of our business model

strategic priorities to reach these targets?

is that we are now compensating for the lower grade at

A: Five years ago the board correctly identified that by

Fresnillo and Ciénega by finding, processing, and producing

splitting Fresnillo, focusing it on precious metals, and

a higher volume. With modern technology, we are going to

subsequently launching it on the London Stock Exchange,

reprocess the low tailings, which will allow the recovery of

we could achieve the right market value for both companies

additional silver from tailings we had previously disposed

correctly. At that time we identified that we could have a

of. Another key pillar for us is to extend the growth pipeline

company that was strongly focused on growth, already

through exploration and across all cycles in the market. Some

possessing the land and the projects that could really drive

mining companies stop exploration during a downward

this growth, since the group maintains the largest land area


of concessions for precious metals exploration and mining in

everything is great, but in bad times everyone has to make

Mexico, and we set a very aggressive growth target. We said

some sacrifices. We all understand this concept and we

we would achieve twice the production we had in 2008, so

keep giving them work through difficult times in the mining

we set that goal of 65 million ounces of silver and 400,00oz

cycle as well. We have long term contracts and a long term

of gold that we later upgraded to 500,000oz. We are on

approach to supplier relations and supplier development.

track, and with San Julián - which comes on line at the end of

We support our contractors, and they grow with us.

2014 - we will add 10 million ounces of silver and 45,000oz of gold. The expansion of El Saucito, due to be completed at the

Q: What do you expect to be the respective roles of

beginning of 2015, will add another 10 million ounces of silver.

gold and silver in the evolution of the group’s corporate

So with those projects and the optimization of metallurgical

identity over the coming decade?

processes at Fresnillo, such as the expansion of production

A: Gold and silver are equally important to us. In terms of

to 10,000 tonnes per day and the pyrites projects, we are

revenue, for example, silver and gold together represent 48%,

confident that we will reach that target.

and the remainder comprises base metals, lead, and zinc. We are identified as a silver company because we are the largest

Q: How do you work together with service providers to

primary silver producer in the world. With the projects we

achieve the lowest cash cost and increase synergies?

have in our portfolio now, by 2018 it is very possible that we

A: We work with our suppliers and contractors at every

will be the largest silver producer in the world full stop – not

stage, from exploration to production. We create strategic

just primary. By then we will again have more revenue coming

alliances with them and consider them an extension of our

from silver than from gold. We do not prefer one to the other.

company. Only with this vision can we work with them on

It is more about the projects we have, and which projects we

a long term basis, and they understand that in good times

feel have better chances of becoming a low cost operation.

WORLD’S LEADING PRIMARY SILVER MINES IN 2012 (MILLION OUNCES) 35

32.23

30 26.38

25 20 15.5

15

7.44

7.05

6.43

6.39

Gümüsköy, Turkey (Eti Gümüş)

Greens Creek, US (Hecla Mining Company)

8.24

El Saucito, Mexico (Fresnillo)

8.62

Pallancata, Peru (Hochschild Mining plc / International Minerals Corp.)

11.26

10 5

Palmarejo, Mexico (Coeur Mining)

Pirquitas, Argentina (Silver Standard)

Uchucchacua, Peru (Buenaventura)

Dukat, Russia (Polymetal International)

Fresnillo, Mexico (Fresnillo)

Cannington, Australia (BHP Billiton)

0

Source: The Silver Institute

MORE ABOUT FRESNILLO Fresnillo plc is the world’s largest primary silver producer and Mexico’s second largest gold producer, and is listed on the London Stock Exchange under the symbol FRES. Fresnillo has seven operating mines: Fresnillo, El Saucito, La Ciénega, San Ramón, La Herradura, Soledad-Dipolos, and Noche Buena. It also holds four advanced exploration projects: San Julián, San Juan, Orysivo, and Juanicipio, as well as a number of other long term exploration prospects. In total, Fresnillo plc has mining concessions covering approximately 1.91 million hectares in Mexico. Fresnillo’s goal is to maintain its position as the world’s largest primary silver company, producing 65 million ounces of silver and over 500,000oz of gold by 2018, and also to become the world’s largest silver producer in general.

181


182


| MINE SPOTLIGHT

FRESNILLO Fresnillo is the largest primary silver mine in the world and one of the world’s oldest continuously operating mines. Last year, Fresnillo plc’s flagship mine produced over 26 million ounces of silver and 29,573oz of gold, and also produced 16,190 tonnes of lead and 14,996 tonnes of zinc. As a result, Fresnillo produced 64.4% of the company’s total attributable silver and generated 37.8% of adjusted revenue. The mining complex began operating in 1554 and has been in near continuous operation for almost five centuries. Since 1921, Fresnillo has produced more than 730 million ounces of silver at an average silver grade of 405 g/t. The asset consists of a vast underground mine that is complemented by a flotation plant, and it has a current milling capacity of 8,000 t/d and 2.6 million tonnes per year. The mine has a current workforce of 903 employees and 705 contractors. The mine has an anticipated operating life of 13.3 years, with a total of 308.5 million ounces of silver and 733,000oz of gold in reserves. The main challenge for the operation today is to compensate for the natural decline in silver ore grades, decreasing from 396 g/t in 2011 to 328 g/t in 2012 and causing last year’s 12.9% decline in silver production. Fresnillo plc expects ore grades to decline to approximately 300 g/t in 2013, then to remain within the range between 300 g/t and 325 g/t for four years, before declining in the following years towards the ore grade in reserves of 281 g/t. The company’s strategic priorities are optimizing production of the remaining resource by operating at full capacity, increasing recovery rates by processing tailings, replacing and expanding the resource base through intensive local and regional exploration, and consolidating its districtwide growth and optimization efforts for the processing of ore and tailings from multiple sites.

SILVER GRADE (G/T) AND PRODUCTION (THOUSAND OUNCES) 40,000

600 500 35,420 400

35,906 35,000

33,776

300 200

30,000 30,295

100

26,383

25,000 2012

2011

2010

2009

2008

0.0

Source: Fresnillo plc

183


| VIEW FROM THE TOP

FIRST MAJESTIC’S AGGRESSIVE DEVELOPMENT AND ACQUISITION PLAN KEITH NEUMEYER President & CEO of First Majestic Silver Corp. Q: To what extent is Mexican territory underexplored

of silver mining in Mexico. What is this belief based on?

when it comes to silver?

A: From my point of view there are two metals that are

A: Mexican territory is extremely underexplored, not just

essential for humans in their daily lives: one is silver and the

in silver but also in other natural resources like oil and gas,

other is copper. In my opinion, if silver disappeared from our

uranium, gold, copper, lead, and zinc. The first wave of

lives today, our lives would change for the worse. 80% of

investment in Mexico from Canada came after NAFTA in

mined silver is used commercially, such as in photography,

1993, but unfortunately it only lasted for a short period of

batteries, and cell phones, among many other uses, and

time due to the 1997-1998 crash in the global mining sector,

as the human race becomes more reliant on technology it

after which gold prices hit a low of US$250 per ounce and

becomes more reliant on silver. However, as above-ground

copper dropped below US$0.60 a pound. During this

supply for silver is rapidly depleting production is not

period of time investment in mining reduced significantly

matching the increasing demand. 90% of all of the silver

worldwide, causing mines to shut down and a shortage of

that has ever been mined has gone into waste dumps, and

trained personnel in the industry.

generally has not been recycled because the silver price is not high enough to make the recycling process profitable.

Q: Your founding of First Majestic Silver Corp. in 2002

There will come a point in the future when recycling these

reflects your belief in the silver market and the potential

products makes economic sense, but the price of silver will

THE SHARED BENEFITS OF SILVER MINING Keith Neumeyer first came to Mexico in 1984 when he visited

70% pure silver in order to be considered for acquisition,

Mazatlan as a tourist, and he was immediately impressed

and the company sometimes goes so far as to disregard

by what he saw. “I liked the people, the weather, and the

other minerals in the mine in favor of focusing solely on the

great food, and I always wanted to do business in Mexico,”

production of silver (as the company has done with the lead

says Neumeyer, who almost three decades later is now the

present on the La Encantada property). This commitment

President and CEO of First Majestic Silver Corp., one of the

to high quality assets has led to First Majestic’s aim to

most successful silver mining companies in the country.

increase silver production from 4.2 million ounces in 2011 to

First Majestic was founded in 2002 after Neumeyer left First

approximately 16 million ounces by 2014. The company is

Quantum Minerals, a successful copper producing company

on track to achieve this growth based on production at its

that he had founded in 1992. First Majestic now represents

five core properties: La Encantada, La Parrilla, San Martín,

both his firm belief in Mexico as a land of opportunity and his

La Guitarra, and Del Toro. With six additional properties in

strong conviction that silver is the metal of the future.

the company’s portfolio that have similarly been acquired either at the advanced exploration stage or once already

His adherence to both of these premises is unshakable;

in production, Neumeyer’s goal to continue growing even

when asked why he chose silver over copper he talks at

after the 2014 target has been reached will likely be realized.

length of his vision for the future of this element: “Silver is

184

going through a re-rating right now and, in my opinion, the

Neumeyer says that one of the main success factors has

silver price is going to be much higher in the future. I feel

been the company’s hiring policy: the company’s entire

that as long as we stay as pure as we can, First Majestic will

operations team is local Mexican talent and is based

benefit more than other companies that have less silver in

in Mexico. “I feel that having local people running the

their portfolio.” His certainty is reflected in First Majestic’s

operations gives First Majestic a huge advantage over

acquisition criteria: a deposit has to consist of more than

other foreign companies. Since we started the company


have to be around US$100 to US$150 per ounce for that to

water back into the system to be reused. This is more

happen. These numbers are achievable and in my view we

environmentally friendly, because the end product is a dry

will see prices like that within the next five years.

tailings paste that is free of water or cyanide, and water consumption on that operation is 80% lower following the

Q: What does First Majestic’s portfolio currently look like,

construction of these presses. We have also installed them

and which would you say is your flagship property?

at the La Parrilla mine. Even though this entails a big initial

A: Our strategy has been to acquire good assets that we

investment of around US$5 million, it takes a huge pressure

believe in, and we have proved very successful in buying

off the community. At our San Martín operation in the state

underperforming assets that lacked money. We currently

of Jalisco, the Bolaños River dried up for the first time

have 11 projects in total, with five producing mines, two of

in known history in the summer of 2012. As a result our

which will be expanded dramatically over the next three

production mill had to be shut down, because obviously

years. Del Toro is the biggest investment in our company’s

the town takes priority over the mine for water provision.

history, at US$124 million, and it is also going to be our

As a solution, First Majestic built a 13km pipeline from a

biggest mine, with anticipated annual production of 6

distant water source in the mountains and transported

million ounces of pure silver. That is easily our biggest mine

water from there to the town. A decision was also made to

and our biggest investment in Mexico, and currently the

invest in a sewage treatment facility in the town in order to

most important property in our portfolio.

treat all of the sewage that is currently going into the river. This new facility will not only clean up the environment, but

Q: What is the main challenge that you are facing at your

its wastewater can also be used in the milling operation.

operating mines?

As part of our current Del Toro construction project in the

A: The biggest factor for us has been water; we had some

state of Zacatecas, we are installing the same types of

problems in 2012 with our other operations because of the

water preservation systems. We are very proud of these

drought that hit Mexico. We built very large filter presses

initiatives and believe that all mining companies should

in the La Encantada mine, which filter and recirculate the

adopt similar practices.

we have attracted some of the best miners in Mexico, who

has funded - from paving roads to improving water

want to work for us because of this different strategy.” The

and electricity infrastructure and improving healthcare

operations team is based in Durango and is complemented

facilities. “When I go to that town today, I get excited and

by the company’s head office in Vancouver. “First Majestic’s

feel very proud of what we have done in Mexico. These

COO, Ramón Dávila, and I put the company together in

benefits are a demonstration of what mining can bring

2003 by combining our talents: mine being in banking and

to Mexico. The wealth stemming from mining activities is

the Canadian regulatory system and Ramón’s as one of the

creating wealth in Mexico and reducing poverty, and as this

best operators in Mexico,” says Neumeyer.

process continues over time the influence of drug cartels will decrease,” predicts Neumeyer. “There has been a lot

Neumeyer states the company’s impact on the local

of investment in Mexico, coming from major international

level as its greatest achievement. Many of the company’s

corporations and hundreds of Canadian mining companies,

projects are old mines that have required some work in

and the country will continue to benefit from investment

bringing them back into operation and turning them into

over the next five to 10 years. As long as the government

modern, functioning mines. Hiring only Mexican staff,

allows continued opportunities for foreigners to invest in

the company has relied on local talent in order to do so.

their industries in a way that makes sense for all parties

“The employment we are generating is very important

concerned, Mexico’s growth will continue”.

and exciting. When Dávila and I went through the town of La Parrilla in October 2003, there were only 300 people

If Neumeyer’s conviction that Mexico is an excellent place

in that town and I can guarantee that there was not one

for mining operations is not yet evident, the importance of

person there between the ages of 10 and 60 - the people

its role in the future of First Majestic Silver speaks volumes.

in that age group had left and were working in big cities

“We do not have any ambitions to go beyond Mexico,

elsewhere in Mexico, or in the US,” Neumeyer remembers.

because the potential of our assets here is tremendous

Now with a population of around 2,500 people, the town

and will keep us busy for many decades to come. We have

has also benefitted from various projects that First Majestic

no reason to look outside of Mexico,” he says.

185


| VIEW FROM THE TOP

UNLOCKING MEXICO’S POTENTIAL TO CREATE LONG-TERM VALUE MITCHELL KREBS President & CEO of Coeur Mining Q: What potential do the properties in Coeur Mining’s

Q: What is the philosophy behind the environmental and

portfolio represent, and how will your acquisition of the La

social responsibility achievements of Coeur Mining in

Preciosa property generate future value for the company?

Mexico?

A: Palmarejo is the world’s fifth largest primary silver mine

A: Environmental monitoring, employee, and public safety

and one of the largest operating mines in Mexico, which

measures and community involvement are integral in every

means that the resources and our employees at Palmarejo

stage of the mining life cycle, at all of our operations.

are critical to Coeur Mining’s growth. This flagship operation

Protecting the natural and economic environments where

holds significant potential for Coeur Mining because of

our activities have an impact and developing and maintaining

its large land position – more than 12,140 hectares – and

constructive relationships with the communities affected by

significant exploration opportunities. Our operation at

our ongoing activities are our core missions.

Palmarejo generated metal sales of US$86 million in the second quarter of 2013. Ongoing cost reduction initiatives

We have been honored to receive a number of environmental

at the operation have lowered cash operating costs, and

and social responsibility awards in recognition of the

we expect to make further progress in the second half of

successful community initiatives Coeur Mexicana has

the year.

undertaken. In April 2013 Coeur Mexicana was recognized with the Socially Responsible Business Distinction Award

The April 2013 acquisition of Orko Silver and its key asset

for 2012 for Palmarejo. This is the fifth consecutive year we

La Preciosa, in the state of Durango, further diversifies our

have received this national award in recognition of Coeur

global portfolio and provides the opportunity to create long

Mexicana’s demonstrated leadership in corporate social

term value for our shareholders. La Preciosa is the best of

responsibility, environmental stewardship, and sustainability.

the undeveloped projects in Mexico, and it offers Coeur Mining other benefits such as improving our geographical

Coeur Mexicana contributes to local communities in many

diversification. The Preliminary Economic Assessment (PEA)

ways. One such way is in funding the construction of

that we recently completed on La Preciosa demonstrated

infrastructure projects, such as a classroom and lavatories

the viability of the project and provides a solid foundation

in the Agua Salada community and an agreement with

from which we can enhance the project’s economics over

the Central Board of Water and Sanitation of the state

time, indicating an initial mine life of 17 years, producing an

for a sewage project for the Palmarejo community. We

average of 9.1 million silver ounces and 15,100oz of gold per

are also proud to support education through several

year over the first 14 years, at an average cash operating

different programs, such as the Quality Schools Program,

cost of US$13.86 per silver ounce.

which provided US$1,600 each to 12 institutions to purchase furniture and computer equipment and to fund

Coeur Mining has the development and exploration

scholarship programs. As a company we have also led

expertise, financial ability, and operational foundation to

several medical health campaigns such as “Chihuahua

fully optimize La Preciosa and realize its potential. We are

Vive,” taking care of the logistics for the provision of

currently putting together the feasibility study, which we

medical services, a gynecologist, dentist services, free

expect to complete in mid-2014, to help us to maximize

medication, an optometrist and civil registry, in partnership

returns at the current lower metal prices. We will not

with the Chihuahua State Government. These are just a few

proceed with construction at La Preciosa unless we feel we

examples of the many different types of projects Coeur

have a project that can generate an all-in rate of return that

Mining has carried out in the local communities.

exceeds our capital costs, but we believe that La Preciosa

186

will become another long-life, cornerstone asset for Coeur

Q: What are the company’s ambitions and goals within the

Mining and will generate a return in excess of our capital

Mexican mining industry in the coming 10 years, and what

costs.

will be your strategy to achieving such targets?


A: The pillars of sustainability – safety, environmental stewardship, community partnerships, and profitability

LA PRECIOSA

– are fundamental to our company’s ultimate success.

In April 2013 Coeur Mining completed the

We recognize that our Mexican operations are critical to

acquisition of Orko Silver Corp, for a total of

Coeur Mining’s long term global growth, and a valuable

CA$100 million in cash plus 11.6 million new

complement

shares, to take control of one of the world’s

to

production

expansions

at

our

US

operations. The opportunities at La Preciosa and elsewhere

largest

in Mexico will continue to shape how we grow and change

Mining is now moving forward to develop La

as a company, and we will maintain our commitment to

Preciosa into a world-class silver mine that could

operational consistency across our entire business, and to

produce about 7 to 9 million ounces of silver

building long term value for our shareholders.

annually.

Coeur Mining’s ongoing mission is to produce and protect

The asset, located just 47km northeast of the city

value for employees and shareholders by executing and

of Durango, covers 32,400 hectares and contains

maintaining operational consistency, delivering high-

measured and indicated resources of 146.2 million

return growth through internal operations and external

ounces of silver and 277,700oz of gold according

opportunities, and increasing reserves and resources

to the preliminary economic assessment (PEA)

through an aggressive exploration program. We are able

report, as well as inferred resources of 37.7

to deliver consistent results by doing what we say we

million ounces of silver and 60,300 ounces of

will do and demonstrating discipline. This alone gives

gold. The PEA for La Preciosa indicates an initial

Coeur Mining a competitive advantage, as it creates new

estimated mine life of 17 years, with a recovery of

opportunities and value.

an estimated 134.5 million ounces of silver, with

undeveloped

silver

deposits.

Coeur

the last three years of mill feed being sourced Our goal is to be recognized as a leader in the precious

from stock piles. The proposed project includes

metals industry. However, being a global leader does not

the construction of 9.7km of new unpaved haul

always mean you are the biggest company. In this industry

road, a 41km power line, and water sourced from

many companies have grown in size, but not improved

a well field 15km to the south of the mine.

when it comes to performance. In Coeur Mining’s view being a leader means we make more money for our

The company’s appraised internal rate of return

shareholders than other mining companies do, and we do

is of 17%, assuming price levels of US$25 per

it in a way that is safe, environmentally sound, and with the

silver ounce and US$1,500 per gold ounce. These

support of the local communities where we operate. We

prices are 26.3% higher than current levels for the

are reinvesting and growing in mindful ways because as an

former and 12.8% higher for the latter.

industry we are exhausting our reserves every day and we need to be smart about creating long term value.

We have the core assets, management team, track record, balance sheet & share structure to continue delivering out-performance.

Endeavour Silver Corp. is a premier, mid-tier silver mining company focused on the growth of its silver production, reserves and resources. Endeavour is motivated to make a positive difference in the communities where we work. We care about our people.

Silver Producer Focused on www.edrsilver.com

GROWTH

NYSE: EXK TSX: EDR FSE: EJD


| MINE SPOTLIGHT

LA ENCANTADA The La Encantada property has been in First Majestic’s portfolio of assets since 2006 and has since become the company’s largest operation, currently accounting for nearly half of the company’s annual silver production. Located in the state of Coahuila, the mine site encompasses 4,076 hectares of mining rights and 1,343 hectares of surface rights. The mineralogy of the deposits at La Encantada is predominantly iron oxides, carbonates and lead sulfates with high concentrations of argentite and native silver values, as the result of an oxidation process and enrichment in a known vertical range of more than 400 meters. Beneath the elevation of 1,600m, there is a presence of sulfides of Pb-Ag-Zn in the southwest part of the La Encantada mine. In 2010 and 2011 First Majestic completed a modernization and changeover at La Encantada to producing silver doré bars rather than concentrates. As a result, plant efficiency has improved significantly with dramatically lower smelting and refining costs and higher quality silver doré bars. The cyanidation plant was upgraded in 2011 and re-rated to 4,000 t/d. Running at full capacity, production is approximately 4.2 to 4.5 million ounces of silver annually in the form of silver doré bars. To improve recovery rates, metallurgical studies and pilot tests have been conducted to increase the production of fresh ore and developing areas of the mine with lower manganese content – primarily the San Francisco vein, the Milagros Breccia pipe and the newly discovered 990 chimney. The 990 is a high grade breccia pipe discovered in early 2012 with silver grades in the range of 400 g/t to 500 g/t. This new area was brought into production late in the fourth quarter of 2012 and is expected to improve grades of fresh ore feed to the mill. Silver production in 2012 reached 4.037 million ounces and is forecast to increase to 4.1-4.3 million ounces in 2013. La Encantada operates at a cash cost per ounce of US$8.46.

LA ENCANTADA PRODUCTION RESULTS Ore Processed/Tonnes milled

1,515,795

Average Silver Grade (g/tonne)

176

Recovery (%)

47%

Total Silver Ounces Produced Gold Ounces Produced Tonnes of Iron Ore Produced Total Production-Ounces Silver Equivalent

4,036,502 238 18,329 4,111,018

Underground Development (m)

14,338

Diamond Drilling (m)

19,390

Source: First Majestic Silver Corp.

189


PAN AMERICAN SILVER BASES GROWTH STREAK IN MEXICO Many

Chris Warwick, Country Manager of Pan American Silver and CEO of Plata Panamericana (PASMEX)

best

17 million ounces of silver. Chris Warwick, Country Manager

performing silver mining

of Pan American Silver, and CEO of its Mexican subsidiary

companies are relatively

Plata Panamericana (PASMEX), has a good perspective on

young

that

the opportunities for mining companies that own projects

use new business models

in Mexico. “The Mexican mining industry is in a strong

relying on state of the

position, built on strong prices and attractive mining

art operational practices.

opportunities under the previous government,” Warwick

Perhaps one of the most

mentions. “This may be compromised going forward as

representative

metal prices soften and the new government introduces

of

of

the

companies

this

American

trend

examples is

Silver.

Pan

new forms of taxation for the industry, but it will still leave

This

a robust operating environment,” he affirms.

Canadian-based company has become the third largest primary silver mining company in the world, after only 19

Pan American Silver’s producing mines in Mexico are now

years of operation (as per production figures published

the biggest contributors to the company’s global silver

by The Silver Institute). Pan American Silver produced a

output. Its fully-operating asset in Zacatecas, La Colorada,

company record of 25.1 million ounces of silver and 112,300

has produced 12.4 million ounces of silver over the past

ounces of gold in 2012.

three years. Together, Alamo Dorado and La Colorada produced over 9.8 million ounces of silver during 2012,

Pan American Silver owns seven silver-producing mines

which represented 39% of the company’s global silver

in Mexico, Peru, Bolivia, and Argentina, plus a variety of

production. Additionally, the company added the Dolores

exploration and development projects. Its largest silver-

project, located in Chihuahua, to its portfolio as a result

producing mine, Alamo Dorado, is located in Mexico,

of the acquisition of Minefinders Ltd. By the end of 2012,

and ranks as one of the 15 most important primary silver

the mine had already yielded 2.7 million ounces of silver.

mines in the world. This asset, located in the southwestern

Furthermore, Pan American Silver is developing another

region of Sonora, started producing in 2007 and its total

project resulting from this acquisition, and is exploring

production for the last three years (2010 to 2012) surpasses

Minefinders’ assets in Northern Sonora.

The La Colorada mine is located in the Chalchihuites district in Zacatecas State, and is comprised of three separate underground silver mines covering an area of approximately 2,864 hectares. The La Colorada mine is a typical epithermal silver-gold deposit, with a transition in the lower reaches of the deposit to a more base metal predominant system. In 2013 Pan American Silver anticipates producing between 4.6 million and 4.7 million ounces of silver, between 4,300 and 4,500oz of gold, between 5,000 and 5,800 tonnes of zinc, and between 2,800 and 2,900 tonnes of lead.

190


“We will continue looking for

places great importance on community relations and

further growth in Mexico through

with the National Institute for Forestry, Agriculture and

future

acquisitions

development

of

the

Livestock (INIFAP) to design sustainable agricultural

existing

population that inhabits the arid area surrounding the

and

our

sustainability. For example, the company has teamed up

operations”

projects that could guarantee a means of living for the Alamo Dorado project. “Our commitment to the local communities has shown PASMEX to be a serious player

Chris Warwick, Country Manager of Pan American Silver and CEO of Plata Panamericana (PASMEX)

in the areas of its operations,” Warwick affirms. “This has filtered through to the employees from those areas and

PASMEX expects to increase silver production in Mexico

has resulted in very energetic committed workforces who

to between 12.6 and 13.1 million ounces of silver by the

are proud of their individual operation.”

end of 2013, while at the same time streamlining new projects and increasing Pan American Silver’s global

Warwick believes that water management, both in

reserves. The company’s strategy is to extend mine life

underground and surface mining, is and has always been

through exploration, generate new projects as a result

the most notable environmental challenge in Mexican

of important discoveries and acquisitions, and achieve

mining operations. He notes that even the water that simply

operational stability and reliability by virtue of sound

passes through a mine’s property from a river or as a result

mining methods and community engagement. “Mine life,

of storm water run-off must be respected. “Water is always

coupled with sound capital investments, has been the

linked to the surrounding communities, their farming and

key to making PASMEX the largest contributor to Pan

livestock. The ejidos can turn hostile very quickly if not

American Silver’s worldwide production, as it has been the

given the correct attention in the management of their

platform to build on,” Warwick says. “This has allowed the

water,” he warns.

implementation of strong mining philosophies, which have not been compromised in the buildup of production over

While Warwick admits that the possible approval of a

the previous years.”

royalty tax could be a challenge and a possible cause of the industry’s deflation, he affirms that PASMEX maintains

Pan American Silver’s particular attention to the mining

considerable ambitions in the country. “We will continue

method employed in each individual operation helps

looking for further growth through future acquisitions,” he

the company balance exploration, development, and

mentions. “At the same time, we will also continue to foster

production

the growth of existing operations.”

successfully.

Furthermore,

the

company

191


DIVERSIFYING THE PORTFOLIO TO MINIMIZE RISK Each phase of a mining project brings with it a different

expansion,” says McDonald. Promontorio was previously a

set of challenges. When mineral prices drop there will be

small scale silver producer, and the part that was previously

a squeeze on companies operating at all different phases

mined represents only a small part of the whole mineral

of the mining value chain, though junior companies tend

system. “We went from an initial discovery program of

to have a particularly difficult time, relying as they do on

having no resource ounces, to having today over 92 million

external sources of investment for their exploration projects.

silver-equivalent ounces, and another 24 million ounces of

The companies that will be most resilient during difficult

inferred resources,” adds McDonald. Promontorio is part of

times are those that can generate profits and reinvest

a large diatreme complex, which often host prolific metal

those in their exploration projects; for junior companies

resources – Goldcorp’s Peñasquito mine in Zacatecas is

this is made possible either by having at least one property

the largest diatreme deposit in Mexico. “The Promontorio

at the production phase, or a portfolio of projects that are

diatreme is very permissive for discovering more resources,

either in the advanced exploration stage or are close to

and that is why we are so excited about the Promontorio

reaching the development phase. “Kootenay Silver started

project. We have just released a new resource update that

off with a two-pronged approach. Our goal from the outset

includes the gold component, because although this system

was to acquire an advanced, lower risk property that

is a principally silver deposit, in terms of value it represents

offered real potential to evolve into a commercial precious

roughly 45% silver, close to 30% gold, and the remainder

metals producer,” says James McDonald, Kootenay Silver’s

is lead and zinc. We had not previously included the gold

President and CEO. “Our second target area was project

component because we did not have the metallurgy to

generation. Since there were not many companies doing

show the potential to extract that gold; our studies have

this at the time, the company was very valuable.”

however shown that, after oxidation, the mineral extracts

“Kootenay Silver’s objective has been to leverage the value we built with the grassroots project generation to create a more advanced stage, lower risk project” James McDonald, President & CEO of Kootenay Silver Inc.

Kootenay Silver is a Canadian junior company, made

very well with leaching. This gold component has certainly

up of exploration experts, prospectors, and geologists

boosted the size of the resource,” adds McDonald. The

with a background in finding and developing early stage

presence of both gold and silver reflects Kootenay Silver’s

mining projects in Mexico and Canada. Founded in 2006,

own specialization. The company was previously known as

the company has a diverse portfolio that includes high

Kootenay Gold, but changed its name to Kootenay Silver to

risk, high reward properties and more advanced, lower

account for the fact that the Promontorio property holds

risk projects, with the aim of insuring itself against the

more silver than gold – the new name made more sense

fate that is befalling many other juniors in the market. By

when marketing the company to potential investors. Both

McDonald’s calculations, it takes around 2,000 exploration

precious metals, however, maintain an important place in

projects to find one viable mine, which is why juniors are

Kootenay Silver’s portfolio.

suffering from a lack of investment. “Today, exploration is driven mostly by the junior companies, and there is little

McDonald is confident about the future of silver, and

risk-capital available for them. Kootenay Silver’s objective

thus the company’s specialization. “Silver, like gold, is a

has been to leverage the value we built with the grassroots

precious metal that plays a monetary role in the global

project generation to create a more advanced stage, lower

economy. Unlike gold, it is also widely used in industrial

risk project,” explains McDonald.

processes, particularly in solar and medical applications, which have taken up the slack from the diminished use of

192

For Kootenay Silver this advanced stage, lower risk project

silver in the photographic industry over the last 10 years.

is the company’s flagship project in Sonora, Promontorio.

This double component makes the silver market a very

“For Kootenay Silver, Promontorio perfectly fits its criteria:

interesting and complicated market, and helps to manage

it had potential to immediately establish a resource base

risk,” says McDonald. When asked about his view on the

and had virtually unlimited upside potential for resource

impact of the recent drops in metal prices on the long term


development of the silver price, McDonald emphasizes

what we believe are solid fundamentals supporting the

the need to keep a sense of the bigger picture. “I believe

precious metals market, we feel we are well positioned,”

precious metal prices will continue to be strong, because

says McDonald. “Especially now, companies want to be in

global macroeconomic fundamentals will remain bullish for

politically stable and mining friendly jurisdictions where

precious metals,” he says. “Industrial demand will continue

their assets will not be confiscated. After putting a lot of

to grow, which helps silver. This will be driven by recovering

time and capital into finding deposits, and having pursued

economies throughout the world. Kootenay Silver really

a lot of other projects before reaching the stage of actually

has to look at the macroeconomic indicators, and whether

building a mine, companies do not want to see themselves

gold and silver prices are going to be strong 12, 24 or 36

in a situation where the mine can be taken away from them,

months from now. I think the answer to that question is

or where the government does not support the rule of law,

yes, we believe the prices will be higher, though we do not

resulting in the inability to develop the deposit,” states

know by how much,” he says.

McDonald. “We have more projects here because we see more potential for discovery, but also because Mexico is

Part of Kootenay Silver’s strategy to remaining strong

politically stable, and a very good place to operate. A lot of

in the face of this instability is to generate early stage

large deposits have been discovered in Mexico, including

exploration projects internally, advancing them to a certain

world class deposits. There are going to be many more

point, and then bringing in a partner to help finance the

discoveries made in Mexico in the coming years,” he says.

project, thus spreading the risk. The company is still finding there to be interest for good partnerships in the

Kootenay Silver plans to keep its focus on Mexico. The

industry and recently sold a 10% stake in its Promontorio

strategy that was used on Promontorio will play an

project to Agnico Eagle. For McDonald, Agnico Eagle’s

important role in the company’s exploration strategy

investment has served as an endorsement of the work that

elsewhere in Mexico. “On the generative side, we work in

the company is doing. “As an experienced mining operator

geological terrains that have potential for large deposits,

they can provide us with their complementary technical

and we geologically pick that area apart. It is a geology

background and knowledge, while Agnico Eagle can

driven process that works very well,” says McDonald.

benefit from the expertise of our exploration team in this

In the short-term, the company’s main goal is to keep

area of the country. The Agnico Eagle investment is very

moving Promontorio forward towards production, whilst

strategic for us; it removed doubt from our shareholders’

in the meantime leveraging its previous experience and

minds, and secured the next several months for Kootenay

successes in the region to keep making new discoveries.

Silver, without having to take the risk of going back to

“We are keenly focused on becoming a precious metals

the market to raise capital. With cash in the treasury, and

producer and generating new discoveries,” says McDonald.

193


RESULTS KEEP EXPLORATION PROJECTS MOVING FORWARD

José Velázquez Blanco, Country Manager of El Tigre Silver Corp.

El

Tigre

in

the

mine,

in

Sonora,

Sierra

located El

how the industry works. “The support provided by the

90km

government translates into the granting of concessions,

southeast of Agua Prieta

and time is reduced in the permitting processes. It is

on the US-Mexico border,

relatively easy to claim land, begin negotiating with the

was discovered in 1896

relevant people, and start exploration,” he adds. As the

and consists of three veins:

project moves forward, new infrastructure challenges arise.

El Tigre, the Sooy, and the

For example, as the operations get closer to the veins, the

Seitz-Kelly.

Production

old mine structure will become unreliable. The current

started

1903,

and

access points have to be renovated in order to be able to

the

in

mine

just

people and the state have a mining mindset and know

Tigre

an

reach the areas of interest. Other hurdles are geographical,

estimated 70 to 75 million ounces of silver and 325,000

produced

due to the remote location of the property. “The terrain is

to 350,000 ounces of gold over the following three and a

very abrupt and has many acute slopes. During the rainy

half decades. Even though the area has good geological

season we are completely isolated and it is very hard to

potential, El Tigre remained on standby for the following

get in and out. There are three or four days during each

decades, until Anaconda Minerals Company and Minera

season when we cannot leave the property and the river

Talaman completed the first modern exploration program,

overflows, destroying all roads and paths. These challenges

between 1981 and 1984. It was not until 2006 that El Tigre

have been overcome thanks to our very capable personnel

Silver Corp. acquired the concession from Minera Talaman,

and their devotion to their duties,” Velázquez Blanco says.

and the company has been working there ever since. Even though there are no surrounding communities that “We have gotten excellent results from the little work that

can directly benefit from the company’s operation, people

we have performed so far, and this is why we and our

from slightly farther away are hired. “If everything goes as

shareholders are interested in the property,” highlights José

planned, when we start operating we will need a bigger

Velázquez Blanco, Country Manager of El Tigre Silver Corp.

workforce, and this project will be an even greater source

The company holds nine mining concessions in the same area

of employment for the local communities,” says Velázquez

of 215 square kilometres, but has focused most of its efforts

Blanco. In order to be able to achieve this goal, a key

on a claim called El Tigre Suertudo (Lucky Tiger), where the

element of the company’s business plan is a processing

old mine used to be. “To this day, we have not even explored

facility for recovering silver and gold from a large tailings

30% of the property because we have focused on the most

pile, built up over 35 years of production at the original

promising areas,” says Velázquez Blanco. “In one part of the

mine. The tailings recovery project was granted approval

property over 3 million ounces of silver have been extracted.

from Semarnat, Mexico’s Environment Ministry, in July and

From a mineralogical standpoint it is a very interesting place,

the construction stage will begin shortly. The goal of this

and when we have more financial resources we will evaluate

project is to eventually help to finance further exploration.

other areas so that more mining targets can be defined.”

“We want to explore the north of the concession to evaluate the structures in that area, and then focus on the extreme

During August 2013, El Tigre Silver announced the filing of

south to define its potential,” Velázquez Blanco adds.

the NI 43-101 Prefeasibility Study and Resource Estimate. “The evaluation of this report will show the mineral resources we have, and that will lead us to the prefeasibility studies. The vein system extends to approximately 2km, but we focused our exploration operation on only half of that distance,” Velázquez Blanco explains. Operations performed during the past century have led El Tigre Silver to believe that there are still deposits remaining where the mine used to be, and drilling has confirmed that theory, with even higher mineral grades than were expected at 8 g/t

have a processing plant before we hit production, which we believe could be possible in a year and a half. In the meantime, we will

of silver and 235 g/t of gold.

continue our exploration activities

Being located in Sonora is another advantage for El Tigre

on the property”

Silver since, according to Velázquez Blanco, the local

194

“We want to make sure that we

José Velázquez Blanco, Country Manager of El Tigre Silver Corp.


| VIEW FROM THE TOP

PRODUCTION DECISION FOR PITARRILLA JOHN SMITH President & CEO of Silver Standard

Q: What have been the critical success factors in the

remain part of our long term growth strategy. The cost

company’s growth strategy over the past decades?

reduction program is mainly focused on our operating

A: Silver Standard was founded in 1946, when it operated

mine and is not expected to have a significant effect on

the Silver Standard Mine in northern British Columbia. For

Pitarrilla. While we currently do not have any projects at the

many decades after that, the company’s management

production stage in Mexico, risk management and safety

focused on prospective project acquisitions, with the goal

remain a priority for us. We will continue to apply our safety

of accumulating silver ounces in the ground and directly

standards and philosophy not only at our producing mine,

exposing its investors to silver. This strategy was effective

Pirquitas, but at all of our properties globally.

until the mid-2000s when silver ETFs were created and the company moved into the development and operation stages.

Q: What characterizes Silver Standard’s M&A strategy?

By 2006 the company had accumulated a large portfolio

A: Silver Standard’s M&A strategy is opportunistic in nature.

of silver projects along some of the most important silver

We continually assess the market and look for opportunities

belts in North and South America. As investors migrated

to upgrade our portfolio. For us, a project or mine with a

to silver ETFs, Silver Standard had to change its strategy

long life and a low cost profile would be considered a great

by becoming a silver producer, and began the construction

M&A opportunity, and we have the balance sheet to make

of the Pirquitas Mine in Jujuy, Argentina. Pirquitas achieved

this happen.

commercial production in December 2009, with expected average production of between eight and 10 million ounces

Q: Silver Standard’s Pitarrilla property has the potential to

of silver per year. This strategy has allowed Silver Standard

become one of the largest silver mines in the country. What

to control an extensive portfolio of projects ranging from

are the company’s priorities for this property?

grassroots to production. The company is now equipped

A: As we position Pitarrilla for a production decision our

with a diversified portfolio, a strong balance sheet and an

focus remains on four key areas, which include acquiring

experienced management team, and is well positioned to

the remaining surface rights; obtaining environmental

deliver growth and long term shareholder value.

and operating permits; continuing with engineering and infrastructure work; and implementing a financing plan.

Q: What has made Mexico a good location for exploring

Currently, our main focus in Mexico is to position Pitarrilla

and developing silver mining projects for Silver Standard?

for a construction decision at the end of the year. This will

A: Mexico is a great country for the mining industry. It enjoys

allow us to build and operate one of the largest open pit

good exploration prospects, and it has put in place specific

silver mines in the country and in the world, solidifying and

policies and procedures to allow mining companies to

diversifying our production profile. Concurrently, we have

effectively move from exploration to production. Mexico has

an ongoing exploration program through which we evaluate

vast mining experience that dates back centuries. The current

all of the projects in our portfolio.

market conditions have affected all projects regardless of their jurisdictions, and Mexico still remains one of the

Mexico is a great mining jurisdiction in which for Silver

preferred countries for mining, due to its long mining history,

Standard to build and operate a mine. We have a strong

its legislation and its commitment to the mining industry.

team of mine builders and operators with over 500 years of combined experience. As a company, we have also gained

Q: The company plans to roll out cost reduction plans in

valuable experience by building and operating our Pirquitas

2013. What changes will Silver Standard be making on its

mine, which has not been an easy task given its high

Mexican properties as a result of this strategy?

elevation and its location in a country with a non-mining

A: This is the dichotomy of business: some parts have to be

culture. From that experience, we have taken away many

managed for cost while others have to grow. Our Pitarrilla

lessons that we will apply at Pitarrilla and throughout the

Project in Mexico, as well as our other exploration projects,

rest of our portfolio.

195


| VIEW FROM THE TOP

THE VALUE OF EFFICIENCY IN ALLOCATING RESOURCES BRUCE WINFIELD President & CEO of Defiance Silver Corp. Q: What was the strategy behind signing an option

Q: What are the current priorities for Defiance Silver and

agreement for a 100% interest in the San Acacio silver mine?

its San Acacio mine?

A: Our concept was to follow in the footsteps of other

A: Our plans are to refurbish the mill and bring it into

recently successful mining companies in Mexico, such as

production,

Endeavour Silver, IMPACT Silver and First Majestic. All of

mine in order to feed the mill. The next step would be

these companies worked on a model of finding historic but

to expand production in the mine and mill, as the initial

excellent assets, rehabilitating them, and injecting capital in

production of 200 t/d can be increased. The agreement

order to bring them back into production and turn them

with IMPACT Silver is to acquire 10 concessions as well as

into small to mid-sized producers. The Vetagrande Vein has

the mill. The objective is to start short term production,

historically produced approximately 200 million ounces

using the mill, and feed from mineralized dumps on one

of silver, with the San Acacio mine that we control having

of the concessions that we have obtained with IMPACT

produced around 80-100 million ounces, and we believe

Silver. The resource that we have far exceeds the mill’s 200

while

simultaneously

redeveloping

the

that San Acacio has the potential to produce the same amount again. Our strategy was to reach an agreement with the Mesta family on an option to purchase the mine until September 2015. The big attraction about this property was the fact that the Mesta Family has owned it for a long time, but they had lacked access to the capital that was needed to develop the mine. When we reached an agreement in November 2011 the financial markets were much better than they are now. At that time Defiance Silver was confident that, with its expertise in the markets and the company’s overall experience, plus the support of IMPACT Silver, we would be able to finance the project and work diligently to move it forward. Notwithstanding the market downturn, we have still been able to raise the necessary funding to invest in our priority tasks, which are meeting our agreement commitments and carrying out technical studies to move the project forward. However, we have not yet been able to raise the required money to develop the mine. Q: What are the priorities for Defiance Silver during the current squeeze in the market? A: Our priority has been getting the Environmental Impact Assessment and the Land Use Change permit for the mill. Work on the San Acacio mine has included compilation studies to better define the geology and alteration as well as revising the resource calculation. Whilst we are short on capital following the downward turn in the cyclical mining market, we have the advantage of being a junior company with an advanced mine-mill project on a NI 43-101 compliant resource. Companies with grassroots projects are in a more difficult position to raise capital.

196

The San Acacio Mine has a NI 43-101 indicated resource of 3.55 million ounces of silver contained in 1.15 million tonnes grading 95.8 g/t silver, and an inferred resource of 12.45 million ounces of silver contained in 2.89 million tonnes grading 134.1 g/t silver.


t/d processing capacity, therefore we want to expand the

for us is to raise a small amount of working capital with

processing plant to 500 t/d in the future. With a 500 t/d

which to finance the company and carry on with the

mine and mill operation, Defiance would be producing a

technical evaluation of the project. Ultimately, we want

significant amount of silver.

to expand our operation to 1,000 t/d or more, depending on future exploration success. These are preliminary

The plant we have an option to acquire was developed

estimations, and should be treated as such.

organically by a resident of Zacatecas, over a period of 10 or more years. We have used an external consulting

In the next five years we want to become a mid-sized silver

company in Toronto to evaluate it and, based on their

producer, producing at least 1 million ounces per year

report and recommendations, we estimated that the

with major potential for further expansion. Our projects

cost to refurbish and upgrade it would be US$1.2 million.

are significant enough to have that potential. Our most

In the past concentrates were dried on patios in the sun,

important asset is the mine, which has only been developed

which is not a very sophisticated manner of operating.

along a distance of 1km and to a depth of 200 meters,

We plan to install thickeners and filters, which will allow

while a further 4km has never seen modern exploration.

us to dry the concentrates more efficiently. These types of

The vein is there, and we are very much looking forward

improvements will be applied throughout the mill.

to having the capital to make the most of this tremendous opportunity. It has been only 18 months since we started

Q: What are Defiance Silver’s development milestones for

the project so we are still very much in the early days.

the coming years, and what are your long term ambitions?

This is a long term operation, the potential of which we

A: Our objective is to raise capital. The immediate milestone

wholeheartedly believe in.

VERTICAL INTEGRATION STRATEGY Companies invest millions of dollars in exploration, and

As mentioned by Gustavo Ortega Gómez, President of

though there may be resources that are easier to exploit

the Innovation and Technology Commission of Camimex,

and which thus offer a faster return on that investment,

technology will continue to play an extremely important

companies like Arian Silver that have long term production

role in the mining industry in the coming years, given its

plans complement their cost control strategies by looking

power to help companies to work more efficiently. Arian

to vertically integrate their operations from the exploration

Silver follows this same philosophy, seeking the best

phase to development and production. “Arian Silver is

and newest technologies to incorporate into its vertical

increasing the value of its resource with its current mill

integration strategy. “We are constantly on the lookout

plant project and its aggressive exploration projects,” says

for any technological discoveries that could improve

Miguel Barahona of Arian Silver’s plans to increase the

our operations. If we find equipment that can improve

value of its San José mine.

our recovery rate or benefit our operations then we will incorporate it,” says Barahona.

When limited access to financing complicates a company’s their

With its clearly defined objectives of bringing the San José

investments, in many cases outsourcing operations at a

mine into production, completing its vertical integration

certain stage of development that are not considered to

strategy with the mill plant project, and concluding its

add value to their core operations. Arian Silver, along with

exploration of the 75.5ha Calinto Group plot of mining

many other companies in the mining market, has faced

concessions, Arian Silver is making sure that it achieves its

this operational challenge and decided to externalize

long term goals in the most socially and environmentally

the processing of its minerals; this is an experience that

responsible way possible. “We intend to be big, in terms of

has given the company the know-how and experience

being a low cost producer with high safety, environmental

to now be in the position to set up a mill of its own. “We

and productivity standards. We are growing not only along

are currently investing in our own processing plant and

the lines of production and resources, but also with constant

in metallurgical testing to increase recovery, and we are

advances in innovation and technology, as well as the right

convinced this is the right strategy to ensure both product

people that have the ethics and professionalism to help us

quality and cost efficiency,” comments Barahona.

to reach our goals and growth objectives as a whole.”

operations,

they

must

immediately

prioritize

197


| MINE SPOTLIGHT

PALMAREJO Palmarejo, the world’s 5th largest primary silver mine, is located in the state of Chihuahua and its operations consist of open pit and underground facilities. The deposits at the mine have silver in the upper parts and gold in the deeper parts, along with base metal mineralization, and are classified as epithermal deposits. Valentín Ruiz Corredor, of indigenous origin, discovered the mine in 1818 when he came across pure silver rocks while walking around the Periquera Hill. Tomas Pelayo, an experienced miner, joined forces with him and began the legal procedure to exploit the mine. Ruiz Corredor later sold his stocks to Tomas Pelayo and other shareholders, with Pelayo going on to buy the stocks from each of them until he was the sole owner of the mine. When Pelayo died the mine was passed on to his heirs, who sold the mine in 1823. Palmarejo was a large silver producer between 1878 and 1880, under the ownership of Justina Almada Gonzales de Sayas. When Mexican President Porfirio Díaz increased the opportunities for foreign investment in Mexican mining, the Palmarejo Mining company was created by Eduardo Apelgarth, and mining activities continued under Apelgarth. The mine was exploited in the 1970s by Minas Huruapa, a company from Zacatecas, but the company abandoned operations in the 1980s when it was thought that the deposit was depleted. Palmarejo was taken over by Coeur in 2009, which quickly disproved the depletion theories. Palmarejo produced 8.2 million ounces of silver and 106,038oz of gold in 2012. Total metal sales in 2012 were US$442.1 million, representing about half of the company’s total metal sales. Coeur Mining expects 2013 production at Palmarejo to be 7.7 to 8.3 million ounces of silver and 98,000 to 105,000oz of gold. The company spent $19.9 million in the Palmarejo district in 2012 to discover new silver and gold mineralization and define new ore reserves. Underground and surface drilling was conducted around the Palmarejo mine, and the Guadalupe, La Patria and Independencia deposits within the district. As a result of this exploration investment, Palmarejo’s proven and probable reserves totaled 53.1 million ounces of silver and 665,000oz of gold at year-end. Silver and gold measured and indicated resources grew 169% from 17.0 million to 45.7 million ounces of silver and 370% from 205,000 to 964,000oz of gold compared to year-end 2011. Inferred resources totaled 22.1 million ounces of silver and 457,000 oz of gold. The exploration budget for Palmarejo for 2013 is US $15.8 million.

Source: Coeur Mining

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| MINE PROFILES: ZACATECAS

8 7

6

5

1 4

9 2 3

ZACATECAS 10

1

LA COLORADA, PAN AMERICAN SILVER

2

FRANCISCO I. MADERO, PEÑOLES

3

4

200

La Colorada, Pan American Silver’s purest silver mine, is located in Zacatecas near the border with Durango in the geological belt called “Faja de Plata”, and contains silver, gold, zinc, and lead concentrations as a typical epithermal deposit associated with silicification. Production on La Colorada mine grew to 4.4 million ounces of silver, 5,599 tonnes of zinc, 2,766 tonnes of lead and 3,578oz of gold in 2012. Production processes separate the ore into the flotation devices or cyanide plants. This mining complex contains 48.25 million ounces of proven and probable reserves and 17.02 million ounces of measured and indicated reserves. The estimated mine life is 11 years.

This underground mining complex is located near Ojocaliente and Estancia de Animas in the state of Zacatecas. Francisco I. Madero mine is an underground deposit with concentrates of zinc, lead and copper. Francisco I. Madero started to operate in 2001 under Peñoles ownership. This mine produced 45,460 tonnes of zinc, 1.3 million tonnes of copper and 960,000oz of silver in 2012. Total reserves were 33.482 million ounces of silver, 328,544 tonnes of lead, 1.01 million tonnes of zinc, and 32,449 tonnes of copper as of 2011. Given the quantity of reserves, the estimated mine life is 23 years.

COZAMIN, CAPSTONE MINING The Cozamin mine site is located 3.8 km north-northwest of the city of Zacatecas. It is an underground copper mine with a surface milling facility. The dominant mineralized vein, the Mala Noche, consists of pyrite as the dominant vein sulfide, with chalcopyrite being the dominant copper sulfide. Cozamin produced 46.9 million pounds of copper in 2012 but also produced zinc, lead and silver as byproducts. Capstone Minining extracts the ore using three methods: cut and fill using waste rock fill, longhole open stoping, and Avoca. Each method has been assigned to different mining blocks depending on the physical characteristics of the ore body. The mine has a current workforce of 850 people including contract employees, and the expected mine life is until 2022.

EL SAUCITO, FRESNILLO PLC El Saucito is an underground mine 8km southwest of the Fresnillo mine, that comprises a system of epithermal veins containing silver, gold, lead and zinc. The first stage of development focused on the Saucito, Jarillas and Mezquite veins. The Santa Natalia and Jarillas West veins are being explored and integrated in the second stage of the project. Fresnillo plc currently uses a flotation plant to process the minerals and employs 867 employees, including contractors. The mine operates with a milling capacity of 3,000 t/d. In 2012 El Saucito produced 5,628oz of silver, 22,041oz of gold, 2,581 tonnes of lead, and 2,151 tonnes of zinc. The mine life is expected to be 14 years.


5

6

7

8

9

10

SABINAS, PEÑOLES This underground mining complex is located in Zacatecas, in the Sombrerete Municipality. Sabinas contains silver, copper, lead, and zinc, with sedimentary and volcanic marine geologic formations of limestone. The Sabinas mine has been in operation under Peñoles’s control since 1995. It processed 1,221,334 tonnes of mineral in 2012, which a zinc production of 19,829 tonnes and copper production of 8,000 tonnes, which represented a decline in production of 16.4% and 4.1% respectively. The exploitation of a high grade stope helped increase production of silver by 2.9% to 4.0 million ounces, while lead remained stable at 7,757 tonnes. Total reserves were increased from 14,616 tonnes to 15,640 tonnes in 2012, resulting in an estimated mine life of 12.5 years for silver production.

ARANZAZU, AURA MINERALS The Aranzazu mine is located within the Municipality of Concepción del Oro in the northeastern region of the State of Zacatecas, Mexico, and covers approximately 11,380 hectares, including the historical El Cobre area. At the Aranzazu mine, the mineralized skarns occur adjacent to portions of the intrusive complex, with intense stockwork veining of quartz, orthoclase and sericite in some areas. The Aranzazu mine consists of both open pit and underground mine operations. The process plant at the Aranzazu mine consists of a threestage crushing circuit feeding three ball mills with current capacity of approximately 2,600 t/d, with a sulfide flotation circuit to produce a copper-gold-silver concentrate. Aura Minerals acquired the Aranzazu mine in June 2008.

PEÑASQUITO, GOLDCORP El Peñasquito is located in Mazapil, Zacatecas, and 140km to the south of Saltillo. This mine consists of two open pits, Peñasco and Chile Colorado, containing gold, silver, lead, and zinc in the ore bodies. Goldcorp’s worldclass deposit is centered on two funnel-shaped diatreme breccia pipes, cutting Cretaceous clastic units above a Tertiary felsic intrusive complex. The mine employs flotation-and-grinding processing, in two 50,000 t/d sulfide processing lines and a 30,000 t/d, high pressure grinding roll (HPGR) circuit. 2013 gold production is expected to be between 360,000 and 400,000 ounces; production of silver is expected to total 20-21 million ounces; zinc production is expected to amount to 285-305 million pounds, and lead production is expected to reach 145-160 million pounds.

TAYAHUA, MINERA FRISCO Tayahua is located in the north of the state of Zacatecas. The project consists of an underground mine and the mineralogy of the ore bodies contains silver, lead, zinc, and copper. The mine started operations in 1972 but Minera Frisco acquired 51% of the stocks in 1998 and up to 90.2% in 2011. In 2012 this mining complex produced 1.634 million silver ounces, 5,479 gold ounces, 4,174 tonnes of lead, 22,897 tonnes of zinc and 8,595 tonnes of copper. Proven and probable reserves as of 2010 were 1.597 million tonnes of copper, 266.92 million ounces of silver, 6.605 million ounces of gold, 1.55 million tonnes of zinc and 220,785 tonnes of lead. The materials from this mine are extracted and milled at a plant with a daily nominal capacity of 5,200 tonnes. They are then distributed on a lead-zinc and copper-zinc circuit and undergo a flotation process to produce lead, zinc, and copper concentrates.

FRESNILLO, FRESNILLO PLC The Fresnillo mine, also known as Proaño, is located in Zacatecas, in the Fresnillo municipality. The asset consists of a large underground mine, complemented by a flotation plant and has a current milling capacity of 8,000 t/d and 2.64 million tonnes per year. This mining complex started operations in 1554 during colonial times and has been near continuous operations for almost 500 years. Fresnillo’s ore deposits consist of replacement chimney and manto bodies, disseminated sulfides, and vein deposits hosted mainly in Cretaceous marine sedimentary and volcanic rocks. Fresnillo mine stands today as the flagship mine of Fresnillo plc and the world’s biggest silver producer with 26.383 million ounces produced in 2012 and 29,573oz of gold as a secondary product. The mine also produced 16,190 tonnes of lead and 14,996 tonnes of zinc in the same period. The estimated mine life is of 13.3 years.

EL CORONEL, MINERA FRISCO El Coronel is located in the Ojocaliente municipality of Zacatecas. The project consists of one open pit mine and the mineralogy of the ore bodies are formed mainly by gold, silver, lead, zinc, and copper. Minera Real de Angeles (part of Minera Frisco) started exploration and geological activities at the mine in 1999. Construction was started in 2008 and production began in 2009. El Coronel has a current production of 35,000 t/d including all extracted minerals and, the mine has proven reserves of 300 million tonnes of minerals and has an estimated life of 10 years after expansion. Gold production was 168,000oz and silver production reached 19,466oz in 2012.

201


| VIEW FROM THE TOP

SILVER LINING FOR THE ECONOMY OF ZACATECAS PATRICIA SALINAS ALATORRE Economy Minister of Zacatecas

Q: What role does the mining industry play in the economy

employee scholarships, and training. Four companies have

of Zacatecas?

already set up business in Zacatecas as service providers

A: Zacatecas’s wealth is mostly located underground,

for the mining industry, and we are in talks with 30 other

though our economy has also been highly influenced by

companies. This is part of our plan to make a big impact

agriculture. Mining represents a large part of the state’s

on direct and indirect employment creation in Zacatecas.

economy, and this mineral wealth has been a historical source of economic development for the state. The

During 2013, 48 exploration projects are taking place

first settlers in the region were mining investors that

across 70 assets in the state. We expect that 10% of these

found opportunities not only in Fresnillo but in other

projects can be turned into mines over the next 10 years. It

municipalities of the state, too.

is also important to note that, while it previously took us 10 years to reach mining production, we have halved the time

Q: Zacatecas is the biggest silver producer in the world

necessary to establish a mine in Zacatecas. We have two

and Mexico’s second largest gold producer. What strategy

very notable examples in the state: Harbor Mining and First

is in place to maintain this position?

Majestic’s Del Toro mine. These projects were completed

A: The state’s main advantages are its geographical

in a two year period, and in both cases the collaboration

location in the center of Mexico and the positive business

between the private sector and the government was a

climate that we promote and work on every day. The latter

decisive factor in the efficacy of mine development.

point is confirmed by the results of the Doing Business 2012 Report, conducted recently by the World Bank, in

Q: What are the support programs you have implemented

which Zacatecas was ranked 12th out of the country’s 32

to meet the human talent needs of the mining industry?

states, and first in contract enforcement. This sends an

A: The state’s efforts are currently focused on training

important message about the state’s commitment to the

qualified manpower for the mining industry, in order to

mining companies that are interested in investing here.

address the shortage of specialized human talent. The

Thanks to the state’s natural attractiveness, Zacatecas

goal of our programs is to significantly increase the supply

enjoys a constant flow of investment - the challenge is to

of human capital to the industry in the next three years,

keep it. The Ministry of Economic Development does this

as well as boosting the state’s economy by generating

by generating a pro-mining climate.

employment. The mining industry demands capable engineers

202

with

knowledge

in

geology,

topography,

The state government participates actively in the Zacatecas

mechanics, and civil engineering. Moreover, considering

Mining Cluster (CLUSMIN). The state governor of Zacatecas

the complex machinery that the sector currently uses,

is at present the Cluster’s honorary president, representing

companies require engineers with the ability to manage

the institution along with its president Jaime Lomelín

mining processes while using state of the art technology.

Guillén. I have the honor of serving as the Cluster’s secretary,

The education sector in Zacatecas has taken this need into

as a representative of the Economic Development Ministry.

account and is responding accordingly. On the educational

Our role is following up on the agreements reached by the

front, we have created employment generation programs

Cluster, certifying them, and participating in the resulting

with several of the state’s 27 universities. Some of these

programs. We are also very engaged in the activities of

institutions have also incorporated mining programs into

CLUSMIN’s Provider Development Committee, fostering

their curricula. For example, the Autonomous University of

investment in the supply of products and services to the

Fresnillo (UAF) is already coordinating the implementation

mining industry from local sources. We aim to help promote

of its mining program with the Education Ministry. The

the growth of suppliers and service providers by creating

Polytechnic Institute and other technological universities

an industrial park where they can establish themselves and

are also integrating mining subjects into their engineering

take advantage of incentives such as land price, tax breaks,

programs.


| VIEW FROM THE TOP

THE TRANSFORMATIVE POWER OF CLUSTERS JAIME LOMELÍN GUILLÉN President of Zacatecas Mining Cluster (CLUSMIN)

Q: What led to the creation of CLUSMIN Zacatecas, and to

the state. For these reasons, buying equipment from

what do you attribute its success?

abroad is simply impractical. We believe that the labor

A: CLUSMIN Zacatecas was founded nearly two years ago,

cost in Mexico and the quality of the Mexican labor force

when the state’s new Governor came into power. Since

offer equipment manufacturers an excellent opportunity

then, we have worked together with him to develop it very

to produce efficiently in Mexico and be able to export just

quickly. The cluster is made up of 10 mining companies

as the automotive industry is doing in the country. The

and 10 suppliers, and is divided into committees. The

objective of CLUSMIN Zacatecas is to develop companies

Cluster’s main committees are the suppliers committee,

to produce equipment and also offer services in Zacatecas

the human resources committee, and the health, safety

that are important for the mining industry at this time.

and environment committee. Every cluster has ‘anchor’ companies - bigger companies that can support the cluster

Q: How is CLUSMIN Zacatecas positioned relative to

and provide work for other members – as well as another

clusters in Sonora, Guanajuato, and other parts of the

eight or 10 mining companies operating throughout the

country?

state. CLUSMIN’s anchor companies are Goldcorp, Fresnillo

A: CLUSMIN Zacatecas follows the model of clusters

and Peñoles; other members include companies such as

in other industries such as the Cluster Automotriz and

Grupo Mexico, First Majestic, and Pan American Silver. A

Cluster Aeronáutico in Monterrey. There are several clusters

good cluster has the triple helix: mining companies, suppliers

in Monterrey, and the Director of their exceptionally

and service providers; universities and research institutions;

advanced automotive cluster helped with the development

and the government. In order to gain traction, all of these

of CLUSMIN Zacatecas. The Zacatecas cluster does not

groups need to be working towards the same objective. It

compete with Sonora because the two are involved in

is also important to have an active management team and

different types of mining – in Zacatecas the focus is more on

Board of Directors. Success depends upon the openness of

underground mining, while Sonora is more focused on open

the Cluster’s members. Without complete transparency, the

pit mining, so the equipment that is being used is different.

Cluster will not develop and neither will the industry. Q: What is CLUSMIN doing to contribute to developing Q: What benefits does CLUSMIN membership offer top

technology within Mexico?

mining companies?

A: Much of the technology that the cluster brings into

A: The Cluster is a forum in which mining companies can

Mexico comes from research institutions or from suppliers

discuss their needs with suppliers, allowing for mutual

- suppliers are a very important source of information and

learning opportunities. For example, if certain types of

innovation. Meetings outside Mexico also inform us of

equipment need to be adapted to suit the local landscape,

what is happening elsewhere. In exploration there is a lot

through the cluster a mining company can show the

of technology being developed by companies that want to

supplier what is required to make those changes. In this way

sell to you. They sell a project and the techniques required

the Cluster allows the supplier and the mining company to

to carry out that project.

work together to find the right solutions for the industry. CLUSMIN also puts research institutions in touch with Q: What role can mining clusters such as CLUSMIN play in

schools so that they can help each other. It brings them

strengthening the domestic supply chain?

together and then leaves them to do business. It creates

A: If your equipment comes from a supplier abroad, when

the forums in which to discuss the problems that they

it breaks down you can expect to communicate across

face. The way to solve the industry’s problems is to put

thousands of kilometers for repairs, and wait five to 10

companies and institutions together, so that everyone

days for the equipment to be delivered. It is better for our

understands what those problems are and can work on

mining companies to have these services available within

solving them together.

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| VIEW FROM THE TOP

DEVELOPING HIGH QUALITY MINING TALENT RUBÉN DEL POZO MENDOZA Director of the School of Mines at the Autonomous University of Zacatecas (UAZ) Q: What role has mining played in the state of Zacatecas

in Australia. In those programs we found priority subjects

and how has the School of Mines been involved in

in earth science and discovered a new field of study:

developing human capital for the industry?

environmental science, which brought us back to life. The

A: Mining has always had a presence in our state. The very

School of Mines therefore survived, and when the mining

foundations of the city of Zacatecas are based on mining,

market started to improve again we increased enrollment,

and the economy of the state is directly related to mining,

which went from 250 students in 2008 to 750 in 2012.

regardless of the cyclical ups and downs of metal prices. The mineral wealth of the state is well known in Mexico and

Q: How does the School of Mines find qualified staff

all over the world.

to teach these programs when there is great industry demand for mining professionals?

Mining education has existed since colonial times. The

A: Teachers are essential. The demand for mining

Spanish formed education centers and the School of Mines

professionals is very high, especially for professionals with

formed part of them. In 1968 the first Mining and Metallurgical

postgraduate degrees. Since we cannot compete with

Engineers class graduated from the Autonomous University

the salaries offered by mining companies, the School of

of Zacatecas. Between 1968 and 1985 we only offered the

Mines has decided to employ teachers who are active in

Mining and Metallurgical Engineering course, however in

the industry and at the same time teach. This approach has

1982 this changed: the discipline of mining was separated

been successful because of our excellent relationship with

from the Engineering Faculty, and the School of Mines

the sector and our location in the most important mining

gained independence. The curriculum and courses were

area in Mexico, where we are surrounded by companies

developed, and in 1985 the Engineering Geology program

like Fresnillo, Goldcorp, First Majestic Silver, Grupo Mexico,

began. In 2005 the Environmental Science program was

and Minera Frisco. Being close to these companies gives

presented to the school board. This completed the Earth

us the necessary human capital, and provides a solution to

Sciences Academic Department, which is now able to

the academic salary challenge. Our staff is 100% Mexican,

offer a portfolio covering the study of mining, metallurgy,

and many of our teachers have postgraduate degrees or

geology, and environmental science. We create mining

PhDs from abroad. Fortunately, we are able to mix both

professionals that explore and exploit the earth and, at the

practical and academic experience, which helps students

same time, take care of the environment and transform the

graduate with practical skills.

minerals obtained. Q:

204

Offering

classes

that

are

relevant

to

current

Q: How does UAZ’s School of Mining manage the

developments in the sector is essential for academic

challenges posed by the impact of the cyclical nature of

institutions.

metal prices on student numbers?

curriculum complete the education of your students?

A: It is well known that mining and metallurgical activities

A: We are very conscious of the public confusion that exists

are affected by international mineral prices. When prices

when it comes to mining activities and environmental

were depressed in the previous recession, enrollment fell

impact. We obviously do not share this view, and by

not just in Zacatecas but also in the rest of the country. We

introducing an environmental course focused on mining

had never expected the management to consider shutting

we are trying to challenge it. Even though it is not current

down the academic center, but they did because it seemed

mining practices that harm and pollute the ecosystem, our

more affordable to close the school and award scholarships

intention is to fix the environmental damages that were

to enrolled students and send them to study abroad.

caused by mining activities that took place over the past

However, we searched for options and were inspired by

hundreds of years. On the other hand, it is important to

programs offered by universities like the Colorado School

promote mining as a clean industry. We are one of the few

of Mines, The University of Texas at El Paso and institutions

academic centers to focus on environmental studies for

How

does

the

Environmental

Science


| CLUSMIN ZACATECAS

mining, and having had three graduating classes we are

In

proud that many graduates are now working in the mining

representatives, educational institutions and industry

industry. We are in touch with them to get feedback on

suppliers

their experiences in the workplace, and to allow us to

the Zacatecas Mining Cluster (CLUSMIN). It was

complement what we are teaching in the classroom.

founded with the objective of strengthening the

2011,

mining and

executives,

service

federal

providers

government

jointly

created

development of the mining industry in the state of Q: What adjustments are currently being made to the

Zacatecas by strengthening the regional network of

faculty’s earth science programs, as a result of the mining

suppliers, developing human capital, attracting mining

industry’s human resource requirements?

investment, and fostering technological innovation

A: The School of Mines is producing mining professionals

and occupational safety in the local mining industry.

with two new skills: English language proficiency and mining software knowledge. These basic tools are provided

In order to pursue these goals, CLUSMIN is organized

at other academic centers, but we are nonetheless

in several committees: 1) a committee for the

successfully improving the level of our programs in both

strengthening of providers, which aims to develop

fields. Our graduate profile has changed for the better

the capabilities and infrastructure of suppliers, 2) a

because the industry is every day demanding better

human talent development committee, which seeks

trained professionals. One characteristic of our school and

to standardize training of operators, technicians and

state is that low income students come here with the desire

supervisors, 3) a safety and environment committee,

to improve their situation and here they find the ideal place

which pursues the goal of improving best practices

to transcend. I have been working here for 33 years and

in

seen many examples of graduates acquiring management

specifically in relation to environmental responsibility

positions at Fresnillo, Peñoles and Minera Tayahua, among

and risk management, 4) an investment attraction

others. Mining production in the country is in the hands

committee, which spearheads the cluster’s efforts to

of our graduates, and it is very flattering for us to know

encourage the permanent establishment of providers

that the School of Mines plays an important role both in

in the state, and 5) a technology and innovation

the state and the country’s economy. The School of Mines

development committee, which works in conjunction

enrollment multiplied by three in the last few years, and we

with the Zacatecan Council of Science, Technology

had to limit admissions. We are aware that there are many

and Innovation (COZCYT) to foster the development

aspiring students but we cannot enroll them all. We have to

and application of new technologies.

mining

companies

established

in

Zacatecas,

be very careful in our selection process, because we do not want to lose those students that have a real mining vocation.

CLUSMIN’s two years of work in Zacatecas’s mining

Our current challenge is to limit enrollment, be selective and

industry have already yielded positive results, such

choose the best students.

as enabling mining companies to share project plans, technological developments and best practices. Also,

Q: What opportunities have emerged as a result of the

five companies who serve the Zacatecan mining

Zacatecas mining cluster, CLUSMIN, which brings together

industry from plants in other regions have used the

the state’s private and public sectors?

cluster as a stepping-stone to launch the construction

A: The School of Mines brought together the leading

of plants in Zacatecas. The certification of suppliers

mining companies before the cluster was created, and

has also advanced the growth of companies that wish

the mining cluster is simply the formalization of the

to expand their service offering within Zacatecas’s

preexisting relationship. Our links with the government

mining industry. In general, CLUSMIN has made an

have been good for a long time, and some of our school’s

effective start in the creation of synergies between all

directors and graduates have been Mine Directors for the

actors involved in the sector, thus helping Zacatecas

state of Zacatecas. There has been a lot of communication

maintain its position as an attractive mining and

and collaboration between the state, the school and the

mining investment destination.

industry: the triple helix. We have a lot to thank them for. For example, Grupo Mexico helped us with the auditorium, Grupo BAL rebuilt the School of Mines building, Capstone Mining helped us with buses, and Peñoles gave us vans. We have a lot of examples of state government support, as well.

205


206


COPPER & BASE METALS

7 Mexico has the fifth biggest copper reserves in the world and is today the world’s 10th copper producer after an impressive increase in production that enabled the country to jump up from 15th place in 2008. Copper is now the second target of mining exploration investment in Mexico, and with several world class copper deposits now under development Mexico is destined to climb up on the global production ranking. The country also ranks as the world’s sixth largest zinc producer and fifth largest lead producer.

This chapter looks at the main players that are responsible for the country’s base metal production, which are predominantly Mexican mining companies, though there are a number of foreign companies that are also making substantial investments in Mexican base metals. We dedicate special attention to the development or reactivation of several world class copper deposits in Mexico, with a focus on the energy strategies that are central to the cost competitiveness of the Mexican mining industry. At the end of the chapter you will find an overview of mining activities in Sonora, currently Mexico’s main mining state by production value.

207


Más de

221 millones

de pesos invertimos en programas de desarrollo social en el 2012.

2.7 millones

de árboles es la capacidad de producción anual de nuestros viveros.

“TENEMOS QUE ASEGURARNOS QUE LOS NIÑOS SEPAN QUE CON ESTE PEQUEÑO ACTO ESTAMOS PREPARANDO UN MUNDO MEJOR PARA ELLOS”.

“NOS GUSTA EL NUEVO PARQUE; CORRIMOS TAN RÁPIDO QUE SENTIMOS QUE PODÍAMOS VOLAR”. Nuevo parque Bicentenario construido en lo que fue la planta de cobre de San Luis Potosí.

Olivia Rangel, Técnico Viverista, San Luis Potosí.

“SOMOS MUY POCAS LAS MUJERES QUE HACEMOS EXPLORACIÓN EN MINAS SUBTERRÁNEAS, Y POR ELLO ME SIENTO MUY ORGULLOSA”.

“LAS MONTAÑAS TIENEN VIDA Y EXPLORAR SU RIQUEZA NOS PERMITE CONSTRUIR UN MEJOR FUTURO”. Mario Ramírez Oviedo, Superintendente de Geología Regional / Santa Eulalia, Chihuahua.

Ana Paniagua, Departamento de Geología, Mina Santa Bárbara, Chihuahua.

1.30*

fue la tasa de incidencia de accidentes en 2012. El nivel más bajo de toda la industria minera nacional.

817 millones

de pesos invertimos en trabajos de exploración minera en el 2012.

SOMOS GRANDES PORQUE HACEMOS COSAS GRANDES. 208


CHAPTER 7: COPPER & BASE METALS 210

Development Trends in the Copper Mining Industry

211

MINE PROFILES: Mexico’s Main Copper Mines

212

Development Trends in the Zinc Mining Industry

213

MINE PROFILES: Mexico’s Main Zinc Mines

214

Trends in the Lead and Molybdenum Markets

215

VIEW FROM THE TOP: Building a Global Copper Community

216

MINE SPOTLIGHT: Buenavista del Cobre

218

VIEW FROM THE TOP: Reinforced Focus on Copper and Zinc Production

220

Industrias Peñoles Remains a Key Pillar of Mexican Mining

221

Cozamin Key to Intermediate Copper Producer Ambitions

222

MINE SPOTLIGHT: Cozamin

224

Grupo Mexico Develops World Class Copper Deposit

225

VIEW FROM THE TOP: Strategic Planning to Overcome Production Challenges

226

MINE SPOTLIGHT: El Boleo

228

Peñoles Invests in Renewable Energy for Self-Supply

230

The Role of Energy Prices in the Mexican Mining Industry

230

Advantages of Hydraulic Power in Motor Applications

232

VIEW FROM THE TOP: State of the Art Power Solutions

233

Handling Water and Energy During Mine Construction

234

Quality as an Essential Element in Energy Control

235

VIEW FROM THE TOP: Integrated Solutions for Power Transformation

236

VIEW FROM THE TOP: Sonora at the Forefront of the Mining Industry

237

Women in Mining

238

MINE PROFILES: Sonora

240

VIEW FROM THE TOP: Providing Human Talent for the Mexican Mining Industry

240

Training Students in one of Mexico’s Mining Centers

209


DEVELOPMENT TRENDS IN THE COPPER MINING INDUSTRY Chile is today the world’s biggest copper producer,

GLOBAL COPPER PRODUCTION BY COMPANY (2012)

accounting in 2012 for 31.6% of the global production of this metal. A large proportion of the copper that was produced globally was exported to China, the world’s

11%

largest copper consumer, accounting for 40% of global demand. While demand for copper is growing worldwide,

8%

the market is considerably dependent on Chinese demand.

7%

Copper prices have soared since 2002, jumping from values of aproximately US$2,000 per tonne to historic highs of US$9,000 in 2011. However, China’s economic

53%

5%

growth rate has slid down from the double digits that

4%

international markets had grown to expect, which has 3%

had knock-on effects. Average copper prices dropped

3%

10% in 2012 in spite of the announcement of large scale

3%

infrastructure investments by the Chinese authorities.

3%

During 2013 the copper price has recovered slightly from lows of US$6,600 in mid-June to close to US$7,300 by the end of August. The International Copper Study Group

Codelco

Rio Tinto

expects that copper mining will increase slightly in 2013

FCX

Anglo American

BHP Billiton

KGHM

Grupo Mexico

Antofagasta

Xstrata

other

(5.2%) and in 2014 (5.6%), and if global economic recovery finally gains a constant pace in the coming years, copper prices could surpass their current levels and edge closer to the 2011 peak sooner than expected.

Source: USGS

GLOBAL COPPER PRODUCTION BY COUNTRY (THOUSAND TONNES)

Mexico is the country with the fifth biggest copper reserves in the world. According to the United States Geologic Survey (USGS), Chile leads the list with an estimated 190 million tonnes of copper deposits, followed by Australia (86 million), Peru (76 million), the US (39 million), and Mexico (38 million). This places Mexico above

24%

China - the world’s leading copper refiner and by far the 32%

biggest consumer of this base metal - which only has 30 million tonnes of estimated copper reserves according to the USGS. Mexico’s current reserves represent 5.6% of the

3%

world total, while China’s make up only 4.4%.

3%

The Mexican Mining Chamber (Camimex) reports that

4%

Mexico extracted 500,000 tonnes of copper in 2012,

9%

4%

which places the country as the world’s 10th producer. 6% 7%

8%

The Mexican mining industry’s increased focus on copper exploration has nevertheless led to companies increasing production. While Mexico was the world’s 15th producer in 2008, it finds itself within the top 10 only five years

Chile (5,370)

Russia (720)

China (1,500)

Zambia (675)

Peru (1,240)

Canada (530)

US (1,150)

Mexico (500)

future production and continue its rise as a copper

Australia (970)

other (3,960)

producing country.

later. The increase in total copper production in Mexico during 2012 alone was of 12.8%. Copper is now the second target of mining exploration investment in Mexico, which indicates that the industry is well prepared to increase

Source: USGS

210


| MINE PROFILES: MEXICO’S MAIN COPPER MINES

4 7 1

16 2

3

19 13

15

8 9 18

12 17

5

6

10 14 11

COPPER PRODUCTION BY MINE Mine

Company

State

Thousand tonnes

1

Buenavista del Cobre

Grupo Mexico

Sonora

200.1

2

La Caridad

Grupo Mexico

Sonora

120.7

3

Piedras Verdes

Cobre del Mayo

Sonora

30.7

4

Milpillas

Peñoles

Sonora

23.2

5

Cozamin

Capstone Mining

Zacatecas

21.3

6

NEMISA

Neg. Mra. Sta. Ma. de La Paz

San Luis Potosi

21.1

7

Maria

Minera Frisco

Sonora

12.8

8

Tayahua

Minera Frisco

Zacatecas

8.6

9

Sabinas

Peñoles

Zacatecas

8.0

10

Zimapan

Carrizal Mining

Hidalgo

6.4

11

Campo Morado

Nyrstar

Guerrero

5.6

12

Aranzazu

Aura Minerals Inc.

Zacatecas

5.0

13

Santa Barbara

Grupo Mexico

Chihuahua

4.6

14

Tizapa

Peñoles

State of Mexico

2.1

15

San Fco. del Oro

Minera Frisco

Chihuahua

1.9

16

Bismark

Peñoles

Chihuahua

1.6

17

Charcas

Grupo Mexico

San Luis Potosi

1.3

18

Francisco I. Madero

Peñoles

Zacatecas

1.3

19

Naica

Peñoles

Chihuahua

.09

Other

23.1 TOTAL

500.3 Source: USGS

211


DEVELOPMENT TRENDS IN THE ZINC MINING INDUSTRY Zinc is the 24th most abundant metallic element in the

2014. Barclays predicts that demand will simultaneously

earth’s crust and the fourth most commonly used metal

accelerate, by respectively 4.1% and 5%.

after aluminum, copper, and lead. In 2013 over 12 million tonnes are expected to be produced worldwide, with

Mexico is today the sixth biggest producer of zinc in the

Australia, Asia, Peru, Canada, and Europe being the main

world. The country produced a total of 645,000 tonnes

mining areas. China is currently the biggest producer of

in 2012, which represented a 2% increase over its 2011

zinc, accounting for 29% of total production worldwide.

production. The global zinc industry has experienced

Zinc is most commonly used in galvanization as an

a production increase of just over 5% compared to 2011,

anti-corrosion agent for steel, in the production of zinc-

due to a 14.4% increase in China’s output of the metallic

based alloys, and to produce brass and bronze. These

element, while production in Mexico, Peru, Australia and

alloys

resistance

Canada decreased as a result of the global economic

and are used in communication equipment, hardware,

generally

have

superior

corrosion

slowdown. In terms of exports, half of Mexico’s output is

musical instruments, and water valves. The automotive,

bought by South Korea.

infrastructure, and construction industries are the biggest consumers of zinc, using large amounts of galvanized steel

Mexico’s production in 2012 was evenly split between

sheets in their operations.

Mexican and international companies operating in Mexico; Goldcorp, Grupo Mexico, Grupo BAL (Peñoles and Fresnillo),

Business analysts expect consumption to exceed smelting

Nyrstar, Minera Frisco, Carrizal Mining, Capstone Mining

output by the end of 2013, as well as throughout 2014.

and Scorpio Mining. From the three Mexican companies,

Annually, construction currently accounts for half of

only Grupo BAL (Peñoles and Fresnillo) and Grupo Mexico

consumption, and transport accounts for about a quarter.

increased their output last year. Peñoles increased overall

Because silver accounts for 40% of zinc mining byproducts,

production on its five mining units to reach 157,257 tonnes,

and given the precious metal’s poor performance in recent

and Grupo Mexico reached a production of 89,884 tonnes

months, according to Barclays PLC we are likely to see

with its Charcas mine in San Luis Potosi, Mexico’s second

significant reductions in the production of refined zinc

largest zinc mine in Mexico after Goldcorp’s Peñasquito,

in the near future, declining by 3.9% in 2013 and 2.8% in

increasing production by 13%. Minera Frisco faced union conflicts on three of its eight producing mines, which resulted in a production decrease of 14%. Nyrstar, the

GLOBAL ZINC PRODUCTION BY COUNTRY

Belgian giant and biggest zinc producer in the world produced around 40,000 tonnes in the state of Guerrero at its Campo Morado mine. Zacatecas is the country’s leading zinc producing state, followed by Chihuahua, San Luis Potosi, State of Mexico, Durango, Guerrero, Sinaloa,

23%

Hidalgo and Aguascalientes. 36%

Peñoles has invested US$203 million in the Velardeña project, a zinc unit in the state of Durango that has an

5%

estimated potential of 2.4 million tonnes, and which has so far generated approximately 700 employment

5%

opportunities for the state. Its processing and grinding capacity of 6,000 t/d allows Peñoles to add 75,000

5% 6%

tonnes of zinc per year to its total production. In addition,

11%

Peñoles has recently completed a feasibility study for the

9%

El Rey de Plata project in the state of Guerrero, where a US$268 million investment will complement production with a grinding capacity of 1.3 million tonnes per year by China

US

Australia

Mexico

Peru

Canada

India

other

2015. With a planned new refinery, which will be built in the next five years, Grupo Mexico will double its current refined zinc capacity, allowing the company to add further value to its operations and stand out from the competition even more. Source: ILZSG

212


| MINE PROFILES: MEXICO’S MAIN ZINC MINES

5

18 13 11

7

15 17

10 14

9 1 3 16 8

2

12 6 4

ZINC PRODUCTION BY MINE Mine

Company

State

Thousand tonnes

1

Peñasquito

Goldcorp

Zacatecas

147.03

2

Charcas

Grupo Mexico

San Luis Potosi

50.20

3

Francisco. I. Madero

Peñoles

Zacatecas

45.46

4

Campo Morado

Nyrstar

Guerrero

40.00

5

Bismark

Peñoles

Chihuahua

39.50

6

Tizapa

Peñoles

State of Mexico

35.51

7

Santa Barbara

Grupo Mexico

Chihuahua

32.83

8

Asientos

Minera Frisco

Aguascalientes

29.05

9

Tayahua

Minera Frisco

Zacatecas

22.89

10

Sabinas

Peñoles

Zacatecas

19.83

11

San Fco. del Oro

Minera Frisco

Chihuahua

18.30

12

Zimapán

Carrizal Mining

Hidalgo

17.08

13

Naica

Peñoles

Chihuahua

16.96

14

Fresnillo

Fresnillo plc

Zacatecas

14.97

15

La Ciénega

Fresnillo plc

Durango

8.17

16

Cozamin

Capstone Mining

Zacatecas

7.81

17

Nuestra Señora

Scorpio Mining

Sinaloa

7.47

18

Santa Eulalia

Grupo Mexico

Chihuahua

6.86

Other

100.42 TOTAL

660.34 Source: ILZSG

213


TRENDS IN THE LEAD AND MOLYBDENUM MARKETS According to the International Lead and Zinc Study Group

GLOBAL MOLYBDENUM PRODUCTION BY COUNTRY

(ILZSG), in 2012 the primary global lead output was 5.2 million tonnes, which translated to an increase of 11.5% over 2011. China provided 55% of the primary lead production in the world, and together with Australia, the US, Peru and Mexico

23%

accounted for more than 80% of total global production. Total global consumption increased by 1.3%, reaching 10.6 million tonnes, of which 80% was used in the manufacturing

36%

of lead-acid batteries. Today, secondary sources or recycling provide more than half of the world’s consumption. During

5%

2012 the global lead market was in surplus. London Metal Exchange (LME) prices were volatile, averaging US$2,094

5%

per tonne. The surplus in lead production is likely to continue

5%

in 2013, though the ILZSG anticipates that it will remain at 6%

42,000 tonnes, mainly due to lower forecasts for metal

11% 9%

production. Global lead usage is anticipated to rise by 4.8% to 11.09 million tonnes by the end of the year. Mexico contributed with 4.6% of the total global lead production in 2012. According to INEGI, annual domestic lead production increased by 6% compared to 2011. The total production reached a record 238,000 tonnes. Zacatecas produced 55%, Chihuahua 20.2%, and Durango 8.5% of Mexico’s total production. Goldcorp’s Peñasquito

China

US

Australia

Mexico

Peru

Canada

India

other Source: USGS

property is the main lead producer in Mexico, with a total of 69,705 tonnes in 2012. Molybdenum’s main application is as an alloying element in steels and cast irons, with the purpose of enhancing

GLOBAL LEAD PRODUCTION BY COUNTRY

hardenability, strength, toughness, and wear and corrosion resistance. According to the US Geological Survey (USGS) the total global molybdenum production in 2012 was 250,000 tonnes, which was 5.3% lower than in 2011; China

19%

is the main global producer, accounting for 42% of the total output, followed by the US with 23%, and Chile with 14%. The average cost of molybdenum is US$12.74 per pound, which is significantly lower than the 2011 average of US$15.7.

5%

According to the Global and China Molybdenum Industry Report 2012-2015, demand for molybdenum is expected to

5% 55%

grow in 2013, along with total global production.

7%

During 2012 Mexico was the fifth molybdenum producer in the world, with a total output of 10,968 tonnes, which were

10%

solely produced by Grupo Mexico’s La Caridad Mine in Sonora. Grupo Mexico is working on a molybdenum plant for Buenavista del Cobre, which will produce 2,000 tonnes annually. The group is also working on its Molybdenum China

Mexico

Australia

other

Plant II, which has an expected output of 2,600 tonnes per year and will begin production during 2015. Mercator Minerals is continuing work on its El Creston molybdenum

US

property in Sonora, which has a potential production of Peru

11,000 tonnes and is expected to begin operations in 2016. Source: ILZSG

214


| VIEW FROM THE TOP

BUILDING A GLOBAL COPPER COMMUNITY EFRÉN FRANCO VILLASEÑOR Executive Director of ProCobre

Q: How has ProCobre clarified common misunderstandings

promoting energy efficiency. Fortunately, the production

about the copper industry?

of electricity in the country is now opening up to include

A: Firstly, the global copper industry is unique. It is not

co-generation and renewable energy sources in our homes,

a wholly integrated industry, but rather it has different

such as solar systems. However, this aspect requires further

levels. The first level is made up of the copper producers,

regulation and dissemination.

which is the mining industry; the next level is made up of the manufacturers that purchase copper cathodes, wire

Q: What are the main properties that make copper essential

and rods, and manufacture a semi-product. These semi-

in different applications ranging from energy efficiency

products are then purchased by engine, car, white goods,

and infrastructure to electricity and renewable energy?

and of course electronics manufacturers.

A: There are essentially three main properties that make copper such an attractive metal: it has the highest electrical

ProCobre is working to integrate the next level in the

and thermal conductivity, and is the most durable of the

value chain: the main users of wires, cables and electronic

available elements. It is for these reasons that many mining

appliances, which includes all of us in our homes and offices.

companies started to mine more copper at the beginning

We have to take safety, energy and gas consumption

of the 20th century. The process of the last 11 or 12 decades,

into consideration on a daily basis. We have developed

during which the world has come to depend more and

initiatives to make the end user, as the decision maker,

more on electricity, has relied on the availability of copper.

aware of the benefits that certain copper products offer

Almost all of the equipment that is used for renewable

and which copper products can be purchased in order to

energy or is categorized as high efficiency equipment has

save money or increase the safety of electrical installations.

a large quantity of copper relative to other components.

Some of our initiatives help in decision making processes,

The smaller the gadget and the more functionality it has,

mainly for technical markets. However, in certain cases

the larger the quantity of copper that can be found in the

there are no other materials you can use; copper is the

gadget. A large amount of copper is needed to produce

only option.

all of the many millions of smart phones and tablets that are being produced and used on a daily basis around the

Q: What are the main energy policies that ProCobre would

world. These types of gadgets generate a lot of heat and

like to see implemented in Mexico?

need to be kept at a certain temperature, and this is the

A: In Latin America in general there is a very good set

contribution that copper makes.

of up to date rules, codes and standards. For example, Mexico is one of the countries with the highest standards

Q: What are ProCobre’s main objectives in terms of

for electrical motors in Latin America, and even worldwide.

informing manufacturers and users about the different

Although there is a very comprehensive set of rules, what

ways in which copper can meet their requirements?

we do lack in Latin America is the enforcement of these

A: At ProCobre it is our job to explain and demonstrate how

rules. We have an electrical code in Mexico, but there is no

copper-based solutions work and we do it through case

mechanism for making sure that construction companies

studies. We show that deforestation can be avoided by

build according to that code, thereby preventing risks

installing alternative sources for heating to wood burning,

through fire hazards, for example. Some of our initiatives

such as solar systems. The government is demonstrating

include the government, nonprofit organizations, and

the same thing through other projects, and it is supportive

manufacturers, among others, and aim to define how a

of further legislation. Our main role is to bring the different

functional, economically viable, and bribe-proof system

parties together, and that is what we are working towards

that works can be created. We organize seminars and

each day. Instead investing individually in these areas and

workshops and bring in experts, mainly from Europe,

spending more money than needed, we all work together

who can help us with this issue. We are also working on

on a single initiative, thereby saving costs.

215


216


| MINE SPOTLIGHT

BUENAVISTA DEL COBRE Formerly known as the Cananea mine, Buenavista del Cobre is an open pit copper mine located in Sonora at the site of one of the world’s largest copper ore deposits. Grupo Mexico operates five underground mines that produce zinc, lead, copper, silver and gold, a coal mine, and a zinc refinery. The mine production unit has 46 mining concession titles with a total area of 13,282 hectares. Buenavista del Cobre was restored to its full capacity in 2011, and Grupo Mexico is moving forward with an aggressive US$2.9 billion expansion investment program for this property, which will have an annual production capacity of 512,000 tonnes of copper by 2016. Grupo Mexico produces 55% of the copper in Mexico, representing 80.3% of sales for Grupo Mexico’s mining division, and holds the largest copper reserves in the world with 71.07 million tonnes of copper content. In 2012, 53% of Grupo Mexico’s mining division was allocated to the expansions at the Buenavista mine. After obtaining the necessary environmental permits, the construction of the SX-EW III plant has started. The SX-EW III Plant at the Buenavista mine will produce 120,000 tonnes of copper cathodes per year with a purity of 99.99% and reports 38% completion, increasing from an initial installed capacity of 88,000 tonnes. The new plant is expected to start operations in the first quarter of 2014 and has been constructed with a total budget of US$444 million. Associated with the SX-EW III project, Grupo Mexico completed the construction and testing for the Quebalix III at Buenavista in February, and operations started in March 2013. This US$76 million investment consists of a crushing, conveying, and spreading system with a capacity of up to 15 million tonnes of ore per year that improves copper recovery during the leaching process and reduces the required time and cost of transporting ore. The new Copper Concentrator II at Buenavista, with additional integrated molybdenum circuit will have an annual production of 188,000 tonnes of copper content in concentrates, 2.3 million ounces of silver content, and 21,000oz of gold content, on average. In addition, the plant will have a molybdenum circuit (Molybdenum Plant II) with a capacity to produce 2,600 tonnes of molybdenum content in concentrates per year. The project has a budget of US$1.383 billion and is expected to start operations in the first half of 2015. Construction of Buenavista’s first molybdenum plant was completed in early 2013, and production started in May of this year. This new concentrator, with a milling capacity of 100,000 t/d, will produce 2,000 tonnes of molybdenum content in concentrates annually. Prior to this US$38 million investment, Buenavista did not recover molybdenum as a byproduct and this investment will increase its production of molybdenum at the consolidated level, while also providing significant cash cost reductions.

217


| VIEW FROM THE TOP

REINFORCED FOCUS ON COPPER AND ZINC PRODUCTION XAVIER GARCÍA DE QUEVEDO TOPETE President of Minera Mexico, President & CEO of Southern Copper, COO of Grupo Mexico Q: What have been the critical success factors that have

Q: Grupo Mexico stands out for its productivity and

allowed Grupo Mexico to grow into an important global

efficiency. Which practices have enabled the company to

player in copper mining?

optimize its performance in these areas?

A: Before 1995 Grupo Mexico was not a renowned

A: Our strategy is based on achieving profitability

copper producer, and its output consisted mainly of non-

through cost management rather than price speculation.

refined metals. From that year on, we made the decision

Cost management is a crucial element for ensuring the

to integrate vertically in order to boost the company’s

profitability of our operations, and we constantly seek to

operation. The Group invested its efforts and capital in

become more competitive through cost reduction. We

modernizing its copper and precious metals processing

therefore conduct international benchmarking processes

plants. This strategy led us to start producing copper

to best identify cost saving opportunities. Improvement

rods, an essential primary material in the manufacturing of

opportunities that we have addressed through this

electricity conductors.

strategy have been related to manufacturing processes, logistics, energy and water consumption, and maintenance

Given the cyclical nature of the mining industry we

of our equipment and facilities.

decided to diversify the business by entering into the

218

railway industry, with the acquisition of Ferromex and

Grupo Mexico continuously monitors its productivity and

later Ferrosur. This was an opportunity for us to balance

optimizes the number of employees devoted to each of its

our operations. Along with our ambitions to compete

operations. We are currently implementing an Enterprise

at the international level, this also led us to acquire new

Resource Planning (ERP) system in order to manage

businesses abroad. We bought the mining companies

costs throughout all of our areas and production stages.

Asarco in the US and Southern Peru Copper Corporation

A concrete example is the reduction of downtime due

in Peru. Following this diversification we also shifted our

to maintenance services on our trucks. One of the many

focus towards generating long-term mining plans and

benefits we expect the ERP tool to bring is avoiding the

the expansion of our reserves portfolio. Our reserves are

duplication of our work in administration and transactions,

now certified, and we are currently the copper producing

by reorganizing services into one single entity and system,

company with the largest quantity of reserves in the world.

with the aim of optimizing our resources.

Q: What are Grupo Mexico’s investment priorities, and

Q: How does Grupo Mexico manage its relationships with

which role does the reactivation of Buenavista del Cobre

its staff and the communities surrounding large-scale

play in your development strategy?

projects?

A: The investment program for 2012-2015, which has been

A: Grupo Mexico has an internal competence-building

approved by the Board of Grupo Mexico, totals US$11.5

program, and each of our employees must complete a

billion. For 2013 our planned capital investments are

certification course in his or her working area. In 2012,

US$3.4 billion. The construction of concentrator plants,

Grupo Mexico provided its personnel with over 80,000

SX-EW plants, and the expansion of the Buenavista del

hours of internal and external training. The reactivation of

Cobre mine are the main projects for Grupo Mexico, and

the Buenavista del Cobre mine has greatly benefited the

US$2.8 billion will be invested in these projects with the

surrounding communities, as Cananea’s resurgence has

aim of increasing our annual copper production from

generated employment for over 6,000 people. We place

202,000 tonnes to 515,000 tonnes. The SX-EW plant will

great emphasis on integrating ourselves in the surrounding

begin operating in 2014, with an annual production rate of

communities, by fostering employment and progress.

120,000 tonnes a year. In 2015 the new concentrator will be

Through our relationship with the communities we have also

put into operation, which will produce 190,000 tonnes of

promoted gender equality within our ranks. We have had

copper concentrate a year.

a lot of interest from women who want to join our team,


which led us to develop training and skill-building programs

Finally, the country today needs more jobs, and mining

for them and to integrate them into the company. These

as an industry has been one of the greatest generators of

are responsible and brave women who we have trained and

employment in recent years. We hope that the government

hired upon the completion of their secondary education.

will make a responsible decision. Companies like ours are ready to give our perspective.

The key factor to our success has always been our human capital. Our personnel are capable of conducting respectful,

Q: What are Grupo Mexico’s main exploration strategies

professional relationships with employees and with the

to ensure its long term success, particularly in Mexico?

communities with which we coexist. Evidently, Grupo

A: Our exploration strategy prioritizes quality over quantity.

Mexico’s resources and mineral reserves also provide a

This is something that is evident in the management of our

favorable foundation for the development of opportunities

projects. The process is simple: as the exploration stage

for the local communities. For example, this year we

of an asset advances, the results are measured against

transferred an average of MX$400,000 (US$31,700)

a set of profitability parameters. If a project meets the

to each of our employees, through our profit-sharing

criteria, Grupo Mexico invests in further advancement and

plan. This is a consequence of the results our employees

development. Our exploration activity is conducted in a

delivered, and through these rewards our employees thus

selective, strategic manner, in order to protect our capital.

increase their commitment to the company. Moreover, Grupo Mexico has a very marked focus on sustainability.

This strategy has earned us a series of high-potential projects

Our responsible approach to environmental matters is

in Mexico. We are currently developing an underground mine

widely recognized, for example by our inclusion in the

in Angangueo, Michoacan. After the construction phase is

Mexican Stock Market’s Sustainability Index. We have also

completed in 2015, this mine will produce zinc and copper

received an Ethics and Values Award from the Mexican

aggregates with partial silver content. Our Chalchihuites

Confederation of Industrial Chambers (Concamin). Grupo

project, located in Zacatecas, is currently undergoing

Mexico also complies with the norms established by the

its feasibility study. It will produce zinc aggregates in the

Global Reporting Initiative, in which information across

future. We are also developing a zinc deposit in Buenavista

multiple sustainability indices are gathered and audited by

del Cobre. Thanks to these projects, we expect to double

a renowned international auditing firm.

our zinc production during the coming years.

Q: What is the expected impact of the potential

Q: What are the ambitions for the development of Grupo

introduction of a 5% mining royalty on the country’s

Mexico’s mining activities over the coming decade?

competitiveness as a mining destination?

A: Grupo Mexico sees itself as a solid and trustworthy long-

A: The Senate should take into consideration the fact

term mining producer. In Peru we have important projects

that the mining industry already pays a number of taxes.

to develop, including the expansion of two mines, as well as

Last year the industry paid MX$3.1 billion in taxes on

the Tía María and Los Chancas exploration projects. Grupo

concessioned land. It is important to recognize that in

Mexico is currently exploring in Ecuador, Argentina and

Mexico, besides the 30% income tax, mining companies

Chile, and we are evaluating opportunities in Panama. In

also have many other costs such as 10% Statutory Profit

the US we have been successful in investing and increasing

Sharing, expensive electricity, as well as water rights.

our reserves at Asarco, and we have found some resources

This last one is unique in Mexico, and it amounts to 1.5%

in the surrounding area. We are also expanding our Mission

of income tax for the group. There are various additional

mine in the same way. We have come back to zinc, with

factors that legislators should consider in their analysis,

the reactivation of mines such as El Gangeo, as well as with

such as the application of the Flat Rate Business Tax,

the Buenavista del Cobre mine. We want to be a solid and

which applies to mining but not to agriculture or fishing.

competitive zinc producer.

219


INDUSTRIAS PEÑOLES REMAINS A KEY PILLAR OF MEXICAN MINING Billionaire Alberto Baillères, Mexico’s second richest man,

of solid mining projects. The company invested US$312.9

has become an icon of the Mexican business world based

million in exploration in 2012, which is three times more than

on his leadership of Grupo BAL, the industrial, financial,

it had invested just five years before. Its main exploration

agricultural and retail holding company. The Group’s

projects are in the Mexican states of Guerrero, Sonora,

integrated mining group Industrias Peñoles is an important

Chihuahua and Zacatecas, and internationally in Peru and

player in both the domestic and international mining

Chile. Jaime Lomelín Guillén, one of the Mexican mining

industry, and played an important role in the transformation

industry’s key leaders and the former CEO of Peñoles and

of the Mexican mining industry. 1961 was perhaps one of

Fresnillo and current Corporate Director of Grupo BAL,

the most significant years for the company, as it played

views the Group’s commitment to consistent spending on

a leading role in the governmental effort to ‘mexicanize’

exploration as having been essential to its growth. During

the mining industry, which at the time was dominated

his time as CEO at Peñoles, Lomelín Guillén adhered to

by foreigners. During the period of mexicanization Raúl

the strategy of making fixed investments in exploration

Baillères, father of Alberto, and José García played a big

activities each year, regardless of fluctuations in the market.

part in bringing ownership of Industrias Peñoles back to

For Lomelín Guillén, a good exploration strategy must be

a 51% Mexican share, giving it a majority stake over its

backed up by a strong team, and the company’s success is

American partner and original owner, American Metals

largely attributed to its employees, which in 2012 stood at

Company. In that same year Industrias Peñoles acquired 51%

9,515. “To have a successful mining company you need three

of Minera Fresnillo, located in Zacatecas State. Industrias

things – exploration, maintenance, and people – and people

Peñoles’ 2008 corporate restructure separated its metals

are the most important of those three requirements. If you

divisions into Fresnillo, which focuses on precious metals,

do not have people you do not have anything,” he says.

and Peñoles, which focuses on base metals. Peñoles’s

achievements

over

many

years

represent

Industrias Peñoles’ is today the largest primary silver and

the company’s well established operative efficiency

metallic bismuth producer in the world, and also plays a

and effective cost control, as well as its successful

leading role in the Latin American region, where it is the

development and application of new technologies and

biggest producer of primary gold and lead. Industrias

disciplined execution of growth projects. Among its most

Peñoles is currently Mexico’s second largest mining

recent projects is the startup of the Noche Buena mine in

company, with a turnover of US$7 billion in 2012, 45.3%

Sonora, a unit that has set a new gold production record

of which comes from silver production, and 30.5% from

for the company, and the construction of the zinc mine

gold production. The company holds seven base metal

in Velardeña, Durango, which is a decision that fits the

units, seven precious metal units, two projects under

Company’s vertical integration strategy in metallurgical

development, three chemical plants and three metallurgical

operations. The polymetallic mine Rey de Plata is expected

operations, as well as other energy and transportation

to produce zinc, copper, silver, lead and gold in 2015,

infrastructure units. Exploration has been a defining part of

the year in which the expansion of the Group’s chemical

Peñoles’s strategy, and a means to ensuring a steady stream

operations Química del Rey will also be completed.

PARTICIPANDO EN EL COMERCIO MUNDIAL / PARTICIPATING IN WORLD TRADE 220

Cd. Juárez, Chih. Av. San Lorenzo 1622 Fracc. Puerta del Sol, 32410 Tel: (656) 627-0514 Fax. (656) 627-0528


COZAMIN KEY TO INTERMEDIATE COPPER PRODUCER AMBITIONS At a time when exploration investment is slowing down and

always being accountable; we take ownership of ourselves

grassroots projects pose ever more risk, there are certain

and our work, and we do the right thing for our business and

mining companies that are cushioned by the fact of having

our stakeholders. The second is executing with excellence;

larger properties with as yet unexplored areas that hold

we measure our performance and we strive to excel at every

great potential. “Exploration on our Cozamin property has

level. The third is delivering results; we are responsible for

been successful, and the area promises to provide some very

our outcomes, but we also work in a very decentralized

important discoveries in the coming year. We have so far only

way. Our mine management teams know the country, the

focused on 30% of our property, and that tells you that we

mine and the culture, and are responsible for their operation

still have a lot of potential in the other areas,” says Manuel

and their outcomes, and they make their own decisions.

Estrada, General Manager of Capstone Mining’s Cozamin

The fourth is working responsibly; safety is non-negotiable,

mine in Zacatecas. The Cozamin mine is located 3.8 km north-

and the wellbeing of our people is our business. As a

northwest of Zacatecas and is a copper-silver-zinc-lead

management team you cannot tolerate any unsafe behavior,

underground mine with a surface milling facility. “Cozamin

and that applies across the board,” explains Burnett.

is forecasted to produce 44 million pounds of copper at a cash cost of US$1.00-1.10 per pound in 2013. Expansion of the

The company’s operations in Mexico have been logistically

mine, which has an expected life of nine years, is a key focus

very straightforward, compared for example to the

for Capstone. Having access to those reserves is what we will

company’s Minto mine in Yukon, Canada, which is remotely

be investing in: optimizing our resources,” says Estrada.

located beyond the Yukon river. The site must be accessed

“Cozamin is forecasted to produce 44 million pounds of copper at a cash cost of US$1.00-1.10 per pound in 2013. Expansion of the mine, which has an expected life of nine years, is a key focus for Capstone” Manuel Estrada, General Manager of Cozamin Mine for Capstone Mining Corp.

Cozamin is one of two producing properties in Capstone

by barge in summer, and by ice bridge in winter. “This

Mining’s portfolio, the other being the Minto mine in Yukon,

makes it a higher cost operation than Cozamin, which is

Canada, and the company’s sole property in Mexico.

located right next to the city of Zacatecas, a world-class

The company is in the process of adding the Pinto Valley

mining center with excellent infrastructure,” says Burnett.

mine in Arizona, US to its portfolio, which will increase its annual copper production by 130-150 million pounds. This

According to Estrada, Zacatecas’ ‘world-class’ status is

acquisition in combination with exploration projects in Chile,

in part a result of the productive role that the Ministry

Canada, Australia and Mexico provide the foundation for

of Economic Development has played in making the

the company’s ambition to become a leading intermediate

area an attractive location for mining projects. Capstone

copper producer. Despite being a Canadian company, the

Mining has benefitted from being based in Zacatecas, but

company has focused on keeping the Mexican property

the company is also giving back and working to leave a

as Mexican as possible. “We run the Cozamin mine with

positive legacy in the local industry. The company has

no expats at all – it is managed completely by Mexican

made agreements with a number of different local and

nationals,” says Cindy Burnett, the company’s Vice President

national universities, such as Autonomous University of

of Investor Relations & Communication. “Manuel recruited

Zacatecas and the Autonomous University of Guanajuato,

through partnerships with the Autonomous University of

and between January and August 2013 alone the company

Zacatecas, which has a long history of mining, so there are

had 30 students join the company on work placements.

very well trained people in the Zacatecas region.”

Capstone’s investment in the area is also evident in the role it played in the creation of the Zacatecas mining cluster.

Capstone considers its people to be one of its biggest

“We were one of the founding members of the Zacatecas

assets, and Burnett attributes the company’s success to

mining cluster. We have been actively participating in the

them. In building successful projects that establish good

different initiatives it has been taking forward, and we have

relationships with local communities, the company’s people

been able to attract some really important companies to

operate according to four key values. “The first of those is

come and establish themselves in Zacatecas,” says Estrada.

221


| MINE SPOTLIGHT

COZAMIN In January 2004, Capstone Mining acquired the Cozamin copper mine, which produces silver, zinc, and lead as by-products. Commercial production commenced in September 2006 and Capstone

completed

exploration,

development

and

initial

production at 350,000 tonnes per year on time and under budget with an initial three year mine life in reserves. Production at Cozamin was quickly expanded by 120% in the first 12 months with all capital expenditures funded from cash flow generated by the mine, and a further expansion in 2008 saw production rise to 1 million tonnes per year. Production is primarily from the Mala Noche Main Zone, supplemented by ore from the Mala Noche Footwall Zone, which is higher in grade, but has narrower widths than the Main Zone. The underground mining method at Cozamin is either long hole stoping, or cut and fill. Mined ore is brought to surface via either a shaft or two production ramps. The ore is trucked to the crusher and processed through a three stage crushing plant and stored ahead of the grinding circuit, where it is reduced in size and then sent to flotation. The flotation steps involve flotation of lead and copper first, followed by zinc. All products go through multiple stages of upgrading in the flotation circuit ending with a silver-rich copper concentrate, a silver-rich lead concentrate and a zinc concentrate. The concentrates are trucked daily to the Port of Manzanillo to overseas smelters for treatment or sale. A surface and underground exploration program is underway to target new mineralized zones with a goal to increase the reserves. The deepest holes in the Mala Noche vein indicated that the coppersilver phase of mineralization extends to greater depths than the current mineral resources. In 2013, exploration continues with the Mala Noche Footwall Zone and the Mala Noche Main Vein with a program of approximately 32,000 meters and budget of US$6.5 million.

KEY OPERATIONAL FACTS Estimated Mine Life Mining Type Current operating throughput (t/d) Copper production in 2012 (million pounds)

2022 Underground 3200 46.9

Copper grade (Cu%)

1.42

Contained metal in reserves (million pounds)

262

Source: Capstone Mining

223


GRUPO MEXICO DEVELOPS WORLD CLASS COPPER DEPOSIT EL Arco is one of the most promising projects in Mexico,

is destined to employ 10,000 people directly and indirectly

since it is on course to becoming one of the largest copper

throughout the lifecycle of the mine. The Economy Ministry

mines in the Americas. The project is located in the mining

of Baja California is working together with local government

district of El Arco-Calmalli, very close to the border

agencies to move this megaproject forward, since it will

between Baja California Norte and Baja California Sur. This

bring economic development opportunities to one of the

mining district has been explored and exploited since the

most remote regions of the peninsula, and there will be

1970s, but it was not until Grupo Mexico came in with its

important knock-on effects on the state’s economy. Once

team of geologists and modern exploration methods that

the mine is constructed it is believed that the surrounding

the true dimensions of the property’s value were realized.

municipalities may grow by up to 700%, with all of them

The copper-gold ore deposits were evaluated during Grupo

merging into one big city of at least 30,000 habitants. One of

Mexico’s ambitious drilling program, which lasted from

the main challenges the company will have to overcome will

2005 to 2006. After the feasibility study was concluded

be managing its water supply, since the mine is located in a

in 2010, an investment of US$56.4 million was approved

very dry area where evaporation rates are considerable. The

for land acquisition required for the project, which is still

operation will require over 800 liters of water per second,

ongoing in 2013. In order to be moved into production this

which is more than the 725 liters that the city of Ensenada

world class copper deposit – with ore reserves of over 1.5

currently consumes. In order to satisfy the needs of the

billion tonnes with an ore grade of 0.416% and 0.14 grams

operation Grupo Mexico intends to build a desalination plant

of gold per tonne – will require an investment of US$2.6

near the coast and to use water from El Vizcaíno basin. The

billion in the first three years. Once the project is moved

company has also considered the possibility of installing an

onto production it will generate a turnover of US$2 billion

electrical plant, since the operation will require a supply of

per year, for a period of at least 25 years. The project will

180MW. According to the Energy Ministry the cost of this

consist of an open pit mine and will exploit copper and gold,

electrical plant would be US$150 million and it will have to

with molybdenum as a byproduct. The mine is forecasted

be built by private contractors. The negotiation states that

to produce 190,000 tonnes of copper cathodes, 105,000oz

after 30 years Grupo Mexico would own the rights over the

of gold and 1,500 tonnes of molybdenum per year. El Arco

electrical infrastructure.

ventasmexico@power-electronics.com Telf.: (55) 5390-8818 Telf.: (55) 5390-8363 24HRS. SERVICE

UN COMPLETO RANGO DE PRODUCTO PARA SATISFACER LAS APLICACIONES MÁS EXIGENTES

224

VARIADORES DE VELOCIDAD ARRANCADORES ELECTRÓNICOS baja y media tensión


| VIEW FROM THE TOP

STRATEGIC PLANNING TO OVERCOME PRODUCTION CHALLENGES HÉCTOR ESPINO HERNÁNDEZ Government Affairs General Manager of Minera y Metalúrgica del Boleo Q: El Boleo mine presents a unique set of operational

hydrometallurgical techniques at temperatures below the

challenges. What are the main challenges and how is the

boiling point of water. This means that we will have a lesser

company overcoming them?

environmental footprint than if we were to use other kinds

A: El Boleo is an underground mine that is currently at

of technology. Vat leaching, solid-liquid separation and SX-

the development stage. The mines that form El Boleo are

EW operate as a closed-circuit system. This means firstly

made up of soft rock, which makes it a real challenge to

that we can recycle the water from the plant, and secondly

maintain optimal conditions for operating modern mining

that the tailings, after extracting the base metals, will

equipment, such as continuous miners, conveyor belts,

be neutralized and carried to a tailing store facility. Only

and roof bolters. As a large metallurgical project El Boleo

the cooling water that we use for the equipment will be

needs to be self-sufficient in its energy and water supply;

discharged, in line with Mexican regulations.

it will take a considerable amount of electricity (63.25MW) to run the operation. El Boleo is not connected to the

Q: What is the impact of the partial withdrawal of Baja

local grid that supplies Santa Rosalia town. Instead, we

Mining from the project, now holding only a 10% share,

will produce our own power on the operation using two

given that the company provided a lot of the expertise?

different methods.

A: Some of Baja Mining’s personnel are still at El Boleo, now working for Minera y Metalúrgica del Boleo. As with by

many foreign projects in Mexico, they start out with a

Boleo

lot of expats, but as the projects take hold and stabilize

project’s positioning close to the Sea of Cortés and the

Mexicans tend to take over the management. Today there

Transpeninsular Highway allows us to bring in large

are Mexican technical experts working on the project as

quantities of materials that are required for our operation,

well. There have also been a significant number of Korean

as well as forward our product using both options. This

engineers working on the project. KORES, which owns a

represents a cost advantage for El Boleo.

Normally,

mine

transportation

projects costs.

are

heavily

Fortunately,

impacted

the

El

We will also

90% share in the company, is administered through the

use sea water in most of our processes: for leaching and

South Korean government. The bottom line is that it has

cooling equipment, among other things. The fresh water

been in many ways beneficial for the project to bring

used for the SX-EW process and facilities will be obtained

in Korean investment and involvement. El Boleo is a

through desalinization plants. Because El Boleo is located

technologically challenging project, and KORES was able

in a desert climate, there is always a shortage of fresh water

to provide the required funding for it to continue.

and rain, nevertheless through such techniques we will be able to use modern mining techniques and operate a high

Q: What are the benefits for the project of the partnership

tech processing plant. There will be large desalinization

between Baja Mining and KORES, aside from the latter’s

plants that will produce enough fresh water for some

financial input?

operations and most services on site.

A: KORES is interested in the project as long as it can produce copper at a more competitive price than the

Since the ores and wall rocks on El Boleo are soft,

copper that is available in the market. It is likely that this

there is the opportunity to increase our involvement

represents the most significant investment in Mexico by a

in surface mining to complement the activities on the

South Korean company, and the investment is probably

underground mine. Hydrometallurgical technology is not

one of the top three investments in the mining industry in

cheap compared with traditional flotation technology,

Mexico on the whole. It is anticipated that around US$600

but it is environmentally friendly. For example, if we had

million will be invested this year, with US$1.8 billion due

chosen to use smelting or roasting methods they would

to be invested in total. The technology coming out of the

have produced SO2 gas, which enters the atmosphere

project will also be very important for other projects that

and causes pollution. However, on El Boleo we use

face similar challenges.

225


226


| MINE SPOTLIGHT

EL BOLEO El Boleo is an advanced stage copper-cobalt-zinc-manganese project that is located along the east coast of the Baja peninsula centred on the port town of Santa Rosalía in Baja California Sur. The property covers a series of sediment-hosted stratabound copper deposits. The geological setting is a shallow near-shore marine basin containing Pliocene and Pleistocene terrigenous clastic sedimentary rocks (conglomerates and sandstones) with several extensive relatively thin but continuous tuff layers. Deposits of copper-cobalt-zinc-manganese mineralization in the Boleo District occur within seven widespread, stratiform clay-rich horizons or beds known as manto deposits. Copper and cobalt, with variable amounts of zinc and traces of lead, as well as locally mineable bodies of manganese oxide, are related to the tuff layers interbedded with the coarse clastic sedimentary rocks. The seam formation and low material strength of the manto deposits suggests that conventional “soft rock” mining methods such as those used in underground coal, potash or salt mining would be successful. The

deposit

was

continuously

mined

predominantly

by

underground methods from 1886 to 1972, during which time an estimated 18 million tonnes of ore were treated. After 1972 both underground and open pit mining was carried out sporadically until the copper smelter at Santa Rosalía closed in 1985. Since cessation of mining operations, International Curator carried out exploration between the years 1993 to 1998, and Minera y Metalúrgica del Boleo (MMB) has been carrying out exploration and project development activities from 2001 to the present. In August 2013, Korea Resources Corporation contributed US$74.7 million in construction funding to MMB, which completed the final components of the committed pro rata contributions of the Phase II funding requirement of US$443.4 million to advance the construction of the project and reduced the interest of Baja Mining, the other shareholder in MMB, to 10% The Boleo Project is being developed as a series of underground mines using the room-and-pillar mining method, along with small open pit mines. This method was chosen to deliver the targeted plant feed grade at the required rate because of its flexibility for layout designs, efficient recovery of resources, and lower initial capital cost. The ore will be fed to a processing plant, which will use a two-stage leaching circuit, followed by solid liquid separation, and solvent extraction electro winning to produce copper and cobalt as metal, zinc as zinc sulfate monohydrate, and there is a possibility of producing manganese, as manganese carbonate. The plant is expected to produce 57,000 tonnes for the first 6 years at an average grade above 2% and 38,000 tonnes of copper per year thereafter at an average grade of 1.33%. Based on present reserves and the current mine plan, the scheduled life of mine is 23 years, and the project will begin production in early 2014.

227


PEÑOLES INVESTS IN RENEWABLE ENERGY FOR SELF-SUPPLY Mexico’s largest companies

started looking for hydroelectric projects, since we knew

have seen their electricity

that these projects can generate low cost electricity after

costs more than double

the payback period of the initial investment,” explains Vaca

over

decade.

Durán. At that time electricity in Mexico was not expensive

The combination of rising

in comparison to other markets, since the cost of oil

energy prices and delayed

came down as low as US$8 per barrel (Mexican mix) and

improvements

Mexico’s national currency was undervalued, following the

the

past

in

power

generation capacity has led Arturo Vaca Durán, Energy and Technology Vice President of Peñoles

Mexican peso crisis.

to an increasing reliance on energy self-sufficiency

While the Mexican government tried to attract developers

strategies among Mexico’s

to come to Mexico and build combined cycle plants,

most energy intensive companies. Peñoles, one of the

Peñoles saw the installed power capacity margin, or the

country’s leading mining companies, produced 92.9% of the

difference between installed capacity and maximum

energy it consumed in 2012 and added wind power to its

demand. This becomes a problem when plants are in

energy mix, through its Fuerza Eólica del Istmo subsidiary.

maintenance or being repaired. “In 1996 we were aware that if power generation investment did not come to Mexico we

Peñoles, founded in 1887, is the world’s top producer of

were going to face a period of energy shortages, which

refined silver, the largest in the western hemisphere in

would affect our mines and plants since our operations

metallic bismuth, the leading Latin American producer of

run 24 hours a day, 365 days a year. For example, without

refined gold and lead, and among the main refined zinc and

electricity a mine can flood in just four hours, which

sodium sulfate producers in the world. Arturo Vaca Durán,

may cause losing the mine for six months, and that has

the company’s Energy and Technology Vice President,

happened in the past. Our main motivation for getting into

emphasizes the difference between a pure mining

self-supply then was to avoid electricity shortages in our

company and a mining company that also has electrolytic

mines and plants,” explains Vaca Durán.

and smelting processes, with Peñoles, which has integrated operations in smelting and refining non-ferrous metals and

Peñoles considered combined cycle power plants, but

also produces chemicals. “In a mining company that has

the volatility of the natural gas prices made the company

smelting and refining processes, very frequently the most

reluctant to invest in this technology. However, in 1998 it saw

important part of the operating costs is electricity,” Vaca

another opportunity to use pet coke as an energy source

Durán says. Since the company’s operations depend on a

when Pemex modernized its refineries, resulting in an excess

substantial and continuous supply of electricity, energy

of pet coke that had to be exported at a loss. “We were able

constitutes an important component of production costs for

to enter into a 20 year supply agreement with Pemex, since

Peñoles. Energy efficiency has therefore been a permanent

at that time pet coke was considered to be a residue rather

fixture in the minds of the company’s management team.

than a fuel. The cost savings we made through sourcing

“We have people working continuously on studies at each

pet coke at a competitive cost and burning it in an efficient

of our mines to develop strategies for being as efficient

and environmentally friendly way have been significant,

as possible in the use of electricity,” says Vaca Durán. An

while this agreement provided us with a predictable energy

example of this is the initiative the company took to reduce

source until 2024,” notes Vaca Durán. In the end the feared

electricity demand at peak times by increasing the capacity

energy shortages did not occur, since many combined

of pumping stations that are responsible for pumping water

cycle plants were installed, but the volatility of natural gas

out of its mines, in order to be able to operate them for

prices between 2000 and 2007 created a lot of volatility in

18-20 hours per day and shut them down at peak times

Mexico’s electricity market.

when electricity is more expensive. “We were not saving electricity, we were just reducing demand on peak hours to

Peñoles is following a low-cost producer strategy, meaning

obtain lower electricity cost,” explains Vaca Durán.

that when its revenue decreases as a result of declining commodity prices the company stops investment in order

228

When Mexico’s power generation sector was opened to

to keep a positive cash flow. “Since the mining industry

private participation in 1992, a new range of opportunities

goes through ‘metal prices’ cycles, smaller companies

opened up for Peñoles to pursue its mission of adding

start having problems very early on in a downward cycle.

value to non-renewable natural resources in a sustainable

If Peñoles did not have the low cost strategy (including

manner. “We saw this as an opportunity and immediately

self-supply scheme) we would be in trouble too, since we


could never obtain electricity at the low prices at which the world’s zinc plants can” explains Vaca Durán. Increasing the level of energy self-sufficiency is thus a priority strategy for Peñoles. In 2012, the company’s operations and its subsidiaries required an average of 276MW, with peak demand reaching 316MW, representing an increase of 2.5% over the previous year, despite having improved overall energy efficiency. Of its total electricity requirements 92.9% was provided through self-supply, 86.1% by the company’s pet coke plant in San Luis Potosi, 3.7% through wind power supplied by Fuerza Eólica del Istmo, and 3.1% from internal cogeneration initiatives. The remaining 7.1% was purchased from the CFE. As part of its Vision 2020 growth strategy, Peñoles estimates that electricity demand will grow to 480MW in 2015 and 580MW in 2020. When thinking on a longer time horizon, Vaca Durán would like to recommend Peñoles an energy mixture of 60% natural gas and 40% renewable energy by 2030. “We need to have at least 80% of firm

Photovoltaic has also become impressively competitive,

power for peak times and we should design our mines and

compared to what it cost three years ago, and Peñoles is

plants to rationalize the energy demand at peak times.

exploring the possibility of installing this technology. “A

Should we need to reduce the natural gas price volatility,

photovoltaic power plant currently produces energy at

we may have to decide whether to enter into a strategic

a cost of US$10-11 cents per kWh, which is not yet good

alliance with natural gas companies in USA to secure a

enough for us to develop it on a commercial scale, but

natural gas price below US$6 dollars, for example,” says

we may start with pilot facilities of 1 to 15MW,” says Vaca

Vaca Durán. “However, the cost of wind power would

Durán. “Solar plants are easy to build and maintain, making

be lower if we consider that natural gas prices will be at

this type of energy a good option for mid-sized companies,

US$6. While energy cost is very important, you also have

since they get their energy at higher prices, making solar an

to consider security of supply, taxes on emissions and the

economical option for them. Unfortunately, the best solar

Mexican legal framework certainty.”

resource is not always available where the minerals are located. We have one project where this is the case, at one

Following the completion of Phase I of the Fuerza Eólica del

mine in Sonora. We may construct a pilot plant there, and

Istmo wind farm, with 50MW installed capacity located in

if costs continue improving, we may consider a larger plant

the La Ventosa region of Oaxaca, Peñoles has added another

afterwards. Some open pit mines require large amounts of

30MW in Phase II. This brings the company’s total wind power

diesel fuel for their off-road mobile equipment, which at

investment to US$175 million and enables the company to

today’s natural gas prices may open significative saving

generate up to 15% of its annual consumption. The process

opportunities. If they can replace the use of diesel into LNG

of constructing these wind projects has met with relatively

they could save tenths of millions US dollars per year and

little operational issues or social resistance, since Peñoles

simultaneously reduce their CO2 emmissions. That could be

gave careful attention to these issues, and was able to apply

the best energy efficiency project I have ever seen.”

certain skills that it had developed as a mining company. “Our company has acquired skills in engineering and construction;

The expertise of the mining industry has proven to be an

we do not actually execute the construction of the project

important asset when developing renewable energy projects.

but we closely supervise it,” states Vaca Durán. “Peñoles has

However, given the lack of transmission infrastructure in

also people fully devoted to negotiate land access, since

Mexico not every mining company has the financial strength

this is needed to deal with ejidos and comuneros for the

to participate in these projects, since putting in transmission

mining projects, and these land owners do not always have

lines can represent up to 15% of the cost of the project.

their papers in order and sometimes they inherit or sell their

“The government should actively develop transmission

land through verbal commitment. Our negotiators are very

infrastructure, and private investment will come,” Vaca

gentle and offer these people important benefits with a view

Durán adds. “By reducing the costs of renewable energy

to developing a good relationship with the community, even

projects (no subsidies), an increasing number of companies

though costs are an ongoing concern. The land negotiators

will be able to participate in self-supply schemes, reducing

and the engineering department at Peñoles were the key to

their energy expenses and increasing the competitiveness

the success of this project.”

of the Mexican industrial sector.”

229


THE ROLE OF ENERGY PRICES IN THE MEXICAN MINING INDUSTRY The mining industry is the third largest energy consumer

Global Research’s report affirms that industrial electricity

in Mexico, and energy use reportedly represents 30% of a

tariffs doubled between 2003 and 2013. There is only one

mine’s operating expenses. Like other industries established

hydrocarbon whose price has fallen in recent years: natural

in the country, the Mexican mining sector must pay an

gas. The US shale gas boom pushed gas prices down.

electricity price that is around 8% higher than household

Between 2008 and 2013, natural gas prices fell 70% in

prices. This is not a common situation since most countries

North America. Demand for natural gas in Mexico doubled

have higher electricity prices household than industry,

between 2009 and 2012. However, Mexico’s gas supply

only Costa Rica (where industrial electricity users pay 1%

infrastructure is underdeveloped and it has proven to be

more than households) and Mexico impose the opposite.

increasingly ineffective at meeting demand for natural gas.

According to the International Energy Agency, liquid fuel

During 2012 alone, Pemex issued 109 critical alerts, forcing

prices for Mexico’s industrial sector increased 58% in 2012.

the interruption of productive activities in many industrial

Moreover, the increase in hydrocarbon prices has naturally

complexes across the country. These alerts caused a loss of

impacted electricity bills. Bank of America Merril Lynch

more than US$16.35 billion throughout the year.

ADVANTAGES OF HYDRAULIC POWER IN MOTOR APPLICATIONS Crushers, grinders, screens, conveyor belts, belt feeders

solutions to the mining industry through hydraulic motors.

and apron feeders all need motors and drives to perform

As a result of this acquisition, Bosch Rexroth has now

their task and ensure the proper and timely processing and

expanded its product portfolio and is capable of offering

transportation of minerals. The drivers and motors used in

integrated solutions to the mining sector.

these machines must combine low speed and high torque. Up until a few years ago, the motors used for mineral

Bosch Rexroth’s hydraulic motors provide a level of

transportation and processing equipment presented a

flexibility unseen in powered mechanical equipment. “If

series of problems. For example, when a mine purchases a

the client, for some reason, requires 100hp instead of

crusher with a capacity of 300 t/hr and uses a traditional

30hp, we can attach another powering unit to our modular

mechanically-powered

motor’s

hydraulic equipment. This scalable quality allows us to add

capacity doubles that of the crusher. This difference forces

the number of units that are needed in each application,”

the crusher and also makes the motor highly prone to

Jiménez explains. The physics and operational principles

jamming. In cases like this, the use of reducers or frequency

behind hydraulic powering solutions pose great advantages

inverters is counter-productive, since these components

to mining companies using hydraulic motors. Firstly, even

reduce both speed and torque. The most common solution

if the drive is in a standby mode, it maintains its torque.

is to increase the size of the motor to 60hp. This increase

Secondly, if a problem or risk factor presents itself during

reduces the revolutions per minute (rpm) and delivers

operation – such as a jam in a crusher – the motor’s speed

the torque of a 30hp motor with a lower speed. But when

can be modified without any secondary effects. “With a

there is a problem – such as bulk material jamming – the

hydraulic motor, it is possible to combine a speed of 0

motor must be used to its full power of 60hp, which leads

and a maximum level of torque power. The electric motor

to frequent breakdowns.

can work at 1,800rpm,” Jiménez details. Thirdly, the risk of

motor

of

30hp,

the

permanent failure in a hydraulic motor amounts to zero. Tonatiuh Jiménez, SEL Manager Bulk Material Handling at

Even in case of breakdowns, hydraulic motors can still

Rexroth Mexico, mentions that the solution to torque and

function, albeit with hampered efficiency.

power specification needs in the mining industry is not the

230

acquisition of oversized motors. “What is needed in the

Bosch Rexroth provides motors of all sizes and capacities

mining industry is normal-sized motors with adjustable

to the mining industry. The company has already installed

speed that can be regulated hydraulically, through a pump

a 1,600hp motor in a Zacatecan mine and it provides over

instead of a mechanical frequency controller.” In 2011,

8,000KW for another Mexican mining client. In addition,

Bosch Rexroth fully acquired Swedish drive manufacturer

Bosch Rexroth’s modular hydraulic motors and drives

Hägglunds, the only company that offers adjustable power

reduce energy consumption in mines. “This is something


The combination of high electricity prices and insufficient

development of photovoltaic projects, an opportunity that is

supply of cheaper energy sources has encouraged Mexican

already being addressed by Camimex and its members. The

mining companies to look for alternative sources of energy.

chamber is also actively fostering renewable energy projects

In 2012, mining companies affiliated to the Mexican Mining

in Mexico, such as wind farms in Oaxaca.

Chamber (Camimex) spent over MX$32,578 million (about US$2.59 billion) on energy services. These expenses were

The Mexican government plans to increase the availability

mainly directed at the purchase of diesel fuel (66.9%),

of natural gas by developing the country’s pipeline

electricity (23%), natural and liquid gas (2.4%) and other

infrastructure

petroleum products (1%). But there was another important

stemming from the US. In addition, the proposed reforms

allocation of resources: the self-generation of electricity,

to the energy sector will enable Pemex to produce more

which accounted for 5.6% of total energy expenses in 2012.

hydrocarbons and supply cheap shale gas. However, the

Mining companies have opted to develop their own wind,

elimination of subsidies and the general macroeconomic

hydroelectric, and solar energy generation facilities as well as

environment keep increasing energy costs for the mining

combined cycle power plants. For example, Grupo Mexico is

industry. The sector is also betting on renewable energy

building two combined cycle projects in Sonora, close to its

generation as a viable alleviator for its energy costs, as

Buenavista del Cobre and La Caridad mines. Sonora’s natural

well as a token of the industry’s focus on sustainability and

exposure to sunlight also makes it an ideal location for the

corporate responsibility.

that our clients greatly appreciate,” Jiménez notes. “For

the replacements part and maintenance required. “We

example, if you have three hydraulic machines and you

do not have distributors. We directly manage the sale

need 3,000KW to power a conveyor, it is possible to

of our products and the integrated services we provide,

combine three hydraulic motors and 10 modular units

such as long-term maintenance in mines through PMAs,”

with 300KW in order to obtain the required energy. If at

Jiménez states. Bosch Rexroth also possesses specialized

a later stage you only need 900KW, you can stop seven

monitoring equipment and technology that allows the

units and thus save 2,100KW. This is our concept of energy

company to receive detailed information on product

efficiency: you pay for what you use and not for what you

performance and therefore prevent wear in the machinery.

have.” If one considers the years’ worth of operation in a

The company can determine equipment lifespan and

mine, the resulting energy savings can amount to millions

prevent any breakdowns.

and

increasing

access

to

cheap

gas

of dollars. Another way in which Bosch Rexroth can help miners reduce energy costs is through the installation of

By introducing hydraulic motors to innovative mining

efficiently powered conveyors to recover material from

applications, Bosch Rexroth has enabled mining companies

pits and tunnels. The company has built one such conveyor

to adapt their power supply to their needs in a particular

at a mine in Zacatecas. This belt is 1,600m long, and it

process and production stage. “With our hydraulic motors,

eliminated the need to purchase 70 heavy load trucks at a

our clients will always be able to meet their production goals

mine site in Zacatecas.

by programming and adjusting their motors and drives,”

“What is needed in the mining industry is normal sized motors with adjustable speed that can be regulated hydraulically, through a pump instead of a mechanical frequency controller” Tonatiúh Jiménez, SEL Manager Bulk Material Handling at Bosch Rexroth

Furthermore, Bosch Rexroth abides by an integrated

says Jiménez. “Bosch is a global group that comprises

service philosophy. The company considers the mining

50 companies, and its solutions have been developed for

industry one of its priorities. Its strive for quality begins

more than 50 years,” he states. Bosch Rexroth Mexico, part

in Mellansel, Sweden, where all of Bosch Rexroth’s motors

of Bosch’s industrial division, is focusing on furthering the

are manufactured. Afterwards, Bosch Rexroth visits mines

quality and efficiency of its solutions towards the mining

and demonstrates the performance of the equipment

industry. The company has adapted its business strategy to

in the field. The company assists clients in the selection

the industry’s needs and will continue to foster innovation

process of the best-fitting equipment for each need,

in the sector and support mining operations throughout

installs the product, puts it in operation, and handles all

Mexico with integrated solutions and services.

231


| VIEW FROM THE TOP

STATE OF THE ART POWER SOLUTIONS LEOPOLDO CASTILLO Mining VP of Schneider Electric Mexico

Q: What were the opportunities that Schneider Electric

to then be uploaded onto the broader system. There

identified in the Mexican mining industry?

are different types of monitoring systems, such as the

A: Mexico’s mining history and the latest developments in

industrial computer system that offers a real-time graphic

the industry have attracted many foreign investors to the

visualization solution that is easy to operate, design and

country; today, 60% of production is carried out by Mexican

maintain, and makes information available for operators,

companies and 40% by foreign companies. Competition

maintenance personnel, or managers to make the right

levels have increased and companies are looking to

decisions with the aim of process optimization.

bring costs down by introducing solutions to make their operations more efficient. This market is attractive for

The fact that our technology can interact as one unit really

Schneider Electric, given that the energy consumption of

sets us apart from our competitors. Schneider Electric’s

the industry represents a large amount of the country’s

market positioning is strengthened by its complete range

overall consumption. We are looking to supply the most

of field and administrative solutions. Given the challenging

efficient electric solutions by providing our clients with

and remote locations where mines are located, it is mostly

safe, reliable, productive and green energy.

the case that mining companies are obligated to generate their own power, which provides an excellent opportunity

Q: How does Schneider Electric optimize its portfolio of

for us to prove the value of our technology. We are able to

solutions for the mining industry?

bring our technology to the most remote areas, and for the

A: To understand what the industry really needs, dialogue

most extreme access situations we can integrate predictive

with our clients must be taking place at the management,

maintenance and surveillance systems into the technological

operational engineering and design levels. It is important to

platform in order for management teams to have real-time

understand the operational challenges and the technologies

information for decision making. We aim to provide the best

that are currently being used throughout all processes in

and most reliable energy solutions, avoiding interruptions

order to design solutions that will best respond to the

to the flow of electricity. Through our technology we are

specific needs of a project, thus contributing to significant

able to monitor all data on an engine and identify any

savings on energy consumption while also optimizing

abnormal energy consumption, fix any problems and bring

processes. We have a global competencies center where we

the machines back to optimal efficiency.

develop different technological solutions for mines, while in Mexico we have an engineering center managed by our

Q: How is PlantStruxure providing operators with

technical specialists, “The Solution Architects.” They are

information that can make their processes more efficient?

responsible for contacting our clients to understand their

A: PlantStruxure is a process automation system for the

specific needs and making sure that Schneider Electric’s

mining industry that maximizes equipment lifetime. It is

solutions are developed to fulfill them.

incorporated into the design and development of a mine installation from the start. The software allows the designer

Our solutions range from the energy supply itself to the

to set all parameters in the system, making it easier for the

control of it. In the area of energy supply our low-tension

engineering operator – who does not have to calculate any

distribution boards provide our clients with the most reliable

formula – to identify the most productive solution.

and appropriate energy supply for their systems. Once

232

the energy is in place it is then transferred to production

Q: How will the company achieve continued success and

through engine control centers, which receive measured

growth in the coming five years?

and optimized energy flow. All of the information coming

A: Our value proposition relies on our complete and

from the sensors in our equipment is constantly monitored

modular solutions. We provide solutions that can adapt

through easy to use and intelligent terminals. Information is

to a company’s growth, and which are capable of being

collected through the systems and automation processors,

integrated into all areas of the operation.


HANDLING WATER AND ENERGY DURING MINE CONSTRUCTION Dewatering systems are not only necessary to void

flow pumps can dewater great extensions of land, such as

mineralized rock from water. They also play a crucial role in

those occupied by open pit mines. They can also excavate

lowering phreatic levels in order to enable the development

humid rock without sustaining damage and thus avoiding

of both open-pit and underground mines. Dewatering

downtime and the consequent extension of dewatering

systems must be maintained and monitored in order to

during mine excavation stages. “In terms of man-hours,

foresee and control potential inflows that could endanger

field dehydration can take a lot of time without the use of

the mine’s structure and the lives of those working within

systems such as the ones we offer. Time is essential in mining

the pits or tunnels. Furthermore, humid rock poses a

excavations, and so is the correct handling of all resources,”

continuous problem for mining equipment, for it can easily

Nava remarks. “We monitor and control humidity in order to

damage any device and structure, ranging from drills to

prevent breakdowns in excavators and structure collapses.

excavators, loaders, pillars and ledges.

This keeps companies from spending extra resources on gasoline, machinery, wages, and repair works.”

Agua y Energía en Movimiento is a Mexican company that provides integrated water management and energy

The company is also participating in several mining projects

supply services to the country’s mining industry. Created

as a power generation and emergency power provider.

in 2011, the company is backed by a group with nearly

For example, Agua y Energía en Movimiento is providing

90 years of experience in power solutions. Together with

full-time energy supply to the Del Toro mine in Durango,

Energía en Renta, its sister company, Agua y Energía en

in a remote area where the national electricity company

Movimiento now services Grupo Mexico, along with other

has not installed any infrastructure. “In this project, we are

clients, in multiple locations. “We were recently called to

currently operating six synchronized devices, each with

solve a water problem in the mine located in San Antonio,

1250kW. This equipment is installed in a 6m container,

Chihuahua,” Antonio Nava, Director General of Agua y

which is half the size of what older generators would need

Energía en Movimiento, recalls. “This mine flooded two

to produce a comparable capacity,” Nava explains. The

years ago, when the company encountered a huge deposit

company is continuously investing in new technology to

of water while excavating. The resulting inflow flooded at

facilitate the transportation, installation, and performance

least five levels of the mine. We provided the submersible

of power generators for mining companies. Another focus

electrical equipment that could extract the water from a

area is the simplification of this equipment, in order to

depth of over 600m and aid the reactivation of this mine.”

make sure operators are able to efficiently manage it. “Thanks to the advanced and simplified technology we

“By successfully managing all

use, we can generate 500kW with six cylinder motors

challenges

motors. Regarding control boards, transference processes,

regarding

water

when we previously would have had to use twelve cylinder

and energy management, we

synchronization and voltage regulation, all of these tasks

allow our clients to focus on the

we use and the systems we install,” Nava says.

challenges concerning their core

Most importantly, Agua y Energía en Movimiento provides

business: mineral extraction” Antonio Nava, Director General of Agua y Energía en Movimiento

can be performed in an easier way due to the technology

specialized personnel on the field for all its clients, 24 hours a day and seven days a week. The company’s lighting solutions also allow both their staff and the mine’s personnel to work in any shift. “Our experience, both as a separate

Agua y Energía en Movimiento is specialized in the

company and as a group, has led us to understand that

installation and handling of wellpoint systems, which can

there are few things as essential to the services we provide

abate phreatic levels in record time while at the same time

as quality,” Nava stresses. Therefore his company hires and

save electricity and diesel. The company first requests a

continually trains highly specialized staff. In this way, the

soil mechanics survey and a hydrological assessment from

company is prepared to offer both preventative solutions

the client, providing the necessary liaisons between mining

and emergency power system following the collapse of a

companies and academic institutions for the procurement of

mine’s electrical infrastructure. “By successfully managing

these studies. Agua y Energía en Movimiento then performs

all challenges regarding water and energy management, we

thorough evaluations and presents mining companies with

allow our clients to focus on the challenges concerning their

a draft project. The company’s wellpoint systems and high-

core business: mineral extraction,” Nava affirms.

233


QUALITY AS AN ESSENTIAL ELEMENT IN ENERGY CONTROL Because the levels of energy required to locate deposits,

cannot be optimized to save energy. Sometimes operators

construct a mine, and run production are so intense, a

believe that by integrating certain equipment they will be

mining company’s ability to succeed can often hinge on

able to save energy where it cannot really be saved. Mining

its ability to ensuring access to a high quality and reliable

operators have to be very careful about this because it can

energy supply. “Energy saving is equal to growth. Most of

ruin equipment,” warns Berriel.

the time, companies are limited in their ability to supply their own energy. Mines are usually located remotely and

Power Electronics’ emphasis on quality comes in part from

many of them have problems with energy, because the

the fact that the company’s formation took place in the

CFE cannot provide power to some of the mine sites,” says

mining industry, which for Berriel represents one of the

Pedro Berriel, Director General of Power Electronics. “Mining

most demanding sectors for energy quality, availability,

companies that do not have access to the CFE grid have

and performance, because of the consequences and costs

to be very careful about how they use their limited energy

of equipment failure. “Most of Power Electronics’ solutions

supply. They have to use variable speed drives and self-

were developed with the aim of supporting the mining

starters so that they can optimize the energy being used at

industry at its core. Our products are very reliable, designed

each stage of their processes.” Power Electronics’ industrial

to be ‘non-stop’, and very easy to maintain and operate. We

division serves the oil and gas, mining, and water industries

can provide any medium voltage solution that a mine could

internationally, with its main product for the mining industry

require, and if the technology suits the mining industry it

being medium voltage switchgears, including self-starters,

will exceed the expectations of any other industry,” he says.

self-protectors, and medium voltage drives. “The mining

Because of the complexity of the processes that Power

companies that are using our equipment are able to save

Electronics provides solutions for, failure is not an option

important amounts of energy in one process that can then

– the problems that arise as a result of malfunctioning

be used in another process. Self-starters and variable speed

equipment can lead to big complications that are difficult

drives are two elements that can save important amounts of

and costly to fix. “Mining companies have to be prepared

energy,” explains Berriel.

and they need to count on non-stop, reliable technology,”

“Mining companies that do not have access to the CFE grid have to be very careful about how they use their limited energy supply” Pedro Berriel, Director General of Power Electronics

A real focus point for Power Electronics is the quality

says Berriel. A particularly poignant example is the work

of the energy its solutions deliver, since quality energy

that Power Electronics is currently conducting for AHMSA

translates into quality operations. “When a variable speed

in the transportation of large quantities of iron powder from

drive is installed in an engine the quality of the energy

its Fénix project in Chihuahua to Monclova, Coahuila. “This

will decrease, affecting other equipment such as PLCs,

project relies heavily on the drives we have installed for

hard drives, screens, and everything around the variable

AHMSA in their iron pipeline. If any of our systems fail, over

speed drive, because of the electrical noise. With the

300km of transported material would get stuck and then

equipment that we provide it is possible to maintain

flooded, and the company would have to open the pipes

the quality of energy at its best, because the electrical

to remove the condensed iron. It is therefore extremely

noise is easily canceled out in our reactors and filters,”

important that our equipment functions well,” he adds.

says Berriel. “The energy supplied by CFE is of very low

234

quality and its fluctuations can induce electrical failures.

Berriel sees a good deal of room for growth, particularly

We know about these fluctuations in the power supply,

because automation is still relatively underused in Mexico.

so our equipment is prepared to receive and moderate

“There is a huge market for automation in the Mexican

them.” For Berriel the quality equation is simple: the better

mining industry because there are very few companies

the technology that is used the more energy can be saved,

that are taking advantage of it. Our products are designed

thus reducing costs. “It is very important to measure how

so that they can be monitored and controlled, but process

much energy can be saved, and which processes can or

automation in Mexico is still under development,” says Berriel.


| VIEW FROM THE TOP

INTEGRATED SOLUTIONS FOR POWER TRANSFORMATION EDGAR SAINZ Director General of Temisa Q: What is Temisa’s development strategy in the Mexican

importing components to locally assemble asynchronous

market for electro-mechanical machinery?

engines for mills, a niche market where replacements are

A: Temisa is a 100% Mexican company, with lots of business

costly. This is a perfect fit with my father’s original vision

ideas ready to be applied in the Mexican market. Since its

of designing and building equipment, an idea that came

founding the company has adopted quality norms, and

as a result of a service he provided to ArcelorMittal at its

currently has the objective of obtaining an international

Lázaro Cárdenas mine. In terms of service, one of our most

quality certification in 2014. However, institutions such as the

relevant projects has been setting up a workshop in only

Federal Electricity Commission (CFE), and companies such as

four months for Minerales y Minas in the north of Jalisco.

Siemens Power Generation, WEG Group, Teco Westinghouse

Temisa redesigned the engines of the mills on the project

and Alstom, have previously visited our facilities and have

and changed the switches and controls with the objective of

given us high level quality evaluations, specifically for our

saving energy, therefore directly impacting the client’s ROI.

processing plant. We are also looking to acquire certifications in electrical testing and engine reconstruction. This is a

Q: What efforts does Temisa make to attract the human

complex task, given the broad diversity of engines, power

capital to develop a local technology base?

transformers and power generators, for each of which we

A: We have created the Civil Association for the

must formalize processes and create user manuals. Human

Transformation and Innovation of Energy (TIE), through

capital plays a key role in this process. Our commercial

which we intend to attract talent from universities and

strategy is focused on the power transformers market. We are

technological centers such as CIATEQ in Queretaro, which

currently focusing our efforts on Tebian Electric Apparatus

will participate in the development of new technologies.

Stock Co. (TBEA), an international company and leader in

Mexico has a lot of human talent; the challenge is to

the area of power transformers, which we recently started to

provide the right incentives. My father was the second

represent. The contract with TBEA was signed in China and

generation in Temisa, and from the beginning his idea was

we represent them throughout Latin America. Among the

always to hire young people and train them. When I joined

main projects in which they participated is the development

the company 15 years ago, I started to create strategic

of the Three Gorges Dam, a hydroelectric plant in China. We

alliances with different universities, in order to attract staff

believe that with this contract Temisa will be able to close a

with an engineering background. Temisa has long-term

competitive gap in the market. We are also looking forward

development plans for each of its employees.

to capital becoming more accessible through PYMES, which will help us to continue creating business opportunities.

Q: What will be the main drivers of Temisa’s future development?

Q: What are the commercial opportunities in electro-

A: The construction of our own engines will support our

mechanical services that are driving Temisa’s growth?

growth, as well as the TIE initiative. From a more global

A: 70% of our business currently comes from the domestic

perspective, our company will continue to grow thanks to

market, and we just recently opened to new markets such

its strategic partnership with Maqport, with whom we are

as Central America, where an opportunity turned into us

currently developing interesting projects for the marine

having an office there to provide our services to the energy

industry. We believe that the industry will continue to grow,

industry and the sugar market, for which we motorized a

and we will continue to participate in mining clusters in order

sugar mill in 2012. Our commercial strategy is to find and

to continue learning, and to offer our value-added services

seize business opportunities in different markets, and create

to the Mexican mining industry. Temisa’s market penetration

strategic business alliances with European, Asian and South

will be driven by the integral solutions provided at our

American companies. For example, in Brazil we currently

onsite workshops. These will take care of the transportation

work with WEG. We are working on a very interesting

and logistics of material supply, leaving our customers to

project that will push our growth and market presence:

focus their attention on their core business.

235


| VIEW FROM THE TOP

SONORA AT THE FOREFRONT OF THE MINING INDUSTRY JOSÉ ARMANDO CÓRDOBA HAGE Director of Mines of Sonora Q: How does the Government of Sonora stimulate mining

federal government. Mining activities take place in regions

investment, and what are the features that make the state

where it is difficult for other industries to develop, thus

so attractive for mining?

supporting the economies of the local communities,

A: The Government of Sonora is focused on providing

which are usually based on ranching and agriculture. The

mining investors with the geographical infrastructure they

government focuses on providing technical consulting,

need, such as charts and physical mineral inventories. This

with the aim of evaluating the small producers’ projects,

infrastructure is of great importance to investors because

which in most cases do not have the resources to conduct

with this information they can visualize the areas they are

these types of evaluations themselves. In Sonora, small-

interested in and save large amounts of money. In this

scale mining activities are concentrated around the

sense, there is very good collaboration between Sonora

extraction of anthracite coal, graphite and silica. Currently,

and the Mexican Geological Survey (SGM). Other important

the state government is developing an integral program

factors that contribute to making Sonora a good location

to support the coal subsector with the aim of regulating it

for mining investment are its geographical location,

and thereby ensure that it operates in line with the current

connectivity through modern highways, five airports, and

safety, health, labor and environmental legal framework.

a maritime port. We also have universities that offer majors

We are conducting a study to analyze the mineral quality,

related to Earth Science, as well as American consulates in

as well as to obtaining information about the working

Hermosillo and Nogales.

characteristics.

Hermosillo is close to 40 main mining units and 60 minor

Q: How do mining activities impact Sonora’s economic,

ones. This facilitates access to the mines and logistics

labor and social environment?

for the people running the project. The state has one of

A: Sonora is the number one mining state in Mexico, with

the biggest copper deposits in the world, in the Cananea

mining generating over 16,000 direct jobs and around

municipality. Sonora produces 78% of Mexico’s copper

80,000 indirect jobs in the state. Companies are taking

production, and it is estimated that Buenavista del Cobre

advantage of the state’s resources and currently more than

will become one of the world’s main copper producing

5,000 mining concessions have been assigned. Mining is

mines by 2015.

the second most important economic activity for the state, accounting for 7% of its GDP, and we are the leading

Q: What is the state government’s role in positioning

national producer of gold, copper, molybdenum, graphite,

Sonora as the country’s leading mining state, and what

anthracite coal and wollastonite. Currently, 25% of Sonora’s

are the characteristics of the business environment that

territory has been explored. The state territory has a high

have enabled its consolidation?

concentration of metallic and non-metallic minerals such

A: Sonora’s business environment is very healthy and safe.

as gold, silver, copper, molybdenum, zinc, anthracite coal,

Besides providing the infrastructure required to attract

graphite, wollastonite and gypsum.

investment, we also provide technical and legal consulting

236

services, mostly to small and medium-sized businesses. In

The mining industry has always been very important for

terms of mining management we have a special office that

the state, nevertheless it has become even more relevant

is dedicated exclusively to dealing with conflicts and other

as a result of the most recent boom. It is important to keep

mining issues. These services are very much in demand

in mind that the sector is cyclical and right now we are

by the companies, because we support them through

experiencing a lot of progress, even though prices have

the permitting process and, if required, we can also work

gone down. The industry faces difficult challenges; the

with companies seeking to resolve community conflicts.

companies that will survive will be those that use state

We are also involved in training programs, which we offer

of the art technology, strengthen their human capital and

to the mining sector through the state’s universities and

remain at the forefront.


| WOMEN IN MINING

Q: What is the state government’s role in the creation

According to Elizabeth Araux Sánchez, Academic

of the mining cluster and what strategies have been

Secretary of Civil Engineering and Mining at the

established together with companies and universities to

University of Sonora, the rise in female enrollment in

strengthen the mining cluster and industry in the state?

earth science programs in the last few years is due

A: The state government initially suggested the creation

to a combination of factors. On the one hand, high

of the cluster project. We have developed many activities

metal prices as well as the mining boom in Sonora

such as supply chain events (focusing particularly on

have drawn students’ attention, because professional

supplier development, which was the main reason for

mining salaries are among the highest. Women’s

creating the cluster) and connecting mining companies

professional capabilities and skills are also becoming

with universities for the development of human capital, as

more recognized in mining. “There is greater gender

well as connecting companies with public safety agencies.

equality in the work place. The perception that mining is solely a man’s job has therefore diminished in social

The goal of grouping together all of the companies that

thinking,” Araux Sánchez adds.

belong to the mining industry in the state is to contribute to the economic development of the regions where they

According to data from the Office of Planning at the

operate,

and

University of Sonora, during the 1980s 476 students

organization of the local suppliers that hold the sector

graduated from Geology, Mining Engineering and

together. The idea is to maintain inner commerce and

Metallurgical Chemical Engineering programs. In total,

boost the economic development of local companies.

40 of them were women (18 geologists, 5 mining

Some of the companies that work with our programs are

engineers and 17 metallurgical chemical engineers),

Yamana Gold, Timmins Gold, Alamos Gold, Agnico Eagle

which is equal to 8.4% of the total student population.

Mines, Minera Mexico, Argonaut Gold and SilverCrest

During the 1990s, due to the cyclical nature of the

Mines, among others.

industry, the numbers went down and there were only

through

communication,

development

363 graduates, of which 27, or 7.4%, were female (8 The Sonora Mining Cluster is formed by a number of mining

geologists and 19 metallurgical chemical engineers).

companies and suppliers. We have around 40 medium

The 2000s saw the percentage of the female student

to large companies and 60 smaller ones. More than 200

population double to 15.2%. During this decade there

registered mining chain suppliers have registered for the

were 678 graduates, of which 103 were women (56

events we have organized.

geologists, 20 mining engineers and 27 metallurgical chemical engineers). Between 2010 and 2013 so

Q: What support and advice does the Directorate for

far, of the 219 graduates 16% have been women: (23

Mining offer mining companies in Sonora to help them to

geologists, 9 mining engineers and 4 metallurgical

withstand market volatility?

chemical engineers). However, the most outstanding

A: The most important thing is to be at the forefront in

figure is this year’s, with 759 students enrolled, females

terms of technology and processes. Another thing that is

make up 100 geologists, 82 mining engineers and 15

crucial is to comply 100% with the current legal framework.

metallurgical chemical engineers: a total of 197 women,

For example, the industry is facing many challenges in

increasing the female population to almost 26%.

terms of environmental protection, and there are many organizations that oppose the industry and try to discredit it. Unfortunately, a lot of people are not aware of the many benefits that the industry brings to local communities, at every level. Additionally, they are not aware of the importance of mining in the industrialized world: without it many of the components required to build houses, technology and even for medical purposes would not exist. My advice to all companies is to never stop their exploration activities. It is the lifeblood of all mining activities. Another important issue that must be addressed as a group is to effectively communicate the industry’s participation in social and economic development.

237


| MINE PROFILES: SONORA

8 13

4

5 10

15 2

9

7

3

11

HERMOSILLO 12

6

14 1

1 2 3 4 5

238

ALAMO DORADO, PAN AMERICAN SILVER The Alamo Dorado open pit silver mine is located 45km southeast of the town of Alamos. The mine is located in the Sierra Madre Occidental mountain range, a late Cretaceous to Tertiary age volcanic plateau. In 2013, Pan American anticipates producing between 4.8 and 5.0 million ounces of silver and between 16,000 and 16,500oz of gold. Given the reserves, the approximate mine’s life is of 6.3 years.

BUENAVISTA DEL COBRE, MINERA MEXICO Buenavista del Cobre is one of the largest open pit copper mines in the world. The expansion of the mine will increase production in the next 4 years from the current 180,000 tons to 512,000 tonnes of copper content in 2016. The expansion of Toquepala and Cuajone, will jointly generate an additional 125,000 tonnes in the next 3 to 4 years. By 2015, Grupo Mexico is planning to produce over 1.4 million metric tonnes of copper.

MEXICANA DE COBRE, MINERA MEXICO Mexicana de Cobre, also known as La Caridad, includes an open-pit mine containing copper, molybdenum, gold, and silver in the ore bodies, concentrator, smelter, copper refinery, precious metals refinery, rod plant, SX-EW plant, lime plant and two sulfuric acid plants. The mine currently employs 1,074 with contractors and in 2012 produced 7,800oz of gold, 1,800,000oz of silver and a 120,000 tonnes of copper.

NOCHE BUENA, FRESNILLO PLC – NEWMOUNT Noche Buena is a new open-pit gold mine located 23km from the Herradura mine. Construction of the Noche Buena gold mine was successfully concluded on time and within the US$63m budget, and commercial production commenced in March 2012 with 2,227 gold ounces produced. The development plan for Noche Buena has the objective of expand processing capacity at the plant from 750 tonnes to 1,600 tonnes per day, and increase average annual gold production to 75,000 attributable ounces in the 2013-2018 period.

MILPILLAS, INDUSTRIAS PEÑOLES Milpillas is located within the municipality de Santa Cruz, and exploits a partially oxidized porphyry copper deposit with a series of alternating copper carbonate-oxide and chalcocite enrichment blanket. In 2012, Milpillas produced 23,200 tonnes of copper, while the estimated reserves of the mine amounted to 388,000 tonnes, which implies a mine life of 15 years. The design of the underground mine and the SX plant make Milpillas Peñoles an extremely sophisticated mining operation.


6

MULATOS, ALAMOS GOLD

7

MERCEDES, YAMANA GOLD

8

SOLEDAD – DIPOLOS, FRESNILLO PLC

9

SAN FRANCISCO, TIMMINS GOLD

10 11 12 13 14 15

The Mulatos mine is located in the Sierra Madre Occidental Mountains in the east range of the state of Sonora. The mineralogy consists of silicified volcanic rocks which contain 80% of the gold in the deposit. Mulatos, mined by open pit method, reached a gold production of 200,000oz in 2012 and holds proven and probable reserves of 2.39 million ounces and measured and indicated resources of 2.76 million ounces.

The Mercedes gold-silver underground mine began production in late 2011, and involves five vein zones. In 2012 Mercedes produced 116,000oz of gold and 490 tonnes of silver. Yamana Gold continues the development of the Barrancas zone, with production starting late in the year from the higher grade Lagunas Norte vein in that zone, which is one of the newest discoveries at the mine and offers significant potential for increasing.

Soledad-Dipolos is an open pit mine located 9km northwest of the Herradura Mine. Soledad-Dipolos relies on the same village as La Herradura for workers. The Merrill-Crowe plant and the warehouse at Soledad-Dipolos were concluded in 2012 by Fresnillo plc. The mine produced in that same year 38,864oz of gold and 21,000oz of silver.

The San Francisco gold mine, which consists of two open pits is situated in the north central portion of Sonora. The gold occurs in granitic gneiss and the deposit mainly contains free gold and occasional electrum. Timmins Gold reported a production of 94,444oz of gold and 56,252oz of silver in 2012.

EL CHANATE, AURICO GOLD El Chanate mine is located 37 km northeast of Caborca, and consists of an open pit mine located on 3,665 hectares covering 19 mineral concessions. El Chanate utilizes conventional three stage crushing and heap leaching, with gold bearing solutions being processed in an ADR plant, followed by electro-winning and refining. Aurico Gold estimates a production of 70,000-80,000oz of gold with cash costs of $550-$600 per gold ounce for 2013.

SANTA ELENA, SILVER CREST The Santa Elena mine is located 150km northeast of Hermosillo, Sonora. The mine is a high grade epithermal vein gold and silver producer, with an estimated 6.5 year life of mine costs of approximately US$8.0 per ounce of silver equivalent. Silver Crest anticipates that the mine will produce 2,500 t/d open pit heap leach facility will produce 33,000oz of gold and 675,000oz of silver in 2013.

LA COLORADA, ARGONAUT GOLD La Colorada is located on the eastern flanks of the Sierra Madre Occidental at the contact between the Lower Volcanic Complex and the Upper Volcanic Supergroup. The property is owned Compañia Minera Pitalla, Argonaut Gold’s Mexican subsidiary. The mining method used is mechanized cut and fills with waste rock being utilized for backfill. Argonaut forecast that production will reach 30-40,000 ounces of gold by the end of 2013.

LA HERRADURA, FRESNILLO PLC- NEWMOUNT La Herradura is located 125km northwest of Caborca, and consists of two open pit properties covering over 18,211 hectares. The ore bodies consist mainly of gold and silver concentrates. The Herradura gold deposit occurs within a northwest trending belt of the Proterozoic metamorphic rocks. In 2012 the mine produced 314,500 ounces of gold and had an expected 6.6 years in remaining mine life.

PIEDRAS VERDES, COBRE DEL MAYO The Piedras Verdes mine includes 28 mineral concessions and is located 21km north-northwest of the town of Alamos. This Cobre del Mayo project utilizes open-pit mining, heap leaching of copper oxides and chalcocite mineralization using selective crushing of higher grade ore, solvent extraction and electrowinning. Current annual copper production is approximately 70 million pounds of copper cathodes.

MARÍA, MINERA FRISCO The María copper mine is located in the vicinity of the municipality of Cananea, Sonora. The open pit mine started copper excavation in 1980 only to close the following year. Activity was reestablished by Minera Frisco in 2004 with a focus on cathode production. In 2012 the mine produced 21,000 tonnes of copper

239


| VIEW FROM THE TOP

PROVIDING HUMAN TALENT FOR THE MEXICAN MINING INDUSTRY HERIBERTO GRIJALVA MONTEVERDE Director of the University of Sonora Q: How is the University of Sonora cooperating with

for opportunities throughout the country to place our

mining companies on professional practice for students,

students in the mining industry. It is a fact that very few

as well as research and development?

universities are producing the human talent that the sector

A: In the case of mining, geology and metallurgy, there has

is demanding.

always been strong collaboration with the companies in the sector. However, the current mining boom in Sonora,

Although the federal government supports our research

and high metal prices, have helped to developed these

activities through Conacyt, there still is a lack of

relationships further. We have many professional practice

commitment in research and development, even though

agreements with companies; these temporary practices

our research has advanced in the geology area. In the

bring benefits to the students in terms of their training,

metallurgical and chemical engineering program we have

to the university to complement its programs, and to

agreements with Grupo Mexico and Peñoles, among

the companies in terms of human capital. This has been

others, but there is still a lot to be done. In terms of

a success. A professional practice agreement with First

research, we have worked on metal leaching with non-

Majestic Silver was made even though the company

polluting methods. As an academic institution, we are

does not have any operations in Sonora, which reflects

very concerned with developing education and research in

the need for human talent on a national level. We look

environmental studies. We have moved forward with work

TRAINING STUDENTS IN ONE OF MEXICO’S MINING CENTERS Mining today represents one of the key sectors in the

number of students started to increase; this increase in

Mexican economy as a result of the income and employment

enrollment reflects the renewed importance of mining in

that it generates. Rogelio Monreal Saavedra, Coordinator of

Mexico,” highlights Monreal Saavedra.

Graduate Programs in Geological Sciences at the University of Sonora, comments about the few universities in Mexico

According to Monreal Saavedra, University of Sonora

offering undergraduate and graduate programs in geology:

Geology graduates have great flexibility because the

“Although the student population has been growing for

university trains its students to be general geologists;

the last few years, there is still not enough human talent

this means that they can work in many different areas,

available to supply the industry demand, despite there

such as mineral exploration, cartography, hydrogeology,

being many well paid job opportunities for geologists and

environmental geology, and education, among many

mining and metallurgical engineers in the mining industry.”

others. “The fact that our university is located in Sonora allows our students to have more training in open pit

240

The undergraduate Geology program at the University

mining,” explains Elizabeth Araux Sánchez, Academic

of Sonora has been offered since the mid-1970s. In the

Secretary of Civil Engineering and Mining at the University

last few years it has been modified from a five year to a

of Sonora. “This gives our students a distinctive signature

four year program, in order to bring it in line with other

because most of the field practice they do is located in

programs offered outside of Mexico. Enrollment has been

mining units near Hermosillo. Porphyry copper deposits –

a key issue over the years. In 1990, due to the cyclical

such as the ones in Nacozari, Cananea and Alamos – are

nature of the mining industry, there were less than 50

frequently visited, as well as disseminated gold deposits

students; last year over 400 enrolled. “After 2007 the

such as the San Francisco, La Herradura, El Chanate, and


and service agreements with the private sector, which is

Our student enrollment is mostly composed of state

a great breakthrough because historically companies did

students, however foreign enrollment is growing. This is at

not consider universities to be research and development

the development stage, and we also have to step up the

centers.

national exchange student programs for the undergraduate programs of geology and metallurgical and chemical

Q: What are the benefits for the earth science department

engineering. We try to send students abroad to get a double

at the University of Sonora of being located in one of

major with Spanish and French institutions, as well as to take

Mexico’s main mining states, and how can companies take

advantage of the Conacyt scholarships, which transform

advantage of this location?

domestic graduate studies into international ones.

A: In Mexico there are a handful of universities that offer mining programs, such as Zacatecas, San Luis Potosi, and

Q: In March you were reelected as President of the

Hidalgo. The University of Sonora creates its programs

University of Sonora. In the next four years what will be

based on the needs of the mining industry that surrounds

the role of the Earth Sciences program in the development

us. First we focused on geology, then we added mining

of the university?

engineering, and afterwards metallurgical and chemical

A: We want a university that is completely linked to the

engineering. The postgraduate course also focuses on

industry. We have many parallel programs that will help us

studying the gold, copper and silver mining in the state.

grow in the areas of sustainability, research and teaching.

Having access to qualified human capital has allowed

When we speak about sustainability we are referring to the

companies to carry out more exploration activities. This

evolution of environmental studies, but also about social

area, which at one stage had very few students and was

and economic issues and the improvement of quality of life.

almost closed, had the right vision and has brought real

We want to grow and have research being done in our own

proficiency to Sonora. We are a source of human talent

certified labs, and we want to boost the internationalization

that is directly linked to the most important groups in

of our students and teachers, in order to be able to bring

mining, which in turn attracts many other companies.

international best practices to the University of Sonora.

La Colorada mines, all of which are exploited via open pit

getting their support for our students,” comments Araux

mining. Professional practices also take place in open pit

Sánchez. These efforts have translated into scholarships

mining, since it is obligatory for students to carry out this

being offered by Camimex, AIMMGM (Mexican Association

type of placement in order to graduate.”

of Mining Engineers, Metallurgists, and Geologists) and Fresnillo. To a large extent, the financial factor allows

Being located in one of the most important mining centers

students to continue their undergraduate studies, because

in Mexico bestows key advantages on the Earth Sciences

many of them come from faraway places both inside and

programs at the University of Sonora. “The work area we are

outside Sonora.

training our students for is located in our backyard. So we can go to a mine for one day, and later go back whenever

On the other hand, companies like Minera María, Meridian

we need to. The programs are very much geared towards

Minerals and First Majestic have also approached the

giving students that exposure to the field, and they graduate

university with the intention of establishing collaboration

with experience as a result,” Monreal Saavedra adds.

agreements.

Fresnillo,

for

example,

requested

to

participate in the geology and mining programs, and has Being surrounded by some of the world’s most important

analyzed class content and supported the university with

mining companies also facilitates the link between

workstation donations, DATAMINE software licenses and by

academia and industry. The University of Sonora has

training teachers to use this tool. “We have agreed to meet

fostered a strong relationship with the sector through

twice a year with companies, such as Peñoles, and with

collaboration agreements, service-providing programs,

the mine and geology program coordinators of the main

and professional and social service practice agreements.

universities in Mexico in order to directly support academic

“Since the academic and program coordination office

needs as well as professional practices and scholarships,

was created we have sought to create a more direct

among other matters that are deemed important for the

relationships with mining companies, with the goal of

Mexican mining industry,” Araux Sánchez adds.

241


242


IRON ORE & INDUSTRIAL MINERALS

8 Production rates are normally the key metric by which oil and gas companies are evaluated: by looking at Pemex’s figures, which show a drop from 3.45 million b/d at the end of 2003 to 2.55 million b/d in 2012, it would be easy to criticize the company for failing to maintain its production year-on-year. However, since the decline of Cantarell started, Pemex has worked hard to diversify its production base, bringing new fields into production and increasing production in existing fields in order to stabilize the production figure and build the basis for a return to production growth.

This chapter examines Pemex’s diversification strategy for production in depth, looking at the fields driving production today, asking what caused Pemex’s production decline over the last decade, looking at technologies that can help Pemex achieve its goals to exploit as much oil as possible from its reservoirs and ultimately return its production to 3 million b/d.

243


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IN MEXICO

OR SOUTH AMERICA?

OVER

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CHAPTER 8: IRON ORE & INDUSTRIAL MINERALS 246

Global Iron Ore and Steel Markets

247

Iron Ore Production in Mexico

248

MINE PROFILES: Mexico’s Main Iron Ore Mines

250

The Mexican Steel Industry

252

Guaranteeing the Supply of Abrasion Resistant Steel

252

Swedish High Strength Quenched and Tempered Steel Plates

254

Enhancing Composition to Deliver Solid Steel

255

Local Steel Suppliers Service the Industry from Chihuahua

256

The Mexican Industrial Mineral Sector

256

Industrial Minerals Overview

258

VIEW FROM THE TOP: Lime as an Operational and Environmental Necessity

258

Industrial Minerals Overview

260

Dominating the Global Celestite Market

262

VIEW FROM THE TOP: Producing Competitive Industrial Minerals

263

Industrial Minerals Drive Global Economic Growth

264

From High Quality Minerals to High Quality Cement

265

VIEW FROM THE TOP: Innovation Key in Concrete and Cement

266

VIEW FROM THE TOP: Harnessing the Value of SLP’s Mining Sector

267

MINE PROFILES: San Luis Potosi

245


GLOBAL IRON ORE AND STEEL MARKETS The fluctuation in the price, production, and demand for

important part in this. It is also argued that the practice of

iron ore and steel in 2012 and 2013 reflect an increasingly

steel producers delaying the replenishment of their iron

volatile market. Generally both minerals are vulnerable to

supplies, watching the market, and buying when the price

conditions in the global economy, but given that iron ore

is low can cause artificial peaks in iron ore prices. As activity

is a key component in steel alloys, a rise or fall in supply

in the steel industry can affect the iron ore industry, so too

or demand for either has a direct impact on the other;

can the effect be reversed: as the price of iron ore fluctuates,

significant change in steel production in China will have

the steel industry is inevitably affected, often adversely if the

consequences that affect iron ore miners all over the world.

price of iron ore becomes too high.

In 2012 the spot price of iron ore varied significantly. The

Global steel production increased by 1.4% to 1.5 billion

peak price last year reached over US$154, in February,

tonnes in 2012 compared to 2011. China has played the

but in August it dropped to US$86 per tonne, its lowest

defining role in the international increase in steel production,

level in three years. At the close of 2012 the price was at

to the extent that if we set China aside, production in the

US$101 per tonne. In 2012, Goldman Sachs predicted that

rest of the world actually decreased in 2012, by 0.7%. Latin

international iron ore prices would hover around the US$139

America has suffered the biggest production setback,

per tonne mark in 2013, and drop down to US$115 per ton

with a decrease of 3% in the region over the year. China

in 2014. Goldman Sachs’s prediction has not been far off,

on the whole stands comfortably ahead of the rest of the

and though the prices have also been buoyant the price

world in its steel production, with an estimated 720 million

reached US$141.80 per ton in August 2013, the strongest

tonnes in 2012. This places China far ahead of Japan, which

it had been in five months. Despite the drop in price of

produced 108 million tonnes, and the US which produced

iron ore, the increase in production has been more or less

91 million tonnes and is ranked third.

steady worldwide. In 2012 global production of iron ore reached a new record of 3 billion tonnes, compared to 2.9

Although Ernst & Young reported that the use of steel grew

billion tonnes in 2011. China is the world leader in iron ore

2.1% in 2012, this is much less than the 6.2% growth seen

production, producing 1.3 billion tonnes in 2012. The country

in 2011, and production outstripped demand considerably.

is followed by Australia in second place at 525 million tonnes,

With an estimated 56 million tonne surplus of steel produced

and Brazil in third place at 375 million tonnes. Mexico is in

in 2012, Ernst & Young considers excess capacity to be the

14th position, with 13 million tonnes of production in 2012.

most significant issue the steel industry currently faces driven by a slowdown in demand that is attributed mostly

The reasons for volatility in the iron ore market are complex

to lower industrial production and reduced investment in

and are based on various factors. The expansion or contraction

large-scale infrastructure projects. While Ernst & Young

of countries’ GDPs may be considered a predictor of the

forecasts production to exceed demand again in 2013, the

health of the steelmaking and steel manufacturing industries

overall outlook is that demand for both steel and iron ore

worldwide. Peaks and troughs in Chinese demand play an

will continue to grow steadily in the coming years.

GLOBAL IRON ORE PRICE (US$/DRY METRIC TON) 196.54 182.56 168.59 154.61 140.64 126.67 112.69 98.72 84.74 70.77 56.79 2008

2009

2010

2011

2012

2013 Source: InfoMine

246


IRON ORE PRODUCTION IN MEXICO According to the Mexican Iron and Steel Industry Chamber

IRON ORE

(CANACERO), Mexico is a net exporter of iron ore. During 2011 the country exported 4.9 million tonnes of iron ore and 2.2%

imported only 1.5 million tonnes. Production of iron ore in Mexico also grew during 2012, reaching 14.9 million tonnes, an increase of 2.1 million tonnes over 2011, according to

19.5%

INEGI. ArcelorMittal, AHMSA, Ternium, and Peña Colorada (co-owned by Ternium and ArcelorMittal) are Mexico’s main iron ore producers. Last year ArcelorMittal produced 6.3 42.2%

million tonnes of iron ore concentrate, and the company’s total iron ore reserves in Mexico currently amount to 300 million tonnes from its El Volcán, Las Truchas, and Peña Colorada mines. AHMSA’s iron ore production came from its Hércules, La

36.1%

Perla, and Colima assets. In 2012 it reached a production of 3.39 million tonnes, of which 3.08 tonnes were iron ore concentrate and the rest lump ore. These are similar to the company’s 2011 figures. Of its total output the company sold 245,563 tonnes of fine iron ore, with

coke

different characteristics to those required by AHMSA

iron

for its own steel production processes, in the domestic

coal

and international market. Ternium’s iron ore production amounted to 4.3 million tonnes from its Las Encinas

manganese Source: INEGI

Subsidiary, which comprises the Aquila, Cerro Náhuatl, and Peña Colorada mines.

Peña Colorada’s reserves currently stand at 353 million tonnes. ArcelorMittal increased the reserves at its Las

The total iron ore pellet production in Mexico was 14.95

Truchas asset using indirect exploration techniques such

million tonnes in 2012, an increase of 8.3% compared to

as aeromagnetometry, allowing the company to increase

2011. The main iron pellet producer was AHMSA, with a

its reserves total by 98 million tonnes.

production of 4.54 million tonnes, a 10% increase on the previous year. ArcelorMittal recorded the second largest

According to the World Steel Association China, Japan

production, reaching 4.53 million tonnes, a 14% increase

and the US are the world’s three biggest steel producers

on 2011. Peña Colorada (co-owned by ArcelorMittal and

respectively; Mexico is placed 13th, but is the fastest growing

Ternium) was the third largest producer with 4 million

producer in Latin America. Mexico’s steel production has

tonnes, which was around the same amount that it had

grown comparatively quickly, with an average annual

produced the previous year. Ternium came last, having

growth rate of 2.6%, compared to a global average growth

produced 1.87 million tonnes.

rate of 1.4%. Mexico’s steel production also grows faster than that of Brazil (2.2%), Argentina (1.6%), and the remainder of

During 2011 exploration activities for iron ore intensified.

the Latin American countries, which between them have an

AHMSA increased its reserves to 686 million tonnes, while

average annual growth rate of 0.3%.

IRON ORE PRODUCTION (THOUSAND TONNES) 2011

2012

% VAR 12/11

Minera del Norte (AHMSA)

4,133

4,547

10.0

Peña Colorada

4,003

4,003

0.0

Ternium

1,699

1,872

10.2

ArcelorMittal

3,976

4.537

14.1

Total

13,811

14,959

8.3 Source: Camimex

247


| MINE PROFILES: MEXICO’S MAIN IRON ORE MINES

2 3

7

1

4

5

6

By Rodolfo Corona Esquivel - Iron is one of the most abundant

According to their age and geographical location, the iron

elements in the earth’s crust conforming approximately 5.6%

ore deposits in Mexico are classified into two main groups.

of its chemical composition. This element can be oxidized or

The first group originated in the Tertiary period associated

reduced in superficial environments, serving as a potential

to felsic igneous rocks, and is located in the north of the

oxidation indicator that can provide important information on

country and includes mines such as La Perla in Chihuahua,

the evolution of the earth’s atmosphere through geochemical

Cerro de Mercado in Durango, and Hércules in Coahuila. The

analysis of its cycles. Iron’s wide use in modern industries

second is located in the southwest of Mexico, situated on a

has given high economic relevance to iron ore deposits,

parallel strip to the Pacific coast that crosses the states of

which are formed by sedimentation, metamorphism,

Jalisco, Colima, Michoacan, Guerrero, and Oaxaca. It is part

magmatic and hydrothermal processes. Over the last nine

of the volcano-sedimentary sequence of the region. One

years prices have fluctuated between US$40 and US$140

of the most prominent characteristics of the ore deposits

per tonne. The economic value of iron deposits depends

in the north is abundance of hematite with high values of

on a series of factors such as volume, purity, associated

phosphorous and low sulfur, while magnetite with high sulfur

economic minerals, cost of production, concentration, and

and low phosphorous prevail in the ore deposits of the south.

the elimination of noxious elements. Some other aspects

There are other iron ore deposits in the country that have

that have to be considered are transportation costs of bulk

limited economic value, such as the banded sedimentary

materials to the processing plants and to the ports for their

deposits related to submarine volcanism like La Prosperidad

export, as well as potential environmental remediation costs

in Baja California Norte and La Hueca in Michoacan.

during the production stage and mine closure. The development potential of Mexico’s iron deposits is For Cerro de Mercado in Durango, the first geological

positively impacted by its average grades, depths, and

genesis theory was elaborated by Federico Weidner

extensions. One of Mexico’s advantages compared to

in 1858, whose thesis was that the ore deposit was the

other countries, is that iron ore deposits are of high quality

result of volcanic eruptions. Later, it was considered that

and relatively easy to exploit and transport since they are

the deposit was formed as dikes, but other geologists

located near steel production centers, and close to the

described it as a formation of metasomatic contact. In

main maritime ports for export.

1995 Jenaro González-Reyna explained the ore deposit as the result of magmatic segregation, while William Foshag

Rodolfo Corona Esquivel, Researcher at the Geological

believed it to be the result of hydrothermal replacements.

Research Institute, UNAM Source: Corona-Esquivel, 2007

248


1

2

3 4 5

CERRO DE MERCADO, DURANGO Considered one of the most important iron ore deposits of Mexico, Cerro de Mercado is located in the center of Durango near the state’s capital, inside the physiographic province of the Sierra Madre Occidental. This iron ore deposit, which has been exploited since 1828, is one of the most extensive volcanic sequences in the country called the Mexican Ignimbrite Belt, which is emplaced in a volcanic share from the Tertiary. The intense exploration of the deposit has clearly shown that the main mineralized zones of Cerro de Mercado were controlled by two big breccia structures associates to faults, in lens-shaped bodies, and massive tabular iron minerals, also with abundant breccias formed by very angular fragments of rhyodacite and cemented by iron oxides. Cerro de Mercado has a current production of approximately 1.1 million tonnes per year with an average grade from 25% to 45% total iron and 38% recovery.

LA PERLA, CHIHUAHUA Located in Chihuahua, La Perla is among the most important deposits in northern Mexico, which has provided enough resources to satisfy the local steel industry’s needs for over 50 years. It is characterized by being associated with felsic rocks of the Eocene-Oligocene, which constitute an important part of the central region of the Sierra de Mesteñas. La Perla currently provides approximately 5% of the iron used in the domestic steel industry. The deposit has been related to the main volcanic activity of the north of Mexico. The ore is mainly constituted by hematite and minor quantities of magnetite and limonite. The volumetric calculus of the extracted mineral has led to the conclusion that the original volume of the deposits was 87 million tonnes. This makes La Perla one of the largest iron ore deposits in Mexico. The average grades found in the drilling analysis for all deposits were: iron 57.18%, phosphorus 0.05%, sulfite 0.37%, and silicon oxide 9.15%.

HÉRCULES, COAHUILA The mining district of Hércules is in the west portion of the state of Coahuila, in the northwest region of Sierra de Cruces, and is included in the physiographic province denominated Cuencas y Sierras. Equally to La Perla and Cerro de Mercado, the host rocks are volcanic with an andesite and trachyandesite composition with ages between 30.7-33.7 ± 1.6 million years. The district includes several mineralized bodies called Prometeo, Teseo, Tiber, Sama, Ulises, and Los Aceros.

PEÑA COLORADA, COLIMA Due to its proximity to the Port of Manzanillo, and the volume and quality of the iron mineral, Peña Colorada is the most important ore deposit of the country. The mine is currently providing 38% of all the iron required by the country’s steel industry. Peña Colorada is located in the northwest region of the state of Colima in the municipality of Minatitlán. The rocks consist of a volcano-sedimentary sequence from the Cretaceous, 360m in thickness. The reserve currently has 200 million tonnes of iron, with average grades found of iron 35%, phosphorus 0.005%, sulfate 0.45%, and silicon oxide 2.3%.

AQUILA, MICHOACAN The Aquila mine is named after the municipality where it is located in the state of Michoacan. The regional geology consists of a volcano-sedimentary sequence, deposited in a basin associated to an insular arch. This sequence presents an intrusion by multiple stocks of intermediate composition, which created a thermal metamorphism that formed diorite and calcareous rocks that later generated the mineralization. The exploration of Aquila started in 1998 and since then 60 million tonnes of reserves have been quantified with average grades of 45-50% of iron. The mine currently has a production of 6,000 t/d.

6

LAS TRUCHAS, MICHOACAN

7

EL VOLCÁN, SONORA

The iron ore deposits in the ferriferous district of Las Truchas are located in the municipality of Lazaro Cardenas, Michoacan. The district is found in the physiographic province of the Sierra Madre del Sur. The iron bodies of the district present discontinuous masses on a surface of 4km in width and 8km in length. The morphology of the ferriferous bodies have a general lenticular shape with strikes to the northeast and dips the southeast with depths between 100-200m. Since the 1990s, the mineralized body El Volcán has been in the exploitation stage. Today production stands at 40,000 t/d from which 12,000 tonnes have a head grade of 34.5% of magnetic iron. In December 2006, the company that operates the mine, Sicartsa, estimated 160 million tonnes of iron reserves.

This mine, located near the cities of Obregon and Guaymas in the state of Sonora, consists of an open pit mine and a pre-concentration plant with magnetic separation facilities. Mining development began in 2007 but production was stopped several times during 2008. Since 2010 operations have continued without interruptions, and the El Volcán mine produced 2 million tonnes of iron concentrate in 2012. Mining activities are performed by contractors but the concentration activities are performed directly by ArcelorMittal. The proven and probable reserves of the mine are of 10 million tonnes of iron and as a result the mine life is of 5 years with current production.

249


| THE MEXICAN STEEL INDUSTRY INDUSTRY TRENDS

TERNIUM

In the 2001 to 2012 period annual steel production in

Ternium is Latin America’s leading steel company, with

Mexico increased considerably, from 13.4 to 18.1 million

net sales of US$8.6 million in 2012. Ternium began in

tonnes. Following the 2001 dip in steel production the

2005 as a merger between three Latin American steel

metallurgical industry grew significantly until 2004, then

companies: Hylsa from Mexico, Siderar from Argentina,

fluctuated in size over the next five years, up until 2009

and Sidor from Venezuela. The company produces steel,

when the sector suffered as a result of the international

cast iron, coke (fuel), and slag, and is highly vertically

financial crisis. In 2011 the Mexican industry displayed

integrated. Ternium has a number of strategically

the first signs of stabilization of its steel production,

positioned production centers in Mexico, Argentina,

achieving 18.1 million tonnes, a 7.3% increase over 2010.

and Colombia, and thanks to its acquisition of Grupo

By the end of 2012 the Mexican metallurgical sector

IMSA in 2007 the company now also has a presence in

again produced 18.1 million tonnes, which is equivalent

the US and Guatemala. Its Latin American leadership

to 79.3% of the country’s total installed capacity.

is also strengthened by its majority shareholding in

MEXICAN STEEL PRODUCTION (thousand tonnes)

Usiminas, a leading Brazilian steel producer.

19,000

The consumption of steel is growing in Latin America

18,000

at one of the fastest rates in the world, and Ternium has been well positioned to capitalize on the resulting

17,000

opportunities. According to Ternium, the region’s 5.6%

16,000

increase in steel consumption compared to 2011 is only

15,000

marginally lower than that of India, which had a 5.9%

14,000

growth rate, and reflects a faster growth rate than the

13,000

US and Canada with 2.7%, and China, the biggest steel

12,000

producer in the world, with 3.5%. Though there are many

11,000

opportunities for Ternium in Latin America, given high 2012

2011

2010

2009

2008

2007

2006

2005

2004

2003

10,000

demand in the region for lower quality steel, Ternium is also looking to increase its market share in the highend steel market. Estimates regarding the demand for

Since 2001 the installed steel production capacity

high-end steel in Brazil, Mexico and Argentina between

has gradually increased in Mexico. In 2005 it stood at

2012 and 2017 predict a market growth of 10%, most of

19.5 million tonnes, increasing to 22.2 million tonnes in

which is expected to be absorbed by the automotive

2007. In 2012 an expansion program was put in place

industry (64%), followed by the energy, packaging and

to create more infrastructure and increase capacity

electrical industries (8% each).

to 22.8 million tonnes. There has been increasing

250

concern in Mexico about the global steel surplus, which

Ternium is focusing its efforts on the automotive

according to Ernst & Young reached 56 million tonnes

industry, one of the fastest growing sectors in

in 2012. Steel imports to Mexico increased by over a

Mexico. Just recently in September 2013 Paolo

third in 2012, and much of this trade was considered

Rocca, the President of Technic, one of Ternium’s

to be unfair or involving dumping practices. The

major shareholders, inaugurated the Pesquería steel

country’s steel sector, together with the Mexican Iron

complex, a US$1.1 billion investment in the state of

and Steel Industry Chamber (Canacero), is appealing

Nuevo Leon. With an annual capacity of 1.5 million

to the Mexican government to put regulations in place

tonnes, the Pesquería facility has a cold rolling mill

that will protect Mexico’s steel industry and reduce

specifically

the impact of practices such as dumping and artificial

products, and is capable of producing high-strength,

price hikes. Given that the steel industry employs

micro-alloyed, and advanced high-strength steel for

over 720,000 people in the country, ranging from the

galvanizing. The company is also teaming up with

processes of exploiting coal and iron to the running of

Tenaris, a leading supplier of tubes for the energy

steelworks factories, from Coahuila and Michoacan to

industry, and the energy company Tecpetrol to build

Nuevo Leon and Veracruz, there is much to be gained

an 850MW natural-gas thermo-electrical plant that

from ensuring that the industry can continue to grow.

will supply the energy required.

for

satisfying

demand

for

high-end


AHMSA

ARCELORMITTAL ArcelorMittal is currently the world’s largest steel

AHMSA (Altos Hornos de Mexico), is today the largest

producer. With total revenues of US$84.2 billion in

integrated steel company in Mexico. Founded more

2012, and an employee base of 245,000, ArcelorMittal

than seven decades ago in response to the steel

today accounts for approximately 10% of the world’s

deficit that had come about as a result of World

steel production. Created from a takeover of Western

War II and Mexico’s own growing industrialization,

European

India-based

AHMSA was funded in part by private capital and

multinational steel maker Mittal, ArcelorMittal is

in part by the government. Since its foundation, the

today a global leader in steel markets for automotive,

company has produced more than 120 million tonnes

construction, household appliance and packaging

of steel, contributing to both industry development

purposes.

and employment in Monclova, Coahuila, where the

steel

maker

Arcelor

by

company’s headquarters and its core operations ArcelorMittal’s growth strategy is applied across the

are based. The company drives the entire steel

company’s six business segments, though mining is

making process, from extracting iron and coal and

one of its main expansion areas. In 2012 ArcelorMittal

transporting it to its steel works to producing steel

produced 55.9 million tonnes of iron ore and 8.2 million

and steel products ranging from plates to hot and cold

tonnes of coal, positioning it as one of the top five iron

rolled coils and different structural shapes. Besides

ore and metallurgical coal producers in the world. In

the company’s two steel plants in Coahuila, it also has

2012 ArcelorMittal’s global sales in the mining segment

coal and iron ore mines located both in the state and

accounted for US$5.4 billion. While this is a significant

elsewhere in Mexico, transporting the minerals to its

number, it represents a 14% decrease compared to

steelworks by rail and by iron pipelines. The company

2011, attributed to the lower market prices for iron ore

has an annual production rate of 3.5 million tonnes of

and coal. Today the company has a network of mining

liquid steel and a total workforce of 19,000 people,

operations in 11 countries including Mexico, the US and

including the staff that works in its mining subsidiaries.

Russia. Given its mixture of expansion and grassroots projects, the company is well positioned to fulfill its

Despite years of sustained production and sales

objective of producing 100 million tonnes of iron ore

growth, in 2012 AHMSA’s net sales decreased slightly

by 2015.

from US$3.2 billion to US$3.1 billion (MX$40.8 billion to MX$39.2 billion) compared to 2011. The company

ArcelorMittal has a number of iron ore projects in

attributes this dip to the problems that were faced

Mexico, including 100% ownership of El Volcán and Las

more widely in the global steel industry, which saw a

Truchas mines in the states of Sonora and Michoacan

more than 56 million tonne surplus in steel production

respectively. The company’s iron ore production in

in 2012. The company nevertheless broke its liquid steel

Mexico reached approximately 6 million tonnes in

production record (3,880 million tonnes) and accounted

2012, and its three mines have an estimated mine life

for a fifth of Mexico’s total production in 2012.

of 20 years. ArcelorMittal also has a 50% stake in the Peña Colorada mine in Colima, on which it partners

Owning its own coal and iron ore mines gives the

with Ternium, Latin America’s leading steel producer.

company a competitive advantage as it reduces

Its facility in Lazaro Cardenas, Michoacan is Mexico’s

exposure to fluctuations in coal and iron ore prices.

largest steel producing unit and slab exporter.

The company and its subsidiaries invested US$388

ArcelorMittal’s total proven and probable iron ore

million dollars in steel and mining projects in 2012.

reserves on its three assets were estimated to be 395

The new Fénix complex, the construction of which

million tonnes at the end of 2012.

was completed this year, received US$182.5 million (MX$2.3 billion) of this investment. The advanced

One of the main challenges the company has faced

technology and increased production capacity at

in Mexico is insecurity. The company has operations

Fénix mark the beginning of a new era for AHMSA,

in Michoacan, Sinaloa and Sonora - high risk areas

since the complex brings the company up to a total

where drug-related violence, including executions

annual production capacity of 5 million tonnes of steel,

and kidnappings of non-gang members, has been

which is an increase of almost one third compared to

occurring.

its previous 3.8 million tonne capacity.

251


GUARANTEEING THE SUPPLY OF ABRASION RESISTANT STEEL The introduction of abrasion-resistant steel plates to

in Mexico,” Yescas recalls. “Ford Steel got interested in us

the mining industry was one of the most revolutionary

because of the supply strategies we have built with our

developments of the sector in the past century. The

clients and because of our intention to enter international

composition of these plates allows the material to be ductile

markets, such as the US – where Ford Steel has not yet

and thus enables it to adapt to a broad range of mining

entered the mining sector.”

equipment. Their hardness makes them strong enough to resist the highly abrasive mining processes and give the

Transteel & Metal bases its business strategy in two main

material a considerable resistance to impact. Nowadays, all

differentiators: the quality of the company’s products, and

kinds of machinery – from conveyor belts to crushers and

its personalized supply and cost management services.

truck beds – are protected by steel plates, reducing costly

The company carries specialized products depending on

breakdowns and delivering substantial productivity gains.

their application within the mining industry. Its Wearalloy and Mangalloy super-block, super-clad, super-chrome,

Adolfo Yescas’ wide experience in the steel industry led him

and nickel chrome plates have all been tested and

to create his own company over a decade ago: Transteel

perfected in order to optimize their performance and the

& Metal. This Mexican company is now the nationwide

safety conditions. “Our anti-abrasive plates have a better

supplier of Ford Steel products in the country, such as

performance than other similar products offered by our

the exclusive line of anti-abrasive 400, 450 and 500

competitors. Our clients demand that we perform a series

steel plates, which have many uses in the mining industry.

of tests and comply with international standards. We give

Yescas comments that it was the company’s commitment

them those quality guarantees,” Yescas says. In order to

to the industry that prompted Ford Steel to partner with

optimize the performance of its products, the company

Transteel & Metal. “It took Ford Steel some time to enter

monitors the welding and installation parameters of plates

the Mexican market. They had not found an appropriate

in mine sites, thus ensuring that the electric amperage and

commercial ally, but they saw our commitment to service

heat exposure during this process maximizes the plate’s life

while we were working on a project with Grupo Mexico, and

inside the equipment. Moreover, Transteel & Metal reduces

they decided to offer us the national distribution license

the risk of volatile operative costs by offering fixed prices.

SWEDISH HIGH STRENGTH QUENCHED AND TEMPERED STEEL PLATES SSAB (Swedish Steel AB)

“The company started operations in Mexico 10 years ago

is one of the world’s

and from the beginning it has been mainly focused on the

leading steel producers

Mexican mining industry,” says Federico Forastieri Appel,

that specializes in high

Commercial Director of SSAB Americas. “Hardox wear

strength

a

plates, with hardness ranging from 400 to 600 HB, have

different

become the most popular products for the company within

applications across many

the Mexican mining market.” The main uses for this type of

industries. Headquartered

steel in mining are in mobile equipment, light equipment

in Sweden, the company

and operations machinery. Its unique quenching process

has a North American

and well-balanced alloy chemistry provide the plates with

division,

high uniformity and low levels of impurities, according to

vast

Federico Forastieri Appel, Commercial Director of SSAB Americas

array

steel of

in

for

addition

to two steelworks in the US. In recent years, the mining

Forastieri Appel.

industry has become an attractive market segment for

252

SSAB’s products. Equipment and tools for mining-related

“The main advantage of using SSAB’s steel plates is that

applications mainly use the company’s high strength

they have a longer lifespan. The service life cycle of our steel

quenched and tempered (Q&T) steel plates. SSAB markets

plates is three to five times longer than that of conventional

this type of steel under the trademarks Hardox, an anti-

steels, depending on the activities for which they are used,”

wear capacity plate, and Weldox, a high elastic limit plate,

says Forastieri Appel. “These types of steel plates can be

in order to offer steel with high abrasion resistance.

used either in open pit or underground mining activities.”


“Our comprehensive service attitude and focus on solutions convinced our client that we offer a lot more than steel” Adolfo Yescas, Director General of Transteel & Metal

Even if the price of steel varies, Ford Steel and Transteel

also supports this comprehensive service policy by constantly

guarantee a fixed standard cost, giving clients a long-term

communicating with mine operators. This allows Transteel &

financial advantage. Additionally, Transteel & Metal has an

Metal to plan ahead and anticipate any change in the grades,

operating strategy designed to fit the logistic and financial

volume, and requirements of the steel demanded in a mine.

challenges mine operators face regularly. “In the case of a

“Our employees’ knowledge is very extensive, and enabled

mine we served in Nacozari, we saw that the company had

us to identify areas of opportunity in our clients’ use of steel

serious supply problems. It took them 45 days to receive

products. On one occasion, we observed that a client used

the material, so we took some time to thoroughly analyze

hot rolled steel plates for the fabrication of cylinders welded

the demand, delivery points, and all the variables inherent

from the inside. We customized a capped hot rolled steel

to the mine’s operation. Then we designed a strategy

plate. This material contains carbon sediments that enable

which allowed the company to eliminate its spending on

a better and more efficient welding,” Yescas mentions.

steel stock, while ensuring timely delivery with no risk

Thanks to the company’s business model, Transteel &

of stopping the production line,” Yescas recalls. “Our

Metal is now providing steel products to many mining

comprehensive service attitude and focus on solutions

companies in Mexico. Yescas has noticed that other steel

convinced our client that we offer a lot more than steel.”

product providers have sidelined the industry even though the sector offers great opportunities. “We understand the

The philosophy behind this strategy is captured by its ‘no

mining industry’s requirements, we recognize the vision

downtime policy’. “We offer these services 365 days of

of its executives, and we are consolidating our business

the year. Our stock management, delivery timelines, and

in order to offer them comprehensive services regarding

the ownership of our own transportation fleet back the

the procurement, use, and maintenance of steel in their

availability of our products,” Yescas explains. The company

operations,” he adds.

Another advantage of using Hardox wear plates is that,

SSAB is more than just a high-strength steel manufacturer.

despite their hardness, their low carbon composition and

It is also an integrated service provider offering added-

low levels of micro-alloying facilitates high quality welding,

value services to its clients. The company has developed

cutting and bending and provides the applications in which

a concept for its customers called “Hardox Wearparts”, an

they are used to defend against wear, dents and cracks.

international network of companies producing parts made

SSAB lives up to its motto “For a stronger, lighter and more

with Hardox wear plates. This group of companies receives

sustainable world” not only by producing high-strength

technical training from SSAB staff, which ensures that

steel, but by taking into account environmental concerns

Hardox wear steel is cut, milled, drilled or welled according

while manufacturing its products. “SSAB has developed

to the Swedish company’s high standards. Forastieri Appel

steel plates with low carbon content, which in turn also

points out that five companies operating in Mexico have

reduces carbon emissions,” says Forastieri Appel. “Lighter

already been certified and are active members within this

and stronger equipment not only has a longer lifespan, they

network.

also require less maintenance and involve a smaller outlay of funds to buy fuels and tires for transportation purposes.”

“SSAB plans to keep growing in Mexico and Latin America and replicate the success its products have had throughout

In a market like Mexico, the price issue is always a priority as

Europe and the US,” says Forastieri Appel. He adds that

well as a sensitive topic for the majority of mining companies.

even though the company still does not have any plans to

However, Forastieri Appel explains that “final users are

open a manufacturing facility in Mexico, SSAB is looking

ultimately looking for the same thing: a product that offers a

to take advantage of all the opportunities that the rapidly

longer service life cycle and brings less maintenance-related

growing Mexican mining industry has to offer. “Our company

problems.” He also adds that SSAB’s products offer a higher

is growing at a steady and solid pace. With just 10 years of

cost-benefit ratio, with great quality and high technology at

operation in Mexico, SSAB already has three storage facilities.

very competitive prices.

We expect this growth to continue in the years to come.”

253


ENHANCING COMPOSITION TO DELIVER SOLID STEEL Steel

is

and

operational costs and increasing productivity. “Mining

mining

companies should prioritize investing in quality products

in

processes,

being

as

at all times, and avoid risking their processes by cutting

it is a key component

costs,” warns Ruíz. “When a project is put into operation,

in

equipment

and

the company should not need to reinvest for at least two

across

to four years. By using cheaper products that do not offer

all phases of the mining

a good cost-benefit, the company will not be making

value chain. Though the

as much money as it could be in the long-term – the

properties

production cost per tonne will increase and the company

machinery

Héctor Ruíz, Technical Manager at Astralloy Mexico

essential

ubiquitous

used

required

of

steel vary according to

will lose its competitive edge.”

its application, in general mining companies and manufacturers of mining equipment

While Ruíz acknowledges that Astralloy steel is more

and machinery look for steel that is as resilient and wear

expensive than others on the market, he argues that the

resistant as possible. The way that steel is treated is central

aforementioned durability and its subsequent impact on

in deciding the hardness and durability of the final product.

productivity make its steel a more worthwhile investment

“You may think that all steel is durable, but it depends

than the steel of its competitors. “We have witnessed our

on the hardening process that is used,” explains Héctor

product lasting up to 10,000 hours of operation without

Ruíz, Technical Manager at Astralloy Mexico. “During the

the need for lubricant, compared to an average of around

hardening process, sometimes steel plates can become so

1,000 hours for regular or oxidized steel. If you add up

hard that they can be broken relatively easily. In mining,

the costs a company would incur every time it needs to

you are always looking for a material that will withstand

replace parts, and the value that would be lost in terms of

impact and abrasion – two things that mining machinery is

tonnes of production, this provides a very strong argument

exposed to in practically every process.”

for mining companies to use our steel,” he says.

Astralloy produces quality steel of different strengths

These unique chemical compositions are complemented by

and thicknesses, and has been developing steel patents

the company’s lengthy experience in the Mexican mining

since the 1950s. Having started out with one patent,

industry, which helps it to better understand and tailor its

the company now holds five, used in steel sheeting,

products to the specific needs of its customers: “I started

piping, bushings, arrows and many other products that it

the mining sales division in the 1980s by visiting mines and

manufactures for use in the mining industry. According to

getting to know their operational problems; looking at their

Ruíz, the strength of its steel lies in the hardening process

costs, I could see there was a clear opportunity to use our

that it is put through: it is cooled naturally in air without

product to minimize their operational costs and increase

applying water, oil or salt to it. The result of this slower and

their profits.” Astralloy then turns to the laboratory in order

more natural process is a unique chemical composition

to deliver the patents that will fulfill these requirements,

that makes the company’s products so durable. “Astralloy

putting great emphasis on the importance of testing

steel is malleable, and its particles move in such a way that

processes, firstly in supporting its assertions regarding

the metal can even be folded without breaking; this brings

the durability of its patents and produc