| VIEW FROM THE TOP
IN MEXICO FOR THE LONG HAUL RICK RULE President and CEO of Sprott US Holdings
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Q: As a brokerage and investment management firm, how
basis. But we have a very extensive project lending portfolio
do you select your investments in Mexico and how do you
and, if the project lender has 65 percent of the capital
evaluate the country as a mining jurisdiction?
deployed, by definition it becomes involved. We have been
A: We have been in Mexico for a very long time, essentially
involved in a variety of projects in Mexico. In addition, we
since the change of the mining law. We are very comfortable
are one of the primary funders of generative exploration
here, understanding there are regional sociological
worldwide, including in Mexico. The nature of generative
challenges. But we have operated in jurisdictions like
exploration, where the expectation is failure, is such that
Guerrero and Sinaloa, so we can take these aspects into
the person writing the check has to be intimately involved,
account prior to investing. Sprott is particularly well-known
at least with the development of the thesis and the process
for precious metals – in particular for silver – and we have
by which the thesis is tested.
relatively deep exposure to Mexico. Our comfort in Mexico is related to the fact there is a long-standing mining culture
Q: The majority of exploration companies in Mexico are
in place but the attraction involves, most importantly,
listed on the TSXV. What are the benefits of sourcing
geological prospects. There is also an increased availability
private funding?
of not only skilled labor but also of national Mexican
A: Private funding is very difficult to access for exploration,
talent, and this is internationally competitive. The Mexican
and the best source of private capital for exploration is
government seems to be on par with other governments
probably from high-net-worth career mining explorers
in that it is mindful of the contribution made by mining to
or from mining operators that are looking to outsource
the national economy, which is very helpful.
exploration. Mexico is fortunate in that it has five or six private individuals who are themselves eager participants
The issues we see in Mexico are common around the world.
in the Mexican exploration industry. This is something
The main issue is that the rents from mining and extractive
even the Mexican industry does not understand about
industries have traditionally been channeled to the center
itself. The fact that national investors are eager to fund
– in Mexico’s case it goes to the federal government in
these projects gives foreign investors like ourselves some
Mexico City – while the localities have been subjected to
confidence.
the costs of mining without the benefits. Despite the fact that it is not our business to insert ourselves into Mexican
Q: How do you mitigate the inherent risk that comes from
politics, we try to now be part of the process whereby we
both exploration and jurisdictions that may not be free of
as investors ensure that the benefits flow more equitably
security issues?
so we ourselves are working in jurisdictions that are largely
A: When operating in dangerous jurisdictions, the best
free of local disputes.
we can do is to know who the main players are, and to let the authorities know the company is not implicit while
Q: To what extent does Sprott get involved in the projects
assuring the local players that it does not pose a threat.
in which it invests?
There are jurisdictions where extortion and drug trafficking
A: We manage a reasonable amount of passive money,
are problems that can make things very difficult. But the
whereby we participate in a company at an arm’s length
truth is that every industry would like to mitigate all risks, but we have to juxtapose the risk with the prospects. The answer to the question is that there is no answer; there
Sprott US Holdings is a holding company made up of three
are challenges in several parts of Mexico – and Mexico is
companies: Sprott Global Resource Investments, Sprott
not alone in this – where there are very real risks. We draw
Asset Management USA and Resource Capital Investment
the line when we believe our people, whether nationals or
Corporation, a SEC-registered investment adviser
expats, are at risk. We will not take that risk.
