Mexico Mining Review 2020 by Mexico Business Publishing

2020

2020 Mining is a quintessential economic activity. It provides zinc used to manufacture the paints embellishing buildings, copper and lithium for the electric engines of the future and gold jewelry that clads a bride at a wedding in India. But even when the industry’s products are engrained in everyday life, it remains highly volatile. The effects of the last downturn are still being felt, and companies are not overly expectant about the rise in gold and silver prices. Rather, miners are focused on optimizing resources to keep their operations lean and strong. From exploration, to human talent and innovative technologies, the industry’s outlook is bound by doing the most with the least.

Global trends acquire a unique character in Mexico, a country with a long-standing mining tradition and privileged mineral resources. Almost a year since Andrés Manuel López Obrador came to power, the industry is still waiting for a clear road map that guarantees the security of extremely capital-intensive projects. Also, miners are insistent upon their request for a more competitive fiscal framework, especially regarding preoperational expenses. As companies and the government develop a framework of cooperation in economic, social and environmental matters, guarded optimism is the dominant note playing over the Mexican landscape.

Mexico Mining Review 2020 gathers all the expertise of the mining industry’s top leaders in Mexico. Over 200 interviews, in-depth analysis and infographics provide companies the business intelligence they need to seize the industry’s opportunities. The sixth edition of Mexico Mining Review is written as an essential reference point for the industry, analyzing the top trends over the past year and shedding light on the direction mining is likely to follow over the near and midterm.

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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.

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TABLE OF CONTENTS

STATE OF THE INDUSTRY

SECURITY & SAFETY

LEGAL FRAMEWORK

SOCIAL & ENVIRONMENTAL LICENSE

GOLD

SILVER

PROJECT DEVELOPMENT & OPERATIONS

BASE & BATTERY METALS

PROCESSING & TRADE

INNOVATIVE TECHNOLOGIES

FINANCE & INVESTMENT

SUPPLY CHAIN

INDUSTRY OUTLOOK

EXPLORATION & DRILLING

Epithermal vein core, Oaxaca

STATE OF THE INDUSTRY

A new administration, a recently renegotiated bilateral trade agreement with the US and the beginning of a recovery from the last mining slump – these are some of the main drivers of the state of the mining industry in Mexico. The past government’s dilemma hinged on the desire to attract FDI to the industry and collect the funds to exercise and further local economic and social development. In the midst of a political transition, the industry is awaiting a clear idea of the path of action to be undertaken by new officials. To enhance the industry’s ability to deliver shared value, it is crucial to rethink and change the perception of a private-public adversarial relationship to a cooperative one.

This chapter provides an overview of the insights of key policymakers in promoting mining and boosting its competitivity. It also provides an in-depth look at the shared agenda between the industry’s private and public sectors.

CHAPTER 1: STATE OF THE INDUSTRY 8

ANALYSIS: Operators, Explorers Ready to Capitalize on Incipient Upturn

VIEW FROM THE TOP: Francisco Quiroga, Ministry of Economy

VIEW FROM THE TOP: Napoleón Gómez Urrutia, Senate of the Republic

VIEW FROM THE TOP: Salvador García, AIMMGM

VIEW FROM THE TOP: Carlos Bárcena, Ministry of Economy of Zacatecas

VIEW FROM THE TOP: Emilio Varela, Ministry of Economy of Zacatecas

VIEW FROM THE TOP: Alberto Mendoza, CLUSMIN

STATE SPOTLIGHT: Zacatecas: a Tradition in Mining

VIEW FROM THE TOP: Jorge Vidal, Ministry of Economy of Sonora

INSIGHT: Alberto Orozco, Sonora Mining Cluster

VIEW FROM THE TOP: Ramón Dávila, Ministry of Economic Development of Durango

VIEW FROM THE TOP: Alfredo Villegas, Ministry of Economy of Sinaloa

INSIGHT: Alfredo Phillips, Guerrero Mining Cluster

| ANALYSIS

OPERATORS, EXPLORERS READY TO CAPITALIZE ON INCIPIENT UPTURN Geopolitical turbulence and a global economic slowdown have pushed prices for precious metals to alluring levels. Base metals are still in demand, even if their prices have fallen and exploration remains limited as companies await incentives to kick-off activity The last year was marked by geopolitical uncertainty and

Commerzbank AG Frankfurt pointed out to LBMA, “the end

slow economic growth. Ongoing trade tensions between the

of the Fed’s rate hike cycle and the depreciation of the US

US and China have curtailed industrial activity and produced

dollar that this will trigger should lend buoyancy to the gold

reticence to invest in new business ventures. As of 3Q19, the

price this year. The silver price is likely to follow the gold price

US had slapped tariffs on US$550 billion worth of Chinese

on its upward trajectory for the most part; nonetheless, we

products. China, in turn, had set tariffs on US$185 billion

do not expect silver to perform noticeably better than gold,

worth of US goods. The destruction of wealth this implies

apart from some brief periods.” But the same reasons that

has played a part in several key economies tottering on the

buoy precious metals’ prices impact negatively on those of

brink of recession, like Germany, Japan and the UK. While

base metals. A global economy losing momentum dampens

the US economy seems overall healthier in comparison,

industrial demand for copper and zinc, the most important

worrisome signs, including an inverted yield curve this year,

non-ferrous base metals in Mexico in terms of production,

have observers debating the future of the North American

and a climate of uncertainty deters new investments from

giant. The Federal Reserve’s policy interest rate is now set

taking place. Copper prices averaged US$2.60/lb in 3Q19,

at a range of 1.75 to 2 percent, which can be interpreted as

a 19.5 percent decrease from the US$3.23/lb at which they

a measure to dynamize an economy that may begin slowing

kicked off 2018. In turn, zinc prices have fallen consistently

down soon. And while Chinese GDP grew at an enviable rate

during 1H19, and the Shanghai Metals Market noted that it

of 6.2 percent year-on-year in 2Q19, the Asian champion’s

sees “further downside room in (the metal’s) prices.”

growth is less than half that it registered for the same period in 2010. Moreover, according to the National Bureau of

GOLD ON A BULLISH RUN

Statistics of China, the country’s industrial output grew at

After falling to nearly US$1,000/oz in 2015, the industry is

its slowest rate in 17 years.

keen to capitalize on the rise of the gold price in 2019. The yellow metal averaged US$1,357/oz during the first three

These circumstances have had an uneven impact on metal

quarters of the year and reached US$1,537 in August. As

prices. On the one hand, gold and silver, precious metals

per figures released by the World Gold Council, global

considered by investors as safe-haven investments, have

gold production in 2018 grew slightly in comparison with

seen their prices increase. Investors on the whole are

the previous year, reaching 104.8 million ounces. Mexico

generally bullish on the outlook for these metals, while

regained eighth place on the global list of gold producers

some are more cautious than others. As Carsten Fritsch of

after falling to ninth in 2017. This recovery came to pass

EXPLORATION TIME GLOBAL LIGHTTHROUGH VEHICLE PRODUCTION 24

4 * 1996=1

21 3

18 15

12 9

——Annual indexed metals price*

Global nonferrous exploration budget ($US billion)

Source: S&P Global Market Intelligence Source: Source: CAAM, JAMA, VDA, KAMA, SIAM, AMIA, ANFAC, Automotive News, Data Center

2018

2017

2016

2015

2014

2013

2012

2011

2010

2009

2008

2007

2006

2005

2004

2003

2002

2001

2000

1999

1998

1997

1996

despite the country’s production having diminished 6.7 percent in 2018, totaling 3.8 million ounces. Among the

2018 September

factors that CAMIMEX lists to account for the contraction of Mexico’s gold output in 2018 are the following. First, the

October

yield at Goldcorp’s Peñasquito decreased 43 percent that year, particularly due to the exhausting of high-grade mineral

in its production. Third, Alamos Gold’s El Chanate ceased activities and progressed into the residual leaching phase, just as McEwen Mining’s El Gallo. Finally, the performance

Leagold's Los Filos, in Guerrero, increases its reserves by 122 percent.

December

Andrés Manuel López Obrador sworn in as Mexico's president.

2019 January

of several smaller mines in San Luis Potosi and Durango was less than expected. Despite the lasting consequences these factors may

February

March

have, CAMIMEX expects a moderately higher production in 2019. Projects such as the additional leaching pads

April

at La Herradura plus Fresnillo plc’s new pyrites plant are arguments supporting this expectation. Likewise, Candelaria

May

Mining expects to kick-start production at its Pinos mine in Zacatecas, which is expected to produce 12,700 ounces of gold per year. For the period encompassing 2019-2024, CAMIMEX reported that the registered portfolio of new gold production projects amounts to US$2.7 billion. The most important projects include Torex Gold’s Media Luna (US$482

June

July August

million investment), Grupo México’s Buena Vista Zinc (US$413 million) and Fresnillo’s Orisyvo (US$350 million). It is worth noting the recuperation achieved by El Limón

First Majestic reports record production due to high grade ore in its mines.

November

ore. Second, the Pinos Altos mine in Chihuahua, operated by Agnico Eagle showed a slight diminution—3.5 percent—

Francisco Quiroga presented as new Undersecretary of Mining

September

UNAM's mining engineering program ranked 22 worldwide. Pan American becomes largest silver producer to list publicly after acquiring Tahoe Resources. López Obrador informally announces no new mining concessions will be granted, but existing ones will be respected. Newmont and Goldcorp formalize merger. Operations at Peñasquito are halted due to blockade. López Obrador vows to recover bodies of dead miners at Pasta de Conchos. Peñasquito reopens. CAMIMEX announces its affiliated companies are ready to invest US$26 billion in the next five years. Bacanora announces collaboration with Gangfeng at Sonora Lithium Project. Gold price reaches highest level in six years. Karen Flores is elected as new director general of CAMIMEX, the first woman to hold the position.

Guajes mine, which after the illegal blockade it suffered in 2017 helped establish Torex Gold, its owner and operator,

and CAMIMEX explain, was led by a 7 percent growth in

as the second-leading gold producer in Mexico in 2018. The

Fresnillo plc’s output, where higher grades and higher

mine’s excellent performance in 2018 was sustained in 1H19,

recovery rates at La Herradura mine and the ramp-up of

achieving a gold production of 191,515 ounces during the

phase two of the San Julian mine pushed the company’s silver

latter period.

production to 58 million ounces. Moreover, the acceleration of operations at Saucito’s pyrites plant is expected to

NATIONAL SILVER EXCELLENCE

partially offset the decrease in head grades the mine has

The Silver Institute notes that global silver mine output

experienced in the last few years. “The plant represents a

declined for the third consecutive year, falling by 2 percent

US$155 million investment. It will result in the production of

in 2018 and amounting to 855.7 million ounces. The

3.5 million ounces of silver on average at a very competitive

institute partly attributes this fall to Guatemala’s High Court

cash cost of US$2.50 per ounce,” says Octavio Alvídrez,

suspending the mining license of its biggest operation and

CEO of Fresnillo. In turn, Industrias Peñoles achieved better

to other disruptions in Canada and the US. Also, physical

grades and higher throughput, which boosted production

demand increased 4 percent that year, propelled by a

to a total of 14.8 million ounces, representing a 5 percent

modest rise in jewelry and silverware fabrication and a jump

increase from 2017.

in coin and bar demand. Lastly, industrial fabrication lost 1 percent, which slightly reduced its market share from 59

As per data compiled by CAMIMEX, Zacatecas tops the

percent to 56 percent.

ranking of producers in Mexico, with a participation of 37 percent; Saucito, the country’s top silver mine in 2018,

For nine consecutive years, Mexico remained the world’s top

is located in this state. Chihuahua comes second, with

silver producer, primarily thanks to a solid performance of

21.4 percent; the northern state’s production registered a

the primary and gold sectors. According to data released by

substantial year-on-year rise thanks to improvements at

INEGI, silver mine supply from the North American country

Palmarejo, San Julian and Cusi mines. Durango occupies

rose by 4 percent in 2018 (with respect to 2017), to a record

the third position, with 15.7 percent; the state’s production

high of 194.5 million ounces. The rise, as the Silver Institute

increased by 38.7 percent in contrast with the previous

| ANALYSIS ranking: according to INEGI, the country produced 751 tons

TOP 20 SILVER PRODUCING COMPANIES Rank 2017

Company

2018

in 2018, a 1.2 percent increase with respect to 2017. Buena

Output 2017

2018

Vista del Cobre remained the top producing mine in 2018,

Fresnillo plc

54.9

58.1

churning out 414,142 tons, 4 percent less than the previous

Glencore plc

37.7

34.9

year. Located in Sonora, Buena Vista del Cobre is the world’s

KGHM Polska Miedz SA Group

36.5

33.9

second-biggest copper mine by reserve, as it contains 27

CIA de Minas Buenaventura

26.4

26.2

Polymetal International plc

26.8

25.3

Pan American Silver Corp

24.8

Goldcorp Inc

28.6

24.5

Hochschild Mining plc

19.1

19.7

million metric tons of copper reserve, according to ICSG. Cananea started production in 1899, which makes it one of the oldest open-pit mines in North America. CAMIMEX does not expect Mexico’s production to alter significantly in 2020

Hindustan Zinc Ltd

16.9

19.6

Southern Cooper Corp

15.9

17.3

Corp. Nacional del Cobre de Chile

16.8

17.1

Volcan Cia Minera SAA

17.3

17.0

Industrias Peñoles SAB de CV

12.2

14.8

South 32 Ltd

13.3

Boliden AB

13.3

13.2

Coeur Mining Inc

12.1

12.9

Sumitomo Corp

12.8

12.6

First Majestic

9.7

11.7

Teck

21.5

11.5

Hecla Mining Company

12.5

10.4

due to new projects. Only the El Boleo mine, owned by Kores Camrova Resources is projected to consolidate and produce 28,500 tons of copper cathodes. With respect to zinc, the International Lead and Zinc Study Group ranked Mexico as the sixth-top producer in 2018,

Source: The Silver Institute.

behind the US and India. Mexico’s production accounted for 5 percent of global production, amounting to 690,895 tons. According to INEGI, Zacatecas is the largest producer in Mexico, even if the state’s production was 0.6 percent lower in 2018 than in 2017, mainly due to a decrease in the production of Goldcorp’s Peñasquito. Chihuahua and Durango ranked second and third in production, respectively. The companies that produced the most zinc in Mexico in 2018, in order of importance, were Peñoles, Goldcorp, Fresnillo plc, Grupo México and Frisco. The new zinc project to highlight in Mexico is Peñoles’s Capela in Guerrero. As Fernando Alanís, the company’s CEO notes, “we will be able to produce three types of concentrates coming from lead, zinc and copper. This asset will have a total milling capacity

year. CAMIMEX forecasted an increase in Mexico’s silver

of 4,500t/d, which positions Capela between a middle-sized

production in 2019, as several recently inaugurated projects

and large-sized mine. We expect it to be one of the group’s

begin to consolidate; likewise, mines like Los Gatos, Aranzazu

best mines, entering full production in late 2019.” Capela fits

and Capela are expected to kick-off operations in that

into the company’s strategy of supplying zinc to the US. “We

same year.

have expanded our refining plant’s capacity in Torreon to 360,000 tons,” Alanís says. “We have increased our exports

COPPER, ZINC ASPIRING CROWN JEWELS

to the US by 30 percent since 2018.”

Notwithstanding the effects of the trade war between the US and China, the International Copper Study Group (ICSG)

EXPLORATION SLUGGISH

expects a modest growth in demand for copper in the short

According to S&P Global Market Intelligence, the nonferrous

term, as the metal is essential to economic activity and even

total exploration budget tends to mimic the annual indexed

more so to the modern technological society. However, lower

metals price. After four years in decline, S&P Global Market

Chinese demand is expected, and the outlook for the EU

reports that global exploration nonferrous expending hit

and Japan remains sluggish for 2019 and 2020. Demand

a peak, growing to US$8.4 billion in FY17 from the US$7.3

in the US is expected to rise in 2019 and level off in 2020.

billion in FY16. But these numbers are still a drawback

The ICSG foresees the world ex-China usage to grow by

compared to the nearly US$9 billion spent in 2015 or the

around 1.7 percent in 2019 and a further 2 percent in 2020.

more than US$22 billion spent in 2012, when the four-year

CAMIMEX points out that a major short-term trend in the

slump begun. S&P’s expectations for 2018 calculated a

industry will be the deficit in the concentrates market, which

15 to 20 percent exploration budget increase given the

will put pressure on the refined copper market.

positive outlook in metal prices. In Mexico, CAMIMEX points out that exploration investment carried out by its

According to data released by CAMIMEX, the biggest

affiliated companies in 2018 was US$445.5 million, while

copper producer in the world in 2018 was Chile, followed

the projected investment of these companies for 2019 is

by Peru and China. Mexico holds the eighth position in the

US$382.2 million.

VIEW FROM THE TOP |

NEW MODELS BASED ON INDUSTRY BEST PRACTICES FRANCISCO QUIROGA Undersecretary of Mining at the Ministry of Economy

Q: What is the strategy of the Undersecretariat of Mining for

Q: What is your opinion on including indigenous

strengthening the mining sector’s competitiveness?

consultations in the regulatory framework?

A: We will implement an active industrial policy that

A: This is a commitment which implementation Mexico

integrates the perspective of each of the actors in our sector,

has been delaying for years. It is no longer possible to

providing certainty to investors. The main guidelines are

keep procrastinating on this. The current government

innovation, diversification and inclusion. To this end, there are

will implement indigenous consultations and will do so

three important approaches. First, carrying out business in a

following the highest standards. We will have effective,

right way. Second, fostering the industry’s competitiveness

fast and well-designed consultations, fiscal compliance,

by reducing costs. Three, reconfiguring the role of authority.

remediation of the effects of mining activities and respect

We have to implement new models based on industry best

for the human and political rights of workers. More

practices that underscore inclusion and sustainability.

generally, it is crucial to include host communities in the project, whether they are indigenous or not. We have to

As for the industry’s competitiveness, we must tackle all those

involve the communities, make them part of the process

cost factors that can be lessened without impacting Mexico’s

and integrate them into supply chains and to the mining

development. And regarding the role of the authority, we

activity itself, if possible. When one does that, everything

see ourselves as leaders of the sector, with all the risks and

else is facilitated. Community participation is part of

costs this implies. Our goal is to reverse the current trend

our way of understanding the regulatory framework. To

we observe in the sector. One of our recent achievements

increase Mexico’s competitiveness while protecting the

is that during 1H19 we reduced the delay in the procedures

wellbeing of all stakeholders, every industry-member

of the Public Mining Registry by 95 percent. Although we

has to work in harmony with each other. That is a joint

received a large amount of unresolved applications from

responsibility, but it starts with the Undersecretariat

the previous administration, 63.5 percent of the current

of Mining.

resolutions correspond to 2H18. Q: What strategy should be implemented to improve the Q: How can the way of doing business in mining be reformed

public perception of mining?

to benefit all stakeholders?

A: As an industry, we need to stop talking to each other

A: It is of the utmost importance to clearly distinguish three

and start communicating with the public at large. In the

aspects. One, that to which each stakeholder is entitled.

13 years since Pasta de Conchos, our industry has evolved

Two, what we really want to achieve as an industry, which

considerably. We must step out of our comfort zone and

in turn demands that each stakeholder go beyond what

convince others of the fact that mining is fundamental for

he is entitled to. Three, that which is non-negotiable. For

the development of Mexico’s economy. Investing in state-

instance, human life is non-negotiable. I am convinced that

of-the-art technology, environmental protection programs

mining does not have to cost a single human life. Another

and better social practices, as well as procuring strong

non-negotiable aspect is natural disasters. To put it in stark

supply chains, is crucial to this end. We have to construct

terms, Mexican mining, given the current perception of the

a legacy in line with that of the new administration by

industry among some segments of the public, would not

building citizenship and aiding in pacifying the country.

survive a disaster like the one that happened in Brazil at the beginning of 2019. And I would like to note that naming them “natural” is just a figure of speech because there really

Francisco Quiroga has more than 18 years of experience in

is no such thing as a natural disaster in mining. The third

relation to the mining industry. He has a background in directive

non-negotiable aspect has to do with the manner in which

positions in several mining-metallurgical companies. Quiroga

stakeholders, including the authorities, relate to each other.

has degrees from Nuevo Leon, Yale and Auckland universities

VIEW FROM THE TOP |

FACING MEXICO’S SOCIOPOLITICAL TRANSFORMATION NAPOLEÓN GÓMEZ URRUTIA Senator of the Republic

Q: As a Senator and a mining union representative,

can renounce concessions if nothing is found in exploration.

what are the industry’s main demands and how are you

But as the entitlement payments for a concession are so low,

responding to these?

companies simply decide to keep their concessions. I believe

A: Mexico is going through a sociopolitical transformation

that the Senate and CAMIMEX must maintain an open and

and the mining industry is no exception. The industry seeks

permanent communication channel that can serve as a bridge

investment certainty to foster its growth. It is demanding

to represent mining companies before the government.

gradual changes and a general avoidance of radical modifications to the mining regime. Also, I perceive that

Q: As representative of the Work and Social Prevision

it demands openness from the government to enter into

Commission in the Senate, what aspects of the labor law

dialogue and reach agreements that are beneficial for all

should be modified to foster the growth of the talent pool

mining stakeholders. I have met in person with providers,

for the mining industry?

CAMIMEX members and other mining representatives. We

A: The labor law is very directed to ensure labor fairness and

understand the crucial role that mining plays in the economic

to guarantee union democracy. In this context, protection

performance of the country. In the Senate, we are discussing

of the freedom, transparency and secrecy of workers is a

concessions, tax burdens and environmental matters. We

key goal. I perceive that any reform to this law will be in the

have listened to mining companies’ perspectives but have

direction of protecting workers’ rights, such as to prevent

also given opinions and suggestions on how to enhance

unjustified dismissals and arbitrariness. I personally pushed

the industry’s performance. One of the key concerns of

for the ratification of Agreement 98 of the International Labor

the industry is related to the retroactivity of any changes

Organization for the right to organize and carry out collective

to the mining law. While some reform initiatives are on the

bargaining. As the so-called stakeholder protection contracts

table, we still have not discussed their retroactivity. These

are so common in the country, companies often make

initiatives concern compliance with CSR policies and also the

agreements with undemocratic union leaders that do not

time frames of mining concessions. The policy for granting

really represent workers and then impose these agreements.

concessions has been overlooked over the years and lead times can extend to over 50 years. We have spotted several

Q: Now that you are back in Mexico, what are the

contradictions that require a strong regulatory framework to

misconceptions regarding your past role as a mining union

reach a resolution and to prevent land hoarding.

leader that you would like to set straight? A: The mining union and I were victims of obsessive political

Q: What is your ideal model for granting and following up

persecution from corrupt and immoral business leaders.

on mining concessions?

The goal was to discredit our labor movement. But these

A: Some compare the time it takes to get a concession in

incidents have already been unquestionably clarified by the

Mexico with other mining jurisdictions. For example, in

Supreme Court of Justice and I now want to look forward

Canada, a concession can be granted in one day but it has

to a modern Mexico with a common social vision. I hope

an initial duration of four years to guarantee that the company

corrupt practices will be eliminated and business leaders

is really investing in exploration. Then the concession lasts

soon realize that this country has already changed and that

for 10 years and can be extended up to 20 years if there is

we must work together for its growth.

a productive operation. As for Mexico, the law used to have a two-year period for the company to demonstrate it was investing in mining development. But this clause was removed

Napoleón Gómez Urrutia is a Senator of Mexico and President

from our mining law and concessions are no longer tied to

of Congress Work and Social Prevision Commission. Prior to

actually carrying out investment in them. The law should make

his work in Congress, he was Director General of the Mexican

investment a condition of keeping the concession. Also, miners

Mint for 12 years

| VIEW FROM THE TOP

RENEWING THE FACE OF THE MINING INDUSTRY SALVADOR GARCÍA President of AIMMGM

Q: What are the main issues that the association will try

We are also working to see how curricula can be adapted

to negotiate with the López Obrador administration?

to the needs of the industry. The most relevant cases

A: First, we will ask the president to give us the

are the update of various specialties, mines, metallurgy,

opportunity to show him the reality of the mining

and geology for the design, investigation, and reserve

industry. I believe the industry’s image has been battered

calculations including finance and operational costs.

and damaged by bad information. It is necessary to

Another study is also being done between the job

understand all the benefits that mining provides for the

demand and offer of the sector, to find an equilibrium of

country’s development. In recent years, the industry in

graduates from the different universities.

Mexico has been placed at a disadvantage compared to other countries due to issues like the tax burden, legal

Universities have been set up to educate engineers

certainty for investors regarding land ownership and the

in many communities near the mines but what the

lack of security. All this could be different if the existing

industry needs is skilled, technical and specialized labor,

perception about the sector is changed.

not engineers. We need people in the middle level of the chain.

Q: What mechanisms does the association have to change that perception?

Q: If there is the possibility to implement a mining

A: Last year we organized our first forum on the industry

reform, what topics are essential for the association?

and we plan to organize more over these months in the

A: Mexico is not as attractive for mining investment as it

main mining states. We also have reinforced our presence

was a few years ago, so the country needs a reform that

in networks to offer information to society. There are even

addresses this situation. Mexico has many resources but

people who think that the industry should disappear and

if we do not face our difficulties and provide clarity to

they are not aware that everything around them comes

investors, they will be hesitant to continue coming to Mexico.

from mining. The association is formed by professionals who want the best for the industry regardless of where

An example is the Law of Indigenous Consultation, which

they work and that positions us to speak with certainty

is very open to interpretation; in this case, it would be

about specific issues.

necessary to clearly define every element of the law because without clear guidelines doubt will persist. The

Q: What role should the association play to achieve the

mining industry in Mexico needs a consensual change.

highest standards in the training of talent that helps the

We are in favor of that change as long as it is positive for

growth of the industry?

all parties involved; however, I am not optimistic that any

A: The association has scholarships and agreements

mining reform will have the depth required to develop

with the main mining schools in the country, such as

the sector.

the Autonomous University of Pachuca, where each scholarship we grant is matched by the university. These

Q: What is your view of the Mining Fund?

scholarships are funded with the association’s own

A: I have always believed that all processes can be

resources.

improved. The way in which the Mining Fund was being distributed needed some adjustments but nothing as extreme as those proposed by the new administration.

The Association of Mining Engineers, Metallurgists and

The adjustments are necessary but it is also true that this

Geologists of Mexico (AIMMGM) is the premier association for

fund, as can be seen in many municipalities dedicated to

mining professionals in Mexico. The group works toward the

mining, worked very well. Modifications can be made but

technological and economic development of the mining sector

not so drastically.

VIEW FROM THE TOP |

WEAVING THE ECONOMIC AND SOCIAL FABRIC OF ZACATECAS CARLOS BĂ RCENA Minister of Economy of Zacatecas

Q: What changes can be made to the regulatory framework

to invest the resources. But the communities nearest to the

to boost the mining industry?

mining projects were not always taken into account because

A: Three areas must be addressed. First, the popular

the county government is often far away from them. The new

consultations to begin projects. There must be a clear

formula under discussion includes mining communities to a

definition of what constitutes an indigenous population and

greater extent. It also demands that mining companies be

a native population. Zacatecas has no indigenous population

more involved in the proper use of resources. But companies

registered, so it is hard to know who are native to this region.

feel this is too much to ask, that it goes beyond their

It is crucial to define who to consult and when. Miners usually

responsibilities. The ideal scheme would be focused on the

come to an agreement with landowners before the exploration

communities that are actually close to a given mining project.

stage. Only when they are ready to move on to the next stage

It would make sure that the levied taxes actually return to

of the mining project do they file for a concession. Therefore,

these communities, but in a way that really impacts their

the uncertainty around popular consultations has reduced

development.

exploration investment substantially. Q: How is Zacatecas working to promote mining? Second, the fiscal aspect. Mining companies have adapted to

A: The first aspect of our plan is to fortify small mining

the tax that goes to the Mining Fund. But Mexico is losing its

companies in the state. What often happens is that these

competitiveness because it is impossible to deduct exploration

companies grow to a certain point in which buying them

expenses within a reasonable period of time. Companies must

or forming other types of alliances becomes attractive. This

wait 10 years. Other countries in Latin America are more

will keep happening. The state of Zacatecas is committed to

competitive in this regard. There must be a fiscal incentive

helping integrate small and medium companies, fostering the

where both the state and the companies win and exploration

environment and value chain that makes this possible. Second,

is boosted.

we are supporting large mining companies by upholding physical and patrimonial safety, promoting the best possible

Third, the natural environment must be protected in a way

community relationships and developing supply chains. For

that is also appropriate for business. Water is a prime example

example, we worked with First Majestic to produce social

in this regard. Some people argue that a mining company

programs and monitor safety. The third part of our plan has to

should replace every single drop of water it uses or moves

do with promoting a talented workforce. We have organized

from one place to another. However, it is more reasonable to

highly successful job fairs. Also, we facilitate collaborations

push for a moderate policy. For instance, companies should

between companies and universities. In one case, we partly

not be held accountable for water that is simply drained and

financed a project where Datamine introduced some of its

moved about, but they should be for water used in productive

equipment into the Technological University of Zacatecas.

processes such as lixiviation.

We are working to generate the necessary talent so that the industry remains as local as possible. At our mines there are

Q: How can the Mining Fund be reformed so as to guarantee

very few Zacatecan managers: most of them are from other

wealth is redistributed adequately?

states in Mexico. Compared to salaries in other state mining

A: The great change that is being proposed is that the

industries, Zacatecasâ&#x20AC;&#x2122; salaries are the highest in the country.

distribution of resources be exclusive to the Ministry of Economy through the Undersecretariat of Mining. This is desirable. How to deliver the resources is another matter.

Carlos BĂĄrcena was in the state government of San Luis

The way it has been working so far is that part of the money

Potosi throughout his professional career. He promoted the

goes to the mining counties, while another goes to the state

manufacturing industry in the Bajio region alongside GM,

that oversees these counties. Then, a committee decides how

BBVA, USAID and CONACYT

| VIEW FROM THE TOP

MINING FRAMEWORK MODIFICATION SHOULD CONSIDER RAMIFICATIONS EMILIO VARELA Director of Mines at the Directorate of Mines of Zacatecas

Q: What major changes would you like to see reflected in

Q: What elements should be taken in consideration to

the Mining Law?

define a correct distribution of the Mining Fund?

A: The indigenous consultancy is not contemplated in the

A: Since December 2018, the Ministry of Economy has managed

current framework. The Mining Law went through some

and defined the scheme to distribute these resources but the

modifications in October 2014, with some changes made

disposition and operation of this new scheme has not been

two years later that were aligned with the objectives

regulated. In fact, there is a document issued by CAMIMEX,

of the Energy Reform. The application for a mining

known as the Integral Proposal for the Mining Fund, which

concession does not have a section to determine if

reflects the industry’s view on how to distribute the resources

the land in question is an ejido, a private property or a

collected in 2018, which total MX$5 billion. I worked under the

natural reserve. If the new administration modifies the law,

model where mining companies delivered these resources

possible repercussions should be taken into consideration.

directly to the communities. Through the administration’s new

Even when the indigenous consultancy was discussed as

scheme, the essence of the Mining Fund is diminished because

a measure to regulate mining activities in the country, the

there will be no long-term social impact. The intention is to

stock market shares of many mining companies suffered.

execute the process with transparency through CAMIMEX’s “base zero budget” proposal. In this sense, presenting projects

The country’s preferred activities listed by order of priority

before the resource is available is a practical solution. However,

are the exploration and production of hydrocarbons,

concluding a project in the same year it is budgeted, hence

electricity transmission and mining. After the Energy

during the same fiscal period, suggests that these will be

Reform took place, many concessions were influenced

small-sized projects. Even projects such as developing a road

by the new framework. For instance, if a transmission line

rehabilitation program, providing clean water or developing

passes through a mine, this territory has to be divided

sewage services could not be finished on time. If the period

and a right of way must be sacrificed on both sides of

was flexible in terms of resource availability, this would be an

the project. Hence, if there is an ongoing subterranean

extraordinary idea. The General Directorate of Mines captures

activity, other preferred activities like energy transmission

CAMIMEX’S previous statistical data and productivity reports

should not be given greater importance over the mining

from mines during the first 30 business days of each year.

concession.

Every mine in operation for more than six years must provide this information, on which the coefficient for each municipality

In my former position as Deputy Director of Mining at

and state is determined.

the Ministry of Economy, I became very familiar with this situation. During the modification of the Mining Law in

Q: What short-term actions will the Directorate of Mines

2012, a period of time was designated to issue consultancy

of Zacatecas develop to cope with industry needs?

criteria hand in hand with the Ministry of Energy. At the

A: Our main priority is to support the development of

moment, when a request of this nature takes place, best

junior mining companies. The Ministry of Economy provides

practices are involved to reach a common agreement

economic support through the Public Trust of Mining

regarding the rights of way. Nevertheless, it would be

Promotion and Development. With this in mind, our plan is

better to have a regulation defining this criterion.

to ensure the availability of these resources so small mining companies can execute analysis and sampling of the mineral composition of their concessions. In Zacatecas, there are

Emilio Varela was previously Deputy Director of Regional Mines

close to 2,400 valid mining concessions. This is close to 1.7

in the Ministry of Economy. He has been Director of Mines in the

million hectares. By executing these analyses in a certified

Ministry of Economy of Zacatecas since July 2019. Varela is a

laboratory, further development could be supported by

graduate of the Tec de Monterrey campus Zacatecas

demonstrating the untapped potential of these mines.

VIEW FROM THE TOP |

INNOVATION, BUSINESS: DEVELOPMENT KEY GOALS FOR REGIONAL CLUSTER ALBERTO MENDOZA Director of CLUSMIN

Q: What are the cluster’s principal responsibilities and

and suppliers participating in trainings and meetings in a

activities?

month. The topics vary, from managerial skills and business

A: The cluster was formed to direct collaboration between

improvement measures to supervising operations at a site.

mining companies, suppliers, academic institutions and

Over 200 supervisors have now been trained with us. Some

governmental institutions at both state and federal levels.

of these training programs are conducted in collaboration

The end goal was to attract more investment, stimulate

with regional educational and scientific institutes. With IPN,

consolidation and introduce more suppliers providing the

we held a congress on rock mechanics and organized training

right services and quality standards. At the root of this

related to occupational health. We also designed a course with

idea is the development of a new culture of innovation. In

the school on metallurgy. The structure of this course is three

our search for more suppliers, our focus is on those that

weeks of classes and one week in the field. The great benefit

provide services such as maintenance, telecommunication,

of doing it at our cluster is that the teacher actually joins

lab-based analysis, exploration and construction of mine

the participants during their work period at the mine. After

infrastructure. Our cluster dedicates much of its activities to

concluding the program, the students spend one year at a

innovation, developing businesses, attracting new businesses

mining unit and rotate. In collaboration with ITAM, we organize

and promoting sustainable methods. This is done by working

courses on consolidation and business management. Last

with parties across the whole industrial chain. We have four

year, we worked with Business Sweden and the Technology

committees that oversee distinct areas: development of

University of the State of Zacatecas (UTZAC) to devise plans

suppliers; human talent; safety, health and environment;

to set up a training center under the name Swiss Mining

and innovation and technology. In each area we establish

Academy in Zacatecas, or Academia Sueca de Mineria en

an objective, a strategy and a range of activities. Each

Zacatecas. The principal goal of this center will be to train

committee has a president, an assistant and a network of

students in the technology used by Swedish companies.

collaborators. The participants do so in an honorary role and come from our member companies. The advantage of these

Q: What are the cluster’s plans for the Compatible Mining

committees is that they facilitate the interchange of expertise

Center (CMC)?

and ideas between different members. Topics that have been

A: This initiative is a product of a collaboration between

covered include health indicators, business development

CONACYT, COZCyT and CLUSMIN. The project is funded

options for suppliers, implementation of quality standards,

by a mixed fund from CONACYT and is planned to

better communication between companies and improved

begin operations in late 2020. Once built, it will form a

construction methods. We have also worked with academic

new space for research and development in the areas of

institutions to provide training and certifications to new talent

environment, health, safety and metallurgy. It will include

in diverse areas related to mining and mining services.

special laboratories for each of these areas. Our members and potential new parties will conduct activities such as

Q: What are the objectives of the cluster’s alliances with

testing technological innovations that reduce impact on

academic institutions?

the environment, developing better conditions for mining

A: We have formed alliances with universities and independent

employees, and devising new ways to pursue dialogue

centers that have programs specifically dedicated to

between mining companies and local communities.

mining. We collaborate with various universities and we exchange details of our experiences and learn from each other’s programs. One of the principal areas is training and

The Zacatecas Mining Cluster (CLUSMIN) is a nonprofit civil

certification, in which we have rapidly expanded our activities

association that was formed in 2012 by mining companies,

over the last few years. We now have 80 training programs

academic institutions and government bodies. Its purpose is to

at CLUSMIN, with 475 people from mining companies

strengthen the state’s mining industry

| STATE SPOTLIGHT

ZACATECAS: A TRADITION IN MINING Home of a long and illustrious mining tradition, the state of Zacatecas distinguished itself in 2018 as Mexicoâ&#x20AC;&#x2122;s top producer of silver, lead and zinc, and the fourth-leading producer of gold. The stateâ&#x20AC;&#x2122;s government, through its Ministry of Economy, is strongly committed to promoting business conditions in the mining sector. Particularly with respect to small miners, it is providing support through two actions. First, resources from the Payroll Tax Trust are channeled to holders of a current mining concession of up to MX$50,000. These resources are granted to conduct sampling and testing. The second is the agreement with Minera Oro Silver de Mexico, where the company has made a pledge to allocate 20 percent of its processing capacity to production from small miners. The Ministry of Economy also conducts mining employment fairs, which in the most recent edition had 600 positions available, 27 participating companies and 2,000-plus job-seekers. Zacatecas fully understands the importance of strengthening the local mining sector. In this regard, it is worth noting that the first mining cluster in Mexico was created in the state. This association aims to develop a vibrant, world-class supply chain and human capital. The cluster strengthens the local supply chain, innovation and industrial safety and attracts suppliers to the area. The coordination between its members and the state government is permanent, resulting in an innovative development model for the sector. A remarkable initiative presented by the Zacatecas Mining Cluster is the Compatible Mining Binational Center. This project was developed as a response to a need pointed out by the Zacatecan Council of Science and Technology and Innovation and the Mexican Council of Science and Technology (CONACYT). Its objective is to design, build, equip and implement a center for research and development of technology and compatibility with the mining environment. This initiative focuses on health, worker safety, environmental protection and mining operations in the state. Located in Quantum City of Knowledge, with investment from the government of the state of Zacatecas and FOMIX CONACYT, Quantum is a space designed to advance the regionâ&#x20AC;&#x2122;s scientific and technological development. It works under a paradigm of continuous innovation, where research centers, laboratories and technology centers collaborate closely with public and private economic development institutions. The objective is to promote an economy under a the triple helix model (academy, business and government). Within Quantum, the presence of public and private technological research and development centers stand out, like the FRISCO Mining Research Center.

| VIEW FROM THE TOP

PROMOTING REGIONAL POTENTIAL JORGE VIDAL 20

Minister of Economy of Sonora

Q: What changes to the Mining Law would boost the

represents an investment of approximately of US$400 million.

competitivity and investment of the Mexican industry?

Bacanora will be investing US$420 million in the coming years,

A: Mining is a key economic pillar in Sonora and is crucial

making Sonora the largest lithium producer in the country.

to the state’s development. Mining activity takes place in 22 out of 72 municipalities, contributes almost 17 percent

Q: What is Sonora’s strategy to exploit its lithium potential

to state GDP and generates 19,000 direct jobs and 80,000

and what role will Chinese companies play in this strategy?

indirect jobs with salaries that are 30 to 35 percent above

A: Regarding Bacanora, the investors are from Australia

the national minimum. The possibility that the law will be

and England and arrived to Sonora a few years ago. This

modified is considerably important to the state. Governor

has been a long process. In Sonora, lithium can be found at

Pavlovich is taking measures within the National Conference

the surface, which means the process to recover the mineral

of Mexican Governors (CONAGO), directly with the Minister

is different from other countries. The expected investment

of Finance, to ensure that tax deductibility is taken into

will be between US$400 million to US$450 million. These

account. Previously, Mexican legislation allowed companies

investors have pursued partnerships, first at the domestic

to fully deduct taxes in exploration during the first fiscal year

level and then at an international level. During this search,

and now regulation has changed to amortize deductions for

they developed an alliance with Ganfeng, which is the world’s

a period of 10 years. This inhibits exploration and is having

leading producer of lithium. Recently, Ganfeng and Bacanora

a negative impact on mining operations.

agreed to invest £18 million (US$22.4 million) into the Sonora lithium project, with a commitment from Ganfeng to match

Security must also be addressed. This issue is hurting

future investments by Bacanora. This grants Ganfeng seats on

companies’ productivity and impacting the appetite of

the Board of Directors of the mine and access to its operation.

new companies to invest. It is also important that the rules of the game be clearly defined when it comes to

The next step is the authorization of the Chinese

job security. Despite two new trade unions, the stance

government to continue this operation. This puts the

of the Confederation of Mexican Workers (CTM) over the

project on another level because with this working capital

years and the lack of a proper framework could cause an

and knowledge, everything accelerates. Ganfeng’s added

imbalance and send a negative signal to investors.

value is that it operates across the entire lithium value chain, from production to battery manufacturing. This is important

Q: How has Sonora’s mining sector performed in 2019, after a

for Sonora. The plans have already clearly come to fruition,

reported a decrease in mining activity in comparison to 2018?

the property has been purchased and offices are being put

A: The two key elements that will boost investment in Sonora

in place. Nevertheless, there is still more work ahead. To

are job security and tax deductibility. Investment in Sonora’s

reach full production, the active investment process takes

mining industry amounted to approximately US$700 million

about two years.

to US$800 million in 2017 and 2018. So far in 2019, around US$500 million to US$600 million has been invested.

Projects like this help generate interest in the region because

Investment depends on two projects: Grupo México’s Cananea

the next generation of electric vehicles will be major users

zinc mine and Bacanora’s Sonora lithium mine. Cananea

of lithium. Sonora is home to one of Ford’s older production plants that is about to start using this technology. Lucid Motors, which aims to be Tesla’s competitor, is setting up

Jorge Vidal was Delegate in Sonora of the National Bank of

operations in Arizona with a US$1 billion investment. It has

Works and Public Services (Banobras) from 1988 to 2015. He

already contacted Bacanora, which will be a win-win for the

has been Minister of Economy of the Government of the State

region in terms of production for the two-country market

of Sonora since September 2015

between Sonora and Arizona.

INSIGHT |

CREATING A VIRTUOUS CYCLE FROM THE SUPPLY CHAIN ALBERTO OROZCO President of the Sonora Mining Cluster

Finding new projects and the right team to ramp them up

sustainability, science and technology with efforts that are

to production are two keys to mining success but Mexico

unique compared to other clusters.”

is behind when it comes to exploration, says Alberto Orozco, President of the Sonora Mining Cluster. “We need

The goal is to create a virtuous cycle, which starts by bringing

to boost exploration in Mexican mining, which has been

together the right partners. Orozco believes that while

lagging for several years. Sonora, as the main mining state

explorers and operators are at the core of mining activity,

for exploration in the country, has a crucial role to play in

suppliers, civil organizations and government agencies are

replacing existing reserves.”

crucial players that need to be integrated. “Once we have the right associates, we proceed to generate the right spaces for

Clusters, in general, are positioned to prod the entire mining value chain to work together to keep the industry up and running. Orozco explains that prior to the clusters, CAMIMEX and other associations addressed specific niches. While these continue to serve the industry, clusters have a broader mandate. “The cluster integrates the supply chain, even for those providers that are not exclusively working for the mining industry,” he says. The Sonora Mining Cluster, founded in 2015, has quickly grown and taken root in the industry. “Our first challenge was to convince mining companies and suppliers that we could

“

the industry to network and interact,” he adds.

Clusters are still young but we will eventually work together to transcend our states and work at a national level”

Broadcasting the success stories related to innovation,

provide an added value,” Orozco says. “We have been the

responsible operations, productivity and security is another

most successful cluster in persuading the industry of our

focus for the cluster. “The promotion of our activities and of

added value. We started with 19 founding partners and now

our suppliers enables us to add more players to our virtuous

have 165 associates.” While clusters help to better approach

cycle,” he says. The cluster produces an online magazine

all links of the mining supply chain, they are still limited to

called Mineria Para Todos. “We invest in communication

operating in their respective regions, a state of affairs that

because we are convinced of its value. Our magazine is a

Orozco sees changing with time. “Clusters are still young but

space to communicate with our partners and the industry in

we will eventually work together to transcend our states and

an orderly and scheduled way.”

work at a national level,” he says. The cluster also organizes training programs and In the meantime, Orozco explains that as each mining region is

certifications. “We rely on the industry’s feedback to

different, regional clusters attend to their specific complexities.

decide which areas should be covered when designing

For example, the Sonora Cluster works to foster sustainability,

a training program. Security, business networking and

security and innovation. “Our flagship events are the Security

technical matters are always popular topics,” Orozco

Forum and the Communitarian Relationships Forum,” he says.

says. The goal is for the training to become a trampoline

“We strive to incentivize the social sense of mining.”

for the professionalization of mining suppliers. Striving to institutionalize SMEs, the Sonora Cluster offers a

This approach is a key differentiator of the Sonora Cluster,

certification program related to the quality standards of a

Orozco says. “We perform the usual duties of a cluster; that

given company. “The provider’s certification that we offer

is, to host business meetings and seek to improve companies’

serves to professionalize suppliers so they can provide a

profitability. But we also have the capacity to focus on

better service to the mining industry,” Orozco says.

VIEW FROM THE TOP |

SECURITY, CERTAINTY MAGNETS FOR INVESTMENT RAMÓN DÁVILA Minister of Economic Development of Durango

Q: US$1.75 billion is expected to be invested in Durango

A: The most important thing is to work hand in hand with

in 2019. What percentage of that investment will

the three levels of government, as coordination between

go to mining and what state measures are boosting

these levels is key to achieving objectives. We have also

the industry?

implemented zero tolerance regarding any conflict that may

A: Of that investment, US$100 million corresponds

arise. This has eliminated the domino effect we have seen

to mining and most of that has been destined to the

on other occasions.

expansion of existing mining operations, especially for the installation of new equipment. We are working to provide

Q: What can the Government of Durango do to minimize

facilities to companies that want to settle in Durango

the impact of declining mining profits and avoid

through good infrastructure and logistics solutions. We

situations like those in San Jose de Avino?

have focused on training the best possible workforce.

A: The Government of Durango acts as a mediator in the

We have developed a program with state universities to

resolution of conflicts that may occur in the state. It is

train technicians who can cover the needs and demands

about acting as external agents to help solve problems

of the industry. Security is another area of focus. Today,

that may occur between operators and communities.

Durango is considered the third-safest state in the country. All these factors help us to provide stability

Q: What is your opinion on the federal government’s idea

to companies that decide to set up and operate here.In

to prioritize popular and indigenous consultations when

addition, we offer incentives. When a company decides

granting new mining concessions?

to establish in Durango, we try to help it through different

A: I believe the federal government should provide investors

incentives related to their activity, like the elimination

with certainty. Certainty attracts capital. For this reason, we

of the payroll tax, which has a maximum duration of

have been in contact with the federal authorities to ask for

six years depending on the investment the company is

certainty for investors, instead of generating concern. To

willing to make.

carry out the message launched by the government, it is necessary to reform the Constitution and we believe that

Q: What percentage of Durango’s GDP is represented by

we are very far from that.

mining activity and what needs to be done to promote it? A: Although Durango is the third-ranked state for silver

Q: What impact will new legislation regarding the Mining

production and fourth in gold production, the mining

Fund have on the economic activity of Durango?

industry accounts for six percent of the state’s total GDP.

A: The spirit of the Mining Fund was to provide an economic

I think we are missing a great opportunity that can help

return to communities during mining operations. If the spirit

the state economically, especially in areas where there

with which this Mining Fund was created is distorted, what

are no other economic alternatives. Unfortunately, mining

will be generated is a concern in the communities that could

investment arrives when positive results are obtained

lead to social conflict. For this reason, we must be very

during exploration, which should be encouraged by the

careful. The Ministry of Economic Development of Durango

federal government. In other words, without exploration,

has always declared that the Mining Fund is not a tax, it is a

there is no investment. A good solution would be to make

mean for mining communities to improve their infrastructure.

exploration deductible, since if there is no exploration, we run the risk of depleting our reserves and then it will be too late.

Ramón Dávila has been a leader of different business organizations and has held high-level positions in the mining

Q: What concrete actions has the State of Durango taken

sector in companies such as Industrias Peñoles, San Luis

to achieve the levels of security that it enjoys?

Corporation, Pan American Silver and First Majestic Silver

| VIEW FROM THE TOP

ATTRACTING INVESTMENT INTO MEXICO’S GOLDEN TRIANGLE ALFREDO VILLEGAS Director of Mines at the Ministry of Economy of Sinaloa

Q: What are the performance bellwethers for Sinaloa’s

the integration of Mako Mining’s Trinidad mine into the

mining sector and what perks do investors receive when

communities surrounding the Rosario municipality. People

investing in the state?

even wear the company’s t-shirts in support of its operation.

A: We have experienced a positive business environment in the state over the last few years, which has contributed

As a local government, we have also worked with AIMGMM

to higher foreign investment in the state. The Ministry

and mine operators to help communities during contingencies.

of Economy of Sinaloa promotes several mining events,

For example, in 2018, strong rains affected Rosario and we

including Discoveries Mazatlán or AIMGMM meetings, that

worked together to collect donations to help the community.

contribute to enhancing investor confidence in Sinaloa.

This reassured the community that the mining sector is also there to support them when needed.

To remain a competitive mining state, we must communicate Sinaloa’s mineral potential. The golden triangle perfectly

Another initiative is our plan to gather informal miners

illustrates our mineral value. We must also provide investors

and gambusinos under a cooperative to formalize their

with investment guarantees to maintain their trust and

activities. While this initiative is fairly new, our goal is to

confidence when investing here. This confidence does not

help them legalize their production. So far, this program

rely on one factor but on a series of factors that gradually

has had a positive impact on the San Ignacio municipality

sensitize people to our state’s offer.

and among those people who were not very familiar with the mining industry.

Regarding the industry’s demands, miners need local governments to take a stand on the policies that are

Q: What impact does the Department of Mines wish to

impacting them the most, such as concessions, taxes and

have on the industry and what is its plan to accomplish

the Mining Trust Fund. We also want to assure investors that

its goals?

we are not planning to implement any additional taxes in

A: We have a great deal of work to do. Our goal is to be the

our jurisdiction. Furthermore, the state can help miners with

first state to have a shared processing plant for junior miners,

processes, such as obtaining explosives permits.

which will most likely be a floatation plant. We will create a junior mining mapping analysis in our state to decide

Q: What steps are being taken to boost the Sinaloa mining

where this plant should be located as it would significantly

sector’s value proposition and the impact it has on the

lower costs for junior miners. While there are some private

state’s development?

plants already doing something similar, we plan to charge

A: We are the first point of contact for investors looking at

a marginal cost per ton so it is more affordable. This goes

our state. We try to have direct communication with them

hand in hand with our project to offer shared laboratories

to make sure we can be as useful as possible. For example,

to complement the shared processing plant.

we worked closely with the China’s Minera Mahakala to establish its Nocoripa mine. We also contribute to

These two initiatives are supported by the creation of the

educating local communities about the economic benefits

Sinaloa Mining Cluster in 2019, which aims to strengthen

that the mining industry unleashes. One success story is

the local value chain. We also want to replicate the geology academic degree that was first implemented at IPN in Zacatecas. We want to boost Sinaloa’s mining performance

Alfredo Villegas is the liaison of the Government of the

through laboratories, plants and clusters. We want to

State of Sinaloa before the Association of Metallurgist Mining

encourage investors to look at us when seeking to invest

Engineers and Geologists of Mexico A, C. and in turn serves as

in Mexico and we will ensure an appropriate business

Vice President of the National Association of Mining Directors

environment.

INSIGHT |

IGUALA MINING HUB SHAPING INTO REALITY ALFREDO PHILLIPS President of the Guerrero Mining Cluster

Despite a 410-year mining history starting when Hernán

To realize this ambitious project, the cluster is working on

Cortés declared Taxco as the first Real de Minas of the New

a variety of levels to achieve the necessary cooperation,

Spain, Guerrero state has not achieved the traction that other

Phillips says. “We are trying to create the blueprint

mining regions like Sonora and Zacatecas have enjoyed, says

for this hub to happen while getting federal, state and

Alfredo Phillips, President of the Guerrero Mining Cluster.

local governments to work together,” he explains. “The

The cluster hopes to change that by promoting the creation

government, particularly Undersecretary of Mining

of a mining hub in the Iguala municipality. “The main purpose

Francisco Quiroga, is very interested in this project because

of the Iguala hub is to create the conditions for economic

it promotes regional development.” Phillips expects the

growth in the region,” Phillips says.

AMLO administration to introduce an enhanced social approach to mining. “Guerrero’s local policies in particular

The idea of a hub has been on the table for a long time but

require a visible social component. I think this is a core focus

the state’s economic development due to the industry’s

of the new administration and it is aligned with what we

progress means the time is ripe to take the next step, Phillips adds. “Guerrero hosts several strong mining projects and we have world-class deposits. I perceive the industry moving toward a virtuous cycle,” he says. “The mining value chain is echoing everywhere in our state: creating jobs, resource flows, development opportunities and scholarships, among others.” When realized, the hub is expected to heighten the industry’s visibility and provide a positive impact on education, health and poverty, three hurdles the state needs to tackle. “The mining industry can create the economic

“

were already doing in Guerrero.”

The main purpose of the Iguala hub is to create the conditions for economic growth in the region”

The cluster is finalizing the details of the land where the hub

situation, wealth and context to affect these issues for the

will be located and attracting investors to the project. “If we

better,” Phillips says. While noting that companies do not

can kick off the hub with a few investments, it will gather

have a direct responsibility to solve these problems, Phillips

steam.” Phillips expects the hub to get off the ground by

is convinced they have a great role to play in influencing the

2020. Companies already committed to the project include

value chain to incorporate a higher level of local content

Torex Gold and Energéticos Nieto.

and enhance local economies. One incentive for mining companies to establish at the The hub would also focus on providing a soft landing for

hub instead of, for example, having maintenance facilities

foreign companies investing in Mexico as they often lack

at mine sites is that logistics are always better managed

the deep understanding of regional dynamics required to

from a centralized position, Phillips argues. “Iguala makes

enter a virtuous cycle. The cluster also wants the hub to

sense for companies that want to work at Guerrero mines

become a platform for new technologies in the industry.

such as Media Luna, Los Filos or Campo Morado,” he says,

“The hub expects to include several universities; we want

adding that the hub is in some ways a nod to the past rather

to provide training, education and implement research

than a completely new idea. “Iguala has always been the

centers,” Phillips says. “A greater number of services will

commercial center of the northern part of Guerrero, but

be offered in the same place, gradually making the hub a

the Sol Highway displaced the commercial route from the

real one-stop shop for the industry with the right security

municipality. This hub is really about recovering what Iguala

environment for all members and visitors.”

once was,” Phillips says.

Stone quarry at the Calidra plant in Acajete, Puebla

LEGAL FRAMEWORK

Peña Nieto’s administration is gone, and with the López Obrador era just starting, the road to regulatory clarity in the mining industry remains long. Explorers and operators demand a fiscal revision, while legal certainty remains a key industry concern. In the meantime, investors are weighing whether the Mexican mining jurisdiction is still the most appealing to bet on. The hesitation is not rooted in doubts about Mexico’s huge mineral potential, but on the competitivity of its legal framework. Possible changes in the concession scheme, which may incorporate consultations to indigenous communities, have stirred slightly less debate than the proposed reforms to the Mining Fund.

In this chapter, top legal experts address these complexities, providing a revision of Mexico’s mining regulatory environment.

CHAPTER 2: LEGAL FRAMEWORK 30

ANALYSIS: Legal Certainty Crucial for Mexico’s Competitiveness

INSIGHT: Adolfo Calatayud, PwC

VIEW FROM THE TOP: Alberto Vázquez, VHG Servicios Legales

VIEW FROM THE TOP: Armando Ortega, CANCHAM

VIEW FROM THE TOP: Pierre Alarie, Embassy of Canada

VIEW FROM THE TOP: Juan Torres Landa, Hogan Lovells

VIEW FROM THE TOP: Jorge Sánchez, Haynes & Boone

VIEW FROM THE TOP: Rafael Cereceres, Cereceres Estudio Legal

VIEW FROM THE TOP: Joel González, ALN Abogados

VIEW FROM THE TOP: Juan Manuel González, DBR Abogados

VIEW FROM THE TOP: Enrique Rodríguez del Bosque, RB Abogados

VIEW FROM THE TOP: Pablo Méndez, EC Legal Rubio Villegas

VIEW FROM THE TOP: Mariano Calderón, Santamarina y Steta

EXPERT OPINION: Bernardo Ramírez, Chevez, Ruiz, Zamarripa y Cia

INSIGHT: Donald Hulse, Gustavson Associates

INSIGHT: Armando Alatorre, CIMMGM

INSIGHT: Alfonso Rodríguez-Arana, Legalmex

VIEW FROM THE TOP: Carlos Pavón, SNMM Frente

| ANALYSIS

LEGAL CERTAINTY CRUCIAL FOR MEXICO’S COMPETITIVENESS An updated legal framework is key for boosting Mexico’s competitiveness on the world stage. Two areas of reform stand out. First, including indigenous consultations in the Mining Law, and not implementing them through paralegal instruments. Second, simplifying the process to acquire and keep a concession

The López Obrador government came to office in December

mineral wealth is beyond doubt. That is not to say that sensible

2018 following a landslide election. Boosting growth,

reforms would be unwelcome. Mexico’s system, once a model

combating corruption and lifting millions of Mexicans out

that other mining jurisdictions sought to emulate, is in need of

of poverty were the crucial campaign pledges. A thriving

modifications. Two reforms are particularly pressing. First, the

mining sector is fundamental for the president’s objectives,

inclusion of indigenous consultations in the Mining Law, but not

but throughout its first year the new regime has sent mixed

through paralegal instruments, as the current administration

signals to the industry. As Armando Ortega, president of

has declared it is inclined to do. “The major problems with

the Canadian Chamber of Commerce, points out, “voices

a law arise when issues are not properly regulated by a

in Congress and the president himself often make negative

document that establishes clear procedures in accordance

public statements about the future of Mexico’s industry, only

with the Constitution,” says Rodríguez del Bosque. Second,

to privately reassure key players afterward.”

there is confusion around how to keep a concession without having to comply with investment obligations. Currently, if a

Given that mining is an extremely capital-intensive activity

company cannot fulfill these obligations, they can be omitted,

and that returns on investments can take years to materialize,

but other dispositions must be obeyed instead. Elucidating

contradictory communications from the government have put

processes such as this would be an asset for companies

legal certainty as one of the top concerns among industry

seeking to do business in Mexico. But the crucial element

leaders. As companies, government, labor unions and civil

for assuring certainty during an eventual reform process is

society negotiate a revisited legal framework, the main issues

to make it clear that any changes in concession rules will not

on the agenda include reforming Mexico’s concession scheme,

be applied retroactively. “The government must work from

consulting indigenous populations to start projects, revising

the point at which it began its administration and onward,

the Mining Fund, crafting a more competitive fiscal structure

not backward,” says Carlos Pavón, General Secretary of the

and homologating national regulations to international

National Union of Miners and Metallurgists.

standards. Consulting indigenous communities as a prerequisite for “Mexico, as a nation, is the direct owner of all mineral deposits

obtaining a concession is a proposed amendment to the

within the national territory as provided in the Constitution.

Mining Law that has stirred much debate. But in fact, Mexico

The exploration and exploitation of such mineral resources

is a signatory of the ILO Convention 169. The ILO describes

are concessional to private parties pursuant to concessions

this convention as “a consensus on the rights of indigenous

granted by the federal government,” says Enrique Rodríguez

and tribal peoples within the nation-states where they live

del Bosque, partner at RB Abogados, in an article for Lexology.

and the responsibilities of governments to protect these

“Mining concessions,” continues Rodríguez del Bosque, “grant

rights, based on respect for the cultures and ways of life

their holders the right to explore and exploit all minerals and

of indigenous peoples – it recognizes their right to land

substances specified in the Mining Law, except for those

and natural resources and to define their own priorities for

reserved to be exploited by the Mexican government.” In the

development.” Consultation and participation are at the core

last 25 years, the main amendment to the legal framework

of Convention 169. Therefore, including provisions in the

was merging exploration and production concessions into one

Mining Law to implement and enforce these two practices is

single element. Before, concessioners needed to request an

an overdue issue for Mexico’s legislators. The task is to carry

upgrade of their concession, from exploration into production,

out this reform in a way that results in greater competitivity

within six years of the initial grant. As this frequently caused

for Mexico, not less. Clearly defining what qualifies as

companies to lose projects and therefore investments, “the

an indigenous population is a key preliminary step, and

reform was a landmark in Mexican mining law, definitely

establishing protocols to this end based on UN criteria would

making life easier for miners,” says Iberto Vázquez, partner

be beneficial. Moreover, other countries are more advanced

at VHG Servicios Legales. Such sources of legal certainty are

than Mexico in this regard, so putting in place a committee

what investors look for when evaluating whether to undertake

for evaluating the relevance for Mexico of international best

a new project in Mexico, a country whose extraordinary

practices is also pertinent.

Arista mine's epithermal vein, Oaxaca

A critical point with respect to consultations is the

Moreover, the extended period of time companies must

sequence of the process. The proposed format asks for

wait before deducting preoperational expenses in Mexico

environmental impact consultations to be done prior to the

is not conducive to new projects. In contrast, the US fiscal

start of exploration activities, which is unsound because

reform included a 100 percent deductibility of investment

interested parties need to know how a project will be

with no fixed assets. “Mexico is at a fiscal disadvantage

developed in order to assess its social and environmental

for exploration compared to other jurisdictions,” observes

impact. “Authorities need to understand how the industry

Calatayud. Modifying fiscal obligations has to be done

works,” notes Joel González, partner at ALN Abogados. “In

with a clear understanding of the industry’s rhythms and

other countries,” he continues, “legislators, stakeholders,

cycles. Even if the current Income Tax Law is flexible enough

companies and chambers work together to define clear

to allow companies to adjust how much they pay taking

regulations that provide certainty for project development.

into account the economic cycle and market conditions,

Consultations on projects that lack development knowledge

legislators should take the opportunity to go further: “There

and information discourage investment.” It is important

is space for doing things differently to promote investment,

that any legal development is in harmony with older

having companies pay what is fair while understanding the

regulatory achievements so as to progressively minimize

industry’s circumstances,” Catalayud concludes. Decisive

sources of confusion, which generate uncertainty. As

initiatives are needed, like those Argentina or Peru have

Adolfo Calatayud, Partner at PwC, explains, “there is a

taken: the first country provides tax pacts that guarantee

direct correlation between legal certainty and investment

no change in fiscal obligations for mining companies for 30

attraction.” Appropriately, in 2018 Australia, Canada and the

years, while the latter has a similar system for up to 15 years.

US received 34 percent of total investment in exploration, according to PwC.

Conducting reform efforts in a collaborative and inclusive manner is vital for success. Frequently, legislating bodies

Mexico’s fiscal regime is an additional area where reform

do not seek feedback from those who will be regulated.

can lead to greater competitiveness. In 2014, extraordinary

The process should not only pertain to lawyers and

mining royalties went into effect. “This was one of the

legislators, but include geologists, mine managers,

hardest moments for the industry,” Vásquez says. “It still

community leaders and traders, because they are the

echoes in companies’ prospective investments.” While

ones who suffer from mystifying and outmoded laws.

companies have adapted to some extent, the bottom line

“We should take the experience related to every issue the

is that Mexico has to do more as a mining jurisdiction than

industry faces and generate an understanding of what is

merely being able to provide world-class mineral offerings.

creating hurdles to make the necessary modifications,”

For it to detonate its immense potential and compete as

Rodríguez del Bosque says. Formalizing this cooperation

a global powerhouse, the country must whet investors’

in a mechanism specifically designed to promote dialogue

appetite for harnessing these offerings. Calatayud says

would be profitable, says Juan Manuel González, partner

that Mexico is falling behind: “By now, it is evident that

at DBR Abogados. “I propose to create an intersecretarial

Mexico has become more expensive than other mining

commission as a body that can coordinate government

jurisdictions.” A case in point of the effects of this is the

agencies, private companies and other relevant parties

emerging trend of national champions, like Peñoles or

with the aim of updating Mexican regulations in the most

Grupo México, investing in countries like Chile or Peru.

informed and inclusive way possible.”

| INSIGHT

THREE KEYS TO AN ATTRACTIVE MINING JURISDICTION ADOLFO CALATAYUD Tax Controversy and Dispute Resolution Lead Partner in Mexico and Latin America at PwC 32

Mexico could be an even more attractive destination

and, in that respect, Calatayud is in no doubt that Mexico

for mining investors but a number of issues need to be

can compete as a global powerhouse. Given Mexico’s

resolved before the industry can fully start capitalizing

abundance of natural resources, the matter becomes one

on its appeal, says Adolfo Calatayud, Tax Controversy

of fostering investors’ interest in exploiting them, meaning

and Dispute Resolution Lead Partner in Mexico and Latin

addressing fiscal burdens. Calatayud says that, in that

America at PwC. “Certainty comes first, natural resources

regard, Mexico is falling behind. “By now, it is evident that

come second and fiscal burden, third,” he says. “The mining

Mexico has become more expensive than other mining

industry still has huge potential to grow as a percentage

jurisdictions,” he says.

of Mexico’s economy and if Mexico addresses these main factors, investors will come because the expected returns

For example, the US fiscal reform included a 100 percent

are attractive for international executives.”

deductibility of investment with no fixed assets, while in Mexico the long deductibility period for pre-operation

Judicial certainty is perhaps the most pressing legal

exploration expenses is deterring investment. “Mexico is

matter for the country’s mining sector, explains Calatayud.

at a fiscal disadvantage for exploration compared to other

“There is a direct correlation between legal certainty and

jurisdictions.”

investment attraction,” he says. Accordingly, the global exploration budget was mostly devoted to Australia, the

Calatayud believes that Mexico’s fiscal obligations must

US and Canada. These three countries received 34 percent

be modified, not only in terms of taxation rates or mining

of total investment in 2018, according to PwC. “If Mexico

royalties but through a deep understanding of the nuances

wants to become more attractive to investors, clearly the

of the industry and following a strategic plan. “The tax

first thing to address is certainty,” he adds.

structure must be designed to foster investment,” he says. “Mining is very capital intensive at its initial phase,

Stability also is in play because mining is by nature a long-

so the fiscal structure must adhere to the industry’s

term activity. “The economic cycle in this industry is very

economic cycle.”

long as any investment made today will yield returns in a 10 to 15-year time frame,” Calatayud says. “If there is no

He adds that the Income Tax Law in some of its aspects

guarantee that regulation will remain the same looking

is flexible enough that it enables economic analyses to

forward, there will be no exploration investment.”

determine how much a company should pay considering the economic cycle and market conditions. But he says

While the trade future between Mexico, Canada and the US

this legislation should go further. “I think that there is

no longer hangs in the balance, Calatayud indicates that

space for doing things differently to promote investment,

the future commercial relationship in the North American

having companies pay what is fair while understanding

bloc remains unclear. “The industry is still understanding

the industry’s circumstances.”

the challenges derived from the treaty,” he says. “It is too early to give advice on the legal implications of USMCA

Tax concerns in Mexico are not limited to the quantity paid;

as many aspects are yet to be defined, such as union

how these funds are spent is also a key issue in mining

transparency and other labor matters.” But he adds that,

and across other industries. “When speaking about taxes

once the treaty is approved in Congress, secondary laws

the conversation usually revolves around income but not

can begin to be revised and modified.

about expenditure,” says Calatayud. The industry demands transparency on how much is paid and where it is spent.

In terms of resources, any mining jurisdiction must

“In mining, it is particularly relevant if the tax outlay is

ensure it can provide rich mineral offerings to investors

aligned with community needs,” he adds.

VIEW FROM THE TOP |

INTERNATIONAL STANDARDS, SOVEREIGNTY AND POPULAR CONSULTATION ALBERTO VĂ ZQUEZ Partner at VHG Servicios Legales 33

Q: What is needed for Mexican mining to advance down

Q: Why is it important to homologate Mexican mining

the path to legal certainty and how can this be achieved?

regulations to international standards and which categories

A: While the AMLO administration has shown sympathy

are most pressing for amendment?

and interest in the industryâ&#x20AC;&#x2122;s problems and in providing

A: I think there is a misconception of international treaties

continuity to ongoing programs and projects, it has also

worldwide. We cannot ever consider that a treaty, regardless

taken some steps that have caused uncertainty in other

of how good it is, will have the same effect in different

sectors. Mexico is sending international and national

countries with different realities. International treaties must

investors both good and bad signals, when it should be

set the foundations for a more uniform world but cannot

providing investors with certainty. To achieve this goal, the

be equally enforced in all contexts. International treaties

first step is to appoint expert officers in their fields and

must be implemented in Mexico but considering our reality

empower them with all the tools and authority they need

and legal framework and not just overruling these. When

to work properly. The government must also broadcast one

a foreign company comes to Mexico, it often lacks the

message to all industries because if certainty is promoted

knowledge about local regulations so it attempts to do

for one sector but uncertainty is created in another, nobody

things as it would in its own country.

will know what to expect. Q: What is your assessment of the role of NGOs in Q: What is the best way to reform the Mining Law to

Mexican mining?

prevent uncertainty and harm in the market?

A: I think that NGOs in Mexico live in a world of impunity

A: The first step is to consult mining law experts to find out

because the government is too scared when dealing with

if the Mining Law really needs to be amended and how. I

them and it often does not demand the same accountability

think that overall, the Mexican Mining Law is not bad but

and transparency that mining companies must abide by.

some technical clauses could be enhanced. For example,

This is a key issue for the industry. Mining companies must

current law does not necessarily prevent concessions

take care of the environment and earn the social license to

overlapping. Also, many believe that granting a concession

operate. But if anyone claims to be an interested party in

should be subject to popular consultation. The government

defending communities and the environment, regardless of

must be smart when addressing this initiative. If there is a

their origin, they should comply with the same regulations

legal reform regarding public consultation, it might kill the

that rule the industry. NGOs should have the obligation to

industry. People should know that mining is divided into

show the government the real interest they have in claiming

exploration and production and the former has no impact

to defend a community. In my experience, in most cases,

on the way of life in communities.

NGOs in mining do not care about the population; rather, they want to receive funds to create conflict and stop the

In this hypothetical scenario, from my personal point of view,

development of projects. The government has shown that

consultation should follow only if a project has resources, is

it is afraid of NGOs but it should regulate them as it does

profitable and will move into the development phase. The

companies. If NGOs are as transparent and pure as they claim

concessioner should be given the right to explore and find

to be, they should have no problem opening their books to

out if there is value in the concession. Above all, the social

the public and being subject to anti-corruption policies.

license for projects must never be used as a flag for political purposes. Also, public consultation in any industry does not have to mean that the government loses the possibility to

VHG Servicios Legales is a law firm founded with a commitment

govern. In this regard, the mining concessioner must be

to develop a relationship based on service, trust, friendship

understood as an individual doing a job that corresponds

and professionalism, always with the intention of maintaining a

to the nation and for its benefit.

long-term relationship with its clients

| VIEW FROM THE TOP

FRAGMENTATION BETWEEN ADMINISTRATION AND CONGRESS ARMANDO ORTEGA President of CANCHAM 34

Q: How is the renegotiated USMCA expected to

dealing with mining issues is a knowledgeable team, and

impact Canada’s trade relationship with Mexico upon

that is welcome news. On the other hand, there have been

ratification?

some worrying developments, some arising from Morena

A: First, we need to wait to see whether the revised

party allies in Congress. The first initiative was presented

USMCA will be accepted by the relevant legislative bodies,

by the late Angélica García to amend the mining law

particularly the US. It remains to be seen how difficult that

in a way that would have disruptive consequences for

will be. The first signs coming from the Democrats after

the sector. Together with CAMIMEX, we stated our

winning the House of Representatives in the midterm

position regarding that amendment and we were heard

elections are not necessarily very encouraging. They have

by Congress.

expressed interest in changing clauses related to labor, environment and Canada trade.

Other proposed amendments from other MORENA political players include abolishing open-pit mines,

The response from President Donald Trump has been

amendments to the national water law and conversion

very strong and he has said that he would be willing to

of the concession system into permitting. We have been

revoke the deal if it is not accepted, meaning a scenario in

in contact with Senator Geovanna Bañuelos, the Head of

which there is no new USMCA and no NAFTA. I think the

the Mining Commission in the Senate and her team, and

positive aspect of this situation is that it translated into

we have been received with openness and an attitude of

a real renewal of several areas. It included e-commerce,

ensuring the sector receives the proper incentives. We

greater accountability and tougher labor rules.

have given these political stakeholders our view on which amendments would be welcome by the mining sector to

Q: What can be done to make Canadian mining companies

modernize it.

more secure about their investments in Mexico? A: The first signal we received from the new government

Q: How would you evaluate the proposed amendment

was when it released its list of 50 priority areas for the

to the Mining Fund and the manner in which it is

administration, which included the development of the

distributed?

mining industry. In itself, that is encouraging for us. Since

A: This amendment is somewhat unwelcome. In the

the transfer of power, we have been in contact with the

previous administration, the fund was managed by

new mining authorities. It is important to note that these

the Ministry of Territorial Development (SEDATU).

representatives are skillful people with knowledge of

That function has been transferred to the Ministry of

the sector.

Economy, which is a good development. The original mechanism meant the funds were distributed between

The new Deputy Minister of Mining has a strong mining-

the federal, state and municipal governments, mainly for

metallurgical background, the Director General of Mining

infrastructure projects.

Regulation is a legal expert in mining and the Director General of Mining Promotion has a long track record as

With the changes, we have learned that the funds will

an economist and a trade negotiator. The team that is

primarily be allocated via direct distribution to the people living in mining communities. Despite some shortcomings in the management of the previous scheme,

The Chamber of Commerce of Canada in Mexico (CANCHAM)

the crafting of many important infrastructure projects in

is the voice of Canadian business in Mexico. It was founded in

the municipalities was notable. The ideal scenario would

1982 to represent Canadian business interests in Mexico and to

be to refine the old system of creating infrastructure with

promote trade and investment between Canada and Mexico

the funds.

VIEW FROM THE TOP |

STRENGTHENING THE MEXICO‑CANADA RELATIONSHIP PIERRE ALARIE Former Ambassador of Canada to Mexico 35

Q: How is López Obrador’s presidency going to impact the

Seasonal Agricultural Workers’ Program, which is a model

Mexican mining industry and what effects do you foresee

of secure, organized and legal labour mobility. Between

for Canadian mining companies and investors?

January and August 2018, over 25,000 Mexican workers

A: The new president of Mexico has expressed interest

travelled to Canada to work on farms and support Canadian

in working closely with Canada to define a better mining

producers with personnel shortages. In 2016, they sent over

code for Mexico. We have met with the Ministry of Economy

US$150 million dollars in remittances. Mexican workers are

and SEMARNAT to visit Canadian mines and explain how

valued and appreciated, and many of them come back to

we manage mining and community involvement in our

Canada year after year at the request of their employers.

country. It is unfortunate that mining does not have a good reputation in the world but the industry is ever more

Q: How can more Mexican investment in Canada be

sustainable, innovative and responsible. We believe the new

fostered and why is it desirable?

government wants to make sure that the industry thrives

A: Over the last 25 years, the bilateral relationship

in Mexico. This is music to our ears because Canada is the

between Canada and Mexico has been almost entirely

largest foreign investor in the sector in Mexico, accounting

defined through NAFTA. We failed to have a more bilateral

for around 65 to 70 percent of total foreign investment. We

relationship but NAFTA’s renegotiation has taught us that

are enthusiastic about the future although we know that

we cannot be caught off-guard. This means that most

there is a great deal of work ahead of us.

Canadians are ignorant about Mexico and vice versa as Mexican business people do not understand Canada.

Q: What is your assessment of the USMCA deal and its

Mexicans used to be focused in their own country, especially

potential to disrupt mining investment?

given that the southern part of the US has always been a

A: I do not think there is going to be any disruption as

natural market for the average Mexican company, which

the new treaty did not touch on the mining sector. In

does not tend to look further away than that. This is partly

November 2018, our leaders signed the modernized trilateral

our fault as Canadians for not having promoted our country

agreement known as the US-Mexico-Canada Agreement

more as an FDI destination for Mexicans but we learned our

(USMCA), underlining our renewed commitment to trilateral

lesson and are about to embark on this relationship much

trade relations. We were largely successful in keeping the

more aggressively, with a full-time dedicated officer in our

important provisions of NAFTA, modernizing and improving

embassy to promote Canada as an investment destination

the agreement to better reflect how trade is conducted

for Mexican companies. This is not going to happen only for

today, and protecting market access in North America. We

the mining sector but it certainly opens up really interesting

are now looking forward to the ratification of the agreement.

opportunities for it.

We are by far the most efficient trading platform in the

I believe it is a work in progress on which we will be focused

world, with US$1.3 trillion traded in 2018. Data does not lie;

for the next couple of years to make sure that the large pool

the data of the last 25 years proves that the North American

of potential Mexican investors has a better understanding

sphere as a trading platform works really well.

of Canada. We will work to ensure Mexicans understand what Canada stands for in terms of values and as a country.

Nevertheless, our trade relations go beyond this agreement. We are partners in the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), and are

The Canadian Embassy helps Canadian companies expand

currently negotiating a free trade agreement in the context

and succeed internationally. It provides export assistance,

of the Pacific Alliance. We are also proud signatories of one

negotiates and administers trade agreements, and promotes

of the most successful labour agreements in the world: the

Canada as a dynamic place in which to invest and do business

| VIEW FROM THE TOP

A TALE OF TWO MEXICOS JUAN TORRES LANDA Partner at Hogan Lovells 36

Q: What is your overall opinion on the performance of the

A: The mining industry could receive support from the

government and what are your expectations for the future?

government to foster growth. In terms of regulation, the

A: Lรณpez Obrador mentioned on the day of his inauguration

taxation component has been a top priority for the industry

that he wants to be a good president and I do not think

since additional taxes were imposed in the last few years. As

anyone disagrees with that sentiment. Thus far, I have

much as the industry would like to have these reduced, we

mixed feelings, with increasing concerns over how the

are hearing from the new government that these taxes will

government is adopting its role. Some of this is form and

not change. The big question for the country is whether that

some substance. I think having a daily morning news report

now puts us in a situation where we can compete with other

is a big mistake because what ends up happening is that

jurisdictions. That is where we need to strike a balance.

events must be created on a daily basis. This creates a set of

Some experts say our taxing environment has alienated

distractions for a country that must focus on the substance

some of those investments, so the government may wish

of tackling corruption, improving safety and security,

to alleviate some of that burden. It would certainly help to

increasing levels of digitalization and other relevant topics.

attract more investment.

These are being overlooked due to the distractions of the

Q: What is your opinion of the ruling on the constitutionality

everyday announcements, from fuel theft to trains being

of the ecological taxes in Zacatecas?

stopped, and fuel ships being stranded at the Veracruz port.

A: I think it is important to look at the fine print in the rulings

Those are incidents and the president should not waste his

because some things are reserved for the federation in terms

time on incidents. He is the commander-in-chief and he

of taxation and legislation. The focus of the supreme court

must have a more macro outlook on the general direction

has been in ensuring that all three levels of government

the country needs to go in.

have the power to enforce legislation that protects the environment. The majority of environmental regulation

The fact that Lรณpez Obrador is in close interaction with

falls to the federation but it is also down to the state-level

communities that have not typically been considered in

governments to ensure there are no gaps that allow private

public policy is an important step forward. We need to

enterprise to damage the environment. I believe with this

recognize that the country has been polarized in terms

ruling a handful of states will consider whether additional

of economic development and we have essentially

rules for environmental protection are required. Previously,

two Mexicos, with significant differences in terms of

states overwhelmingly relied on funding from the federal

infrastructure and wealth. Whatever we can do to level the

government but now they are realizing they must start

playing field is important. Having said this, I think some

generating extra resources, whether from taxing property,

of the decisions that have been made are self-defeating.

payroll and now environmental burdens. But the legislature

They may even exacerbate the differences between the

cannot run rampant in terms of revenues. If an industry is

two segments of Mexico.

taxed excessively, the revenues actually go down. There is a careful balance.

Q: What change must be promoted in the mining industry to boost investment, competitivity and performance?

I would strongly encourage a very strong and open communication between industry associations and chambers and the state and federal governments in all

Hogan Lovells is an international law firm that has a

topics, from social impact and education to employment

sophisticated team with a deep knowledge of the local market.

issues and infrastructure. I know those efforts exist but,

The firm works in various industries, including energy and

until now, they have not been well-coordinated or well-

natural resources, infrastructure and transportation

documented.

VIEW FROM THE TOP |

DEFINING FUTURE STRATEGIES FOR THE INDUSTRY JORGE SĂ NCHEZ Partner at Haynes & Boone 37

Q: The government has indicated that there will be no

their horizons to new customers. It is also important that

more mining concessions but that existing concessions

companies have a strong capacity to react to changes in

will be respected. How is this impacting your clients?

the industry.

A: The mining authority has the power to re-evaluate existing mining concessions to determine if they comply

To encourage FDI in the sector, it would be necessary for

with the law, which is good for the industry. The key

the Mexican government to send signals of certainty to

here is that concession owners are given access to all

investors in matters such as fiscal policy, monetary policy

the information so that it can be corrected in case there

and infrastructure. A positive signal about any of these

are discrepancies between both parties. Regarding

issues would generate certainty abroad. A topical issue

the feedback received, our clients want to know if the

that can have an impact on the mining industry and other

concessions that might be canceled will be offered again.

strategic industries in the country is PEMEXâ&#x20AC;&#x2122;s debt rating. Other aspects that should be controlled are interest rates

Two issues that the authorities should review are

and inflation.

indigenous consultations and social licenses, which should be adapted to international standards. That is not

Mexico, in addition, must improve the security of the

easy, especially in Mexico, which has a large indigenous

regions where mining projects are developed, since these

population. A great step toward this end would be to

are carried out in areas affected by violence, like Guerrero

establish a protocol for the indigenous consultation based

and other complex states. If this problem is not brought

on the processes that other countries with similar problems

under control, it will be very difficult for companies to

have already conducted. One of the great obstacles that

continue investing in these areas. Guerrero and Zacatecas

many administrations have encountered in Mexico is the

are clear examples of that.

existence of organizations that pretend to wage social battles but that, in actual fact, are dedicated to performing

Q: How can the public and private sectors work together

tasks that put unnecessary obstacles in the development

to mitigate the uncertainty surrounding the industry and

of the industry only to benefit certain private parties.

maintain its competitiveness? A: Clusters have been a cornerstone for the development

It is also necessary to establish protocols so that the

of the mining sector in Mexico and have been successful in

groups denominated as indigenous meet all the criteria

issues such as guaranteeing safety or engaging responsibly

established by the UN and the Mexican government to be

with the environment. We believe that government should

considered indigenous. The lack of transparency regarding

go hand in hand with civil society and investors to develop

the indigenous consultation is a problem that has been

policies that can encourage foreign investment while

successfully resolved in other Latin American countries,

meeting the objectives set by the current administration

and Mexico could learn from those experiences.

in its National Development Plan. Mexico needs an open and technical dialogue between all parties involved on the

Q: What is your advice for companies to succeed

future of the mining industry in the country, an industry

regardless of the uncertainty in the market and how can

that is constantly changing.

Mexico continue attracting FDI? A: The most important element is to define future strategies and look for new suppliers and new markets.

Haynes and Boone is an international corporate law firm

In this context of uncertainty, the most competitive

headquartered in Dallas, US. The firmâ&#x20AC;&#x2122;s practice areas include

companies will be those that have better access to new

corporate, banking, finance, energy and real estate. It is one of

distribution networks of goods and services, opening

the American Lawyer Top 100 law firms

| VIEW FROM THE TOP

MULTIDISCIPLINARY LEGAL SERVICES FOR A CHANGING INDUSTRY RAFAEL CERECERES Partner at Cereceres Estudio Legal 38

Q: What does Cereceres Estudio Legal offer Mexico’s

out their projects is exceptionally valuable. Another issue is the

mining industry?

environment. This is fundamental. Environmental regulations

A: We offer an array of high-value services. All these services

have become quite strict, and there are international treaties

are supported by our deep knowledge of the industry. We

that must also be taken into account. Further, labor law and

have 20 years of experience working with mining companies.

unions are matters that our clients constantly consult us

We know the industry’s particularities and we know its unique

about, especially given Mexico’s ratification of ILO Convention

needs and requirements, so we are able to obtain results for

98, but also as a consequence of changes brought about by

our clients. Also, we believe good service is key. We are always

the Labor Reform, such as the disappearance of conciliation

punctual, proactive and in strict compliance with Mexican law.

and arbitration boards and the creation of new judicial courts.

This is what our clients recognize us for: promptness and

All these changes in labor law and unions are crucial for the

professionalism. Our policy is to solve problems efficiently.

industry. First, companies must become familiar with the new legal reality and relate to their workers accordingly.

Q: On what issues do your clients consult you most often?

Also, they have to carry out prevention activities to avoid

A: A current issue that is causing great interest is that of

any future issues.

local communities becoming involved in decision-making processes regarding mining projects. In fact, federal and

Q: What services do you foresee your firm will focus on?

state laws now require community participation, so legal

A: As I have pointed out, labor relations that fully comply

counseling that helps companies approach communities and

with the law are of capital importance for a healthy mining

comply with current normativity so as to successfully carry

company. I cannot emphasize enough the importance of labor law in this new era of mining in Mexico. Likewise, the corporate aspect must be taken into account. The 2012 Labor

Cereceres Estudio Legal is a team of lawyers with a high

Reform resulted in laws to regulate outsourcing practices,

competency level providing legal services to Mexican and

and the federal government has announced that it will carry

foreign entities doing business in Mexico or interested in doing

out rigorous inspections to make sure companies are in

business in Mexico

compliance.

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THE LEGAL SCOPE ACROSS A NEW MINING LANDSCAPE JOEL GONZÁLEZ Partner at ALN Abogados 39

Q: What added value does ALN Abogados provide to the

for project development. Consultations on projects that

mining industry in Mexico?

lack development knowledge and information discourage

A: Our firm has achieved the consolidation of a group of

investment.

professionals specialized in providing exclusive attention to all areas of the mining industry, mainly related to social

Q: How has your firm’s involvement in the mining sector

license, environmental permitting, and land ownership.

evolved in regions outside Sonora and Chihuahua?

We have strengthened our environmental practice with

A: There are many projects in the country in nontraditional

specialized technical personnel who have developed

mining states. This year, we are involved in Oaxaca and

expertise in the industry. This has allowed us to provide an

last year, we had a lot of work in Jalisco. We have found

integral service that meets all of our clients’ legal needs.

Oaxaca and its government have been very open despite the state’s lack of a mining tradition. This can be seen

Q: How has the change in administration transformed your

in Oaxaca’s openness to exploration and operational

clients’ service requirements?

projects. We also planning to open a liaison office in

A: Social licensing has become a major issue as a result of the

Vancouver. This decision is the result of our commitment

focus on human rights. The industry has a direct impact on

to excel in providing first hand service to our clients and

vulnerable communities and indigenous groups due to the

provides us with the business opportunity to promote our

location of projects. Mining activities should be developed

firm in that region.

alongside support for communities that lack opportunities outside the industry. We have tried to strengthen social

Q: What challenges have you encountered in non-

licensing and the environmental framework because we

mining states?

believe that company requirements in these two areas will

A: Most procedures in the mining industry are related to

increase in the future.

federal offices in each state. In theory, the legal framework should be the same across all regions, but different criteria

Q: How can the public and private sectors work together

are applied for the granting of licenses. Non-mining states

to modify the Mining Law to benefit both?

require local authorities to understand the way in which the

A: We have participated in several international forums

industry operates for them to apply the legal framework

to discuss public consultations, an emerging international

with the required certainty that mining companies expect.

trend. The mining industry’s problem with the proposal for

In terms of infrastructure, Oaxaca presents a higher level of

the Mining Law was the sequence of the process. Free, prior

complexity since it has over 700 municipalities. This poses

and informed consultation, should be conducted before the

a challenge because most of the time, Public and Agrarian

environmental permitting and social license are granted, it is

property records are not always updated and lands are not

the only way that stakeholders can receive in a timely manner

clearly delimited. Mining entities need to work across many

the knowledge and information on the environmental, and

governmental institutions to normalize processes. This

social impact of the project. The proposed format establishes

inconsistency also results in variable complexity levels for

that free, prior and informed consultation be executed

paperwork, especially for non-mining states. The problem

prior to the start of exploration activities, upon granting of

with this is that the industry needs short-term results.

the mining concession title, which is impossible because companies need to know how a project will be developed to assess its social and environmental impact. Authorities need

ALN Abogados is a Chihuahua-based law firm with a focus on

to understand how the industry works. In other countries,

the mining industry and its related needs. It has over 35 years of

legislators, stakeholders, companies and chambers work

experience in a variety of disciplines, including environmental,

together to define clear regulations that provide certainty

social license and land ownership

Geologist logging core, Oaxaca

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COORDINATION, INFORMATION AND THE ENFORCEMENT OF RULE OF LAW JUAN MANUEL GONZÁLEZ Partner at DBR Abogados 41

Q: What is DBR Abogados’ added value to the mining

Law. I advise the industry to be better informed about the

industry and what are your main areas of specialization?

legal channels and procedures to modify the law because

A: Our main added value to the industry is that our growth

misinformation harms the stock exchanges.

goals as a firm are always aligned with the preservation of our policy to provide comprehensive solutions to our

Effective communication between all the authorities

national and international clients. This we achieve through

regulating mining activities in the country is also

personalized services that deliver the highest standards

fundamental. An efficient granting of permits and licenses

of ethics, quality and professional responsibility. These

to operate at any stage of the mining cycle is fundamental

are very exciting times for us and we are looking forward

to boost the attractiveness of Mexico as a mining jurisdiction

to the future. We have good relationships with all mining

that welcomes foreign investors and acknowledges mining

law firms in Mexico and keep the most relevant firms and

as a key pillar for the country’s development. To achieve

consultants in the industry as close partners. As we also are

this goal, I propose the creation of an nter-ministerial

on good terms with the most prestigious mining law firms in

commission as a body that can coordinate between

Canada, we can represent the interest of foreign investors

government agencies and private entities.

attracted to mining projects in Mexico. Our name is already well-known in the sector, but we constantly seek to close

Q: From a legal standpoint, what are your expectations

new working deals with the most efficient service providers.

and recommendations for the Undersecretariat of Mining? A: DBR Abogados is very pleased with the appointment

Q: In your experience, what are the main areas of

of Francisco Quiroga as the Undersecretary of Mining. He

opportunity to improve legal regulations and enforcement

is well-qualified to undertake the responsibility of leading

in mining?

the Undersecretariat of Mining as he is aware of the mining

A: Mining is a priority industry for the López Obrador

industry’s current hurdles and the urgent actions needed

administration. New provisions in mining legislation

to tackle these and restore investor confidence. Also, as

are being worked on to simplify procedures and make

he is young, I am confident that he will bring a fresh vision

regulatory authorities more efficient; for example, in areas

to the industry.

with a significant lag, such as the granting of mining concessions and registering agreements. Also, the new

As for our advice, we strongly recommend the further

administration faces great challenges to restore the trust

participation of public officers who are qualified in mining

of the mining sector and its investors. We need to push for

and have the abilities to understand the procedures of

the creation of clearer and more effective regulations to

the General Bureau of Mines. It is harmful to the industry

foster exploration and production and for the enforcement

to confuse miners with scattered legal provisions.

and compliance with the rule of law. In our opinion, mining

With experience in the industry, we trust that the new

is over-regulated. A first action should be to tie up criteria

undersecretary will be an interlocutor between the

and regulations associated with the industry and to simplify

legislative branch and other government agencies because

the procedures between government agencies.

it is necessary to coordinate criteria, for example, regarding explosives permits and mineral exports.

As for any proposed amendments to the Mining Law, there are many aspects of the law that cannot be modified arbitrarily, such as community consultation. These

DBR Abogados is a law firm specialized in providing

amendments require a previous revision and altering of

comprehensive solutions for its clients. DBR offers personalized

the Constitution, implying a deeper process that cannot

legal services that adhere to the highest standards of ethics

be undertaken just by a reform initiative to the Mining

and responsibility

| VIEW FROM THE TOP

MINING LAW MODIFICATIONS ARE NECESSARY ENRIQUE RODRÍGUEZ DEL BOSQUE Partner at RB Abogados 42

Q: What advantages will industry players realize from

such as geologists and expert witnesses, because they

potential modifications to the Mining Law?

are the ones who suffer from confusing and obsolete laws.

A: Given this framework is quite old, many modifications are required. First, the location of mining concessions

Q: What key elements should be contemplated when

could undergo an objective process by establishing

consolidating a JV in the mining segment?

clear parameters. This would avoid common mistakes

A: Designing a JV in the mining industry is different from

when a complaint related to a mining lot is presented.

consolidating a business entity of a commercial character

Second, I personally believe indigenous consultation

because the JV requires significant specialization. First,

has to be included in this law and not only through

you need to know the objectives of each participating

paralegal dispositions as the entrant administration

party. There is the company that holds the mining

plans to incorporate it. We know the major problem with

concession and hence, you need to determine whether

a law is when these issues are not correctly regulated

if the participation that will be awarded to the other party

by a document that establishes certain frameworks in

will be exteriorized to third parties. If this happens, that

accordance with the Constitution. Third, the issue of

contract should not be subjected to inclusion in the

how to maintain a mining concession without having

Mining Public Registry.

to comply with investment obligations is generating a lot of confusion. The current framework states that if

Hence, third parties are aware the original concession

a company cannot cope with these obligations, this

holder will own 60 percent of the asset during the first

compliance can be omitted and other dispositions must

stage of the contract, and the contracting part will

be obeyed. Hence, companies undergo this process

own the rest. This provides the advantage of having 40

expecting that at some point a revision will take place

percent of a mining concession in the company’s balance,

and its case might be litigated in court.

which could be taken to the stock market. In fact, there is a possibility of increasing this share to 70 percent,

In a JV, the original concession holder will own 60 percent of the asset during the first stage of the contract

resulting in a takeover of the project’s management. When clients with a JV approach us because they want to participate in the stock market, some do not know they do not have the right to do this in Mexico. On the other hand, if the JV is contracted through a society, it becomes a corporate business. The value we add to these

Many times, lawmakers try to legislate without receiving

transactions is in our experience as corporate lawyers and

feedback from those who are regulated by the law. We

expertise in these transactions.

should take the experience related to every issue the industry faces and generate an understanding of what

Q: What are the firm’s plans for the remainder of 2019?

is creating hurdles to make the necessary modifications.

A: We have a number of projects in our pipeline. Two of

This work does not only pertain to lawyers but specialists,

these have the possibility of consolidating a JV, depending on some technical elements. Once this decision is taken, we will analyze the right path regarding holdings, mining

RB Abogados, founded in 1993, is one of the leading and most-

negotiations, permits, and fiscal and contractual schemes.

recognized law firms serving the mining industry in Mexico.

We already have a nonbinding LOA for both negotiations

The boutique firm specializes in transactions, M&A and project

and the next six months will be crucial to fully consolidate

finance related to the mining sector

these contracts.

VIEW FROM THE TOP |

EXPERT COUNSELING ON MEXICO’S EVOLVING LABOR LAW PABLO MÉNDEZ Partner at EC Legal Rubio Villegas 43

Q: What advantages does EC Legal Rubio Villegas have over

protocols. At the moment, this is an uncertain topic; it is still

its competitors in the mining sector?

open for discussion and it will take us a while to understand

A: We offer three main advantages regarding the mining

this new way of doing things.

sector. First, we are based in Chihuahua, very close to the actual mines, and also to sites in Sonora, Sinaloa and Durango.

Q: At the state level, what are some key points about

That makes it is easy for us to physically go to the mines and

Chihuahua’s legal framework for mining and how could it

address any issue directly. This gives us an advantage over

be strengthened?

Mexico City-based firms. Second, and as a consequence of our

A: Since Chihuahua is a mining state, its legal framework works

proximity, we have close relationships with local authorities,

fairly well and the governments cooperate and support mining

which is enormously useful. Third, our fees are much more

companies. This is true for Sonora, too. In these states, there

attractive than those of firms located in Mexico City.

is a strong interest in developing the mountainous regions, where attracting investors is not easy. Compared to Guerrero

Q: Who are some of your main clients and what are their

and other southern states, the government of Chihuahua

most common questions, particularly with regard to Mexico’s

and Sonora will provide valuable help. In contrast with, for

social and political landscape?

instance, Zacatecas, where there has been a big problem at

A: Some of our main clients are Dia Bras Mexicana, Alamos

Peñasquito, the governments of Chihuahua and Sonora will

Gold, Goldcorp and Frisco. We also counsel some Australian

assist with negotiations and help to achieve a good settlement.

companies that are now in Chihuahua, like Latin American

Chihuahua’s regulatory framework is good, so there are really

Zinc and United Minerals, but all companies are asking about

no major improvements to be made. However, as a state, we

security. For instance, many were having problems on the

should have a portfolio of projects to promote Chihuahua as

roads, where criminals are stealing diesel, but we are working

a mining destination. This would be very useful.

with the authorities and police to put a stop to that. Also, land has always been a contentious subject in Mexico and

Q: How is EC Legal Rubio Villegas expanding its services to

the updated consultation protocols will have to be taken into

nontraditional mining states?

account from now on. Lastly, there is a great deal of attention

A: Before the merger with EC Legal, BGM Consultores Legales

around the new mining titles, which will not be renewed for

was already counseling mines in states other than Chihuahua,

the next six years.

like Guanajuato, Sinaloa, Durango, Coahuila, Sonora, Baja California and Guerrero. But now that we are a bigger firm,

Q: How do you foresee the evolution of consultations and

we can expand more confidently. For example, we are working

their impact on the industry?

on opening an office in Monterrey, which is an important city

A: Consultations are a good idea, but more importantly,

for us, and we have just inaugurated offices in other industrial

they figure in international treaties that Mexico has signed.

cities like Juarez and Queretaro. Growing intelligently is our

They have not been implemented but they should be, just

goal for 2020. We also want to expand our client base. Given

like in other Latin American countries. For now, the lack of

the recent legal changes that have gone into effect, we

implementation has been an advantage for Mexico, attracting

want to offer more services related to labor law and advise

numerous investors. As a lawyer, I am in favor of following the

companies on dealing with the new regulations.

law, but this is an advantage that we can now lose. In any case, I think it is correct to take into account the new wave, so to speak, of human rights awareness. We need to start consulting

EC Legal Rubio Villegas is one of the 10 largest law firms in

with communities about the type of relationships they want

Mexico and has more than 50 years of experience, specializing

to have with new mines, or whether they want mines at all.

in national and international transactions in the industrial

It will not be easy but we have to establish direct and clear

sector and in international trade

| VIEW FROM THE TOP

LEGAL CERTAINTY NEEDED FOR MINING FUTURE MARIANO CALDERÓN Partner at Santamarina y Steta 44

Q: What is the priority for a potential reform of the

to buy from people who actually have the right to sell the

Mining Law?

land. If there simply is an agreement for occupying the

A: First and foremost, the reform must provide certainty.

land, it has to be settled before the relevant assemblies,

It is crucial that the concessions that have already

before the agrarian commissioner. Being rigorous about

been granted are fully respected, and that transitional

due legal processes is paramount to guaranteeing the final

provisions, if enacted, expressly recognize any previously

success of a mining project. If there already is a conflict,

acquired rights. Also, clear rules must be established for

then the most advisable course of action would be to reach

assigning new concessions. It is crucial that during the

an agreement between the parties. The law stipulates

reform process that will eventually take place in congress,

they go to the agrarian court, which has the necessary

the signal is clear: new concessions will be granted.

arbitration mechanisms to seek an arrangement. In the event on a non-agreement, then subsequent legal steps

There are no legal or material grounds for not doing

must be taken. It is important to follow each step carefully

so. It is erroneous to think there is overexploitation of

because one omission may produce a larger problem.

Mexico’s mineral resources, or even that there is an excessive environmental impact. If activities are carried

Q: What is the best and the worst outcome the industry

out according to existing regulations and authorities

could face with a reform of the Mining Law?

supervise the whole process, and given the industry’s

A: The best scenario would be one where new concessions

commitment to high standards, risk is considerably

are granted under clear and precise rules. Investments

mitigated.

in mining are initially quite steep, so having complete certainty that the government will do everything possible

Another erroneous perception is that communities close

to guarantee them is key.

to the mine are impacted negatively. There are already enough legal mechanisms for making sure this does not

The worst case would be sending the opposite

happen — previous consultations, signed agreements

message; particularly, that current concessions will be

concerning land ownership, and other mechanisms

revised. If there are enough reasons for reviewing an

that protect communities. If mining projects are done

existing concession, then it must be done on a case

responsibly and in compliance with the law, they have a

by case basis. An overarching general revision of past

positive impact on communities. All groundless messages

concessions should not be carried out, and it should be

that could discourage investment should be avoided.

clear that commitments entered into under the previous administration remain completely valid now. Legal

Q: Given Mexico’s political and economic circumstances,

certainty is of crucial importance for the sector’s future.

what advise do you give to your clients about acquiring

Likewise, judicial independence is central for protecting

land for a mining project?

the rights of all involved in a mining project.

A: Painstakingly go through every possible detail concerning land ownership. For instance, be sure to

A case in point is the reform to the Labor Law, which is

comply with every legal caveat concerning agrarian law

an emphatic step toward providing the needed certainty that collective work contracts fulfill all requisites and that they effectively represent the will of unionized workers.

Santamarina y Steta is a law firm with a team of over 100 legal

While this area is regulated by the federal Labor Law,

professionals serving Mexico’s business community and diverse

and not by the Mining Law, the legal certainty it has

investors in the world’s most important business centers. It has

introduced will result in more and better jobs for the

more than 70 years of experience in the mining industry

mining industry.

EXPERT OPINION |

INDUSTRY NEEDS BETTER FISCAL FRAMEWORK BERNARDO RAMÍREZ Partner at Chevez, Ruiz, Zamarripa y Cia 45

For centuries, the mining industry in Mexico has been an

in 2019, an administrative rule intends to limit this tax benefit

important factor for the country’s economy, and it continues to

for taxpayers having less than USD$50 million in revenue and

represent a fundamental pillar for Mexico’s economic growth.

only if these taxpayers are the direct holders of the mining

In 2018, according to INEGI, the mining and metallurgic sector

concessions. These are an example of the decreasing benefits

in Mexico represented 2.4 percent of the national GDP. The

and incentives for the industry and the lack of legal certainty

industry was responsible for 379,020 jobs, without considering

faced on tax-related matters.

indirect employment. Unfortunately, tax legislation regulating the industry has been a matter of growing concern. The

DEDUCTIONS CRITERIA

lack of clear fiscal legislation has generated a variety of

The mining industry faces particular characteristics that are

interpretations and, in some cases, created risks for industry

not fully recognized in the fiscal legislation. Mining companies

participants. Since 2013, constant amendments to the fiscal

routinely have significant expenses related to infrastructure

legal framework have posed challenges for the industry when

work performed at the mines and to move vast volumes.

complying with tax obligations fueled by tax authorities’

These expenses are an integral part of the mineral exploitation,

increasing audit efforts. Here are some of the most relevant

which is insufficiently regulated. Juridical uncertainty arising

issues related to taxation and the mining industry.

from these legal voids has led mining industry taxpayers to either adopt very conservative interpretations or, on the other

PRE-OPERATING EXPENSES

extreme, has led to controversies.

The general rule to deduct pre-operating expenses is a straight-line depreciation over a 10-year period. Prior to

UNIVERSAL OFFSETTING

2014, the pre-operating expenses incurred by taxpayers in

A temporary provision was introduced in 2019, suspending

the mining industry were deductible through a one-time

the possibility to offset favorable balances of one tax against

depreciation deduction in the fiscal year in which these were

payable balances of another (universal offsetting). Recently

incurred. Currently, mining pre-operating expenses related

the Executive Branch submitted to the Mexican Congress a

to exploration of mineral deposits susceptible to exploitation

tax reform initiative contemplating the definitive repeal of

are deductible under the general 10 percent rate. Removing

the universal offsetting. Although the suspension or definitive

this incentive ignores the industry’s cyclical nature and does

repeal of the universal offsetting is not exclusively aimed at the

not consider the required financial support to develop a

mining industry, such measures have a negative impact on the

mining venture.

financials of all Mexican taxpayers by generating potentially severe liquidity deficits. This issue is further exacerbated

SPECIAL MINING DUTY

by the growing delays, often without justification, on the

Mining concession holders are levied a special mining duty at

refund of the value added tax. These delays derive from the

a 7.5 percent rate. However, the determination of this taxable

request of excessive supporting documentation under the

base is technically deficient, with imprecise references to

guise of noncompliance by direct or indirect suppliers in the

other pieces that can be subject to different interpretations.

production chain.

EXCISE TAX ON DIESEL

BORDER REGION BENEFITS

For many years, a tax incentive has supported different

Other examples of this subpar fiscal framework are the lack of

taxpayers that acquire diesel fuel for their activities, allowing

specific rules in the application of the northern border region

them to credit the excise tax paid on the fuel purchased

incentives for income and value added taxes for the mining

against their income tax. In 2019, this tax credit was limited to

industry taxpayers, and those cases where costs associated

the yearly income tax (not advanced monthly payments) and

with tax abuses performed by third parties are often passed

only up to that amount, meaning no refundable benefits. Also

on to compliant taxpayers.

| INSIGHT

MEXICAN MINING TARGETS INTERNATIONAL STANDARDS DONALD HULSE Vice President of Mining at Gustavson Associates 46

In March 2019, Undersecretary Quiroga stated that Mexico

Hulse will also play a key role in this initiative through

will have “qualified persons” who can certify international

his position at Gustavson Associates. “We will help ease

Mineral Resource and Reserve Reports in the near future.

the transition for companies facing a change in their

To achieve this, Mexico must join the Committee for Mineral

requirements due to joining of CRIRSCO.” Since 2009, more

Reserves International Reporting Standards (CRIRSCO) and

than 50 percent of Gustavson’s mining revenue has been

Vice President of Mining at Gustavson Associates Donald

derived from its projects in Mexico.

Hulse says that timely success will hinge on getting every detail right. “The objective to coordinate all reporting

The firm also specializes in international reserves reporting

standards will benefit international investors by enabling

for stock exchanges. “This is valuable for mining companies

them to compare projects and jurisdictions to find the best

as they need these reports to obtain financing,” Hulse

places to invest.”

says. It also conducts operational and technical audits for companies to show them ways to improve productivity and

While many projects in Mexico already follow Canadian

achieve cost-savings. “We like to be involved in efficient and

standards, given the high percentage of Canadian investment

well-run operations. We believe that companies can see the

in the country, membership in CRIRSCO would open up a

benefits of working with us directly in their bottom line. If the

world of possibilities for Mexican engineers. “Acceptance as

company operates more efficiently, there is a direct financial

a National Reporting Organization (NRO) by CRIRSCO would

benefit.” Gustavson also provides a due-diligence review

enable Mexican professionals to be recognized as compliant

for M&As and is performing this service for two projects

in international standards and hence be able to sign mineral

in northern Mexico. This broad expertise grounds Hulse’s

reserves reports,” Hulse says.

belief that creating a feasible operation goes beyond having accurate reporting. “You also need the legal certitude that

Hulse was recently appointed as the CRIRSCO representative

permits are obtainable, to develop the community relations

for the US Society of Mining Engineers but even before then

to ensure social license and to assure that the project can

he was working with Mexican officials to have the country

meet WBG and IFC’s environmental standards in order to

join the committee. “I have been collaborating with CIMMGM

obtain financing for it,” he explains.

over the years because joining CRIRSCO takes a significant effort,” he says. “The AMLO administration, in the words

Hulse is also concerned about the path that miners follow

of the Undersecretary of Mining, is actively promoting this

when undertaking projects. “Good basic geology and

effort. But we must combine the government’s will with the

engineering work seems to get lost when developing

technical professionalism of the mining engineering society

mining projects.” He says that there is a great deal of public

to achieve this common goal.” For the initiative to work,

attention on financing and on who invests where, prompting

Hulse says that all mining parties must accept CRIRSCO.

people to follow the money. “Investors often want to bet on

It would be useless to join the organization and have the

a certain region without really understanding the projects.”

country’s stock exchanges not acknowledge its standards,

Technology and innovation are also hot topics that Hulse

for example.

says must align with the particular characteristics of the mining industry, specifically understanding that the sector

Hulse adds that the government’s intention is to integrate

usually works with limited data. “Good basic geology to

Mexico into this organization, with all its implications, within

build the most accurate models is the key to making better

a year. “The Mexican government is attempting to be more

decisions,” he says. “At the end of the day, the goal should

aligned to the principles followed by CRIRSCO but also to

not be to have the mine with the highest grades but to know

communicate that Mexico is working toward a similar set of

the grades as well as possible so the decisions related to

practices as those followed internationally.”

shareholder money are correct.”

INSIGHT |

CRIRSCO MEMBERSHIP TO KEEP MEXICO IN LOCKSTEP WITH INTERNATIONAL STANDARDS ARMANDO ALATORRE President of CIMMGM 47

If Mexico wants to regain its international competitiveness

Alatorre also wants CIMMGM to increasingly act as a

as a mining jurisdiction, it needs to follow the path set

communication channel to improve the dialogue between

out by the Committee for Mineral Reserves International

miners and the government. “This is what we are entitled to

Reporting Standards’ (CRIRSCO), says Armando Alatorre,

by law,” he says, explaining that professional academies are

President of the Mexican College of Mining Engineers,

founded in the General Law of Professions and are meant to

Metallurgists and Geologists (CIMMGM).

be a consultation organ for the government.

“We are lagging behind compared to other countries in

CIMMGM covers four areas: Chihuahua, Zacatecas, Guanajuato

the region that are already members of CRIRSCO,” he says,

and San Luis Potosi, with its headquarters in Mexico City.

adding that Mexican mining professionals’ engineers are as

“These areas existed just on paper for many years but they

qualified as their foreign counterparts but suffer because

are now starting to gain traction and act as a medium for

they are not certified by international standards.

us to better communicate with the entire country,” Alatorre says. He expects the growing participation of the different

Joining CRIRSCO would be a game changer for the

areas to lead to the creation of new areas. “While CIMMGM

industry and its members. To start, certification of

has been rather passive in the past, we aspire to take a more

international professional standards would allow Mexican

participatory role and to increasingly collaborate with the

engineers to sign their mineral reserves reports and have them acknowledged abroad. “We want to boost Mexico to the level of global mining players so our engineers can sign and actively participate alongside foreign engineers,” Alatorre says. “This would imply that our professionals are recognized as Qualified Persons (QP) in other jurisdictions.” CRIRSCO has 13 members: Australia, Brazil, Canada, Chile, Colombia, the EU, Indonesia, Kazakhstan, Mongolia, Russia, South Africa, Turkey and the US. For Mexico to put its name on the list, a significant transformation

“

authorities regarding what is going on in the industry.”

Certification programs have become a basic requirement for all professions"

Alatorre says the state of the industry is changing, with more women becoming involved in the sector. “Mining will have more gender equality. As more women start to study mining sciences, they will take greater ownership and have

and homologation process must be undertaken. “This

an increasingly active role.” He also encourages women to

would also lead to having a similar reporting system as

join CIMMGM. “We must work together, regardless of gender,

the National Instrument 43-101,” he says. “Attaining this

to inspire the next generation to be more involved in this

membership implies a huge workload.”

profession,” he says.

CIMMGM also offers its own certifications to help make

How many projects are in exploration and how developing

Mexican mining, metallurgy and geology engineers more

projects are doing will also define how the industry will

competitive. Alatorre says that while professional degrees

continue to perform, Alatorre adds. “Sonora, Zacatecas and

denote the acquisition of certain abilities and knowledge,

Chihuahua have good inertia. Guerrero is awakening its gold

professionals must eventually acquire specialized skills.

belt but there are still many social issues that are slowing

“Certification programs have become a basic requirement

down projects in the state. It is likely to be the next big mining

for all professions. CIMMGM offers five areas of certification:

region but getting there is onerous.” Sinaloa remains in second

mining, metallurgy, geology, evaluation of mining projects

place, Alatorre says, but he adds that the state still needs

and environmental aspects of mining.”

a new world-class project to catch the industry’s attention.

| INSIGHT

PUSHING FOR A LABOR POLICY THAT FOSTERS COMPETITIVENESS ALFONSO RODRÍGUEZ-ARANA Managing Partner of Legalmex 48

Drafting a labor policy for any industry in a developing

negotiations for a wage increase of 8 percent but if it were

country is a balancing act between the rights of the workers

to rise above 5 percent, this would cause controversy among

and creating the conditions that foster investment, says

other mining unions. “This forced companies to privately

Alfonso Rodríguez-Arana, Managing Partner at labor law

raise salaries by 3 percent and then officially report a 5

firm Legalmex. “Our labor policy must be drafted in a way

percent increase,” he explains.

that does not make the country unattractive for FDI, as it is simply vital to the industry,” he says. “Many companies

Mexico is now shifting political paradigms with the transition

have migrated to Mexico due to our low labor costs but

to a different government ideology and salaries are only

the underselling of our labor means Mexico is losing

a tiny part of labor regulations. In 2018, Article 123 of the

competitiveness.”

Mexican Constitution, related to labor law, was modified but the amendments have not yet been enforced. “I think

What determines fair remuneration for workers is about

the international agreements signed by Mexico, such as

much more than investment, says Rodríguez-Arana, who

USMCA and TPP, mean this reform is on hold,” he says.

adds that the consequences of underselling the workforce

Rodríguez-Arana is hopeful Minister of Labor Luisa María

are far-reaching. “It is truly hard to establish the correct

Alcalde, the daughter of a high-profile representative of

wage. But a great deal of illegal activity and tax evasion in

the union movement in Mexico, Arturo Alcalde, will work to

the country are a consequence of security problems due to

improve worker rights. “I believe she will play a key role in

the depreciation of employment and the decrease of Mexican

ensuring that the Labor Reform protects workers’ interests

families’ real income.”

and advocate for union transparency, given her heritage and

“

As union leaders are on standby and waiting to see what (AMLO) will do, there is an atmosphere of unease in the country”

experience,” he says. Unions are another hot topic when it comes to labor matters in mining and Rodríguez-Arana says the industry needs more union accountability and respect for free and secret voting. Unions used to be a means to control workers and their votes, which made union leaders too powerful. “Today, the government’s policy is to prevent union leaders benefiting at the expense of workers. Statistics in Mexico City show that around 90 percent of collective contracts are collective

The million-dollar question is how to find the right balance.

bargaining agreements signed by white unions; that is, unions

Rodríguez-Arana emphasizes that to start, wages in Mexico

that collect the fees but do not act in favor of workers,”

should be considered within the North American bloc’s

he says.

context. “The market is the ultimate actor dictating what equitable and fair compensation for workers is and if the

The industry, says Rodríguez-Arana, is also concerned

mining industry does not pay reasonable salaries, workers

about the repercussions from former union leader Napoleón

are going to go to other industries,” he says. While the

Gómez’s return to politics as Senator. “The few declarations

global economy may dictate commodity prices, for a mixed

that he has made so far have negatively impacted investment,”

economy such as Mexico’s, the government still has the last

Rodríguez-Arana says. “As union leaders are on standby and

say regarding wages. “An increase in the minimum wage

waiting to see what he will do, there is an atmosphere of

was recently announced but the truth is that many of the

unease in the country.” He says that several independent

numbers broadcast by the government are not a reality,”

mining unions are joining forces under TUCON, which stands

he says. For example, Rodríguez-Arana advised on union

for a common front against Gómez.

VIEW FROM THE TOP |

SNMM AGENDA: EMPLOYMENT, SAFETY CARLOS PAVÓN Secretary General of the National Union of Miners and Metallurgists (SNMM Frente) 49

Q: What is SNMM’s work plan in the short-term and

the animals that inhabit it. People should try to understand

what is the impact that it seeks to have in the Mexican

the current mining industry before criticizing it.

mining industry? A: Our main goal is to preserve existing sources of

There is a generalized misconception that mining has many

employment in mining while developing new job

informal jobs but this is not true. Most employment in the

opportunities. But the uncertainty created by the transition

industry is formal, with all workers registered at IMSS and

to the López Obrador administration and a new political

paying taxes, even if they are hired by outsourcing. Our

ideology is endangering the industry’s future. I believe

goal is for Mexicans to have many employment sources so

that 2019 will be about surviving. We have perceived a

they can pursue their professional development and have

significant decrease in mining investment and in new

a better quality of life. When young professionals start

projects; this is rooted in the fact that nobody really knows

working in mining, they quickly realize that our industry

what is going to happen. In this context, I am convinced

does not have all these perceived taboos; instead, they

that retroactivity of any reforms to the mining law is

find a modern and automated industry. Today, the industry

going to be a key factor. For example, if any revisions

is tearing down those prejudices. For example, there are

to mining concessions proceed, miners should have the

many women working in mining. In fact, SNMM represents

certitude that they will not be implemented retroactively.

more women than any other mining union in the country.

The government must work from the point at which it

We promote gender equality because women need jobs

undertook its administration and onward, not backward.

just as much as men do and we fight to protect them and guarantee that they are paid the same wages as men.

We will also keep working to protect the workers we represent through our full-time security and

Q: How do you approach wage negotiations with the

safety commissions. These are certified and seek to

mining companies with which you work?

professionalize security matters. We acknowledge that

A: In these negotiations, we seek an agreement that

the union has the responsibility to look out for the well-

satisfies both parties. As employee representatives, we

being of its workers. Our goal is to eliminate the negative

always think that wages should be higher. But we also

perception that working at a mine site is unsafe and to

understand that the companies for which our members

change the safety culture in our industry to eventually

work for are responsible and must make long-term

have miners looking after themselves and after each other.

investments, meaning long-term jobs. It is also important to mention that when we reach a deal with a company, the

Q: What are the misconceptions about the mining industry

resulting agreement is not valid until our workers accept

that SNMM is working to set straight?

it. This is why we divide our work into commissions, as it

A: Mining is tied to international metals and commodity

allows us to better explain the agreement to the workers

prices. As a result, the industry is constrained by many

who will be impacted. In addition to the base salary,

forces at once: uncertainty, price volatility and those people

we also would like to see higher productivity bonuses.

who are against mining activity, just to mention a few. Our

Instead of seeking assistance programs, we work to

union seeks to promote responsible and sustainable mining

remunerate productivity.

that complies with national and international regulations and that creates jobs and leads to local development. For example, we work with a Fresnillo mine that employs

The National Union of Miners and Metallurgists (SNMM Frente)

over 400 people and created an ecological park for the

is one of the only unions in Mexico that is not employer-led.

enjoyment of its workers and the community. In this case,

It has 16 chapters representing miners and works with major

SEMARNAT trusts the company to manage the park and

operators to negotiate better working conditions in mines

El Ă guila mill flotation circuit, Oaxaca

GOLD

Gold has traditionally been the safe haven for unstable global financial markets, and the current climate of geopolitical instability, coupled with a global economic slowdown, has spurred prices to levels not seen in six years. Mexicoâ&#x20AC;&#x2122;s rich reserves maintain a steady appetite for the shiniest precious metal, with Sonora in the limelight for national gold production, followed by Chihuahua and Guerrero. But while Mexico maintains its place as one of the main gold producers in the world, the forecast for the metalâ&#x20AC;&#x2122;s reserves predict a grade decline and a resource depletion in several of the greatest gold operations by 2020.

This chapter highlights the main gold projects in the country and gathers the leading strategies to boost the productivity of gold operations directly from top industry players.

CHAPTER 3: GOLD 54

ANALYSIS: Innovation for Maximizing Productivity, Minimizing Risks

INFOGRAPHIC: Gold Profile

MAP: Mexico's Main Gold Mines

VIEW FROM THE TOP: Fred Stanford, Torex Gold Resources

VIEW FROM THE TOP: Peter Dougherty, Argonaut Gold

INSIGHT: Jason Reid, Gold Resource Corporation

PROJECT SPOTLIGHT: Larger Projects Translate Into Major Benefits

VIEW FROM THE TOP: Michael Harvey, Newmont Goldcorp Mexico

VIEW FROM THE TOP: James Bannantine, Great Panther Mining Ltd

VIEW FROM THE TOP: Doug Ramshaw, Minera Alamos

INSIGHT: John McCluskey, Alamos Gold

VIEW FROM THE TOP: Morgan Poliquin, Almaden Minerals

VIEW FROM THE TOP: Rodrigo Barbosa, Aura Minerals

INFOGRAPHIC: Factors Influencing Gold Price

VIEW FROM THE TOP: Ramón Pérez, Candelaria Mining Corp.

VIEW FROM THE TOP: Jason Simpson, Orla Mining

| ANALYSIS

INNOVATION FOR MAXIMIZING PRODUCTIVITY, MINIMIZING RISKS Gold prices reached a six-year high in 2019, spurred by geopolitical uncertainty and a global economic slowdown. While one of the largest mines in Mexico suffered a blockade, other operators devised innovative strategies to boost production and lower costs

According to the World Gold Council, the AISC of the

The second-top-producing gold mine in Mexico during

biggest gold producers in the world in 4Q18 was US$826/

1H19 was El Limón Guajes (ELG), owned by Torex Gold and

oz on average. With the yellow metal’s price hitting a six-

located in the southern state of Guerrero. As Fred Stanford,

year high in 2019 at US$1500/oz, investing in new projects

president and CEO of Torex Gold points out, “successful

becomes increasingly appealing. But what is driving prices

projects start with good properties.” A 2.7 grams per ton

up? The trend can be partly attributed to three factors:

open pit project that yields higher grades from underground

geopolitical and economic uncertainty, the US Federal

operations, ELG produced 191,515 oz of gold in 1H19.

Reserve’s lowering of interest rates and central banks around the world making large gold purchases.

While bright lights abound in the Mexican industry, social conflicts are one of the hurdles companies often struggle to

Prominent among the uncertainty-generating factors are

overcome. A case in point is Peñasquito, located in Zacatecas

the ongoing trade tensions between the US and China.

and owned by Newmont Goldcorp. Considered a world-class

The exchange of tariffs between the Asian and North

gold reserve, Peñasquito is a polymetallic mine holding

American giants has lowered business investment in the

silver, lead and zinc in addition to gold. In April 2019, a local

US, one of the elements that resulted in a slowdown in

contractor and members from one of the 25 neighboring

job creation, according to figures released by the Labor

communities blocked access to the mine arguing that it had

Department in August 2019. Even if the country’s economy

dried up local water reserves. Operations resumed in June

is overall healthy, unfavorable job results are one of the

of the same year thanks to negotiations led by the federal

key signals analysts look at when evaluating the likelihood

government. While the company used the downtime to

of a recession.

provide maintenance to equipment, losses were massive, and questions remain over what lessons will be learned from

More worryingly, the inverted yield curve has entered the

the episode.

bond market stage. Characterized by having lower interest rates in its long end than on its short, this ominous curve

Putting aside force majeure obstacles to exploration,

suggests that the long-term outlook is unfavorable. On

development and production, “if you do your homework,”

the Chinese side, new US tariffs of 15 percent on about

points out Rodrigo Barbosa, president and CEO of Aura

US$110 billion of goods went into effect in September

Minerals, “mining does not have to be too risky.” With

2019. Chinese exports are now far from the double-digit

respect to diminishing financial risks, Aura Minerals has

growth that used to characterize them. Against this

sealed a three-year offtake agreement with IXM to buy

economic horizon, investors are turning to gold as a safe-

concentrate from the Aranzazu mine in return of a loan for

haven investment.

restarting operations at the site. Another example is the royalty agreement between Minera Alamos and Osisko Gold

Mexico enters the current context of rising prices as a Top

Royalties, whereby the former company will obtain about a

10 gold producer, with Sonora, Chihuahua and Guerrero

quarter of the capital cost return for a 4 percent royalty on its

in the limelight. Despite the lasting effects of the most

Fortuna mine and thus bring its Santana project to fruition.

recent industry downturn and the perceived uncertainty the López Obrador government has generated during its

Technology, like Torex Gold’s Muckahi, is also key for ensuring

first year in power, the country boasts some of the world’s

the viability of a mining operation. In this respect, Argonaut

most attractive projects. Chief among these is Fresnillo’s

Gold has implemented electronic blasting at its San Agustin

Herradura, which produced 474,168 oz in FY2018. Even

mine in Durango, which has allowed the company to achieve

though gold production at this operation was 6.7 percent

excess capacity of over 20,000t/d. “Instead of executing a

lower in 1Q19 than in 1Q18, Herradura remains crucial to

single explosion,” says Peter Dougherty, CEO of Argonaut

Fresnillo’s expectations for 2019. Furthermore, Fresnillo

Gold, “electronic blasting enhances crushing throughput

has begun construction of its Juanicipio project, which

by reducing rock size. It is attention to detail that leads to

will be in production by late 2020.

greater efficiency.”

INFOGRAPHIC |

GOLD PROFILE Mexico is among the world’s gold champions. Even when

tons. The most important national producers were Sonora,

Mexican gold production fell 6.7 percent in 2018 with respect

Chihuahua and Guerrero. Honorable mention goes to Torex

to the previous year, the country advanced from ninth to

Gold, whose El Limon Guajes mine achieved a remarkable

eighth place in the global ranking of producers. In Latin

comeback after the illegal blockades it suffered in 2017. The

America, only Peru churned out more than Mexico’s 107.7

top importer for Mexican gold in 2018 was the US.

38.23% Sonora 16.99% Chihuahua 16.04% Guerrero 10.70% Zacatecas 10.06% Durango 1.81% Oaxaca

LARGEST GOLD PRODUCING STATES 2018

SONORA 53,964 kg

1.58% Guanajuato 1.55% Sinaloa 1.12% Baja California

0.87% State of Mexico

1.05% Others

Mexican production 107.73 tons

3.8%

2. CHIHUAHUA 23,974kg

95.7%

Global production 3,277.14 tons

3. GUERRERO 22,644 kg

Mexico is the

8th

largest gold producer in the world LARGEST GOLD PRODUCING MUNICIPALITIES IN 2018

MEXICAN GOLD ORE AND CONCENTRATES EXPORTS BY COUNTRY (tons) 300 250 200

48% Hemosillo 16.7% Sahuaripa 7.8% Guerrero 28.1% Others

41.7% Ocampo 21.1% Madera 18.3% Chinipas 18.9% Others

54.5% Cocula 42.8% Chinipas 2.7% Others

2017 2018

150 100 50 0

9.05 9.9

GUERRERO

18.87 17.48

CHIHUAHUA

282.28 265.96

SONORA

Switzerland

NATIONAL GOLD PRODUCTION

120

97.1

110.2

69.8

101 116.9 100.13

98.2

79.6

100

123.4

119.8

63.7

120

100 80 60 40

20 0

91.2

20 2013

2014

Value of gold production (MX$ billion)

2015

2016

——Total gold production (tons)

2017

2018

Source: INEGI, SGM, CAMIMEX

| MEXICO'S MAIN GOLD MINES

In 1H19 the 10 largest mines produced 964,419 oz of gold

4 5

7 6

12 13

19 17

20 21 24 22 23 25 26

27 29 31

33 34

37 38

30 40

Number

Name

Company

State

San Antonio

Argonaut Gold

Baja California South

La Herradura

Fresnillo plc

Sonora

Noche Buena

Fresnillo plc

Sonora

Soledad-Dipolos

Fresnillo plc

Sonora

Mina de Julio/ Santa Elena

Mexus Gold

Sonora

San Félix

Mexus Gold/MarMar Holding

Sonora

Lluvia de Oro/ Columbia

Metallōrum Holding

Sonora

Cerro Colorado

Goldgroup Mining

Sonora

San Francisco

Alio Gold

Sonora

Santa Gertrudis

GoGold

Sonora

El Chanate

Alamos Gold

Sonora

Cerro Prieto

Goldgroup Mining

Sonora

Mercedes

Premier Gold Mines

Sonora

Santa Elena

First Majestic Silver

Sonora

Production Development Under Review Advanced Exploration Pre-Production Source: SGM, company websites

43 44

Number

Name

Company

State

La Colorada

Argonaut Gold

Sonora

La India

Agnico Eagle

Sonora

Mulatos

Alamos Gold

Sonora

San Francisco

Alio Gold

Sonora

Dolores

Pan American Silver

Chihuahua

Ocampo

Minera Frisco

Chihuahua

Concheño

Minera Frisco

Chihuahua

Pinos Altos

Agnico Eagle

Chihuahua

Monterde

Invecture Group

Chihuahua

Orisyvo

Fresnillo plc

Chihuahua

Palmarejo

Coeur Mining

Chihuahua

Don Román

Firma Holdings

Sinaloa

San José de Gracia

Dyna Resource

Sinaloa

Charay

Rose Petroleum

Sinaloa

El Gallo

McEwen Mining

Sinaloa

La Trinidad

Marlin Gold

Sinaloa

La Fortuna

Minera Alamos

Durango

La Ciénega

Fresnillo plc

Durango

Metates

Chesapeake Gold

Durango

San Dimas

First Majestic Silver

Durango

El Castillo

Argonaut Gold

Durango

Bacis

Minera Bacis

Durango

Velardeña

Industrias Peñoles

Durango

Peñasquito

Newmont Goldcorp

Zacatecas

Camino Rojo

Orla Mining

Zacatecas

Pinos District

Candelaria Mining

Zacatecas

Mina Real

Rochester Resources

Nayarit

El Porvenir

Minera Frisco

Aguascalientes

Cerro del Gallo

Argonaut Gold

Guanajuato

San Martín

Starcore International

Queretaro

Caballo Blanco

Agnico Eagle/Candelaria Mining

Veracruz

Tepal

Geologix Exploration

Michoacan

Campo Morado

Telson Resources

Guerrero

El Limón-Guajes

Torex Gold

Guerrero

Ana Paula

Alio Gold

Guerrero

Los Filos

Leagold

Guerrero

Rey de Plata

Industrias Peñoles

Guerrero

Media Luna

Torex Gold

Guerrero

Cerro Jumil (Esperanza)

Alamos Gold

Morelos

Altagracia

Gold Resource

Oaxaca

El Águila

Gold Resource

Oaxaca

53 47

51 49 52 50 48

54 55

| VIEW FROM THE TOP

INNOVATIVE SYSTEM HAS GAME-CHANGING POTENTIAL FRED STANFORD President and CEO of Torex Gold Resources

Q: What is the state of the El Limón Guajes complex and

Q: What progress has been made at Media Luna, given the

what are the main challenges and expectations that you

effects of the late 2017 blockade?

have for this project?

A: Media Luna is the deposit that has the most potential to

A: The El Limón Guajes complex (ELG) is a company

extend the life of the ELG complex, once the open pits are

building asset. There are not many gold properties in the

mined out. It is a large deposit which has the potential to be

world that can produce more than 13,000 metric tonnes

mining for decades. As, with all deposits, Media Luna has its

per day of ore, through open pit mining, at a grade of 2.7

challenges as well. It has a lot of gold, but the grade of gold

grams of gold per tonne of ore mined. ELG also has two

per tonne is at the lower end of the range that can be mined

small, higher grade underground deposits, which enhance

profitably with conventional underground mining techniques.

the production potential of the complex. Looking to the

We are working hard to find efficient ways to mine this deposit,

future, the property has the potential for further production

so it is worth it for shareholders to invest the approximately

from deposits which have not yet been discovered or have

US$500 million that it will take to build the mine.

been discovered and are not yet in production, such as the nearby Media Luna Project.

The blockade was a devastating blow to investor confidence in Mexico in general, and Guerrero in particular. Investors

As with any business, there are always challenges, and

need to have confidence that a mine they have financed

ELG is not an exception to this rule. The ores in ELG have

will be allowed to operate continuously in order to pay back

some metallurgical challenges, as the ore contains soluble

their investment with an adequate return on that investment.

copper and soluble iron, which have a negative impact

If they are not confident, investors will take their money

on the cost to process the ores. The site team has done

elsewhere, and the communities in those locations will

an excellent job in finding ways to control these high

be the beneficiaries of such investments. Fortunately, the

cost elements.

communities around ELG and Media Luna understood this risk and brought the blockade to an end. Looking forward, we need to continue to operate without blockades to win

El Limón Guajes is a Company Building Asset

back investor confidence, as well as deliver the generation of jobs an investment in Media Luna could potentially bring. Q: The Muckahi Mining System is expected to significantly lower costs at underground mines. How was this innovative system developed and what is its potential in underground operations?

Another challenge with mining is the relationship with

A: I have been working on Muckahi for over 30 years. It is

surrounding communities. Mining always brings change.

a system that can work at any underground mine except

Communities will like some of the changes and not like

block cave mines. The problem being solved through this

others. It takes time for miners and communities to

technology is that underground mining, and mining in

understand each other’s needs and interests for ‘today’

general, is a material-handling and logistics business. We

and into the future. Together, we have made considerable

drill and blast and do ground support, everything else

progress in understanding each other. There is a good

is moving materials/supplies. We are the only logistics

community relationship foundation in place now. As we

business in the world that operates on single lane roads.

continue to work together and support each other, this foundation has the potential to support further investment

The thought was, “what if we could make two-lane traffic

in order to extend the mine life of the property.

in a tunnel that is half the current size?”

El Limón Guajes mine, Guerrero

Solving this problem became my hobby for three decades

Deep underground deposit and expect to have proven the

and today, after solving the initial problem and all the

key components of the system by the end of 2019.

subsequent hurdles, we have a logistics system that moves material on overhead monorails, in a drift half

Q: How does Muckahi impact your company strategy and

the size, and with two-lane traffic. The ore moves on

how will it be implemented in Mexico?

conveyors right from the face/brow, without touching

A: Muckahi opens a completely new set of strategic

the ground again until it reaches the surface.

options for the company. With ELG as a foundation, we can use the social and commercial competitive

The Muckahi Mining System has the potential to lower

advantages we expect Muckahi to provide, to grow the

underground mining costs by approximately 30% and will

company into a world class major mining company. These

play an important part in making deposits with lower gold

are exciting times for our team members and investors

grades, profitable to develop and mine. Media Luna fits

as we look to build a major mining company, all from a

into this category. On the safety and environmental front,

foundation in Guerrero State in Mexico!

a Muckahi mine will be safer, produce less waste rock, and is expected to significantly reduce the production of greenhouse gases during the mining operation. The

Torex Gold Resources is an intermediate gold producer engaged

mining system uses a lot of ‘old school methods’ that are

in the exploration, development and operation of its 100 percent

made practical once again through the addition of modern

owned Morelos Gold Property. Its principal assets are the El

technologies. We are testing Muckahi within our El Limón

Limón Guajes mining complex and the Media Luna deposit

| VIEW FROM THE TOP

TRACKING RISK, BOOSTING PRODUCTION PETER DOUGHERTY President and CEO of Argonaut Gold

Q: What is Argonaut Gold’s strategy to manage and

rate and that put us in a lower relevance and valuation

optimize its portfolio?

class. As we looked at companies in the next valuation

A: In Mexico, we have two development projects that we

level, it was clear there was a jump in valuation at around

are trying to advance toward a production decision. At

200,000oz per annum. This motivated us to target a

one, we are revising the needed permits and hopefully,

higher production amount. I am happy to report that in

these will be granted by the end of 2019. For the other

4Q18, the team delivered over 50,000oz. If we annualize

project, we expect to be able to submit the permits later

that, we are already at 200,000oz per annum. Our 2019

this year.

guidance is that we will produce between 200,000oz and 215,000oz.

Our goal is to maximize our portfolio by advancing and de-risking our development assets. Regarding the

Q: What is the company’s strategy for success?

divestment trend that is taking place to optimize a

A: Last year, we built the San Agustin operation with

mining company’s portfolio, at Argonaut Gold we like

a processing capacity of around 16,700t/d. Because

to see how our assets can best serve the company

of the way we were running the mine, whether it was

and our shareholders. If we could swap out an asset to

fragmentation in the pit or the crushing circuit itself,

advance another asset, and this makes more sense for

we were able to achieve excess capacity to over

our shareholders, we would certainly be open to that.

20,000t/d. We were able to do that through operational improvements.

Q: How does the company manage the country risk of operating in Mexico?

For instance, by achieving maximum fragmentation

A: Every project has different associated risks. Those can

through electronic blasting instead of executing a single

be related to operations, construction, security and the

explosion, we enhanced crushing throughput by reducing

relationship with local communities. I believe those are

the rock size. It is the attention to detail on many different

the inherited risks that we are used to managing, but

levels that leads to greater efficiency and a team effort

there are also external pressures. These are related to

across multiple areas.

the price of gold, silver and fuel, just to name a few. Some companies may look to diversify their portfolio

Q: What are Argonaut Gold’s expectations for its El

or to be centralized in an area and look to have multiple

Castillo Complex?

operations. We track risk at each individual operation,

A: I think the addition of the San Agustin mine to the

applying a risk register that can change with each project.

El Castillo Complex was dramatic for the company. It is going to put us at a higher operating level by producing

Q: What factors are boosting the company’s guidance?

150,000oz a year from the complex. When you think

A: In 2017, we stepped back to look at where the

about this amount of production, it is a pretty good-

company stood and we identified different valuations

sized asset as our company does not run large mines. San

for companies and how they are relevant for investors.

Agustin has a longer life and will play a substantial role for

We were operating at a 120,000oz per annum target

the company. It was a good cash generator in year one, which was 2018. We will see what happens in the seventh or eighth year but it is a very promising asset. 2018 was

Argonaut Gold is a Canadian gold company engaged in

a transformational year for the company in terms of

exploration, mine development and production activities. Its

record-setting production and the El Castillo Complex,

primary assets are the production-stage El Castillo and San

particularly the San Agustin mine, outperformed our

Agustin mines in Durango

expectations.

INSIGHT |

CLARITY WILL LEAD TO INVESTMENT JASON REID CEO of Gold Resource Corporation

Mexico could be a mining paradise for foreign investors, but

Reid says. Gold Resource Corporation trades on the New

the uncertainty that has settled over the industry threatens

York Stock Exchange.

to do great damage. “By not issuing new concessions, this administration is eliminating the entrance of mining

Despite the geopolitical red flags across the globe,

companies coming with risk capital. Most of them will

Reid says the company is determined to let efficiency

fail, but the few successes are what will keep the mining

determine its profits rather than global events. “The only

industry moving,” says Jason Reid, CEO of Gold Resource

way we can protect ourselves is by running as efficiently

Corporation. If uncertainty continues, he adds, investors

as possible. We cannot control what China does or what

are going to look elsewhere and current concessions will

kind of tariffs may be imposed in the future. The best

not sustain Mexico as a top mining producer.

strategy is to remain profitable, and that is what we have

“

By not issuing new concessions, this administration is eliminating the entrance of mining companies coming with risk capital”

done for the last eight years,” he says. The company achieves its goals by remaining true to its business plan. “Mining companies need to be a positive influence with regard to the surroundings in which they operate. We have been able to successfully work in southern Oaxaca, a region that is known for its social conflict around infrastructure projects,” says Reid, adding that he is confident about the positive investments the company has made in local communities. “Since day one, we have made a strong impact by

Gold Resource Corporation has operations in Mexico and

allocating many resources to the regions in which we

the US. The Oaxaca mining unit consists of six potential

operate. If you visit the local towns near San José de

high-grade gold and silver properties in the southern

Gracia, you are going to see paved streets, public lighting

state of Oaxaca, including El Rey, El Chamizo, Alta Gracia,

and access to water services, among many other positive

El Fuego, El Aguila and Las Margaritas. The Nevada

contributions. Under the potential requirements of the

mining unit has four potential high-grade gold properties

proposed Mining Law, I believe the company will outshine

in the Walker Lane Mineral Belt in western Nevada. Like

its peers given our previous and ongoing partnerships

others operating in Mexico, the company is seeking clarity

with communities.”

before executing further investments. “We will continue to explore in our producing assets, but less exploration

Attracting the best possible talent is also part of this

will take place in our other concessions until we see clear,

plan. “This is a difficult industry for attracting and

positive signals from this administration,” Reid says.

retaining talent, as it is very competitive. Our competitors approach our people and we approach our competitor’s

If the right signals come from the administration, the

employees in search of talent. Hence, one of the primary

company will be more apt to further invest in Mexico.

ways we retain talent is to treat our people with respect,”

“Our recent focus has been on constructing and

says Reid. The company primarily focuses on Mexican

commissioning our first mine in Nevada. Now with Nevada

nationals, but also has some expats working on day-to-

commissioning complete and the project ramping up,

day activities. “We bring experienced miners from other

we will turn additional attention back to Mexico if this

areas, and then train our people to become experienced

administration’s policies encourage more investment,”

miners as well,” he says.

| PROJECT SPOTLIGHT

LARGER PROJECTS TRANSLATE INTO MAJOR BENEFITS Mineral resources are often found in isolated regions, which means mining projects can act as drivers for economic, social and environmental development. Sustainability is changing the way companies structure their projects and La Herradura mine is no exception. Located in Sonora, this asset is one of the largest open pit mines in Mexico. Fully owned by Fresnillo plc, it produces 51.4 percent of the group’s gold production. La Herradura comprises an open pit mine, a dynamic lixiviation plant and a Merrill Crowe facility. Even though the mine started operations in 1997, ongoing optimization procedures maintain its production levels, including a second dynamic lixiviation plant with a capacity to process 9,000t/d constructed in 2018. Together, both plants reach daily production of up to 18,000t/d, which led to total production of 474,168 oz of gold and 1,523 oz of silver in 2018.

La Herradura mine and Merrill Crowe facility reach a daily production of up to 18,000t/d, equating to a total production of 474,168oz of gold and 1,523oz of silver in 2018 From an environmental perspective, Fresnillo implemented the use of LNG to power its cargo fleet to reduce its overall CO2 emissions. At the social level, La Herradura was a pioneer in including more women in its labor force, both for mining activities and decision-making positions within the company’s organization. Minera Penmont, Fresnillo’s subsidiary operating this mine, also works hand in hand with the University of Sonora to incorporate recent graduates into the workforce. The project has been awarded national and international certifications such as CONCAMIN’s Value and Ethics Prize and PROFEPA’s Social Responsibility Prize. La Herradura also complies with quality standards such as the cyanide code, ISO4001 and OHSAS 18001. During 2019, the company will continue its drilling work and will reevaluate a potential expansion of the Herradura Mine. In addition, with the construction of the second dynamic lixiviation plant, the company will conclude construction of new patios in the next year.

VIEW FROM THE TOP |

FULL POTENTIAL METHODOLOGY TO STRENGTHEN PEÑASQUITO MICHAEL HARVEY Director of Corporate Affairs at Newmont Goldcorp Mexico

Q: What practices is Newmont Goldcorp implementing

operating model with clear accountability and the site owns

to improve the quality of life of the communities around

target setting and delivery. There is global consistency in the

Peñasquito?

program, benchmarking performance, sharing successes and

A: Education is an excellent example of our work in the

enabling rapid replication. We apply lessons learned, which

communities around the mine. For example, 37.5 percent

then informs our approach to advancing strategic digital and

of the student population in the area of direct influence of

technology initiatives.

the mine receives a grant from Peñasquito and 110 teachers receive training through the education strategy financed by

Q: What are the new technologies to increase gold recovery

Peñasquito with the support of the Ministry of Education. We

and how is Newmont Goldcorp implementing them?

built a Technical College (CONALEP) and there have been 409

A: In an era of declining gold reserves, Newmont Goldcorp is

CONALEP graduates, of which more than 70 percent work in

the only company with a stable production profile targeting

Minera Peñasquito or with our contractors. We also support

6-7 million ounces over a decades-long time horizon. We

16 scholarships each year at the Autonomous University of

have proprietary technologies that are driving our discovery

Zacatecas.

program. Examples include Deep Sensing Geochemistry (DSG), which has a depth of investigation of more than 500m.

Q: What lessons were learned after the blockade at

Another is our 3D Distributed Acquisition System (NEWDAS),

Peñasquito, especially regarding relations between the

a 3D data acquisition system with a depth of investigation of

three levels of government, the private sector and the local

roughly 1,000m.

community? A: The Peñasquito blockade was evidence of a huge

Q: How can the talent pool in the mining industry be kept

problem for the development of Mexico. There are almost

at an optimal level and how will automatization impact the

no consequences when you break the law, threaten your

industry’s workforce?

neighbors and harm third parties who want to work. I believe

A: We believe that diversity and inclusion are important to

we were able to demonstrate that blockading us illegally does

develop the workforce of the future. Just look at the inclusion

not give you economic benefits. It is too easy to pay people to

of women. It makes no sense for an industry to exclude half of

make them go away but that is a poor long-term strategy. The

its potential workforce. Mining often means living in camps in

Mexican government needs to be a lot more supportive in this

remote locations. Technological advances will provide more

regard. Local communities supported us but were frightened

optionality in this regard. The challenge will be meeting local

by the blockaders, who were able to threaten violence with

employment goals as this happens. We are going to have

no fear of consequences from the government.

to invest in the skills of local communities so they can have access to these jobs. It is absolutely key for the people on the

Q: What is your strategy for further developing this world-

ground to have ownership of decisions and to be accountable

class deposit to its maximum potential?

for them. At the same time, a strong head office allows lessons

A: We are on track for US$50 million or more in sustainable

to be learned from one operation to another and to develop

cash flow improvements at Peñasquito thanks to our Full

a highly specialized workforce. The secret is to work together

Potential methodology. The Full Potential program’s mandate

in an environment of continuous improvement.

is to identify opportunities for efficiency and innovation across our business and we are now applying this to Peñasquito. The goal is superior operational execution through sustainable

Newmont Goldcorp has operations in Australia, Canada,

productivity improvements and cost-efficiencies. The core

Ghana, Peru, Suriname, Mexico, Argentina, Dominican Republic

principles of Full Potential are that it is focused on value and

and the US. It is an industry leader in value creation and the

viability, and grounded in technical fundamentals. It is a proven

only gold producer listed in the S&P 500 Index

| VIEW FROM THE TOP

IN MEXICO FOR THE LONG TERM BUT NEED CONTINUITY JAMES BANNANTINE President and CEO of Great Panther Mining Ltd

Q: What is Great Pantherâ&#x20AC;&#x2122;s goal in Mexico, and how might

Q: What are the specific projects in Mexico that Great Panther

the governmental impact that?

is investing in?

A: Great Panther has been operating in Mexico for 14 years.

A: We have been investing in and expanding the Topia Mine

Our goal is to be here for the long term but we need to

in Durango. Production has increased from 1.1 million silver

ensure continuity in laws, taxes and technical processing of

equivalent ounces in 2017 to around an expected 1.7 million

licenses. Taxes also need to be reasonable, and in Mexico

silver equivalent ounces at the end of 2019, which makes it a

taxes already are relatively high, so we hope they will not

nice asset for Great Panther. It is also important for the Topia

be raised further. We recently acquired the Tucano gold

community and we receive great support from the Durango

mine in Brazil, which will have a significant impact on our

government. It is a pretty good story, I think.

production. Before the acquisition, we were producing 4 million ounces of annual silver equivalent in Mexico (50,000

Q: What were the main elements of the strategy for achieving

gold equivalent ounces) and now we will add 150,000

success at Topia?

ounces of gold from Brazil from 2019 onward. This positions

A: The number one strategy is safety. We have improved our

us as an intermediate gold producer. Our Peruvian project,

safety record at Topia and Guanajuato significantly through

Coricancha, is advancing into the construction phase, and

education and under the leadership of our Vice President of

we hope to fully restart it next year. This mine will produce

Operations in Mexico, Brian Peer. Topia is very remote. It is

approximately 3 million ounces of silver equivalent (or

isolated in the Sierra Madre of Durango. I think we made a

40,000 ounces of gold equivalent) per year.

strong impact on the community and its culture. I feel very positive about the accomplishments there over the past two

We have a consistent strategy in our mines. Responsible

years. We hope to continue the improvement and growth in

and safe production is our first priority. We focus on gold

the coming years.

and silver. Then comes size: we will produce 200,000 ounces of gold equivalent this year, while Peru will add

Q: Is it part of your strategy to make sure resources are

40,000 ounces of gold equivalent next year. Jurisdiction

replenished as you mine them?

is another important element shaping our strategy. The

A: Yes. We are averaging approximately 4 million ounces

company operates in Mexico, Brazil and Peru because they

of silver equivalent in Mexico and 150,000 ounces of gold

are good mining jurisdictions. They have a long mining

in Brazil per year, in addition to working on exploration

history, established mining and geology universities,

to replace those ounces. By next year, we will have

engineering and mining supply chains. Technical staff

production from two mines in Mexico, one mine in

in the governments of these countries know how to

Brazil and hopefully one mine in Peru. It is great to have

manage mining concessions and the laws ensure mining

steady production from multiple mines in multiple good

rights and obligations are enforced.Â Specifically, we place

jurisdictions.

importance on having continuity with this technical staff, no matter who is in government at any moment. We feel

Q: What are the best financial discipline practices for a

that Mexico and the other countries we operate in comply

mining company to achieve healthy and organic growth?

with these criteria.

A: We measure everything in cash flow based on All-In Sustaining Costs (AISC), which is all of our capital and all of our operating costs. We need to make sure we have

Great Panther Mining Limited is a gold and silver mining and

positive cash flow today from operations. Next is continuous

exploration company listed on the TSX and on the NYSE. It

improvement. For example, we want to get our AISC to

operates two primary silver mines in Mexico: the Guanajuato

US$1,000 per ounce today and to try and take it to below

Mine Complex and the Topia Mine

that level per ounce next year.

VIEW FROM THE TOP |

BUILD A MINE, GENERATE CASH FLOW, BUILD THE NEXT ONE DOUG RAMSHAW President of Minera Alamos

Q: What is the companyâ&#x20AC;&#x2122;s strategy to increase its

of our team is Mexican. The funding package is being

foothold in the country?

set up right now and will be ready around September or

A: Minera Alamos was formed by the team that

October 2019. We look to start construction before the

successfully built and operated El Castillo in Durango,

end of 2019. During this time, we also will be focused on

which now is run by Argonaut Gold. We are not only the

expanding the resource size of the project. Most of that

same team, we are also approaching projects exactly the

exploration is going to be done out of cash flow once the

same way. Minera Alamos is a Mexican-focused mining

company starts producing.

company that has been operating in the region for 12 years. Well executed mining can be very beneficial;

Q: What are the technical characteristics of the Santana

we want to create mine operations that support local

mine and what are the expected results from the project?

communities and their surroundings.

A: Based on the initial resources, the mine will kick off with approximately an eight-year mine life. Nevertheless,

We recently put together two assets, Santana in Sonora

resource expansion drilling is expected to add many years

and La Fortuna in Durango, both now through the

of additional mining, even with the increasing production

major steps in the permitting process. In 2020, we will

rates we expect to deliver in due course. The capital

transition from being a developer to a producer. This is

costs to build the mine are estimated at slightly less than

a very exciting transformation for the company as it will

CA$10 million.

be a reminder to the industry that we are mine builders that have executed this activity before with successful

At this project, we expect annual gold production to start

operations in Mexico.

at approximately 30,000 ounces per year. We expect this to grow toward 45,000-50,000 ounces per year

Q: After receiving the green light from the government,

within 12 to 18 months as we expand the overall resource

how has the Santana mine advanced?

through ongoing drilling focused on new targets and the

A: In June, we received the technical approval for our

expansion of the two starter open pits.

Santana mine and then in August the environmental approvals from the federal government. This was

Q: Once the Santana mine ramps up, what will be Minera

important for us as it kept our timelines to begin

Alamosâ&#x20AC;&#x2122; strategy for its Fortuna asset?

construction of the first mine intact. A company can

A: La Fortuna represents a 12-month construction project.

have all the money it requires to build something, but if

In terms of funding, there is a lot of discussion that needs

it does not have the permits, it cannot do anything. We

to take place for us to be in a position in which we could

received tremendous help from the Sonora government

switch our construction teams when Santana is finished.

and communities to get the permits approved. We hope

We are not going to rest with our first mine because we

that this will be good not only for the company but it will

want to get the second mine built and then look for other

also show that Mexico has great potential for investment

opportunities in Mexico. We have had a great experience

and is a mining-focused country. Despite the permitting

operating in the country due to its sense of collaboration

being conducted during an election year, from start to

and its highly knowledgeable people.

finish the process took a little over 12 months and shines a positive light on permitting in Mexico. Minera

Alamos is

advanced-stage

exploration

and

With the permits that we have, we will be able to get

development company with a growing portfolio of high-quality

the funding package that we need in place to build this

Mexican assets, including the La Fortuna open pit gold project

mine. We will largely employ local people and almost all

and the Santana open pit heap-leach development project

INSIGHT |

FINANCIAL CONSERVATISM A HEALTHY APPROACH FOR DIFFICULT TIMES JOHN MCCLUSKEY President, CEO and Director of Alamos Gold

Investment in mining has been tight. Many companies

archeological sensitivities of the region and on a plan to

struggle to finance projects given the gradual upturn in

advance the project to production. We believe that if the

commodity prices. Alamos Gold’s solution is a stoic financial

federal government is supportive of mining in Morelos, we

conservatism that has resulted in a strong balance sheet and

could build a very good project there.”

cash flow generation to finance its growth, says President, CEO and Director John McCluskey. “We are determined to

La Esperanza is an open-pit, heap leach gold project with a

build our development pipeline out of free cash. We like to

forecasted low-capital intensity, low cost and low technical

have a conservative balance sheet.”

risk. The gold deposit was found by Esperanza Resources, which was acquired by Alamos Gold in 2013. “The project is

The company’s approach helped it emerge from the cycle’s

in an alkaline environment and has very low environmental

last downturn debt free and with US$200 million in cash to

risks. We have every reason to build it,” McCluskey says.

fund future projects. “If you look back, we buy assets at the market’s bottom and invest capital to improve mines and

Rather than ramp up the project immediately, McCluskey

build new ones during the rising market,” says McCluskey.

believes it is necessary to take a cautious approach and

“By the time we completed our first significant acquisition,

wait for more positive signals from the government.

gold bottomed at US$1,100 per ounce. A year and a half

“We were delayed because the previous governor was

later, when we did our second significant acquisition, it was

intransigent in his position, despite our strong support

below US$1,200 and by 1Q19 it was around US$1,300, so it

from local communities and that the federal government

remains within a rising channel.”

thought that building a mine there would be a good idea,” he explains.

Alamos Gold maintains a positive price forecast for gold in the short term, which will drive its corporate strategy. “Gold

Instead of confronting that opposition by building a

has turned positive from the bottom of the last cycle. Our

project that would have had no support at the state

projections for 2020 indicate that we should be trading

level, Alamos Gold postponed its expenditure there while

between US$1,300 to US$1,400,” McCluskey says. “As a

quietly advancing minor development tasks. McCluskey

result, we will be focused on improving the mines that we

says that current Governor of Morelos Cuauhtémoc

have purchased but also on building new ones. We are in

Blanco seems more supportive of La Esperanza. “The

the process of building three mines as we speak. That is our

only reason there is no mining in Morelos is that there

response to a climbing gold market.”

has been little effort to look for and develop something but the state’s potential is clear,” he adds.

Two of the company’s three mines in development are located in Mexico, at the Mulatos complex. Cerro Pelón and

The Mexican government’s impact on the company’s

La Yaqui are, respectively, 2km and 9km away from the main

operations goes beyond La Esperanza. Alamos Gold has

leach pad. The former is expected to start production in

been very focused on its Canadian portfolio over the last

2020. Guidance for La Yaqui expects all permits in place

five years, partly due to the fact that Mexico increased

by 2019 with production to follow.

royalties and taxes, says McCluskey. “We are more cautious about investing in Mexico after the government

Alamos Gold also has a development-phase project in

did this.” To make a practical comparison, in 2019, the

Morelos called La Esperanza. “We are looking at the

company will be spending US$50 million in Mexico,

environmental baseline studies and want to carry out

US$75 million in Turkey and US$180 million in Canada.

some geotechnical drilling to support the project,” says

“Policy will drive investment. If Mexico implements the

McCluskey. “We have been working with INA on the

right policies, investment will come.”

| VIEW FROM THE TOP

IXTACA: GOLD, SILVER AND LIMESTONE MORGAN POLIQUIN President and CEO of Almaden Minerals

Q: What steps are you taking to obtain the social and

outside of any parks or restricted areas and the company

environmental licenses to operate the Ixtaca gold-

has received a letter from PROFEPA stating that it has been

silver deposit?

in compliance throughout the exploration stage. The mine

A: Ixtaca is a leading-edge project with strong documented

area has excellent geography and geology. The waste and

community support, modern dry-stack tailings management

tailings are mostly limestone that is highly neutralizing and

with no tailings dam. It also provides a new permanent fresh

could potentially be used commercially as cement or in

water dam and reservoir for both the mine and community

other products.

to use, which can be handed over to local communities at closure. The company completed an EVIS, an independent

Q: What will the financing scheme for Ixtaca look like?

social impact assessment, conducted a documented

A: We will need US$175 million to build the mine and have

widescale open consultation program and is working on

appointed Auramet International as the project’s financing

a social investment plan directly with local communities.

adviser. While it is a difficult market, we believe that we

Almaden Minerals has received an INAH clearance for

will find the necessary funding, which goes together with

development.

the permitting. Almaden will prioritize these two issues in 2019. We think the debt financing market is competitive and

Almaden Minerals takes social licenses very seriously and

while US$175 million seems like a large number, it is very

in the last 10 years has carried out consultations through

reasonable considering that the feasibility study showed

more than 20,000 interactions in over 35 communities. It

that the first six years of the project averaged production

has monthly technical meetings in the community providing

of around 200,000 gold-equivalent ounces.

community members access to outside technical experts and has provided mine tours for around 500 community

Q: What comes next to ramp up Ixtaca and what is your

members to see operating mines elsewhere in Mexico as

timeline for the project?

part of the company’s informed consent initiatives. The

A: We expect a response to our MIA application by

company has now held nine large informational meetings

December 2019 or earlier. We are one of the first projects

attended by over 4,100 people since 2012.

seeking approval from the AMLO administration and so far it has been very interactive. We feel that there are

Recently, the RPI meeting for the MIA for full mining,

many questions being asked and feel that is positive. The

submitted earlier in 2019, was conducted peacefully and

company still feels comfortable working in Mexico because

attended by around 2,000 community members. The

it is a mining country that understands the industry. In

company believes that there is strong local support as

return, we are open to any questions that the industry or

evidenced by over 800 people signing a declaration of

the people may have about our project. Ixtaca is personal to

support that was delivered to SEMARNAT, a memorandum

us as we discovered it and developed it, so we really want

of understanding signed with local water users and the

it to be the best project that we can build.

municipality including mining in development priorities. The mine will create a new permanent water reservoir

Q: What is the relationship between Almadex, Almaden and

for both mine and community use. The mine is located

Azúcar Minerals and why have them as separate entities? A: Each has a different business strategy. Almaden is focused on the Ixtaca discovery, made in 2010. In 2015,

Almaden Minerals owns 100 percent of the Tuligtic project

we created a new company called Almadex, which made

in Puebla state. Tuligtic covers the Ixtaca gold-silver deposit

a second discovery in Veracruz: El Cobre. Newcrest Mining

discovered by Almaden in 2010. Drilling has outlined a

invested 19.19 percent into Azúcar Minerals, equal to US$18

multimillion ounce deposit

million, which separated this company from Almadex.

VIEW FROM THE TOP |

DECENTRALIZATION CREATES ENVIRONMENT FOR INNOVATION RODRIGO BARBOSA President and CEO of Aura Minerals

Q: What is your assessment of the financing market for

Q: What is the state of the Aranzazu project and what are

mining and what is the companyâ&#x20AC;&#x2122;s approach?

your expectations for the mine to 2020?

A: On the equity side, the market is still slow and it is difficult

A: We finished the feasibility studies in early 2018 and

to find cash to invest in mining. The debt market, however, has

submitted them to the board to restart the plant. Since March

been improving and there is a great deal of liquidity there. For

2018, we have been working on restarting the plant, getting

us, credibility is important to ensure a sustainable cash flow

the financing for the project and making sure that we were

for our operations. Our goal is to have a consistent plan that

building the right team. We were able to attract very good

provides consistent results. We never promise our investors

managers that allowed an efficient restart. We expected to

anything we cannot deliver. An example is the Aranzazu ramp-

begin commercial production by early March 2019 but we

up in Zacatecas in December 2018, for which we declared

achieved that goal by December 2018. We still have room

commercial production ahead of schedule and under budget.

to grow production. The mine is already producing cash flow and its initial performance has been good. We are at

Q: What role does the companyâ&#x20AC;&#x2122;s management play in

2,400t/d, and expect to grow to 2,600t/d, of which two-

building credibility?

thirds is copper and one-third is gold in terms of value. We do

A: It has the main role. All the changes that we are

not produce the gold but the concentrate ore at 1.5 percent

implementing at Aura Minerals are related to how we manage

grade and then get it to 25 percent grade. IXM processes

our people. We deployed a program to evaluate all our

this concentrate.

processes through a 360-degree lens and designed a clear career program for all our employees that identifies what we

To achieve our production target, we are introducing new

expect from them and what they can expect from us. The

technologies to improve recoveries. For example, we want

company also recognizes who our best managers are and

to update the components at our plants. We have already

what strategies they are implementing not only to get the best

boosted recoveries from 80 to 90 percent and our goal is to

out of our talent but also how they manage underperforming

have 94 percent recovery. Rodrigo Barbosa is now challenging

workers. This gives us clear feedback on how to improve.

his local management to find alternatives to increase or even double the production at Aranzazu over the next two years

I am a big fan of introducing innovation to the company but

with limited amount of investment once the plant has some

we need to first introduce the right management culture

idle capacity.

to embrace innovation. For example, a highly centralized decision-making process does not suit innovation because

Q: How do you manage risk?

those who have the best ideas are running operations on a

A: We have a three-year offtake agreement with IXM to buy

daily basis. We are striving to decentralize our decision-making

Aranzazuâ&#x20AC;&#x2122;s concentrate. IXM provided us with the loan to

process to make sure that our people at the operational

restart our operation. Our relationship with the company has

level have the room and the courage to innovate. More than

been very good; it has not interfered in our operation but

thinking about what is the next great idea or innovation, I

it has followed up closely on our program and plan to help

think about how to create the right environment for innovation

reduce risk as much as possible. At the end of the day, if you

to happen.

do your homework, mining should not be that risky.

For example, we encourage the operational area to challenge the technical area and vice versa. This creates tension that

Aura Minerals is a mid-tier gold and copper production company

when properly managed, will motivate people to say what they

focused on the development and operation of projects in the

think. For this to happen, we need to create a multidirectional

Americas. It emphasizes responsible, sustainable growth and

flow of information about what is going on in the company.

strives to operate to the highest environmental standards

| INFOGRAPHIC

FACTORS INFLUENCING GOLD PRICE Mexico is a Top 10 gold producer, with Sonora, Chihuahua

TOP GOLD RESERVES IN 2018 Reserve Holder

Tons

perceived uncertainty that the López Obrador government

32.08%

8,133.5

has generated, has slowed down investment in new gold

13.30%

Germany

3,372

projects. But key industry players have good reasons to

11.10%

IMF

2,814

9.67%

Italy

2,451

metal’s price reached US$1,500/oz, a level not seen in

9.61%

France

2,436

six years. Given that, on average, the AISC of the largest

7.46%

Russia

1,890.8

7.27%

China

1,842.6

Fed’s dovish stance on monetary policy, a large repertoire

4.10%

Switzerland

1,040

of geopolitical risk factors (like a no-deal Brexit) and

3.02%

Japan

765.2

2.42%

Netherlands

612.5

central banks purchasing record amounts of gold. A boom

400

985.66

716.32

903.44

633.92

492.42

600

633.92

800

825.33

1,000

492.42

GOLD RESERVES OF THE TOP 6 COUNTRIES ($US billion)

in the industry seems imminent.

667.25

investments are ever more appealing. Added to this is the

723.80

gold producers in the world for 4Q18 was US$826/oz, new

200

1,114.64

1,206.54

1,241.96

1,290.71

1,298.54

1,523.06

1,694.21

1,444.94

1,298.24

1,152.68

1,030.81

915.13

1,000

832.85

1,500

912.23

GOLD PRICE (US$ per onze)

2,000

1,686.41

1,650.59

500

3.0

2.7

2.5

2.2 2.0

1.7 1.5

1.5

0.9

0.8

0.5

0.7

0.7 0.5

1H2015

2H2014

2H2013

1H2013

2H2012

1H2012

2H2011

1H2011

2H2010

1H2010

2H2009

1H2009

0.0

0.8 0.5

0.1 2H2008

0.1

1H2014

1.0

1.7

2H2015

1.5

1H2008

US FEDERAL RESERVE INTEREST AND INFLATION RATE (percentage)

723.80

was US$1,300/oz. During the latter period, the yellow

716.32

be cheerful. The average gold price in 2018 and 1H2019

985.66

Percentage

of the most recent industry downturn, coupled with the

667.25

and Guerrero in the limelight. However, the lasting effects

DISTRIBUTION OF THE REGIONAL SUSTAINABLE DEVELOPMENT FUND 2 SHORT-TERM FACTORS INFLUENCING GOLD PRICE

GEOPOLITICAL AND MACROECONOMIC

A historical store of value, gold is seen as a safe haven investment. In times of geopolitical and macroeconomic uncertainty, gold becomes more appealing to investors.

MONETARY POLICY

During periods of low interest rates, investors turn to gold, which does not yield interest, over fixed interest rate securities.

INFLATION

As inflation rises, the value of currency decreases, and gold is sought after as an instrument for protection against inflationary conditions.

CENTRAL BANKS BUYING

In August 2019, gold price broke the US$1,500/oz Mark

838.82

836.85

731.56

Gold maintains universally accepted trust, working as a supporting element in a nation’s creditworthiness.

LONG-TERM FACTORS INFLUENCING GOLD PRICE

1,450.00

1,307.04

1,220.83

1,318.87

1,277.23

1,238.46

1,277.72

1,218.61

Sustained periods of economic expansion tend to push demand for gold upwards. Gold-intensive technology products become more appealing, as well as long-term savings solutions. Demand for jewelry also grows during these periods.

2.1

1.9

2H2018

1H2018

2H2017

1H2017

2H2016

1.7

OPPORTUNITY COST

If investors decide that gold will yield a higher return than other assets, like stocks or bonds, then the metal’s price tends to rise. There is an inverse relationship between gold, on the one hand, and interest rates and the value of the US dollar, on the other.

——Inflation rate ——Interest rate

0.8

1H2016

2.2

1.5

1.4 0.8

2.3

2.1

3Q2019*

2.1

1H2019

2.1

MARKET RISK AND UNCERTAINTY

When multiple risk-generating trends come together to darken the economic long-term horizon, investors turn to gold as a bulwark against uncertainty. Such trends include inflation, changes in interest rates, fluctuations in currencies, recessions and wars.

——Gold price

2.4

WEALTH AND ECONOMIC EXPANSION

MOMENTUM AND POSITIONING

Trending variables such as price momentum can enhance o depress gold’s price. Momentum is the rate of acceleration of a security's price; it refers to the rate of change on price movements for a particular asset. *Forecast Sources: World Gold Council, Investopedia

| VIEW FROM THE TOP

READY TO GO AT PINOS RAMĂ&#x201C;N PĂ&#x2030;REZ President and Director of Candelaria Mining Corp.

Q: What is your outlook for gold prices?

US$14 million, we will begin construction and move forward.

A: The outlook for gold remains positive. We believe we are at

We have had fantastic support from the local municipal,

the beginning of this cycle and have confidence that the price

state and federal governments. The municipality of Pinos

of gold will continue its upward trend. This will obviously have

is eager to restart the mine as it has been over 70 years

a positive effect on our business. We are focusing on financing

since the last production. They want it and are ready for it.

the construction of our Pinos gold project in Zacatecas before year-end. This will allow us to begin production in 1Q21. If this

In Veracruz, we are going to continue with an exploration

gold cycle behaves like previous cycles, we should see further

program and look to develop a multimillion oz resource

increase in the gold price. This positions us very well to take

from the current 600,000oz we have proven to date.

advantage of production at Pinos.

Upon construction of Pinos, we may look to another round of financing to recommence our exploration program at

Q: In what stage are the Pinos and Caballo Blanco projects

Caballo Blanco.

and what is your strategy to develop them? A: The Pinos project is fully permitted and ready to go to

Q: How does your alliance with Agnico Eagle Mines at Caballo

production. We are in a fortunate position in that we already

Blanco work and what types of finance are you pursuing?

own the processing plant and only need to transport it

A: Agnico Eagle acquired roughly 9.97 percent of Candelaria

down to the mine site. We have drilled out an initial resource

in 2017 with a focus on exploring Caballo Blanco. It has

and have filed a robust Preliminary Economic Assessment

seven highly attractive exploration targets with the potential

(PEA). Upon finalizing the project financing of roughly

of adding significant size to its current resource. What we pursue for the Pinos project is a combination of debt and equity. The debt will be a consortium of Mexican banks,

Candelaria Mining Corp. is a Canada-based gold development

including FIFOMI. The equity side will be led by foreign

and exploration company. It has a variety of projects in Mexico

investors. We are trying to focus on finalizing the Pinos

but its flagship operations are Caballo Blanco and the ready-to-

financing and get it into construction as soon as possible.

operate Pinos operation in Zacatecas

After that we will focus on financing for Caballo Blanco.

VIEW FROM THE TOP |

2020 CONSTRUCTION PHASE EYED FOR CAMINO ROJO JASON SIMPSON President, Director and CEO of Orla Mining

Q: What are Orla Mining’s main activities in Latin America

Q: What hurdles is the company overcoming to ramp up

and how is it proceeding in Mexico?

this project?

A: Orla Mining has two projects with over 10 million oz of

A: Last year, we published a Preliminary Economic

gold resources between Mexico and Panama, with most of

Assessment (PEA) on the Camino Rojo Oxide Project and

our resources and exploration in Mexico. The company has

the company is working on the next step, a Feasibility

over 206,000ha of exploration ground located in Zacatecas,

Study (FS) scheduled to be completed by mid-year. We

Mexico, including the Camino Rojo Oxide Project, a simple

need to make sure that we focus on a feasibility study that

oxide, heap leach, open-pit mine. We will continue to study

is consistent with investor expectations and our own to

and explore our second asset, located in Panama, but our

approve construction. Second, we need to hear from the

main focus in the short term is in Mexico. Camino Rojo was

new federal administration.

purchased from Goldcorp, which continues to hold a 20 percent share. This year, the company’s goals are to complete

Security of mineral tenure, efficient and appropriate

the feasibility study, get the required permits approved and

regulatory processes for review and approval are required.

obtain a financing package enabling a construction phase

The new administration needs some time to get its feet

by 2020. This year, we will go to the market for a mixture

on the ground but it seems to be very engaged with this

of debt and equity totaling up to US$200 million. The

industry. Additionally, raising up to US$200 million and

capital construction cost for our first project in Mexico is

securing this funding by the end of 2019 will be a challenge

US$125 million. Our target ensures we have enough working

in the current market. Finally, we intend to build the project

capital and can continue exploration. In addition, we have an

in 2020 consistent with the PEA we published last year,

interesting opportunity with Fresnillo, which is our concession

which has no consideration of the agreement with Fresnillo.

neighbor to the north. A pit lay-back agreement with Fresnillo enables us to access more gold on our property at depth that

Q: What are your production targets and strategy for 2021

would increase the project’s in-pit gold ounces from 1 million

at Camino Rojo?

oz to at least 1.7 million oz.

A: The overall average annual throughput for the deposit is close to 100,000oz but there is always a ramp-up to that

Q: What added values make a company like Orla Mining

amount. For instance, in the first production year, 2021, our

different from other gold producers?

PEA defined a production output of 67,000oz. That will

A: The first necessity is to have good assets and Camino Rojo

rise to 94,000oz in year two and over 110,000oz the third

covers this requirement. Second is our management team. You

year. Camino Rojo Oxide Project has a seven-year mine

need a management team that is capable and experienced.

life with an average production of 97,500oz per year. This

Some teams are effective at exploring and finding the assets

production rate is based on last year’s PEA, which has no

but the skills needed to progress a major mining development

consideration of working with Fresnillo. An agreement

are rare. The management team that will design and construct

with Fresnillo will give us the opportunity to increase our

this project understands the technical, social, and commercial

throughput and increase annual gold production but we

requirements involved in a mining development. Technically,

will continue to move forward with the development of the

you need good engineering to ensure the best design. Our

project with or without that agreement.

team has that experience. Finally, a company can have a good asset, put together a great management team and achieve good community relations but if it does not have the money

Orla Mining Ltd. is a mineral exploration and mine development

it will not be possible to develop anything. The credibility of

company that explores for gold, silver and copper. The

this team, our board of directors and key shareholders will aid

company plans to build and operate its first mine in Mexico. It

us in the commercial aspect of this development.

is headquartered in Vancouver, Canada

Baja vein core with ruby silver, Oaxaca

SILVER

Mexico is the worldâ&#x20AC;&#x2122;s top silver producer, with 21 percent of the global production share. With a long tradition resulting in propitious conditions for extracting the mineral from the countryâ&#x20AC;&#x2122;s world-class reserves, silver mining in Mexico is an attractive business. But often, volatile prices keep operators focused on costreduction strategies to promote a healthy cash flow, overlooking much-needed exploration efforts to guarantee steady production.

This chapter looks at the main silver trends and the best practices implemented in mines to boost efficiency. It also goes over the most important projects and the pipeline for replacing aging ones.

CHAPTER 4: SILVER 82

ANALYSIS: Mexico, Silver Champion

INFOGRAPHIC: Silver Profile

MAP: Mexico's Main Silver Mines

VIEW FROM THE TOP: Octavio Alvídrez, Fresnillo plc

VIEW FROM THE TOP: Keith Neumeyer, First Majestic Silver Corp.

VIEW FROM THE TOP: Bradford Cooke, Endeavour Silver

Godfrey Walton, Endeavour Silver

PROJECT SPOTLIGHT: Efficiency, Innovation to Increase Silver Production

VIEW FROM THE TOP: Carlos Silva, Carrizal Mining

INSIGHT: David Wolfin, Avino Silver & Gold Mines

VIEW FROM THE TOP: James McDonald, Kootenay Silver

PROJECT SPOTLIGHT: Old Silver Mine Sees Revival

100

VIEW FROM THE TOP: Luiz Camargo, Compañía Minera Cuzcatlán

101

VIEW FROM THE TOP: Mitchell Krebs, Coeur Mining

102

VIEW FROM THE TOP: Darren Blasutti, Americas Gold and Silver Corporation

103

VIEW FROM THE TOP: Brendan Cahill, Excellon Resources

| ANALYSIS

MEXICO, SILVER CHAMPION Silver is unique in that it trades both as a precious and industrial metal. In 2019, both of these aspects were buoyed by several factors. Mexico remained the No. 1 world producer, even as companies and investors remain in wait-and-see mode with respect to the steps López Obrador’s government will take to boost the industry

Seen as a safe-haven investment, silver is benefiting from

Cahil would like to see is related to Mexico’s concession

the current climate of market volatility and geopolitical

scheme. “As world-class deposits will likely not be found in

uncertainty. Silver has gained some of the ground lost in

small concessions, the government must enable exploration

2018: its average price in 1H2019 was US$16.28/oz, with a

companies to have efficient access to large pieces of land.” In

high point of US$20/oz. Moreover, as the Silver Institute

connection with this last point, James McDonald, President

notes, the white metal has an attractive price point when

and CEO of Kootenay Silver, elaborates: “Concessions

compared with gold, based on the gold:silver ratio at

in Mexico often enter a limbo stage, which can last for

approximately 82. The cutting of interest rates by central

years, where they are neither valid nor available for new

banks around the world is another argument in favor of a

applications.” Reforming the system so as to swiftly free

bullish silver outlook for 2020. “We are expecting the silver

up concessions that are not fulfilling requirements would

price to be in the US$18-19 range in 2020. For the first time

stimulate investments in exploration. “We would see millions

in years, investors will be putting more money into silver

of dollars more spent in the country in exploration as a

mining projects,” says Darren Blasutti, president and CEO

result,” McDonald says.

of Americas Gold and Silver Corporation. Octavio Alvídrez, CEO of Fresnillo, adds that he is cautiously optimistic about

As the industry remains watchful for the necessary changes

the price of silver: “We expect prices to stabilize in 2021 and

to be put into place, key players are constantly at work

are planning accordingly.”

minimizing risks and maximizing productivity. In this regard, consistent innovation is key. A company with an exciting bet

While silver trades more as a precious metal than an industrial

on innovation as a shield from risk is Endeavour Silver. The

metal, industrial fabrication corresponds to 60 percent of

Canadian miner is on-track for developing its first newly built

total demand. Sectors such as automotive are increasingly

mine, Terronera, in Jalisco. It will potentially be Endeavour’s

silver-intensive. Therefore, industrial silver demand cannot be

fifth and largest mine. Bradford Cooke, the company’s

ignored as a factor impacting price, and analysts anticipate

CEO, explains: “Terronera is a chance to start from scratch

a sustained, if modest, increase in the short-term. The

and create model mines with one decade-plus life. We

Silver Institute forecasts growth in silver’s use in a variety

are especially focusing on the concept of autonomous

of additional sectors, such as water purification, chemical

equipment, which has a huge cost benefit.” In respect to

applications, LED lighting, flexible electronics and screens,

this, Endeavour is planning to introduce automated scoop

as well as anti-microbial applications in textiles. In connection

tramps. This technology is faster, safer, more productive

with this, Mitsubishi’s Head of Business Development

and more reliable than its man-handled alternative. As

Jonathan Butler pointed out to LBMA: “Growth in global

Godfrey Walton, Endeavour’s President and COO, notes,

solar photovoltaic installations will continue to drive demand

“our suppliers are very excited by this commitment to

for silver, despite a slowing of the Chinese economy; demand

innovation. There is a great deal of interest in being part of

for silver in electronics will also have a positive year.”

something new.”

Updating policies and regulations to boost Mexico’s

Parallel to the introduction of newer, more sophisticated

competitiveness is urgent. What the country needs to

mining techniques, leading silver companies in Mexico

understand is that its extraordinary mineral wealth will not

find it crucial to optimize their asset portfolio so as to

be sufficient to maintain its position as the world’s silver

guarantee long-term value for shareholders. Coeur

champion. Concrete measures must be executed to boost

Mining’s example is illustrative in this sense. The company

investment. Brendan Cahil, CEO of Excellon Resources,

has made it a priority to maintain a well-balanced portfolio

pinpoints two main changes the new government should

in high-quality mining jurisdictions. Palmarejo, in Mexico,

make. First, “Mexico needs to take the shackles off

is the company’s largest asset, while its Canadian and US

exploration.” Globally, there have been very few discoveries

mines provide resources for short-term growth. As Mitchell

in the last decade or so. In Mexico, the last major silver

Krebs, Coeur’s president and CEO, explains: “There are

discovery was Juanicipio in 2005. This is a worrisome trend.

many things that can go wrong in mining, and we are

As Cahil explains, “ore is not at surface level anymore, and we

shielding our investors and shareholders from volatility,

need to start looking in trickier places.” The second reform

as well as providing a good pipeline for future growth.”

INFOGRAPHIC |

SILVER PROFILE When it comes to silver, Mexico outshines the entire world.

the ranking in terms of production, Mexico’s south still

As the largest global producer of silver, the industry has

faces many challenges to uncover its silver reserves. As in

great expertise to share. In 2018, Mexico produced 3,690

previous years, Zacatecas, Durango and Chihuahua held the

tons of silver, with Zacatecas, Durango and Chihuahua as

Top 3 spots in the ranking. Fresnillo plc was the country’s

its top three producers. Although Oaxaca has climbed

crown jewel, producing 61.8 moz in 2018.

NATIONAL SILVER PRODUCTION 100

Value of silver production (MX$ billion)

2013

2014

2015

4 60.65

4.11 56.25

47.55

4.96

46.91

58.11

4.73

2016

2017

4 2 0

2018

ZACATECAS

48% Hemosillo 16.7% Sahuaripa 7.8% Guerrero 28.1% Others

Mexico

1. ZACATECAS 2,314,754.7 kg

3.69

31.96% Zacatecas 22.29% Durango 19.34% Chihuahua 9.09% Sonora 3.91% Oaxaca 2.9% State of

LARGEST SILVER PRODUCING STATES AND MUNICIPALITIES 2018

70.41

5.82

——Total silver production (thousand tons)

2.24% Guanajuato 8.27% Others

DURANGO

2. DURANGO 1,614,401.7 kg

54.5% Cocula 42.8% Chinipas 2.7% Others

3. CHIHUAHUA 1,401,114.9 kg

CHIHUAHUA

41.7% Ocampo 21.1% Madera 18.3% Chinipas 18.9% Others MEXICAN SILVER ORE AND CONCENTRATES EXPORTS BY COUNTRY (tons) 350

4.25 Germany

4.87 Peru

4.33

5.39 Japan

Canada

Global ore production 28,143.34 tons

South Korea

Source: CAMIMEX, INEGI, SGM, Anuario Estadístico 2018, ed 2019.

2017 2018

15.01 12.53

silver producer in the world

150 100

21.89

74.25%

250 200

China

25.75%

73.86 51.94

Mexico is the

311.59

300

Malaysia

Mexican ore production 7,243.34 tons

| MEXICO'S MAIN SILVER MINES

84 6

8 10 9

16 19

TOP 10 SILVER PRODUCTIVE MINES

23 18 24

1. Saucito | Fresnillo plc 13 14

2. Peñasquito | Newmont Goldcorp

4. San Julián | Fresnillo plc 5. San José | Fortuna Silver

Zacatecas contributes 37 percent of the country's silver production

PRODUCTION (million oz)

15.1

14.6

18.3

19.8

4.6

7.5

5.9

7.6

0 1

25 26 27

3. Fresnillo | Fresnillo plc

CATEGORY

Number

Major Mines New Projects World Class Deposits STAGE

Production Development Advanced Exploration

20 21

Name

Company

State

Mina de Julio/ Santa Elena

Mexus Gold US

Sonora

San Felipe

Americas Silver Corporation

Sonora

Santa Elena

First Majestic Silver, Sandstorm Gold Ltd

Sonora

La Morita

Camex

Chihuahua

Cusihuiriachi (San Miguel)

Sierra Metals

Chihuahua

Orisyvo

Fresnillo plc

Chihuahua

Los Gatos

Sunshine Silver (70), DOWA Metals and Mining (30)

Chihuahua

La Recompensa

Grupo Gorminmet

Chihuahua

Recompensa4

Grupo Gorminmet

Chihuahua

Parral Tailings/ Esmeralda

Gogold Resources Inc

Chihuahua

Palmarejo

Coeur Mining

Chihuahua

San Julián

Fresnillo plc

Chihuahua

La Rastra, Escuinapa, El Rosario

Vane Minerals

Sinaloa

Rosario/ Plomosas

First Majestic Silver

Sinaloa

La Ciénega

Industrias Peñoles

Durango

La Ciénega (Expansion)

Fresnillo plc

Durango

El Herrero

Minas de Bacis

Durango

Del Toro (Chalchihuites)

First Majestic Silver

Zacatecas

Peñasquito

Goldcorp (75), Weaton Precious Metals (75)

Zacatecas

Aranzazu (El Cobre)

Aura Minerals

Zacatecas

Camino Rojo

Orla Mining

Zacatecas

Fresnillo

Fresnillo plc

Zacatecas

San Martín (reopening)

Grupo México

Zacatecas

La Colorada

Pan American Silver/ Maverix Metals

Zacatecas

Juanicipio

MAG Silver (44), Fresnillo plc (56)

Zacatecas

Saucito

Fresnillo plc

Zacatecas

Unidad El Bote

Arian Silver Corporation

Zacatecas

San Roberto

Capstone Gold

Zacatecas

Terronera

Endeavour Silver

Jalisco

Tizapa

Industrias Peñoles

State of Mexico

Ixtaca

Almaden Minerals

Puebla

Los FilosBermejal

Leagold Mining

Guerrero

Media Luna

Torex Gold

Guerrero

Capela

Industrias Peñoles

Guerrero

San José/ Cuzcatlán

Fortuna Silver

Oaxaca

Source: SGM, company websites

| VIEW FROM THE TOP

LONG-TERM POLICIES TO PROMOTE INVESTMENT NEEDED OCTAVIO ALVÍDREZ CEO of Fresnillo plc

Q: What should Mexico do to gain competitiveness against

I believe these resources must be directed completely to

other mining jurisdictions, such as Chile or Peru?

the mining communities. The Mining Fund can be a great

A: We are experiencing political and economic uncertainty at

complement to the work already undertaken by mining

a global level, and Mexico is going through numerous changes

companies. It is not so much about redesigning the fund,

internally. Although the country has a significant geological

as of making sure it works transparently and effectively.

potential, so do Peru and Chile, as does Argentina, to a certain extent. Newcomers include Ecuador and Colombia.

Q: What specific measures is Fresnillo taking to achieve its

The US and Canada remain very competitive in designing

production targets for 2019?

and putting in place all the conditions necessary to invest

A: We have had in 2019 somewhat difficult year. Therefore,

in mining. Against this backdrop, it is crucial that Mexico

our guidance for production was lower than in 2018, when

create long-term mining policies that promote investment

we achieved 61.8moz of silver, including our silver stream,

and guarantee legal and fiscal certainty. Right now, miners

and more than 920,000 oz of gold. Our guidance for 2019

in Mexico have a burden of around 52 percent, considering

is between 55 and 58moz of silver and between 880,000

income tax, mining rights for exploration-exploitation

and 910,000 oz of gold, reflecting some difficulties we have

concessions, royalties, PTU and other factors. Alternative

had with operations, mainly at Fresnillo on the silver side

jurisdictions have burdens as low as 25 percent. They also

and a softer production at Herradura. We also knew that

provide incentives for exploration that Mexico lacks.

Saucito would be performing with a lower silver grade, so that was not a surprise. Similarly, weaker silver production

Fresnillo is known for placing exploration at the core of its

was expected at San Julián.

business strategy. It is a crucial activity that we conduct throughout the industry’s cycles. That strategy enabled us

Of those mines, the only surprise was Fresnillo. We are putting

to double the silver resources we had 11 years ago and more

in place concrete plans to correct that and make sure we

than triple our gold resources. It resulted in a doubling of

reach our guidance for 2019. At Fresnillo specifically, we are

production. Now, exploration is decreasing in Mexico, given

implementing innovative maintenance programs to improve

lower prices for base metals and lack of incentives. Even

our equipment’s reliability. Moreover, we are introducing

Fresnillo will cut down moderately. A comprehensive fiscal

automatic drilling devices so we can continue drilling in

plan to incentivize the industry is much needed. It would

between shifts and increase productivity. We are increasing

contribute to the objectives of the current administration:

our contractors’ efficiency and hiring some foreign mining

economic growth and job creation in areas of the country

contractors for development, which is the future of the mine.

where often there is no investment because of their remote

This is not to say that we do not prioritize a strong local

locations. Mining companies bring infrastructure and

supplier network. We work closely with the Zacatecas Mining

development to such regions.

Cluster, which has been reflected in a strong supplier network in Zacatecas and the neighboring states. That is a KPI we

Q: What changes in the Mining Fund would be appropriate

follow quite closely: how many of our goods and services

so that it effectively fulfills its purpose?

come from local sources. But with respect to development

A: The original design was sensible. Directing the levied

specifically, we work with almost all the contractors in Mexico,

resource to the communities was an important initiative. It

and we have stretched them to capacity. We have had to hire

must be said, however, that after almost five years of the

foreign contractors to supplement those in Mexico.

fund’s implementation, Fresnillo, has not reduced its social investments in communities. The same can be said of almost

Q: Juanicipio is among the most important projects

all mining companies. This makes the fund an additional

in Fresnillo’s pipeline. What is the strategy for its

burden to an already heavily-taxed industry. Despite this,

development?

A: Fresnillo is cautiously bullish about the price of gold and silver in the near future. We expect prices to be at a good level in 2021, when Juanicipio will be in full production. It is an excellent project, sharing many traits with Fresnillo and Saucito: higher silver grade, wide veins, low costs. The project was approved in April 2019, with a US$395 million investment. This will result in a silver production average

Fresnillo has doubled its silver resources and tripled its gold resources over the last decade

of 11.7moz and a gold production of 44,000 oz. The initial expected mine life is 12 years. There is good potential to

operations. Thanks to this plant, we will recover additional

expand this project’s reach and lifespan.

silver from what we have already mined. Fresnillo is an operation that goes back many decades, and we have tailings

We are working jointly with MAG Silver, our JV partner on

that will be reprocessed with this technology. Fresnillo has

that project. It was the original owner of an exploration

been operating for decades, but continuously since the 1920s

concession in that area and was already exploring around

or so, initially with amalgamation processes, and then with the

12 years ago when we approached the company for an

flotation process. We installed top-notch technology there

exploration agreement. We committed to some initial

to achieve very fine milling: 15 to 20 microtons. This gives us

investment, which allowed us to earn the 56 percent share

the possibility of recovering more silver than previously. The

on the project that we now have.

plant represents a US$155 million investment. It will result in an annual production of 3.5moz of silver on average and

JVs like that with MAG Silver are part of our growth strategy.

close to 15,000 oz of gold at a very competitive cash cost

Some years ago, we undertook a JV with Newmont in the

of US$2.50 per ounce. We have already finished the first

Herradura district. It turned out successfully and after many

leg of this project, which is the pyrites plant at Saucito. The

years of our operation we ended up buying its share in

second leg will be completed in 2H20, namely, the flotation

2013, making the project 100 percent Fresnillo-owned. Our

plant to process the old and current tailings of Fresnillo. It

approach to JVs is to create synergy: value must be generated

is very exciting to be able to use new technology to extract

that otherwise would be impossible or very time-consuming

value from what has been mined in the past.

to generate if we did it alone. In the case of Herradura, we benefited from Newmont’s exploration experience in deposits

Q: What is your perspective on the availability of human

similar to Herradura. We are open to those sorts of alliances.

talent in the mining industry? A: This remains one of the main challenges the company

Q: There are successful gold and silver projects in the south

faces, given the fact that we doubled our size in a decade.

of Mexico. What conditions would warrant Fresnillo’s entry

The industry’s cycles impact the creation of talent.

into those jurisdictions?

This begins at the university level, where the problem is

A: These jurisdictions are certainly more complex than

aggravated due to a mismatch between a high cycle in

others in Mexico. We have the capacity to explore, identify

the industry and the amount of talent being generated

and develop operations in difficult and isolated areas,

at institutions of higher learning. We have taken that

like Cienega. More than 20 years ago when we started

into account and work with all universities in Mexico that

operations there, we brought infrastructure there and made

have earth sciences programs. We support them through

a considerable investment. San Julián is another project

different schemes, like providing opportunities for students

with similar characteristics. Perched high on the Sierra

to come and work at our mines for certain periods of time or

Tarahumara, it presented many intricacies, not least in terms

updating professors on the main industry trends. Moreover,

of security. We do have some concessions in Guerrero and

when we acquire new technologies, we promote them in

probably in the near future we will be able to explore there.

universities by introducing them to their labs. We also

But the circumstances there are very particular, even more

work with graduates through mentorship programs, where

so than those of the aforementioned projects. State and

distinguished members of our personnel guide newcomers

federal governments are working to improve conditions,

over nine months at one of our operations, after which they

like combating crime in certain areas, and working with

may be offered a position if there are openings and their

communities to support our processes to obtain the social

performance was satisfactory.

license to operate. More work is still needed, however. Q: How will the new pyrites plant in the Fresnillo district

Fresnillo plc is the world’s largest primary silver producer and

further your overall production strategy?

Mexico’s largest gold producer. It has seven operating mines,

A: This project is consistent with one of our central business

all in Mexico, two development projects, and three advanced

pillars, which is to maximize the benefits of our current

exploration projects

| VIEW FROM THE TOP

LOCAL TALENT FOR SILVER EXCELLENCE KEITH NEUMEYER CEO of First Majestic Silver Corp.

Q: What are First Majestic Silver's main priorities to

as well as through a number of acquisitions. We want to

boost production at its existing mines?

become the world’s largest primary silver producer. An

A: Our experience operating six mines in Mexico has

additional pillar of our strategy is strong investment in IoT

led us to the conclusion that local talent is key for First

and automation. In 2019, First Majestic’s capital allocation

Majestic's success. We identify, hire and develop the

to corporate projects is estimated to be US$29 million.

best of what is available, favoring local workers over

This capital will be spent, among other improvements, on

expats. We will continue strengthening this aspect of

innovative technologies such as automated lime feeds, mill

our operations, while also focusing on exploration and

and grind optimization, microbubbles and fine grinding.

investment in new innovative technologies to lower costs and grow production. An example of these innovative

Q: What has been First Majestic’s experience with the

technologies is the recent installation of a high-intensity

government and what advice would you give to Canadian

grinding (HIG) mill at the Santa Elena mine. These key

or international companies looking to invest in the Mexico?

principles have led us to become one of the top silver

A: First Majestic has a strong relationship with the

producers in Mexico.

government thanks to its position as the second-largest silver producer in Mexico, operating across nine states.

To keep positioned our mines among the best, the

Canadian companies wishing to do business in Mexico

company will continue to focus on growing organically,

should expect a government system similar to Canada's. The

key to a company’s success is to act like a good corporate citizen and be mindful of what it is to do business abroad. Q: What is the state of the Santa Elena, San Dimas and La Parrilla mines and what new projects are on the pipeline? A: Our 2Q19 reports indicate that San Dimas and Santa

First Majestic is the secondlargest silver producer in Mexico, operating across nine states

Elena account for 80 percent of our overall production.

control. That is why it is important to continually invest in

This is linked to the installation of a new HIG mill at

new innovative technologies and be mindful of costs. First

Santa Elena. This mill is a tall cylindrical unit that stands

Majestic has doubled the exploration plan at La Parrilla

vertically as opposed to a traditional horizontal ball mill.

to approximately 24,000m to test near-mine targets in

Within its housing, the mill has a series of disks that spin

an effort to develop new resources necessary to justify

at high speeds, similar to how a typical household blender

preparing the site for a potential reopening in the future.

works. This movement, combined with ceramic beads,

This, however, will depend on a significant improvement

helps grind ore to under 50µm and improves recoveries

in commodity prices.

by 5 to 10 percent on average. An exciting project in the pipeline is the Ermitaño silverSan Dimas is the cornerstone asset in our portfolio. As

gold project, where we made a significant discovery in late

of May, 2018, we reached a new streaming agreement

2016. The Ermitaño project is located 4km southeast of

and the operation is now generating significant cash

the Santa Elena mill. With a number of drills on site, the

flows. Our strategy is to implement a series of projects

company is working on completing over 32,000m of infill,

to optimize its operation, including implementing high-

step out and metallurgical drilling. In the coming months,

intensity grinding technology, lime automation and pH

the company will begin working on the mine portal. Mining

control and upgrading the tailing filtration plant.

operations are expected to commence in early 2021.

We took the decision to suspend our La Parrilla operations at the end of 2019 due to low silver and

First Majestic Silver Corp. is a mining company focused on

lead prices. The rationale behind this was to improve

silver production in Mexico and is aggressively pursuing the

the company's margins and profitability. Unfortunately,

development of its existing mineral property assets. It owns

commodity prices are all over the map and out of our

and operates six mines throughout the country

San Dimas mine, Durango

| VIEW FROM THE TOP

OPTIMIZATION OF NEW MINES TO INCREASE PRODUCTION, REDUCE COSTS BRADFORD COOKE CEO of Endeavour Silver

GODFREY WALTON President and COO of Endeavour Silver

Q: What investments did the company undertake on its

by 20 percent and engineering to complete an updated pre-

Mexican projects in 2018 and how are they performing?

feasibility study, which we released in August 2018. Terronera

BC: In 2018, Endeavour invested new capital at each of our

is the next core asset for the company and has the potential

three operating mines and three development projects in

to become both our largest and lowest-cost mine. We are

Mexico. For our three mines, Guanacevi in Durango, and

currently putting together a financial package for approval

Bolanitos and El Cubo in Guanajuato, we continued to make

by the board and then hope to commence an 18-month

capital investments primarily to extend mine life. This included

construction period in 2Q19. This mine will initially produce

expanding the underground mine workings to convert

2.6 million ounces of silver equivalent expanding to 5.1 million

resources into reserves and to provide more access to the

ounces per year with a 12-year mine life.

ore bodies and by expanding the tailings facilities. For our three projects, El Compas, in Zacatecas; Terronera, in Jalisco;

Q: What innovations would you like to implement for the

and Parral, in Chihuahua, we invested to advance them toward

Terronera project?

evaluation and production. Guanacevi was our most profitable

GW: We are considering a partnership with an English group

mine for many years but it fell on hard times in recent years

to implement a semi-autonomous rubber-tired train system

so we invested to develop two new, shallower, thicker, higher-

for ore and waste haulage between the mine and plant. The

grade ore bodies to replace the two original ore bodies that

benefit of these trains is that they can go up and down a

are now deeper, narrower and lower grade.

six-degree slope, whereas a regular train can only operate on a maximum two-degree slope. These trains allow us to haul

Our goal is to produce more tons of higher grades at lower

to the deepest level in the mine without a shaft. Also, this

costs. Both new mine developments got underway in 2018 but

system can be remote controlled. Another innovation would

will require much of 2019 to achieve commercial production.

be scoop tramps. The big problem with scoops is that an

We do not provide guidance on a mine-to-mine basis but

operator sitting in a scoop can move material at a 10km/h

we expect to break even by 3Q19 and start making money in

rate. Autonomous scoops using sensors can get to 24-30km/

4Q19. As for other mines, we saw grades decline at BolaĂąitos

h. Sensors also allow for far better maintenance. This is an

last year but we expect these to increase during 2019. At Cubo,

example of equipment that can basically maintain itself and

we reduced the production rate by half to 750t/d to start

run at the desired KPMs (operating parameters). These can

the year in order to give our exploration team more time to

also run between shifts, so we can get an extra two to four

replace reserves. Our pipeline of three development projects

hours a day of moving ore. Our suppliers are very excited by

in Mexico represents the next phase of organic growth for

this commitment to innovation.

Endeavour Silver. In 2018, we developed our fourth mine at El Compas and commenced mine commissioning. Unfortunately,

BC: We are still finding new ore bodies and working at

we ran into some start-up problems that delayed the mine

historic districts but now we have the chance to start from

commissioning but we resolved those issues and we now

scratch and build model mines with much longer mine

anticipate declaring commercial production by the end of

lives. We want to embrace new technologies at Terronera

1Q19. Our investment in mine No. 5 at Terronera in 2018 was

because it is our first newly-built mine. As such, it can be

focused on infill drilling to upgrade and expand the reserves

our model mine going forward. We are especially focusing on the concept of autonomous equipment, which has a huge cost benefit. Other examples include underground

Endeavour Silver is a mid-tier precious metals mining company. It

ventilation fans. Sensor-operated fans consume less power

owns four high-grade, underground, silver-gold mines in Mexico.

because when a work area has no movement or light, the

It has a pipeline of exploration and development projects to

fans shut off, and when any movement or light is detected,

facilitate its goal to become a premier senior silver producer

they automatically turn on.

Q: Endeavour has launched phase 2 of its growth strategy.

Q: How do you approach community relations to get the

What are the plans for phase 3?

social approvals for your projects to operate?

BC: Our phase 2 growth strategy is the construction of

BC: We always engage with the local communities as part

three new mines in Mexico over the next three to four years,

of our sustainability philosophy at an early stage in each

depending on permitting, to expand our production and

of our projects. At Terronera, for instance, we have had

reduce our costs. During the recent bear market of low metal

full community engagement since 2011 to make sure the

prices, we were one of the few silver mining companies that

community is fully informed of our plans, can provide us

acquired several new exploration and development projects to

with their input of what is important to them, and ultimately

establish an organic growth pipeline. Now our focus is building

support our project. Community engagement is a rigorous

these development projects into operating mines. First up is

and systematic process. We use both our common sense and

mine No. 4 at El Compas, which should achieve commercial

our sustainability policies to establish good relationships with

production in 2019. Next up is mine No. 5 at Terronera, where

the local communities. Both sides need to understand the

we hope to receive the final government permit, arrange debt

social, environmental and economic impacts of the proposed

financing and receive board approval to break ground this

mine. We are not trying to solve all their problems or provide

year for production in late 2020.

hand-outs. We prefer to raise the quality of living in the area through our mining activities.

Last but not least is mine No. 6 at Parral, where we plan an ambitious exploration program in 2019 to expand resources, a

GW: We first go into the local communities and inform

preliminary economic assessment and initial mine permitting

people about our plans to build a new mine. When we ask

so we can build the mine in 2021 for production in 2022.

how many people in the community have experience with

Phase 3, which we announced in February 2019, answers the

mines, it is usually not so many. At Terronera, we invited those

question of what happens after our current development

local people interested in working in the mine to come to our

pipeline is completed. We want to move up the ladder into

BolaĂąitos mine for a mine-skills training program. In a ranching

larger, even world-class, ore bodies with decades of life. We

ejido of around 600 people, we had around 32 people go

went to Chile a few years ago and were able to acquire three

through the four-month program, learning the skills needed

district-scale, home-run projects. We are optimistic that Chile

to become miners. Now they are just waiting for us to start

represents an opportunity for Endeavour to make a world-

building so they can become employees and participate in

class discovery and diversify our political risk.

the economic benefits of the mine.

| PROJECT SPOTLIGHT

EFFICIENCY, INNOVATION TO INCREASE SILVER PRODUCTION Fresnillo’s silver district already leads Zacatecas’ mineral production. However, innovative technologies will help production of this commodity to reach its full potential. Ongoing and historical tailings will be reprocessed to recover silver and gold at a pyrite plant at the Fresnillo and Saucito mines. The pyrite plant will produce 3.5 million oz of silver and 13,000 oz of gold on a yearly basis at full capacity with an associated cash cost of US$2.50 per ounce and a total investment of US$155 million.

The pyrite plant will produce 3.5 million oz of silver and 13,000oz of gold on a yearly basis at full capacity To kick off this plan, Fresnillo concluded the construction of a 2,000t/d dynamic lixiviation plant in 2Q18. By the end of the year, the asset produced 977,000 oz of silver and 3,600 oz of gold, respectively. In 2019, the project continued with the development of a flotation tailings dam with the capacity to process 14,000t/d. Overall, the plant will froth float pyrite concentrates that will be leached at a dynamic leaching plant and a Merrill Crowe plant to produce precipitates. This first stage in Fresnillo’s plan represented a total investment of US$54.6 million investment. Fresnillo’s optimization strategy is crucial to increase the district’s competitiveness. Fresnillo is one of the world’s oldest mines, beginning operations around 1554. Saucito, on the other hand, started operations in 2011. Both assets are crucial for the country’s silver production. Saucito alone contributed 32 percent of Mexico’s total silver production in 2018. The Fresnillo asset, meanwhile, produces close to 24 percent of Fresnillo’s total silver. The pyrite plant is already up and running at Saucito and the company plans to develop a second phase at the Fresnillo mine. Through a flotation circuit, ongoing and historical tailings from this mine will be processed to produce pyrite concentrates, which will be sent to a filtration and leaching process at Saucito to obtain the needed precipitates. According to CAMIMEX’s 2019 Annual Report, this flotation tailings dam positions it as one of the main new silver projects in the country, together with mines like Capela, Juanicipio and Camino Rojo. The second phase of the project represents a total investment of US$53.8 million and is expected to start operations by 2H20.

| VIEW FROM THE TOP

A NEW SILVER GIANT IS BORN CARLOS SILVA CEO of Carrizal Mining

Q: What were the main motivations behind the merger

We also own the Minillas project that was previously owned

between Carrizal Mining and Santa Cruz Silver?

by a small miner, which is why it was never exploited. It used

A: The objective of the merger was to bring together two

to be a coin house given its abundance of silver. Our goal

Mexican companies, one listed on the TSX. For over 10

is to bring all its history back by continuing exploring the

years, I have witnessed how precarious financing is in our

property in 2019 and exploiting it in 2020. Our budget for

industry. The only way to grow a company is to venture into

this project is US$5 million for exploration and US$5 million

the stock exchange but the BMV tends to lack the proper

for development. By 2020, Carrizal Silver Mining will invest

tools. Instead, I think foreign stock exchanges, such as TSX,

US$60 million, which is our levy target on the stock exchange.

are better suited for the mining industry. We were lucky

The company also owns a smaller project named Charcas

to find in Santa Cruz Silver the opportunity and access to

in San Luis Potosi, with a 300t/d production capacity and

a stock listing that we needed. For its part, Santa Cruz

is applying for the La Libertad mine concession in Durango.

Silver succeeded in attracting financing but lagged in its operations. The merger aligns the operational excellence of

The structure and foundations of Carrizal Silver Mining are

Carrizal Mining with the financial access of Santa Cruz Silver.

simple. The previous philosophy of Santa Cruz Silver will evolve and adapt to that of Carrizal Mining, employing the

Carrizal is always looking for good projects. We know that

same people but organizing them more effectively through

the ZimapĂĄn mine has a limited life span and a low ore grade.

a distribution of responsibilities. We have an excellent

It is not a strong growth project despite how productive

workforce, mostly composed of millennials.

and efficient we made it. But together with Santa Cruz Silver, we can develop great projects with huge potential.

Q: What has been your personal experience with mine

We have around 9,000ha in Vetagrande, Zacatecas. For

financing in Mexico?

over half a century, this area saw just 57 small miners that

A: I have been seeking financing for mine operations in

could not develop the project. We now own 100 percent

Mexico for over 10 years. After knocking on countless doors,

of the property, which has a significant number of veins.

I realized that Mexico is not favorable for accessing this

This is the main reason why Santa Cruz Silver attracted my

kind of investment; it is much easier in Toronto. We had

attention. We wanted to quickly develop Vetagrande. We

an opportunity to access credit from FIFOMI but it was a

started by implementing a diamond drilling program that

difficult experience. When we finally got the money, we

hopefully will yield a high ore grade. All the mines that we

no longer required it. As a result, Carrizal Mining largely

will develop will be underground and high-grade. I think this

relied on our guile as resources were so scarce. But I do

project will become one of the main silver projects in the

acknowledge that FIFOMI prepared us to comply with the

country. We will construct a plant that will start operating

highest financing requirements. If a company can meet

in 2020 and increase productivity to 2,000t/d. I think that

FIFOMIâ&#x20AC;&#x2122;s standards, it is easier to later succeed with stock

in three years we can ramp up production to 4,000t/d. Our

exchanges. As a result, Carrizal Silver Mining is much more

budget to develop the plant is US$25 million and we also

institutionalized and our governance is much stronger. I

estimate another US$20 million to complete the exploration

advise junior companies to look beyond Mexico and reach

of the property.

out to foreign stock exchanges, but it is necessary to first have a well-planned project with demonstrated potential.

Carrizal Mining is a Mexican-owned company located in

Q: How do you manage human capital to keep productivity

Zimapan, Hidalgo. It produces lead, zinc and copper. It is

up and turnover low?

committed to being a sustainable company and to the health

A: Not all the potential of a mining project lies in its

of its human capital

mineral reserves. For example, the Charcas project is a

small operation but it offers significant potential for us

understand that the ore grade of the property is low but

in terms of talent. If we lack people at one of our major

we can achieve higher volumes.

operations, we can get the human capital we need from our smaller projects. The industry competes for the best

Q: Where do you see Carrizal Silver Mining positioned over

talent and we focus on this. My strategy is to develop my

the next five years?

employees. For us, this means keeping our people with

A: My goal for the company is to have at least five operations,

us and having a low turnover rate. Seventy-five percent

each with a production rate above 2,000t/d before 2025.

of Carrizal Mining’s staff is millennial, a generation often

Our production goal over the next five years is between

perceived as unpredictable, yet our turnover is very low.

10,000-14,000t/d of silver. I prefer to set the company and

The secret is to listen to what employees want. Millennials

staff ambitious goals even if we cannot accomplish them all,

demand new challenges and growth opportunities. We also

rather than achieve mediocre targets. Carrizal Mining was

develop our people by contributing to their education. For

able to create 150 direct jobs with zero investment, growing

example, we share expenses for Master’s programs and

instead through cashflow generation. I therefore consider

training. The success of Carrizal Mining’s operations lies

myself an expert on mining without money, meaning I can use

with its people and this will continue to be the case for

this experience to add greater value for Carrizal Silver Mining.

Carrizal Silver Mining.

Imagine what can be done with a US$60 million investment.

Q: What is the expansion outlook at Zimapán and how are

The social license is another factor on which I have

you expanding the mine’s life cycle?

focused during my professional carrier and Zimapán is no

A: The training and further development of our people

exception. We have a very good relationship with ejidos,

will be the key for success. We did not implement cutting-

surrounding communities and local authorities. Our goal is

edge technology at Zimapán because Carrizal Mining had

to enforce transparent mining at all our projects and this

a limited budget, but we worked at highly efficient rates

is one of the pillars of Santa Cruz Silver. The social license

with the equipment we had. The focus on our people was

is not something that can be delegated; it is rather the

also crucial because the returns or losses of the company

responsibility of the company leader. We aim to become the

were directly reflected in the gains or losses of the people

first Mexican mining company with a socially responsible

of Zimapán. As for the outlook of the mine, we will carry

certification under the IRMA program. We expect to be

out further exploration to get more volume elsewhere. We

certified by 2020.

| INSIGHT

GREATER INCENTIVES NEEDED FOR LOCAL INVESTORS DAVID WOLFIN President and CEO of Avino Silver & Gold Mines

Mexico’s mineral resource is widely untapped but the right

flotation circuit. This allowed us to increase our production

investment incentives could open the floodgates to local

from 1,500t/d to 2,500t/d,” says Wolfin. He is confident

investors and greater development, says David Wolfin,

about an increase in production toward the end of 2019. The

President and CEO of Avino Silver & Gold Mines. “In Canada,

company is targeting between 2.6 million and 2.8 million oz

we have a program based on flow groups. Investors get

of silver equivalent. “By 2020, we are looking for this number

associated benefits by investing in a mining company and

to climb up to 3.2 million tons per day,” he adds.

that money is directed to exploration” he says. “Mexico has wealthy people who could invest in their own country if this

As a smaller company, Avino is keeping an eye on local

opportunity was available. More exploration, more discoveries

developments that are creating uncertainty; in particular,

and hence, more mines could be found.”

the Mining Fund, which was managed by municipalities, will now be administered by the federal government. “As we are

Avino Silver & Gold Mines itself wanted to participate in the

expanding operations in the country, our biggest concern is

Mexican Stock Exchange, but the conditions would not allow

the structural improvements around tax collection. This money

it. “The government should introduce exploration incentives

is supposed to be directed toward communities,” Wolfin says.

for junior mining companies in Mexico. We could finance our

He points out, however, that the company maintains a good

profit on the Canadian Stock Exchange and then send this

relationship with relevant stakeholders. “Durango’s authorities

money to the country and build our mines. Avino Silver &

have been helpful and open to business. They appreciate what

Gold Mines has been public for many decades now in Canada.

we are doing in the region.” The company itself has supported

Hence, we have secondary offerings on the stock exchange.

local communities with a variety of infrastructure projects,

Nevertheless, if we could do this in Mexico, I believe more

including road construction, water systems and even medical

people in Latin America would invest as well,” he says. The

services. “To date, we have employed 350 locals. I believe

company’s most important asset is located in Durango.

that hand in hand with the government, we could promote

The Avino vein was mined during 27 years of open pit and

the development of a mining curriculum among younger

underground production prior to 2001. “In 2018, we completed

locals. This could help to rebuild the community’s labor force,”

an expansion of the mill, with the addition of a fourth bulk

Wolfin notes.

VIEW FROM THE TOP |

NEW OPPORTUNITIES FOR DEVELOPING HIGHâ&#x20AC;&#x2018;GRADE DEPOSITS JAMES MCDONALD President and CEO of Kootenay Silver

Q: What are the main restraints holding back exploration

Q: How are the Colombo and Copalito assets supporting your

investment in the country?

exploration activities in Mexico?

A: The greatest impact for a company like us takes place

A: Colombo is located in Chihuahua and Copalito in Sinaloa.

within the land ownership processes related to the granting

The Copalito deal took two years to finalize and Colombo

and cancellation of mineral rights. In Mexico, this is a big

one year. Both hold good potential for the discovery of

challenge because concessions often enter a limbo stage

high grade vein deposits so we are very happy to have

where they are neither valid nor available for new applications.

landed option agreements to acquire these projects.

This can remain the case for years or even decades. In such

Both are classic, epithermal, vein-hosted, precious metal

cases, it may be that the taxes have not been paid or the

systems. In the case of Copalito, there are both silver and

work assessment has not been done and so the concession

gold values in a number of different veins. Some of the

has been canceled but not liberated to make it available for

veins are higher in base metals, including lead, zinc and

someone else to apply for the rights and begin spending

copper while others are higher in silver or gold. We have

money exploring. This effectively prevents money being

enough sampling on veins at surface returning good values

invested in exploring for new deposits because companies

to believe there is a resource there to be defined through

or individuals cannot acquire the mineral rights. This affects

drilling. Colombo is also well-situated and geologically,

large areas of mineral potential. If the system could be

it is really interesting because it has an entire epithermal

improved where concessions are systematically liberated and

system preserved there, right from the very top where you

made available for new applications based on fixed timelines

cannot see any values, down to the point where we are just

when taxes and assessment work requirements are not met,

getting into the precious metal zone. In this case, there is

that would stimulate a lot more exploration investment. I

a little bit of gold but it is silver dominant.

believe we would see millions of dollars more being spent on exploration in the country as a result. This would result in new

We are focusing on Colombo by doing the necessary

discoveries with much larger investments in mine construction

work to get the permits done and get ready for a drilling

and operation, more tax revenue and more people being

program that we hope to start in April. We just raised US$7

employed in jobs with good wages.

million, which is more than enough money to execute this program. At the same time, we continue to look at

Q: What is the state of the companyâ&#x20AC;&#x2122;s major assets and what

different opportunities. When the mining market is not so

are its growth expectations for 2019?

good, you get the opportunity to acquire good assets that

A: Right now Promontorio/La Negra and La Cigarra are our

would not otherwise be available. We are also advancing

principal assets. Promontorio and La Negra represent one

some earlier stage projects we think have the potential for

property package with two different silver discoveries. We

large high-grade silver deposits to keep the pipeline of

optioned that project to Pan American Silver in 2016, giving

early stage through to discovery and development going.

them the option to earn a 75 percent interest and leaving

Many projects have to be tested to make a discovery so it

Kootenay Silver with 25 percent. At La Cigarra, which is

is important to continuously develop new properties, new

100 percent owned by Kootenay, we drilled last year with

targets. We are really excited about the opportunities that

the objective of extending the resource. Drilling successfully

could arise in 2019.

extended the mineralization another 1,100m along the strike, a 50 percent increase in the strike extent of silver mineralization. We achieved a great result in this program but the market did

Kootenay Silver i s a Canadian, Mexico-based silver exploration

not add any value to it and so we stopped drilling because of

company engaged in the development of three major silver

that and began pursuing a couple of new opportunities with

projects in Mexico, including La Cigarra in Chihuahua and

the potential for high-grade deposits in the meantime.

Promontorio and La Negra in Sonora

| PROJECT SPOTLIGHT

OLD SILVER MINE SEES REVIVAL Junior exploration companies can find it difficult to thrive in the Mexican mining market, a risky business where getting the right funding is the ultimate goal. Nevertheless, those that overcome this issue can lead by example. Kootenay Silver, a Canadian-Mexican company that owns some of the largest junior bases in the country, including La Cigarra, Promontorio and La Negra, is among those examples. While some companies might feel confident with simply owning these assets, Kootenay Silver continues to explore new developments. This strategy paid off with the discovery of high-grade silver at the Columba mine.

Columba encompasses a large, classic high-grade epithermal system containing numerous veins of lengths up to 2km Located in the state of Chihuahua, this asset was briefly operated in the early 1900s, just before the Mexican Revolution erupted. The property encompasses a large, classic high-grade epithermal system containing numerous veins of lengths up to 2km. The channel found in these veins is equally impressive as it holds returning widths from 0.5m to 6m and grades up to 692gpt of silver. Columba also hosts two extensive sets of underground infrastructure. On the surface, there are four old shafts, with one reported to reach depths up to 200m. It also holds six development drifts covering lengths of 1,000m. Given the initial work done at this asset, some small-scale mining took place in the mid-1900s with an estimated result between 70,000 and 100,000 tons of silver. Some historical records indicate a major potential for the discovery of new highgrade deposits. For instance, samples taken at a depth of 100m found silver values of 350gpt. Nevertheless, recent drillings indicate there is no evidence that Columba was previously explored in modern times. The company started drilling work in early 2019 and it is already off to a great start. Results derived from the first 10 drilled holes indicate high-grade silver mineralization. Additionally, nine out of these 10 holes have successfully encountered good widths of quartz, quartz-calcite and breccia. Furthermore, the drilling program has tested the â&#x20AC;&#x153;Fâ&#x20AC;? vein, that goes along 400m of the strike and has a depth of 260m vertically below the surface. In 3Q19, the company completed the drilling of 24 holes, with pending results from 14 of them.

| VIEW FROM THE TOP

TAILINGS MANAGEMENT: SOLUTION TO SUSTAINABILITY DILEMMA LUIZ CAMARGO Country Head of Compañía Minera Cuzcatlán

100

Q: How has Compañía Minera Cuzcatlán thrived in operating

Q: How are you implementing a more sustainable tailings

the fourth-largest silver mine in Mexico in a socially and

management at the San José mine in Oaxaca?

culturally complex state such as Oaxaca?

A: The geological characteristics of our San José mine favor

A: We have worked hard over the years to gain the trust of

flotation over lixiviation, which is eco-friendlier. Our tailings

our stakeholders. While we have built a good relationship

management begins with how we process ore to ensure that

with most of our neighbor communities, we understand

our tailings are as nontoxic possible. Specifically, we use two

that this is a constant effort based on permanently open

reagents, a collector that floats with the ore and a foaming

communication. To achieve this, we continue developing

agent that is degraded in the process, making our watered-

a transparent and accountable communication strategy in

tailings chemical-free. Instead of disposing our industrial

which we promote all our social and environmental projects,

waste in a tailings dam, as is usually done in the country, we

but also acknowledge if we make a mistake. For example,

chose to use a dry stack method for two reasons. First, we use

we have a weekly radio show in which we constantly create

a zero-water-discharge cycle, which means that we treat and

and broadcast content on our social networks, we sponsor

reuse approximately 95 percent of the water in our process

and manage several social programs regarding production

that is not lost due to evaporation. Second, as tailings dams

training for farmers, dressmaking courses for women and

occupy such a huge space, the environmental impact during

provide student grants for remarkable youths, to name a few.

the mine operation is greater. The dry stack implies disposing

On top of our social initiatives, we have built and developed

of our filtered tailings in a space covered by a geomembrane

a skilled and dedicated team that ensures the efficiency and

to prevent any filtrations through rain into the soil. We filter

continuity of our operations.

the tailings to recover their water, then put them in the dry stack and flatten them. We start creating a hill-like structure, which we cover as we go to prevent dust propagation. At the

Compañía Minera Cuzcatlán is a subsidiary of Fortuna Silver

end of our life cycle, we will reforest this hill to return the mine

Mines, responsible for the San José del Progresso mine in

site back to its natural state as much as possible. While this

Oaxaca. It generates more than 1,000 local jobs and focuses

is a significantly costlier process compared to a tailings dam,

on the extraction of gold and silver concentrates

the environmental return on investment pays for itself by far.

VIEW FROM THE TOP |

BALANCED PORTFOLIO FOR RISK AVERSION, SHAREHOLDER VALUE MITCHELL KREBS President and CEO of Coeur Mining

Q: How do you approach mining as a business that has a

A: Palmarejo continues to be our single largest operation,

significant amount of geopolitical risk associated with it?

contributing nearly 40 percent of our overall production.

A: We have been very active over the last several years to

It is a very important part of our business and we expect

reposition Coeur’s footprint exclusively in North America.

that theme to continue. A large part of our future depends

We have exited numerous higher-risk jurisdictions and

on the significant exploration investment we are making

have placed a big priority on maintaining a well-balanced

there. We have a large, unexplored land package at

portfolio of assets in high-quality mining jurisdictions.

Palmarejo that offers great potential for the operation and

There are many things about mining that can go wrong

the company. We feel that we have a long journey ahead

and we want to make sure we shield our investors and

of us at Palmarejo, despite the fact that the operation has

shareholders as much as possible from volatility as well

been in production for over 10 years. We have a new set of

as provide a good pipeline for future growth. We have

exploration targets and priorities that we feel will continue

three mines in the US, one in Canada and one in Mexico.

to allow Palmarejo to be our single largest operation. We

Palmarejo in Mexico is our largest asset, Silvertip in

are excited about the potential for some new discoveries

Canada is our source of short-term growth and our three

further away from where our focus has been historically.

US operations provide us with a collection of operating assets that have a good mine life ahead. We are essentially

We are always looking for opportunities for expansion at

working to provide our investors with less-risky access to

Palmarejo. We will be mining from a new deposit this year

metals production.

called La Nación. Palmarejo has a large processing facility that is capable of processing up to 6,500t/d. Our current

Q: Which innovative models are working best for Coeur

mining operations are delivering about 4,000-4,500t/d so

Mining and in which projects have these been applied?

we have some excess plant capacity and hopefully, as our

A: We completely revamped Palmarejo in 2014 and we

exploration efforts reap benefits, we can easily increase

are now beginning to see the benefits of the decisions we

the ore processed at that plant.

made back then. This involved transitioning Palmarejo into a 100 percent underground mine that produced higher

Coeur takes a success-based approach to its exploration

grade silver and gold. We successfully renegotiated our

programs. By that, I mean that we start the year with a

gold stream agreement with Franco Nevada and acquired

fairly modest amount of money allocated to various targets

the company that owned the land package adjacent to

identified by our teams and, as the results come back from

ours, which gave us access to additional high-grade

the drilling programs, we further fund the successes and

underground deposits. We have seen the silver and

stop funding the failures. This is a much more efficient

gold grades increase significantly, while the costs have

way of funding exploration; we are not increasing budgets

decreased dramatically. As a result, we are now generating

throughout the year but rather moving money to the

strong cash flow from Palmarejo. We expect production

success cases. At the start of 2019, about one-third of

at Palmarejo to remain steady at these higher levels for

our exploration budget was allocated to Palmarejo, split

silver and gold. This makes Palmarejo one of the largest

between drilling that focuses on identifying new resources

silver and gold mines in Mexico. While Palmarejo is a major

as well as turning existing resources into new reserves.

asset, our overall growth as a company in 2019 and 2020 will largely come from our Silvertip operation that we are ramping up in Canada.

Coeur Mining is a diversified precious metals producer with five operations in North America. Coeur’s wholly-owned,

Q: What role does Palmarejo play in your operations and

Latin-American operations include the Palmarejo silver-gold

how do you see this evolving?

complex in Chihuahua and the La Preciosa project in Durango

101

| VIEW FROM THE TOP

SILVER, GOLD PRICES TO MARK INVESTMENT RHYTHMS DARREN BLASUTTI President and CEO of Americas Gold and Silver Corporation

102

Q: What is Americas Gold and Silverâ&#x20AC;&#x2122;s outlook for the

mine and we can even reach an additional 3 million ounces

Mexican mining sector for 2020 and what are its main

if we move further into our silver-copper ore, although we

strategies to boost its precious metals production?

do not want to do that until we do see higher prices. We will

A: Many people are excited about the price of silver and for

continue to mine zinc but we will move to the higher silver

us that is the most prominent development. Most analysts

portion of that zinc. We have very high-grade zinc-with low

are projecting US$18-19 per ounce, which is higher than it has

grade silver and lower grade zinc with high grade silver, but

been in the last three to four years. When you think about the

we will only move into that if the prices increase accordingly.

fact that the average silver producer generates costs above

This would decrease our zinc production from around 44

the current silver price, that will be an important movement

million pounds to 35 million, but it would triple our silver.

because for the first time in years, this positive change will have investors putting more money in. Internally we are

Q: What advances have been made to the San Rafael and

expecting the silver price to be in the US$18-19 price range in

El Cajon mine projects?

2020. The other products we produce in Mexico, which are

A: In 2018, we ramped up commercial production to 12,000t/d

zinc and lead, have been hampered by the US trade war with

and then increased that to 18,000 before the end of the year.

China. In 1Q18, zinc was around US$1.60 and lead prices were

In 2019, we reached full capacity, and had time to optimize

at US$1.20, and prices have fallen with the trade war. If the

our processes. We made the great decision to put in extra

situation changes, then we would be looking at much more

quotation cells to lengthen the cycle, which increased recovery

positive pricing for these two metals, as well as for copper.

by 4-5 percent in zinc and between 2 and 3 percent for silver. This is part of the natural mining cycle: start with a greenfield

In 2020, we will also be a gold producer and we are very

mine, get it running to have a cash flow, reach full capacity

positive on gold prices as well. We are looking for US$14.50

and then optimize. Now we feel that the mine is optimized and

for gold in 2020. We are bullish on commodities, which is

we will start looking for new material. We will begin drilling

something new for us because we have not been bullish on

to make the mine longer because we paid US$16 million to

pricing for years. We are forecasting much higher prices

build the mine and then invested another US$10 million to

and we are pretty excited about what is coming in 2020.

increase its capacity, all paid through cash flow. We made US$7.5 million in 1Q19 and the 2Q19 is also going very well.

Q: What types of ore bodies does Americas Gold and Silver have in its Mexican assets?

If silver continues as it is, we will buy out San Rafael and

A: We have two types of ore bodies: higher grade lead-zinc

in five years El Cajon will start ramping up. If silver prices

with lower grade silver and higher-grade silver with lower

increase greatly, we can spend money to expand our mill

grade copper. We have a silver-zinc area with extremely high-

and operate both projects.

grade silver and we have developed up to that section, but we have not taken any of that silver out yet. This year at our

Q: Why did Americas Gold and Silver decide to keep its

Mexican mine, we will produce 600,000 ounces of silver and

San Felipe project?

if we see silver hit US$18-19, we will then produce 120 million

A: The gold environment has gotten better and we were

ounces. We can triple our silver production within the existing

able to raise US$10 million instead of selling the asset for US$7 million. Premier had issues dealing with some of the processes of the new regime in Mexico and wanted to

Americas Gold and Silver Corporation is a leading Canadian-

change the agreement. We wanted to sell this asset and

based precious metals producer with a strong operating

acquire more precious metals operations. Ultimately, as

platform in the Americas. Americas Gold and Silver is an

gold prices increased, our stock doubled as well. Because

emerging low-cost growth company

we now had the resources, we terminated the sale.

VIEW FROM THE TOP |

TAKE THE SHACKLES OFF EXPLORATION BRENDAN CAHILL President and CEO of Excellon Resources

Q: What does Mexico need to do to keep its global dominance

exploring a few of them. They all have the hallmarks of either

over silver markets?

the next Platosa or a much larger deposit. The drilling on our

A: It is really simple: Mexico needs to take the shackles off

new targets will start in 1H19. As for Platosa, the mine has five

exploration. One of the industry’s main concerns globally is

years of mine life left but we have always had five years of

that we have seen a few world-class discoveries in the last 15

mine life left. The system is open to the east so we hope to

years. In Mexico, the last great silver discovery was Juanicipio

extend it in this direction. From a mine operation perspective,

in 2005. Ore is not right at the surface anymore so we need to

we think there is the potential for multiple Platosas on the

start looking in more tricky places. We need to start looking

property. If we find another Platosa-style deposit, it is the

under cover. The next phase for Mexico is to introduce some

kind of project that can be quickly ramped up and mined. The

of the techniques used to make discoveries in West Africa,

bottleneck at Platosa has always been water but we solved

Australia, Canada and Nevada. The government must ensure

that issue in 2017 through an enhanced pumping system.

that exploration companies can efficiently acquire big pieces

We doubled pumping capacity and quadrupled the rate of

of ground because world-class deposits are not found in small

the water deepening and dried the mine out entirely. We are

concessions. The concession system needs to be significantly

targeting 250-plus tons per day and we are making good

reformed and Undersecretary of Mining Francisco Quiroga

progress toward this goal. The issue is that electricity prices

seems to understand this well. Mexico also needs to look

in Mexico are really high and we are pumping a lot of water.

at its concession fees and tax deductions. Regarding the

We are looking at getting into the private market to get those

Undersecretary of Mining, I think he sees mining as a way of

costs down significantly.

reducing corruption and increasing security because mining companies pay taxes, employ people properly, work with local

Q: You have been trucking Platosa’s ore to the Miguel Auza

communities and improve security by bringing economic

Mill on the Evolución property. What advantages does

development to remote areas. I hope the new government

this generate?

understands that Excellon and the industry are there to help

A: We bought Silver Eagle Mines in 2009. Before that,

achieve these goals.

we were trucking our ore to Peñoles’ Naica mine. But not having control of our own mill made it hard for us to get

Q: Given that portfolio optimization drives long-term value

good value from our ore. Once we acquired the Miguel

for shareholders, how is Excellon optimizing its assets?

Auza mill, we improved our costs. The trucking costs have

A: We think the real value at this stage of the mining cycle

historically been US$10-12 per ton and in 2019 are around

is in making discoveries and growing resources. The brutal

US$15 per ton. But this is US$500 per ton ore, so the costs

reality is that producers are not getting rewarded because

of trucking it are relatively low. The economics of this

prices are low. It is difficult to get traction from production

decision establishes that if we do 80,000 to 100,000 tpy,

when nobody cares about your product. But what we are

our trucking costs are around US$1-1.2 million per year. The

pleased to see is that discoveries get rewarded. At this stage

other option is to build a mill at La Platosa, which would

of the cycle, the industry needs discoveries and while few

cost at least US$6 million without even considering the

people are really making them, they are rewarded when

permitting aspects of this option. That is not worthwhile

they do. That is our priority at the moment. We have two

relative to the current mine life.

large ground packages with a total of 21,000ha at Platosa in Durango and 45,000ha at Evolución in Zacatecas. While Platosa has been in operation since 2005, there has been little

Excellon Resources’ 100 percent-owned Platosa Mine in

regional exploration. Most of the drilling so far at Platosa has

Durango has been Mexico’s highest-grade silver mine since

focused on resource expansion. We have spent the last two

production began in 2005. The company also owns the

years developing targets and are about to begin aggressively

Evolución property in Zacatecas

103

BASE & BATTERY METALS

Copper has proven to be the most stable of the base metals group given the solid forecast for Chinese economic growth, reaching its 2018 peak on July 10 with a price of US$6,307/t. Lead followed a rather stable price rising trend, remaining in a range of US$2,000/t to US$2,100/t in 2018, while zinc fluctuated between US$2,300/t and US$2,700/t, according to LMEâ&#x20AC;&#x2122;s trading summary. While these upward trends were impacted in 2019 by the global economic slowdown, base metals will remain fundamental to the economy. Lithium, following the boom of electric vehicles, is in the limelight, and Mexico is developing one of the biggest lithium deposits in the world.

This chapter gives the insiderâ&#x20AC;&#x2122;s perspective into the opportunities and challenges for leading base-metal producers and explorers.

105

107

CHAPTER 5: BASE & BATTERY METALS 108

ANALYSIS: Copper, Zinc Demand Continues Strong Despite Global Slowdown

109

INFOGRAPHIC: Copper Profile

110

MAP: Mexico's Main Copper Mines

112

VIEW FROM THE TOP: Fernando Alanís, Industrias Peñoles

114

VIEW FROM THE TOP: Tony Rovira, Azure Minerals

116

PROJECT SPOTLIGHT: A Small-Scale, High-Grade Mining Operation

118

VIEW FROM THE TOP: Igor González, Sierra Metals

119

VIEW FROM THE TOP: José Antonio Berlanga, Telson Mining Corporation

120

PROJECT SPOTLIGHT: Enduring, Sustainable Value for Shareholders, Employees and Communities

122

INSIGHT: Gilberto Zapata, Organimax Nutrient Corp.

José de Jesús Parga, Organimax Nutrient Corp.

123

VIEW FROM THE TOP: Darren Pylot, Capstone Mining

125

VIEW FROM THE TOP: Alonso Luján, Dia Bras

| ANALYSIS

COPPER, ZINC DEMAND CONTINUES STRONG DESPITE GLOBAL SLOWDOWN As a structural deficit in the copper market looms, Mexico needs to make exploration investment attractive to develop new projects and advance on the producers world ranking, where it holds the ninth position. Zinc supply is expected to reach a surplus in 2022, but there will be a deficit in the immediate term

108

Copper is an essential element for the manufacturing of

has been expanded to 12,000t/d, and by 2H19 another

electrical equipment, such as wiring and motors. An excellent

expansion, doubling capacity, is to be completed. The

conductor of heat and electricity, it also has applications in

gradual development of this project is set to optimize

construction and industrial machinery. Despite the global

Mexico’s copper portfolio. “Our current expansion will

economic slowdown triggered partly by tariff exchanges

increase the amount of material we can crush, lowering

between China and the US, demand for copper is expected

our unit costs. We have outstanding reserves and there is

to keep growing in the short and medium terms. In line with

potential to expand our copper production,” says Jim Healy,

this, CAMIMEX anticipates copper prices to rise in 2020:

Director General of Cobre del Mayo.

a deficit in the supply of refined copper of approximately 131,000 tons is partially responsible. In the medium term,

The second-most important base metal produced in Mexico

the same organization expects a structural deficit in the

is zinc. According to the International Lead and Zinc Study

metal’s availability. While production peak will be reached in

Group, the country was the sixth-largest producer in 2018,

2022, future supply will mainly depend on current projects.

after India and the US. Mexico’s production accounted for

But finding and developing new alternatives to the metal’s

5 percent of the 12.9 million tons produced that year. The

present provision should be a priority, particularly as the

aforementioned organization expects a hike of 7.7 percent

electrical vehicle industry will see significantly increased

in global mine production in 2019, driven by several major

demand in the next 10 years.

projects around the world entering full production. Even so, a deficit in supply is expected in the short term. With respect

As reported by the US Geological Survey, Mexico is the

to prices, the IMF anticipated a decrease to US$2,683 per

ninth-largest copper producer in the world, reaching

ton in 2019, from US$2,798 in 2018; its forecast for 2020 is

760,000 million tons in 2018. Of this amount, 73.3 percent

US$2,581 per ton. Fitch Ratings goes even further, placing

was produced by Grupo México, whose Buena Vista del

its outlook at US$2,500 per ton in 2020. Nevertheless, as

Cobre mine remains the national industry’s undisputed

Mining Technology notes, global zinc supply is expected

crown jewel. For its part, Cobre del Mayo has exciting

to grow from 2019 to 2022 at a compound annual growth

plans for its mine in Piedras Verdes, Sonora. In a matter of

rate of 3.8 percent, reaching 15.7 million tons. Parallel

nine years, the company has expanded the ROM project it

to this process, the gap between supply and demand is

originally encountered into Mexico’s third-largest copper

projected to narrow, and eventually the market will move

operation. A crushing plant was installed, which capacity

into surplus in 2022.

MAIN PROJECTS WITH ZINC CONTENT IN MEXICO Project

Company

Location

Status

Start

Production/ capacity thousands of tons per year

Torreon Zinc Refinery

Peñoles

Coahuila

Operation

2019

120

Buenavista Zinc

Grupo México

Sonora

Construction

2021

Capela

Peñoles

Guerrero

Construction

2019

Cordero

Levon Resources

Chihuahua

Preliminary evaluation

Metates

Chesapeake Gold

Durango

Pre-feasibility

Juanicipio

Fresnillo plc / MAG Silver

Zacatecas

Feasibility

2020

Los Gatos

Sunshine Silver (70%)

Chihuahua

Construction

2019

Pitarrilla

Silver Standard

Zacatecas

Feasibility

Campo Morado

Telson Mining

Guerrero

Operation

2018

San Martín

Grupo México

Zacatecas

Rehabilitation

2019

Tahuehueto

Telson Mining

Durango

Operation

2018

Source: CAMIMEX

INFOGRAPHIC |

COPPER PROFILE Mexico’s enormous mineral potential does not exclude

produced 552,864. Sonora was the top producer, followed

copper. The country is home to the world’s second-

by Zacatecas and Baja California Sur. Mexico was the

largest copper mine by reserves: Buena Vista del Cobre,

ninth-biggest producer of copper in the world. Most of

owned by Grupo México. In fact, of the 696,580 tons of

its exports of ore and concentrates went to China, totaling

copper Mexico produced in 2018, Grupo México’s mines

1,258 tons.

100

766

742.3

515

480.1 2013

2014

800 720 640 560 480

2015

Value of copper production (MX$ billion)

68.5

594.5

54.5

45.5

85.1

751 91.2

NATIONAL COPPER PRODUCTION

2016

2017

400

2018

——Total copper production (thousand tons)

LARGEST COPPER PRODUCING STATES AND MUNICIPALITIES 2018

Mexico is the

largest copper producer in the world

1. SONORA 576,537.14 tons

STATES

82.77% Sonora 17.23% Others MUNICIPALITIES

65.58% Cananea 21.17% Nacozari de Garcia 13.25% Others

2. ZACATECAS

47,182.35 tons

BAJA CALIFORNIA SUR 3. 19,438.4 tons

MEXICAN COPPER ORE AND CONCENTRATES EXPORTS BY COUNTRY (thousand tons) 1500

900

2017 2018

1,146.38 1,258.72

1200

3.6%

600

China

Germany

Source: INEGI, SGM, CAMIMEX

South Korea

79.56

76.65

85.93 81.09

96.4%

300 0

Mexican production 696,580 tons

Japan

Global production 20,606,580 tons

109

| MEXICO'S MAIN COPPER MINES

5 6 7 8 9

10 11

12 110

1 2

19 17 16 18

22 Source: SGM, company websites

Number

Name

Company

State

El Arco

Southern Copper

Baja California

El Boleo

Minera y Metal Rgica del Boleo, Hyundai Hysco, Baja Mining Corporation

Baja California Sur

Residuos de LPF

Baja Mining Corporation

Baja California Sur

El Pilar

Starcore International Mines

Sonora

Milpillas

Industrias Peñoles, Minera Parreña

Sonora

Mineria Maria

Minera Frisco, Minera María

Sonora

Buenavista del Cobre (Cananea)

Grupo México

Sonora

Buenavista Zinc

Grupo México

Sonora

La Caridad

Grupo México

Sonora

El Creston de Opodepe

Starcore International Mines

Sonora

Pilares

Grupo México

Sonora

San Javier (Cerro Verde y La Trinidad)

Benz Mining Corporation

Sonora

Los Verdes (Yecora)

Virgin Metals

Sonora

Piedras Verdes

Cobre del Mayo

Sonora

Samalayuca

Vvc Exploration

Chihuahua

Bolivar

Sierra Metals

Chihuahua

Piedras Verdes Mill

Sierra Metals

Chihuahua

Sonora contributes to 82.77 percent of the country's copper production

TOP 10 COPPER PRODUCTIVE MINES (thousand tons)

324.9

1. Buenavista del Cobre | Grupo México

106.1

2. La Caridad | Grupo México

25.1

3. NEMISA | Neg. Mra. Sta.Ma. De. La Paz

16.4

4. Cozamin | Capstone Mining

5. Zimapán | Carrizal Mining 6. Piedras Verdes | Cobre del Mayo

9.4

7. Bolívar | Sierra Metals

7.8

8. Sabinas | Industrias Peñoles

4.7 3.9

9. La Negra | Orion Mine Financing

3.2

10. Charcas | Grupo México 0

100

150

200

250

300

350 111

Number

24 25 26

Name

Company

State

Bahuerachi

Jinchuan Group, Jinchuan Resources

Chihuahua

Bahuerachi 6

Recursos Tyler

Chihuahua

Olivos

Minera Río Tinto

Chihuahua

Tahuehueto

Telson Resources

Durango

El Herrero

Minera Bacis

Durango

Tayahua

Minera Frisco

Zacatecas

Aranzazu (El Cobre)

Aura Minerals

Zacatecas

Aranzazu (El Cobre)

Aura Minerals

Zacatecas

Concepción del Oro

Aura Minerals

Zacatecas

San Martín (reopening)

Grupo México

Zacatecas

Sabinas

Industrias Peñoles

Zacatecas

Cozamin (San Roberto)

Capstone Mining

Zacatecas

San Nicolas

Teck Resources

Zacatecas

Charcas

Southern Copper Corporation

San Luis Potosi

La Negra (Maconi)

Orion Mine Financing

Queretaro

Zimapán

Carrizal Mining

Hidalgo

Lomo de Toro

Carrizal Mining

Hidalgo

Jovita Mine & San Pedro Mill

Amarium Mineral

Michoacan

El Bastan

Endeavour Silver

Michoacan

La Balsa 6

Bell Copper Corporation (35), Fischer Watt Gold Company Michoacan (65)

La Balsa 3

Bell Copper Corporation (35), Fischer Watt Gold Company Michoacan (65)

Capire-Aurora1 (Mamatla)

Impact Silver Corporation

Guerrero

Media Luna

Torex Gold

Guerrero

Capela*

Industrias Peñoles

Guerrero

31 29

33 34

35 36 39

40 41

CATEGORY Major Mines New Projects

STAGE

Production Development

| VIEW FROM THE TOP

LEVELING THE FIELD FOR GENDER PARITY FERNANDO ALANÍS Director General of Industrias Peñoles

112

Q: How would you assess the relationship between the new

of each company. Third, the market’s location. As for

administration and private industry?

the government, it must fulfill its responsibilities. For

A: In this new landscape, we have a great advantage

instance, in the previous years, Mexico was not very

given that Deputy Minister of Mines Francisco Quiroga is

competitive on electricity tariffs. To date, we still pay

knowledgeable about the sector and is committed to its

US$0.10 per kWh when in other countries like Canada

development. We speak the same language but at the same

this amount equals US$0.02 per kWh, in Peru US$0.04

time he can serve as a translator to communicate our main

kWh and in the US US$0.06 per kWh. In this industry,

interests and encourage understanding. I certainly believe

competitiveness takes place on a global scale. If Mexico

that much information that has been publicly expressed by

works with electricity prices that are two, three or even

the government is derived from the poor communication

five times higher, national competitiveness sees a relevant

between President López Obrador and public officials.

reduction. To face this challenge, we decided to generate

As soon as we approached the administration and our

our own electricity. In 2018, 92 percent of our consumed

ideas were heard, the tone radically changed. Given this

energy was acquired under a self-supply scheme and out

industry’s nature, we can reach locations where no one else

of this amount, 31 percent came from renewable sources.

is working. Our activities are backed up by infrastructure

By 2020, our goal is to increase this by 50 percent

and development opportunities for these communities and

toward our main objective to become 100 percent

mining is known for providing them. This is a long-term

renewable by 2027. This represents a double commitment

relationship and our participation must be well-received to

because we can become more efficient and increase our

achieve the social permit.

competitiveness and at the same time support the energy transition. Other basic infrastructure, such as ports, roads,

Q: What elements should be present to ensure the correct

railways, transmission lines and gas pipelines, are the

development of the industry in the coming years?

government’s responsibility. If the country does not have

A: The new policy approach must provide certainty.

an adequate vision, competitiveness will be threatened.

Investments in the mining industry are long-term and

Not only in the mining sector, but in every industrial

sponsors need to be sure that the rules of the game will

activity in Mexico.

not change. Latin America has some very good examples of these practices. For instance, Peru works under the tax

Q: What was the main motive behind the company’s

stability convention where taxes are established in periods

strategy to refinance its debt?

of 15 to 20 years. This provides certainty for economic

A: About US$800 million in Industrias Peñoles’ long-term

models of profitability projections. We executed a study

debt was going to expire in the next four years. We decided

together with CAMIMEX and an international adviser in

that the positive interest rate conditions in the market were

which we compared the tax payments and rights of the

favorable for a bond issuance under the 144A rule. This

mining industry in Mexico with other countries like Canada,

framework allows international investors to participate in

Peru, Chile, Australia and the US. The results demonstrated

the transaction. The issuance was a success as we were

that companies operating in Mexico pay up to 54 percent

able to raise US$1.1 billion in 3Q19. In these processes, you

more in taxes and rights compared to the US where the

can measure the level of appetite the company’s debt

payment is 22 percent.

attracts. In this specific case, it resulted in a 6:1 ratio, which showcases Peñoles’ positive market image and reputation.

Another indispensable topic is competitiveness,

This was a major achievement as the company had never

which depends on three main factors. First, the basic

raised a 10-year debt. Now, US$550 million is on a 10-year

infrastructure of each country, which is in the hands

a scheme and another US$550 million was raised over a

of the government. Second, the technology and staff

30-year period.

Peñoles has increased its zinc exports to the US by 30 percent since 2018

Q: What have been the major results of the company’s plan to export zinc to the US market? A: The project to expand our capacity at Torreon started operations in 2019 and consisted of a 120,000-ton expansion for a total of 360,00 tons. This will provide many benefits. By introducing a new process, we will be able to treat all kinds of zinc concentrates. Industrias Peñoles also will be one of the few zinc refineries in the

mining district. This project untaps this region’s potential

world. We have increased our exports to the US by 30

as it also encompasses La Industria mine, where we

percent since 2018. Hence, I am confident that by 2020,

are executing exploration activities. We already have a

we will achieve a major penetration in the US market.

significant presence in the region. Velardeña was born six

Regarding this commodity, our coverage has already

years ago with a capacity of 6,000 tons. To date, we have

reached the European, Central and South American

reached 7,000 tons and by the end of 2019 we expect this

markets. Our objective is to gain a major foothold in

number to grow to 8,000 tons. Hence, the region’s potential

the US, without neglecting other geographies. Given

is still open and it is a promising opportunity to continue

the automatization levels of our processes, Peñoles

investing in exploration activities.

has been able to achieve its targets faster. Another advantage from a technological standpoint is that with

Bismark is an existing asset with many people depending

traditional processing technology, zinc generates sulfuric

on the mine. The closing of a mine is one of the most

acid as a sub-product. This product is very difficult to

difficult experiences a company faces as there is a relevant

commercialize and by introducing this new process, we

human factor involved. For us, this asset is important for

can avoid that step.

this particular reason, which is why we need to continue exploring with good results. At the moment, we are

Q: What is the role of the Capela mine project within your

executing inside drilling works to convert these resources

operations in Mexico?

into additional reserves.

A: Capela is a very interesting mine given its polymetallic nature. This means gold, silver, copper, lead and zinc

Q: How does Industrias Peñoles strengthen the

can be found in this deposit and hence, we will be able

development of gender equality in the mining industry?

to produce three types of concentrates. This asset will

A: The mining industry is one of the most chauvinistic

have a total milling capacity of 4500t/d, which positions

sectors globally. In previous years, physical force was

Capela between a middle-sized and large-sized mine. Due

required and working conditions were not the best. This

to the frameworks that rule different minerals, we expect

has radically changed in recent years because technological

it to be one of the group’s best mines. The construction

advancements demand intelligence, and intelligence has

phase has properly advanced and we are executing

no gender. As Industrias Peñoles has heavily invested in

equipment tests. Our goal is that by November 2019 we

technology, we have provided the opportunities to reach

can start introducing milling loads as the mine is already

gender parity. At a global level, women represent 12 percent

operating.

of the labor force in the mining industry. In Mexico, this number totals 17 percent and we have worked closely

The social work we have done there has been very

with CAMIMEX to increase it further. For its part, Peñoles

important as Teloloapan is a complicated zone given the

is outperforming the sector, having already reached a 20

security factor. Five years ago, we launched our social

percent participation for women. Nevertheless, this number

strategy so that the communities could get to know us

is not enough and we have a long way to go. I do not believe

and trust our work. To date, many micro-enterprises have

in gender quotas because it is more appropriate to have the

been developed. We also have trained 104 young people

conditions to promote development without favoring any

in technical careers and with these skills they will operate

gender. In terms of the company’s generational profile, 67

in our mines. Industrias Peñoles has a dual education

percent of our employees are aged under 35 years. Even

program in partnership with the German government and

though Industrias Peñoles has over 132 years of experience

we have been training young people from communities

in the Mexican market, it also has a young environment.

under this scheme. Q: What advances are expected from other relevant

Industrias Peñoles is a 100 percent-owned subsidiary of Grupo

projects such as the Bismark and Reina del Cobre mines?

BAL. The group is the largest gold and lead producer in Latin

A: Reina del Cobre is a very important project for us

America and through its subsidiary, Fresnillo, the largest silver

because it consolidates the Velardeña region as a true

producer in the world

113

| VIEW FROM THE TOP

FROM EXPLORATION TO PRODUCTION: THE STEPS TONY ROVIRA Managing Director of Azure Minerals

114

Q: What are the main considerations when an exploration

operational experience while we adapt to production. We are

company becomes an operator and how is Azure Minerals

very good at making discoveries, so we will continue with

adapting to take this step with Oposura?

that part of the business, but our goal is to develop into a

A: To define how much ore was in the ground at Oposura, we

mining company.

fully focused on exploration until June 2018. After completing that part of the project, we undertook the pre-feasibility study

Q: How has the smaller operation performed and why did

to take it to production. The pre-feasibility study is expected

you choose to start it before completing the pre-feasibility

to be finalized by the end of 2019 so we should be at full-scale

study for the entire project?

production for zinc and lead-silver concentrates by early 2021.

A: The smaller operation started with 100t/d and has now

But we also saw the opportunity to mine very high-grade

expanded to between 200 and 300t/d, compared to the

zinc mineralization earlier than that timeline so we decided

1,500t/d expected of the full-scale project scheduled to be

to launch a smaller-scale operation in mid-2019.

in production in 2021. The mined material is being trucked to nearby processing facilities, which will produce the zinc and

This enabled us to begin small and then expand our operation,

lead concentrates for sale. In Australia, we call this agreement a

instead of having to wait for the pre-feasibility study to be

toll-treatment arrangement, which is a low-cost, relatively easy

completed. This means that we will produce a positive cash

way for smaller companies like Azure to get into production.

flow that will fund the completion of the pre-feasibility study

The production costs for our operation are around US$100 to

and contribute to the capital costs of building a stand-alone

US$120 per ton of ore and our income is approximately double

mining and processing operation, while reducing the need

this, so our profit margin is around 100 percent.

for dilutionary fundraising by the more traditional financing routes, such as issuing shares.

This smaller project has yielded several benefits for our company. First, because we were able to start selling product,

As for how we are adapting our business to become an

the company gained cash flow to cover expenses. Also, the

operator, we needed to bring in more engineers and miners.

production and the positive cash flow demonstrate to our

Our project manager for Oposura is an Australian mining

investors, the banks financing us and the market that Oposura

engineer who has been involved in building many mines in

is a real project with the right mineralization continuity. Finally,

Australia and Africa. We also grew our team in Sonora from

we could prove to the banks financing us that we could

10 geologists and assistants to a larger team composed of

improve the financial costs of borrowing money.

engineers and metallurgists. The company also employed a mining contractor that uses its own people to do the mining.

Another perk of the smaller operation is that it is very high grade. There is a 300m-long tunnel built on the property

Having a mining contractor as a partner for this project

by PeĂąoles in the 1970s that goes right into high-grade

was a good way for us to start because it already owned all

mineralization. This allowed us to start mining at the richest

the equipment and we could avoid that huge cost for the

part of the ore body instead of at the surface, as we normally

moment. The current cash flow from the project covers the

would be doing during Year One of a project. The smaller

cost of paying the mine contractor. We are also buying their

operation is expected to last from 12 to 18 months, during which time we will build the full-scale mine and roll straight from a small operation to a large one.

Azure Minerals is Australiaâ&#x20AC;&#x2122;s leading mineral exploration company in Mexico. It is developing its advanced-stage

Q: Oposura is expected to be in the lowest-cost quartile of

Oposura project with resource drill-out completed and

global zinc producers. What factors give this project the

development studies underway

chance to become a very low-cost operation?

A: The beautiful thing about the Oposura deposit is that the

Q: Sara Alicia, in Sonora, may be the highest-grade cobalt

mineralization is very high-grade zinc and starts right at the

exploration project in the world. What is the state of

surface, allowing us to start mining very high-grade zinc from

this project?

Day One. Therefore, the cost is very low and in its first full year

A: Given the recent low performance of cobalt prices, we

of large-scale production.

looked to sell Sara Alicia but did not receive any attractive offers. However, we did get a proposal from KoBold, a

Oposura will probably be one of the cheapest zinc mines in

North American private equity organization, to explore for

the world. The project will be three years of open-pit and three

cobalt throughout Mexico. We agreed on a joint venture

years of underground mining. The expected mine life at the

to which we contributed by putting up Sara Alicia as an

moment is about six years but we will be doing some more

asset and providing two geologists to explore all of Mexico

drilling to enlarge the size of the resources.

for cobalt projects. KoBold will provide the financing and own 85 percent of the venture with Azure Minerals taking

Q: Noah’s Rule was recently appointed as funding adviser

the remaining 15 percent. While it is uncertain how cobalt

for Oposura. What financing schemes are appropriate for

prices and demand will behave in the future, organizations

the project?

like KoBold want to develop a mining and processing cobalt

A: Noah’s Rule is an Australian-European firm that specializes

industry in North America.

in advising companies on the best financial terms for their projects. Our partnership with the firm has been and will

Q: What have been the main milestones of your relationship

continue to be key in assessing all the funding offers that

with Teck Resources regarding the Alacrán project?

emerge for this project. It is also very good at providing

A: We did some exploration in Alacrán and discovered a very

advice on hedging options and hedging negotiations.

good silver deposit containing about 32 million ounces of silver and 150,000 ounces of gold. Teck Resources got excited

As for the financing of the project, it is part debt and part

about this discovery and exercised its right to buy back into

equity. The equity portion is money that we will have to come

the project after having sold it to us. The company has been

up with, either by issuing more stock or by selling some of our

busy drilling for copper and if it succeeds, Alacrán will become

assets. Around 50 percent of the project will be debt funded

a world-class copper deposit. If it does not succeed in this

by banks and 50 percent by Azure Minerals. The small-scale

endeavor, Teck will probably pull out of the project and we

mining is already adding money to fund the project.

will proceed with development of a silver mine.

115

| PROJECT SPOTLIGHT

116

A SMALL-SCALE, HIGH-GRADE MINING OPERATION Defining the potential of a mining asset can be a challenging task. Exploratory processes must be taken into the equation and when done right, these can lead to a successful operation. A good example of this is the Oposura project, a zinc-lead-silver asset purchased by Azure Minerals in mid-2017. From exploration to the completion of a small-scale mining and processing operation, the Australian company seeks to achieve a positive cash flow to fund a Definitive Feasibility Study (DFS) as previous tests indicate this asset could have cash costs found in the lowest quartile of world zinc producers. In June 2019, the company approved the development of a small-scale mining and toll treatment operation to exploit the near-surface, easily-accessible, high-grade massive sulphide mineralization. Overburden comprising weathered rock was removed with minimal drilling and blasting, ensuring low mining costs. As a result, 6,100 tons of high-grade ore were mined at average grades of 13.4 percent of zinc and 10.7 of lead, respectively. These results exceeded the estimated average established in a scoping study that took place in 2018. Initially, the open pit was designed to extract only 1,000 tons of ore before moving into an underground mining phase. However once open pit mining started, more ore at higher grades was identified in comparison with what was originally estimated. Given the lower mining costs and higher production rates associated with open pit mining, Azure Minerals extended the development of this type of mine. Following this phase, the operation will transition into an underground mine comprising a 250m tunnel that will provide access to the western high-grade zone. Studies indicate that massive sulphide ore can be extracted at a production rate of 100t/d. The companyâ&#x20AC;&#x2122;s strategy is to process this ore under a toll treatment arrangement with a third-party processing plant. Hence, the positive cash flow derived from the zinc and lead-silver concentrates will support funding to turn the DFS into a large-scale mining and on-site processing operation. In October 2018, a Preliminary Economic Assessment confirmed that a large-scale mining and on-site processing operation at Oposura would be an economically and technically robust, high-margin project. The study highlighted low operating and capital costs, high-value concentrates, strong operating cash flows and a short payback period.

117

| VIEW FROM THE TOP

MECHANIZATION THE KEY TO BOOSTING PRODUCTION IGOR GONZĂ LEZ President and CEO of Sierra Metals

118

Q: What is the companyâ&#x20AC;&#x2122;s strategy for developing its mines?

sustain this growth. We increased the section of the main

A: One of the first steps we undertook when I joined the

ramp from 3.5x3.5m to 5x5m. This allowed us to bring in larger

company was to create a management strategy. This strategy

equipment, surface equipment and to mechanize the entire

is quite simple. We have significant brownfield exploration

mine. As this increased productivity, we are able to feed the

potential at our three mines, so our first phase is to focus

plant at 1,200t/d and eventually at 2,400t/d. We also installed

precisely on brownfield exploration. Once we identify new

a ball mill, cyclones and crushers.

resources, we start working to increase our reserve resources via 43-101s. Last year, we increased resources at the Cusi

Q: How are you facing the challenge of automating your

mine by 130 percent and by 83 percent at our Bolivar mine,

mines and reconfiguring your human capital to meet this

both located in Chihuahua. We also succeeded in increasing

new reality?

reserves at the Yauricocha mine in Peru by 134 percent. After

A: Rather than fully automating our mines, we want to

translating our strategies into material value, we started

fully mechanize them. In all the areas where we used to

working on the expansion of our operations. Our first step

employ labor, we are striving to implement Jumbos and

was to take Cusi from 300-400t/d to 650t/d by mid-2018

other equipment that can do the job with just an operator

and then to 1,200t/d by January 2019. We are in the ramp-up

or remote controls. While it is true that we are using less

period and undertaking the calculations for Cusi to become

labor, we are also putting our equipment under the stress of

self-sustaining, which implies the production of 2,400t/d. This

working more operational hours. This requires a more detail-

is our guidance for 2019 and we expect to reach that target

oriented maintenance program. So, we use fewer operational

by 4Q19. We need to prepare the mine at the plant level to

people but more specialized and technical people. We have several partners from different countries helping our drive to mechanize our operations. All their new equipment comes

Sierra Metals is a mid-tier precious and base metals producer in

with technical support. We have spent over US$10 million

Latin America. It owns and operates three mines in commercial

just in mechanizing the Bolivar mine and about US$4 million

production, including the Bolivar and Cusi mines in Mexico. The

at Cusi. We also changed the mining method at Bolivar and

company is focused on expanding global reserves and resources

Cusi to longwall mining, although we also use sublevel caving.

VIEW FROM THE TOP |

RETHINKING CONCEPTS AND PROCESSES JOSÉ ANTONIO BERLANGA CEO and Director of Telson Mining Corporation

Q: Telson has survived downcycles partly by reducing costs.

Q: Your guidance for Tahuehueto was to start production by

What has proven to be your most successful strategy?

4Q18 at a rate of 1,000t/d. What is the state of the project?

A: As the mining business is subject to commodity prices,

A: In the case of Tahuehueto, the recovery levels and ore

we are always working toward having competitive costs. In

grades are optimum but we are processing the mineral in a

Campo Morado’s case, we made significant changes in our

rented plant that does not have all the specifications that we

mine strategies. To start, the previous operator was only

need. As a result, we are now building our own plant at the

exploiting the mine’s zinc deposit, while we are focused

mine with financing from Trafigura, our internal financing

on all the metals present: zinc, copper, lead, gold and

and the cash flow from the mine, which is producing 5,000

silver. We started exploiting each mineral body separately,

tons per month. We expect to start processing around 1,000

which was the equivalent of having three different mines.

t/d at our own plant by 3Q19. We will start with portable

But as we unified the exploitation of mineral bodies and

milling equipment to begin production before completing

operated in one location, we were able to reduce personnel

construction.

and produce more with less. We increased mineral recovery and ramped up productivity around 35 to 40 percent in the three months that it took to implement this model. During this process of change and innovation, we learned that it is crucial to modify our approach when it is restrictive and flawed. When we do things differently, we achieve better results. Changing our approach has always proved to be the best way to cut costs. For example, our operating

The Albion processing can increase gold and silver recoveries from the current 35 percent to more than 85 percent

cost is around 40 percent lower than that of the previous operator and we are working to lower it even more.

Q: How are you rethinking your communitarian communication processes to enhance your relationship

Q: What is your approach for Campo Morado?

with locals?

A: Zinc is the main income stream for Campo Morado. But we

A: Community relations are at the crux of mine operations

are analyzing the Albion process with Glencore to increase

worldwide. I am certain that any issues that arise are

our gold and silver recovery. Today, we recover between 30

founded in a lack of direct contact with the community.

to 35 percent of the contained gold and silver but the mine

At Telson, we make sure to address this directly as I am

has more than 300,000 gold ounces that we would like

the one in charge of overseeing social matters. While we

to exploit. To achieve this goal, we need to carry out fine

do have the support of some social and environmental

grinding and to leach. We have done this before but now we

consultancies, I prefer to answer the community’s

are promoting the use of more efficient equipment, such as

questions and doubts in person and explain what exactly

that owned by Glencore. We think that the Albion processing

we do and what impact we will have on their surroundings.

can increase our gold and silver recoveries from the current

I meet around once a month with the communities in

35 percent to more than 85 percent. Also, as we leach gold

Guerrero and Durango.

and silver, we will also treat the contained copper. While this will imply a higher cyanide volume, we will also sell this copper and so we will be able to recycle the used cyanide.

Telson Mining Corporation is a junior resource company

We want to install a 1,000 t/d leach circuit to process tailings

advancing two projects, Tahuehueto in Durango and Campo

to start operating in 2020. This would imply that by the same

Morado in Guerrero. After three years of inactivity, Telson

year we will turn Campo Morado into a gold and silver mine.

recommenced operations at Campo Morado in October 2017

119

| PROJECT SPOTLIGHT

120

ENDURING, SUSTAINABLE VALUE FOR SHAREHOLDERS, EMPLOYEES AND COMMUNITIES The mining industry is in a unique position to bring development and generate well-remunerated employment in far-flung regions that other industries and even the state do not reach. Tahuehueto mine, located in Tepehuanes, Durango, is an example of such a place. Perched on the prolific Sierra Madre mineral belt, which hosts a series of historic and producing mines and most of Mexico’s active exploration and development projects, the project is situated approximately 100km southwest of the silver-producing Guanacevi region and about 25km north of the silver mines at Topia. Consisting of 28 mining concessions grouped into five non-contiguous blocks that total approximately 7,492ha, Tahuehueto is in the preproduction stage, at a capacity of 150t/d. Its construction is 70 percent complete. Telson Mining Corporation, the Canadian operator that owns the mine, is directing its efforts at completing construction and kick-starting operations at a capacity of 1,000t/d in 3Q20. The mine has reserves for 13 years of operation and a high potential. It is a polymetallic reserve with high ore grades. Its production cost is calculated at US$450/oz of gold. The company recently reported on the progress of its 11th toll milling campaign. Average metal recoveries achieved in the first half of the campaign stand at 86.29 percent gold, 85.60 percent silver, 86.80 percent lead, 76.93 percent zinc and 84.21 percent copper. These recoveries are a significant improvement over previously processed toll mill campaigns. Significant exploration upside potential exists both on the existing explored structures along strike and down dip of the known mineralization, which is open in all directions as well as within numerous other mineralized but unexplored structures known to occur within the core 700ha concession area. Further exploration potential exists outside of the core area where Telson controls approximately an additional 6,700ha of concessions. Telson’s concessions cover about 80 percent of the mineralized District Tahuehueto, and there is a significant amount of prospective ground within this government-recognized geological district. Telson’s plan is to get into production with the reserves outlined in the core 500ha area, continue to expand the reserves on structures where there are defined reserves and resources, and start to look at less explored structures within this core 500ha area. With Tahuehueto, Telson is dynamizing the region, creating value for its shareholders and bringing development to the sierra of Durango.

121

| INSIGHT

MINING THE GREEN ECONOMY OF TOMORROW

GILBERTO ZAPATA Country Manager of Organimax Nutrient Corp.

122

JOSÉ DE JESÚS PARGA Technical Advisor of Organimax Nutrient Corp.

The transition toward a green economy will define the

resemble those of the famed lithium triangle in South

course of humanity for generations to come, and much

America. Only intense volcanic activity, post volcanic

of its success depends on the mining industry’s capacity

activity that contributes to mineralizing fluids, a hot dry

to supply the necessary products, says Gilberto Zapata,

climate with low humidity that allows a strong evaporation

Country Manager of Organimax Nutrient Corp (Organimax).

and consequent mineral concentration can create the kinds

Sulphate of Potash (SOP) for the organic crops of the future

of deposits the company was after.

and lithium for tomorrow’s electric cars are two cases in point, he says. “The strategic importance of SOP and lithium

“SOP represents a huge opportunity for Mexico, as this

for Mexico’s development cannot be overstated.”

country is not a producer and the US is one the top importers in the world,” says José de Jesús Parga, an award-

Organimax is an exploration company that seeks to capitalize

winning geologist who is Organimax’s technical adviser.

on the opportunities that environmentally responsible

Consequently, SOP’s value as an organic fertilizer is driving

industries have opened. It is advancing its fully-owned

the company’s financial planning. Its strategy is focused on

potassium and lithium salar complex of mineral concessions,

kickstarting SOP production. Once this is up-and-running,

which comprises more than 424,000ha in the states of

it will use the resources to extract lithium from the clay

Zacatecas, San Luis Potosi and Coahuila. The company’s story

in its concessions. In addition, the company is listed on

is an example of entrepreneurship that stresses an often-

the TSX Venture Exchange (TSX-V), as it sees in Canada

overlooked fact: Mexico’s potential goes beyond silver, and

a rich environment of agriculture companies that may be

the country is well-positioned to expand its mineral portfolio.

interested in investing. Particularly, when cannabis became legal in the North American country in 2018, companies in

Based on data published by the Mexican Geological Survey,

that field grew exponentially. “SOP is the largest constituent

the team at Organimax undertook a comprehensive search

in the grow mix for cannabis, and the global legal cannabis

for lithium deposits in Mexico. It was hardly a surprise that

market is projected to be US$146.4 billion by 2025. Being

its efforts finally took the company to the Central Plateau,

listed on the TSX-V is an opportunity to dovetail with these

where the region’s climate and geological conditions

companies’ needs,” points out Zapata.

VIEW FROM THE TOP |

UNDERGROUND HIGHWAY HELPS BOOST ORE PRODUCTION DARREN PYLOT CEO of Capstone Mining

Q: How will Capstone achieve its targeted 30 percent

four to five years of reserves. You can comfortably see a

increase in production at the Cozamin mine?

10-year margin of life ahead, at least with what has been

A: By connecting some underground mining ramps into

discovered. We are drilling as fast as we can to convert that

one large one-way loop underground, we are creating a

resource to reserve.

“highway” underground to get more ore efficiently out of the mine. That is all we have to do: the mill already has

Q: What makes Cozamin such a remarkably low-cost mine?

the capacity to take on another 33 percent. The bottleneck

A: It is a low-cost mine because the copper grade is quite high

has been getting the ore from the underground. Deeper

and we also produce zinc, lead and silver. An increase in silver

into the mine we lose capacity in the shaft, so we have to

prices has increased our revenue as well. The mining width is

increase our ramp capacity. The total cost of this work is

also favorable but the grade of copper is the key driver. We

about US$5 million and it will be completed at the end of

are also using technology and innovation to improve safety

2020. To achieve this, we have hired a secondary mining

and lower our costs further. The main technologies we use

contractor, a company specifically dedicated to complete

are unmanned scoops and equipment. Underground mines

the ramps and the ventilation shafts.

are a high safety risk, so if our people do not have to be on the machine they are out of harm’s way. You also can

Q: How has zinc mined at the San Rafael zone impacted the

operate more machines with fewer people. We have also been

economics of Cozamin?

able to improve the recovery of our metals by innovating our

A: We have a zone that is producing a very high-grade zinc

rotation plan.

and low-grade copper. At San Rafael, there is zinc that we mine to utilize surplus mill capacity and increase byproduct revenue. It has added more revenue and lowered our copper cost. Q: What are your expectations for zinc and copper prices

In 2006, the three-year mine life at Cozamin was 1,000t/d. Now, it is just under 4,000t/d

in the near term? A: We are comfortably on schedule to re-estimate both

Q: What is your short-term strategy in Mexico regarding

resources and reserves and issue a new technical report

growth and how will you achieve this?

by 4Q20. After discovering the MNFWZ SE-Ext. in 2016

A: We would love to have more mines in Mexico. It is a great

we drilled for two years; culminating in a technical report

place to operate, it is a mining-friendly jurisdiction, and we

to double the then three-year mine life. Subsequently, we

understand the authorities clearly. There is some risk with

set about infilling the significant inferred resources excluded

the new government changing the Mining Law but we have

from the mineral reserve and discovered a significant up-

not seen any issues so far. All in all, we want to continue at

dip extension to the zone as well. Seeing the possibility to

Cozamin and discover more ore. We started in 2006 with a

double mine life again we fast-tracked drilling in 2019 and will

three-year mine life running at 1,000t/d. Now, we are running

complete a technical report in 4Q20.

at just under 4,000t/d with plenty of life left. The state of Zacatecas and its workers are incredible as well.

Q: At what stage are you in terms of extending the life of the Mala Noche Footwall Zone (MNFZ)? A: In 2016, we found a significant new resource in the MNFZ

Capstone Mining is a base metals mining company with a

and since that time we have been drilling the resource from

focus on copper, although it produces zinc and silver as well. In

virtual reserves. Last year, we added four more years of life.

Mexico, it owns and operates the Cozamin polymetallic mine in

We believe we can drill over the next 12 months and obtain

the state of Zacatecas. It also operates a mine in Arizona

123

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Compañía Minera Cuzcatlán's miners, San José mine, Oaxaca

VIEW FROM THE TOP |

ORGANICALLY OPERATING TO A HIGHER LEVEL ALONSO LUJÁN General Manager of Dia Bras

Q: Why did the company change its name from Dia Bras

with mining lots spread over 14,000ha, which means it has

to Sierra Metals?

mine veins that run for nearly 14km. Its potential could surpass

A: Established in Mexico, Dia Bras was a junior company

7 million tons, reaching even 10 or 12 million tons.

looking for growth opportunities. We changed our name to Sierra Metals as a management strategy. The company now

Q: How do you ensure the company’s growth strategy

has many projects in Mexico with approximately 90,000ha

complies with its business model?

of mining concessions, which puts us among the companies

A: Our business model is supported by three pillars: the

with the largest concession areas. We also acquired two

security of our workers, environmentally friendly practices

assets in Mexico, Cusihuiriachi (Cusi) and Bolivar, and later

and corporate social responsibility. If we can achieve

acquired Minera Corona in Peru.

equilibrium among our pillars while maintaining excellent relationships with the three levels of government, we can

Q: How does your company manage its assets to reach

consolidate our medium-term vision. The mining industry

their full potential?

represents inherent risks because its activities destabilize the

A: To know whether an asset can grow organically and make

natural equilibrium of the ground. We need to be prepared

a profit requires more than drilling. We are developing an

with the techniques that artificially guarantee this stability

aggressive exploration program with a strategic position

through support, team training and modern equipment. We

in one of the most important geological environments in

are changing the previous methodology from traditional

the country. Cusi is in the oriental flank of the Sierra Madre

mining to mechanized mining. While this mechanization is

Occidental. Deposits along this mountain range amount to

not as automatized as in Europe, we can take this technology

about 90 percent of the mineral deposits in the country.

to the plant and the mine. We would like to implement more

Ore deposits in this area also contain metals like copper,

mechanized advancements in our projects in Mexico to grow

silver and gold, which can be classified as either epithermal

in the next three years. This situation is similar at a plant

or mesothermal. Bolivar holds copper, and the copper we

constructed by the Mexican government to support local

work with falls under the epithermal category.

miners in the area. We acquired this asset and increased its value. The construction of this asset was not optimal,

Bolivar and Cusi mines are operating at low production

and we are trying to improve the quality of the installation

levels. Bolivar is yielding 2,500t/d while Cusi yields 650t/d.

at Cusi. We would like to relocate the plant to the mine to

At these levels, companies become more susceptible

centralize operations. These are the medium-term plans for

to price variability trends on fixed costs like energy

our current operations.

consumption and employee salaries. Our goal is to increase Cusi’s production to 1,200t/d. The plant’s reconditioning has

Copper produced at Bolivar falls under the epithermal

allowed us to duplicate production while simultaneously

category. Its production is associated with gold and

working on a second expansion that should be finished by

silver byproducts. Bolivar had a production of 2,500t/d.

the end of this year, to yield 2,400t/d. This will allow us to

Last year the company completed a plant expansion that

protect the company from cost fluctuations and prepare us

boosted the yield to 4,500t/d. This production allowed us

to find further profit in our assets.

to reduce operational costs and to improve our cash flow.

From an initial estimate of a couple million tons, new measurements have found approximately 7 million tons

Dia Bras is a Latin American mining company focused on the

of reserves. This means that we have tripled our available

exploration and production of precious metals. The company

resources, which allows us to consider a production expansion.

strives to become the region’s premier low-cost ore producer by

Cusi is a silver deposit with a small amount of gold and lead

increasing its production profile

125

Fresnillo plc's silver mine, Saucito, Zacatecas

INNOVATIVE TECHNOLOGIES

Dating back to the era of the Spanish conquistadores, mining in Mexico has over 500 years of tradition. But while experience continues to be the pillar of the industry, it is innovative technologies that enable it to flourish. With old ways set in stone, miners often struggle to open up to new avenues. But when disruptive technologies succeed in boosting productivity, the industry is more than willing to embrace them. Deloitteâ&#x20AC;&#x2122;s Innovation Practice research shows that true innovation is not about implementing isolated technology solutions. Rather, successful innovations approach the creative process as an enterprise-wide differentiator with a tailor-made conception of the resources and skills to nurture innovation. That is, well-articulated digital strategies with a direct link to business value.

This chapter focuses on the innovations breaking paradigms and leading the way in modern mining.

127

CHAPTER 6: INNOVATIVE TECHNOLOGIES 130

INSIGHT: Francisco Bolaños ,CISCO

131

VIEW FROM THE TOP: Nacip Fayad, SKF

132

TECHNOLOGY SPOTLIGHT: Rotating Equipment Performance

134

VIEW FROM THE TOP: Roberto Pérez, Siemens

135

INSIGHT: Cindy Collins, GEOSITE

136

VIEW FROM THE TOP: Jesús Herrera, Detector Exploraciones

138

VIEW FROM THE TOP: Justin Taylor, Halyard Inc.

140

INSIGHT: Luis Rodríguez, IIPSA

141

VIEW FROM THE TOP: Diana Catarino, IMDEX

142

VIEW FROM THE TOP: Lenin Escobedo, Datamine

143

VIEW FROM THE TOP: Nick Fogarty, Seequent

144

VIEW FROM THE TOP: Felipe de Jesús Esquivel, AMMMEC

144

VIEW FROM THE TOP: Felipe Esquivel, Smart Condition

145

VIEW FROM THE TOP: Luis Tejadilla, Belden

146

VIEW FROM THE TOP: Gerardo Gardea, Delta Solutions

147

VIEW FROM THE TOP: Omar Pedroza, PBE Group

147

VIEW FROM THE TOP: David Juárez, Herrenknecht Tunnelling Services Mexico

148

VIEW FROM THE TOP: Joaquín Patrón, Ankla

148

INSIGHT: René Valle, MacLean Engineering

149

VIEW FROM THE TOP: Felipe Rivera, Schneider Electric Systems

150

VIEW FROM THE TOP: Jesús Flores, Lasec

151

VIEW FROM THE TOP: Álvaro Chacón, Martin Engineering

129

| INSIGHT

A GUIDE FOR EMBRACING DIGITAL TRANSFORMATION FRANCISCO BOLAÑOS Architect IoT/ Digital Transformation Latin America at CISCO

130

In the process of embracing technological innovation,

is an industry request to technology developers such as

Francisco Bolaños, Architect IoT/ Digital Transformation

CISCO,” says Bolaños.

Latin America at CISCO, believes there is a simple formula for success. “When a technological design is

Although biometric monitoring is still not widespread in

aligned with business objectives, every single piece of

Mexico, miners have very little time to catch up. “NOM

the implemented technology will directly or indirectly

123 was released in October 2012, allowing a two-year

generate savings and income for the company,” he says.

window compliance. Yet, many companies have not yet

“Technology is the key to increase safety and security and

enforced the regulation and others are just in the process

to better structure procedures so people can be more

of adopting sensors that can provide workers’ locations,”

productive in a safer environment.”

Bolaños explains. “Latin America is lagging behind other

“

Technology is the key to increase safety and security and to better structure procedures so people can be more productive in a safer environment”

jurisdictions that are more likely to embrace technological advancements, such as Canada and Australia.” To bridge this gap and while biometrics passes from science-fiction to reality, Bolaños emphasizes that companies are focusing on implementing a standard infrastructure that allows them to start profiting from the application of technology in their businesses. In the case of CISCO, wireless location systems, networks to connect several technological silos and collaboration systems to increase workforce productivity are the most demanded solutions in Mexican mining. “We are working extensively with the top mining companies worldwide to

When it comes to safety and security in mine operations,

create digital mining,” he says. “In Latin America, our goal

Bolaños argues that the first step must be to track the

is to leverage our technology and the vision of a digital

location of all miners working in dangerous areas. In

transformation applied to mine processes.”

Mexico, NOM-123, Chapter 5.9, specifies that every company with people working inside a mine needs to

According to MIT Sloan Institute 2017 DBIT data, over 40

track each worker, and preferably in real time. “Wireless

percent of mining companies in Latin America are already

technologies allow companies to achieve this goal

trying to enforce a strategy for digital transformation and

through devices such as RFID Tags,” he says. “The long-

another 30-35 percent are in the middle of the process.

term vision is to have these devices monitor biometrics

“Over 60 percent of mining companies in the region are

to measure workers’ vital signs.”

looking for ways to benefit from technology applied to business processes,” Bolaños says.

Biometrics will be the next technological breakthrough for safety in mine operations as the industry will finally be

The ultimate goal of such digital mine infrastructure is to

able to monitor the health status of its people in real time.

connect the operations and business network to provide

For example, if a miner has high blood pressure and can

real-time indicators for enhanced decision-making.

only be sent to a certain depth, this kind of information

“When the two pieces of the network are separated,

can prevent accidents, in turn ensuring the continuity

CEOs cannot make informed decisions. As metals deals

of the operation. “Miners are highly concerned about

are often executed through an online bidding process,

ensuring the well-being of their workforce, so biometrics

updated information is crucial,” Bolaños adds.

VIEW FROM THE TOP |

INDUSTRY 4.0 TO TRANSFORM MINING OPERATIONS NACIP FAYAD Industrial Sales Director of SKF

Q: What is the largest barrier to implementing Industry 4.0

conservation of the equipment. We are integrating all of the

in the Mexican mining sector?

elements of industry 4.0. Our Industry 4.0 services combine

A: Mexico is a follower in terms of technology and it is

services and technologies to provide our clients with a well-

difficult for Mexican companies to become early adopters of

rounded offer. The market is advancing quickly and new

technology or innovation. The culture in Mexico is to integrate

technologies are being created constantly. Mexico, however,

technologies slowly but when something goes wrong, they

is adopting these technologies very slowly in comparison to

toss it out. This complicates the advancement of technology

other countries. We have visited plants where concepts such

and innovation. Compared with other Latin American

as IoT are not understood completely, and many processes

countries, such as Brazil, Argentina and Chile, Mexico is far

are still being done manually. We have decided to create

behind in this regard, even though the country has strong

a showroom in our Puebla plant to be able to illustrate to

purchasing structures, and is the most robust of the Latin

our clients how their processes could be streamlined and

American markets. What we have noticed is that most large

improved. At our plant, we are able to monitor specific

companies separate their innovation departments from the

processes and machinery to constantly identify new ways to

rest of their operations. There are some that include it in

improve maintenance and prevent downtimes. The cloud is

their production department but it remains independent. It

used to store the data gathered throughout all processes and

is difficult to sell technologies because you have to pitch to

from the machines, but there still continues to be distrust

many departments, instead of approaching one single director

from our clients as to where their information goes and is

who can make the decision to implement it. Negotiating and

being stored.

selling the added value of the product has become more difficult.

Q: How quick is the ROI when investing in new technologies and can you elaborate the success story at Fuerza Eรณlica

Q: What companies have decided to invest in transforming

del Istmo?

their processes with Industry 4.0?

A: When implementing these services, the ROI can be as

A: Our technology is already being used by the largest mining

fast as six to 15 months, depending on the type of project.

groups. Nevertheless, there is a gap between purchasing the

At Fuerza Eรณlica del Istmo, we are monitoring its 32-turbine

technology and actually evolving into Industry 4.0. We have

wind farm, which is difficult to inspect. Whenever there is an

not been able to convince all our clients that these types of

issue, it would have to stop all turbines, which costs a lot of

changes take time. That said, we have developed successful

money. The client made the investment and in eight months,

projects with Fuerza Eรณlica del Istmo. This is the closest we

we were able to detect a malfunction in the main gearbox

have come to a complete Industry 4.0 project. Another barrier

in one of the transmission cogs. The alert was given and

we encounter is that to enter into Industry 4.0, it is important

the maintenance was programmed. Monitoring can be done

to establish partnerships with other companies. We have

online with people or offline. Online is designed to retrieve

observed that most clients already have their strategies for

and monitor in remote or insecure areas. Industry 4.0 allows

an ERP already divided into the different modules needed

for preventive action. It extends the life of machinery and

and to follow the processes. What is missing is the equipment

plans for maintenance and replacements. It facilitates the

itself that allows for continuity in the processes.

circular economy by reusing raw materials and parts.

Q: How does SKF combine its products and services to transform mining companies into Industry 4.0 adopters?

SKF is a Swedish company that operates across different

A: We have a remote monitoring system that not many

industries. In the mining sector, the company has several

companies have. People in the field with predictive

platforms, including sealing solutions, lubrication systems,

technologies and the technology itself allow for the

mechatronics, power transmission and services

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| TECHNOLOGY SPOTLIGHT

132

ROTATING EQUIPMENT PERFORMANCE Mining customer requirements are focused on improving the productivity, efficiency and performance of their rotating equipment. To address this market, SKF’s Rotating Equipment Performance (REP) consists of products and services that enable customers to increase the availability and reliability of industrial assets, while also reducing environmental impact and improving health and safety practices. SKF's primary goal in the development of this technology is to help end-users and OEMs meet their business goals and maintain market competitiveness throughout the whole equipment life cycle. The main premise of REP is all about combining a wide range of products, services and integrated solutions. This means the outcome is a complete portfolio of reliable engineering, high-tech condition monitoring, precision reconditioning and remanufacturing services. Most industrial companies already view maintenance as a core skill specialized to optimize processes, remanufacture critical equipment and detect early failure and corresponding root causes. These core specialties are often provided by third-party companies, as maintenance professionals recognize that day-to-day maintenance demands do not allow the time to be fully updated on the industry’s best practices. As more and more companies are taking a leap of faith and deciding to outsource maintenance functions, it becomes increasingly important to make the right choice in service providers. These must have wide-ranging knowledge of failure expertise and global standards to ensure the highest quality. This industry shift is also moving from reactive to proactive maintenance. This has led SKF to forecast a high growth in the REP market as it can meet both needs. Also, as Industry 4.0 continues to gain momentum, it is in a CEO’s best interest to implement technologies that can predict and manage industrial assets. Companies increasingly want and need to know when their equipment will fail and, most importantly, which solutions can eliminate the underlying root cause and prevent future reoccurrence. SKF’s ability to provide broad knowledge about the rotating equipment functions of applications involving bearings, seals, lubricants and power transmissions, perfectly positioning the company to take advantage of these growing trends.

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| VIEW FROM THE TOP

WHEN DIGITALIZATION ENTERS A MINE ROBERTO PÉREZ Head of Solutions at Siemens

134

Q: How would you rate the technological transition in the

digitalization simplifies decision-making and liberates the

Mexican mining industry?

energy and time of personnel to optimize processes and

A: The industry is already working with cutting edge-

investments.

technologies, such as automation, milling, and primary processes. Our job is to incentivize the penetration of

Q: How does Siemens develop a digitalization strategy

digital technologies because there is still some industry

together with its clients?

unawareness, added to a lack of maturity that hinders

A: First, we execute a diagnosis. We visit the mine and

the market taking this next step. Certainly, technology

evaluate the asset together with a team provided by the

advancements are gradual, but there is much to be done with

client. Based on the results, we help to define a strategic

clients around digitalization. They need to have a specialized

development plan with short, mid and long-term investments

department for this area to make it is easier to identify its

with a clear ROI. We see as an ultimate target to have what

potential and also its associated costs. This is the missing

we call a digital twin of the assets and processes working

link to reach technological appropriation in a faster pace.

as the real ones and delivering information to predict and improve. At the moment, we are working on many projects

A characteristic of digitalization is that solutions can be

and the most relevant is located in Brazil. The world’s

specifically designed for each client’s needs. Many have

third-biggest mining company, wanted to implement a

already autonomously and independently developed their

single manufacturing execution system to connect 38 sites.

processes with certain characteristics. The main thing is

Siemens executed the phases of conception, implementation,

to keep the existing platforms and add on top integrating

integrated tests, and assisted operation for excavation,

software to improve the actual performance.

material beneficiation, material stock and shipment. The customer benefits for example from integrated control of

Q: What advantages does digitalization offer in terms of

different storage areas, capacity management, and KPIs

boosting the competitiveness of mining operators?

updated in real time.

A: Digitalization has the potential to change the organizational structure. Maintenance and operation should

Q: What kind of technologies does Siemens offer to ensure

be interconnected and automated, with less man hours

a rapid adoption of digitalization in mines?

expended to operate and maintain the plant. The focus of

We focus on understand the customer long-term strategy

management should be optimization, by adding KPI´s to

to define a roadmap, but I would like to name a few of

more components or the improvement of actual ones. The

the basics. MES Manufacturing Execution System: the

goal is that the mine knows exactly the performance of each

customer gains comprehensive transparency along

critical component and its costs related, and is able to request

the entire value chain and at all facilities, e.g. from the

to suppliers specific characteristics to improve that particular

mines to the railway and port facilities. In concrete

element performance. In the midterm we should expect a

terms, operating performance indicators from across

reduction of downtime and increase of productivity. By the

all sites can be displayed and compared to each other;

integration of all the mine departments and components and

Stockpile Management System: an unmanned operation

with a visualization platform for specific roles in the plant,

of stackers, retrievers and combined machines that offers higher performance, greater accuracy, full utilization of the storage area and optimized energy consumption compared

Siemens is a global powerhouse focusing on the areas of

to manned operation. Finally, Asset Health Analytics,

electrification, automation and digitalization. It is one of the

which consists of the enrichment of condition monitoring

world’s largest producers of energy-efficient, resource-saving

systems with analytic and predictive functionalities as well

technologies and is a supplier of systems for power generation

as self-learning abilities.

INSIGHT |

SHORTENING THE LEARNING CURVE THROUGH NEW TECH CINDY COLLINS Founder of Mining Technology Partners and CTO at GEOSITE

Technology is providing the mining industry with more

trouble raising money because investors want to see numbers

information than ever before but the learning curve means

and advancements in their projects,” Collins says.

miners must put old ways aside to embrace the perks of

135

innovation, says Cindy Collins, Chief Technology Officer

Another purpose of on-site geoscience is to enhance

and Co-Founder at GEOSITE. She says it is the company’s

performance in a highly commoditized drilling industry.

mission to shorten this curve as much as possible to enable

According to Collins, drilling costs between US$70 and

geologists to better do their job. “We understand the market

US$120 per meter, while on-site mineralogy costs between

and its complications. Our focus is on being an enabler of new

US$1 and US$30 per meter. “Geoscience can really help us

technologies to add more value to our clients.”

increase the value of those drilling dollars because it provides accuracy. Miners do not want to be drilling in the wrong spot

Introducing new technology to a traditional industry comes

or direction.”

with a number of challenges. “Some are regional, such as language, culture and the lack of understanding of these

After sampling, testing is another area of opportunity to

technologies. Others are more practical, such as import

reduce costs. Collins says that while laboratory data is

and customs processes to have accessible and appropriate

absolutely necessary, it can take from three weeks to three

technology available for projects,” Collins says. “At GEOSITE,

months to get results. On-site analysis is fundamental to better

we want to fill those voids, especially for foreign companies

direct sampling programs. “In-field technologies generate

that do not have the resources in Mexico to import, evaluate

more data to complement data gathered in the laboratory

technology and find the people to operate it.”

and together they provide better resolution of the zones of interest,” she says. Geochemical testing on-site costs from

GEOSITE started shortening this learning curve by evaluating

US$1 to US$3 per meter whereas laboratory analysis and

which technologies are worth trying and providing the experts

sample preparation can cost up to US$40 per meter. “It is

to break ground on their usage. “We have the in-house know-

useful to supplement information with multiple sources to

how so our clients do not need to worry about finding it.

better vector where to explore.”

We provide tools, training and in-field experts, just to name a few,” Collins says. “We also evaluated multiple brands from

GEOSITE is also excited to be developing technologies of its

Australia, Germany, the US, Canada, Chile and Mexico and

own. “We are focusing on on-site sample preparation and

narrowed down the work of choosing which brand is best.”

sampling. We have detected an efficiency gap and we will

For example, GEOSITE works with Boart Longyear for drilling

work to make sampling more analysis-ready,” Collins says.

instrumentation and with GV Mapper to capture digital data.

“Data capturing is also another problem not being solved. All in-field technologies develop a great deal of data really

The main goal is to use technology to improve data. “We

quickly; we must be able to manage that information and

are analyzing increasingly complicated environments and

validate it on the spot.”

having to explore deeper in areas where we have never been before,” Collins says. The company offers on-site geoscience

The company will also continue to focus on expanding

to help geologists make real-time decisions. “We introduce the

its portfolio of near-mine exploration solutions and on

available tools while keeping an eye on those that are still being

strengthening its partner base. “We look to become more

developed.” Given the lengthy timelines for developing a mine,

closely involved with consultants in various regions so we can

GEOSITE also focuses on helping companies maintain their

rely on having partners with a deep understanding of their

momentum by simplifying processes. “Bringing geoscience

regions. It is fundamental for us to have regional expertise

into the field is absolutely necessary. I am convinced that

to incorporate technology properly and serve clients in the

companies that are reluctant to do so are going to have

best way.”

| VIEW FROM THE TOP

INNOVATIVE EXPLORATION FOR MEXICO’S MINING FUTURE JESÚS HERRERA Director General of Detector Exploraciones

136

Q: What policy-based measures can the new government

publicly available. By improving transparency, bureaucracy

take to promote exploration?

would have an incentive to move faster. It is often too slow,

A: There are many organizations at the federal and state

and concessions sometimes take years to be approved. It can

levels that have good know-how and experience, along with

even happen that by the time a concession is granted, the

sufficient budgets. It is more a matter of devising a strategy

project is no longer interesting from a business perspective.

for harnessing these resources to a productive end. Smaller

As we speak, there are a number of projects that are ready

mining companies are in special need of attention. There

to start operating and create jobs but they are being delayed

are several areas in Mexico ripe with small miners. However,

unnecessarily. Mexico loses competitiveness this way.

they lack adequate access to financing and engineering, and thus their capacity to undertake new projects is limited.

Moreover, there has been talk of officially incorporating

These are companies that could generate hundreds of jobs

public consultation into the requirements for granting

in a given community. Boosting small miners should be at

new concessions. This is necessary and would benefit

the top of the government’s agenda. In fact, it has always

the industry. In fact, consultations are routinely done.

been in the political conversation. The problem is that it

What is missing is a proper legal framework. Detector

has never materialized into actual policy. If the three levels

Exploraciones always contacts community leaders prior

of government and the private sector work together, great

to starting a new project. If we do not reach an agreement,

milestones could be achieved in this respect.

we do not start the project. Although we have considerable experience in these negotiations, an official methodology

Q: What legal changes should be made?

would be helpful. The government—not the companies or

A: It would be beneficial if legal processes were more

the communities—should have the final word. And it has

transparent. There are certain features of the legal framework

to provide total legal certainty so that initial investments,

that not even people who have been in the industry for

which are rather steep in mining, are safeguarded.

decades understand. Step one would be creating a map, so to speak, that included every legal process regarding mining

Q: How will the recent rise in metal prices impact on

concessions in Mexico. This map or database would be

exploration?

A: If prices remain high for one or two years, then investment in exploration will start growing. True, big companies, like Goldcorp or PeĂąoles, are placing their bets on exploration. But small and medium miners are holding back. This points to an inherent conflict in mining: in times of economic contraction companies cut down their exploration budgets, a few years go by, projects get mined out and the industry

The Mexican Geological Survey has launched public contests for geological charters. This means around MX$40 million for 50 new projects

realizes there are not enough proven deposits to resume working right away. This is harmful to mining in the long run,

coordinates. When the economy enters an expansion

and the government can implement programs to mitigate it.

phase, this strategy will allow us to participate in other

Furthermore, exploration is where earth sciences professionals

areas of the industry in addition to mining.

mostly find employment. If we do not invest in exploration, these professionals will have to find jobs elsewhere and thus

Q: What solutions does Detector Exploraciones provide

the talent pool in the industry will be diminished.

to the mining industry? A: One of our specialties is regional geologic-mining

That being said, exploration is slowly picking up pace. The

cartography, at scales of 1:250,000; 1:50,000; and 1:10,000.

Mexican Geological Survey has already launched public

We undertake a review and analysis of previous studies and

contests for geological charters. This means around MX$40

interpret satellite images. After that, we check the field against

million for 50 new projects. The goal is to update the map

our conclusions. We also provide cartography services at

of potential deposits so that investors can move forward

semi-detail (scales from 5,000 to 1,000) and detail (scales

confidently, backed by better information.

from 50 to 500). We can thus determine alteration areas and mineralized structures. Moreover, we provide assessments

Q: What is your growth strategy for the next five years?

of geologic resources by means of geologic mapping,

A: First of all, we will keep nurturing our human resources.

mineralized bodies and interpretation of geologic sections. We

We will acquire new technology and train our workers to

also calculate mineral reserves by means of drilling data. Our

keep up with the major trends in the industry. We want to

most important service is the discovering and quantifying of

consolidate our exploration division and strengthen our

new reserves, because in this way we contribute to economic

reputation as the go-to company for detecting areas with

development and job generation. Our services differentiate

mineral potential. In the last few months, there has been

us from other alternatives in the market because we provide

more activity in this area, mainly due to higher metal prices,

a comprehensive service, from obtaining mining concessions

and companies seem more willing to invest in somewhat

and exploring drilling targets to quantifying mineral resources.

risky ventures. Moreover, we will enhance our already excellent geomatics division. Our strategy in this area involves, but is not limited to, investing in drones that will

Detector Exploraciones is a Mexican company founded in 1997.

allow us to detect opportunities more safely and efficiently.

It provides geology, geomatics and other exploration services

With this technology we can reach inaccessible areas and

to both mining companies and the public sector throughout

once we survey them, we can pin them down with exact

the country

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| VIEW FROM THE TOP

A METHODOLOGY FOR INNOVATION JUSTIN TAYLOR President of Halyard Inc.

138

Q: As an EPCM company, what are the main challenges

In addition to Harte Gold, Halyard has also executed projects

for the Mexican mining sector and how are you adapting

for juniors and mid-tier clients, such as Alamos Gold,

to tackle these?

Hudson Bay Minerals, Canada Fluorspar, LNS Greenland,

A: Two significant challenges the industry faces pertains

Coeur Silver Tip, Dominion Diamond, Stornoway Diamonds,

to projects that are often over budget and completed

Gold Corp and Agnico Eagle.

late. Additionally, there is a huge shortage of experienced technical people. I think that Mexico and Canada working

Q: How does Halyard differ from other engineering firms

together is a great combination as Mexico has significant

in the mining sector?

mineral and labor resources and Canada has the financial

A: Halyard Inc. is driven by the need to actually implement

sector and technical expertise. The way we adapt to and

projects whereas many other players in our space stick to

approach these opportunities depends on the type of

purely consulting work and studies. On the other end of the

project but we always strive to think about ways to do

spectrum, we believe the large EPCM firms struggle to deliver

projects differently and how this, in turn, can differentiate

smaller capital projects (below US$60 million) in a fast-track

us from other companies we compete against.

and efficient manner and this is the space we operate in. We are still a relatively unknown entity in the market as we have

To achieve this, we have a lean team model focused on

only been around for seven years, but from day one we have

only doing work that really adds value. As companies

focused on building a strong track record and credibility.

grow, most become what we call “systematic machines”

Halyard is technically strong, agile and has an efficient low-

and this is something that we aim to avoid. Consequently, we

cost structure that delivers on its promises.

really focus on the activities that are necessary; avoiding all superfluous corporate procedures that do not add value to

The ideal job for Halyard is to be involved from project

the engineering process. So in order to mitigate the risk of

inception and manage the job through to completion and

reaching a stage in which we will become just like anybody

handover and thus capitalize on continuity throughout the

else we decided to change our thinking. We need to do

project life cycle.

things differently to solve the industry’s shortcomings. Doing things differently for us is the equivalent of doing them

Q: How will Halyard maintain this hands-on approach if its

better. One of our aims is to introduce different technologies

growth rate continues?

(both engineered and digital) and approaches to mining

A: Every company must deal with the stress of growing

processes to make them more effective. We add value by

and adapting to the changing market and Halyard is not

designing unique and applicable solutions for every project.

immune to these dynamics. So, in order to best adapt to this growth we try to employ people who share the

Q: What have been some of the standout projects for

same type of entrepreneurial work ethos and have the

Halyard to date?

relevant experience in terms of fast-track, hands-on

A: Halyard’s biggest contract to date has been the EPCM for

projects. These desirable traits of our staff and potential

Harte Gold Corps’ Sugar Zone Project, which is currently in

candidates are specifically evaluated by a professional

operation. The Sugar Zone project was a fast-tracked job

mentor who assesses whether this person is a good fit

and from beginning to completion it took us 15 months to

in our organization. Furthermore, the initial assessment

achieve production. Based on the project delivery success

serves as a baseline for that person’s ongoing professional

of the initial project, which comprises of: an 800t/d

development while working at Halyard.

concentrator, water treatment facility and paste plant, we have been asked to be involved in the expansion of the

I also need to say that because we are a smaller firm, our

Sugar Zone property.

staff must be willing to participate in areas that normally

Halyard's crushing plant and stockpile cover

139

would be outside of their traditional discipline and able to

and build a strong name in the industry, we will be able to

go the extra mile when this is needed. This is a company

continue this upward trajectory.

for professionals who share a passion for what they do and want exposure to technically-complex and fast-paced

Similar to our competitors, we want to attract the best people.

projects that can handle the responsibility of excelling in a

Halyard’s objective is to grow its workforce from 22 to about

deliverables-based environment.

30 people by 2020, and increase our revenue by the same margin within this time frame. We must manage our internal

Q: Does Halyard operate globally, and are there any regions

growth while maintaining the highest technical standards

the company is looking to expand into?

and client service. We want to prove that we are the best

A: Halyard has done work throughout Canada and North

company in our market segment and that we can deliver on

America and we have delivered a project in Greenland

our promises. My final message to the industry would be that

where we built a ruby processing plant. Going forward, we

if you are serious about getting a job done in a meaningful

would like to consider executing projects in Latin America.

way, Halyard Inc. is a company worth partnering with.

However, in the short term our focus is to build our business in Toronto and establish a good foundation here first. We

Q: What project and work have you undertaken in Mexico?

are cognizant of not trying to overreach.

A: We recently worked at Agnico Eagle’s Pinos Altos mine in Chihuahua to build and supply a modular sampling plant.

We are not limited to any geographic location; we will

We undertook this project in 2018 and developed it in only

go where the projects take us. We are also looking at

two months. The project was a success and is operating as

diversifying into other market sectors that share similar

intended. We also tested a preconcentration technology at

technologies and processes to the mining industry. I

another of Agnico Eagle’s sites. Similarly, we are using this

believe that we need to use our strengths in one area as

technology to look at the benefits of preconcentration at

a springboard to move into the next and this is how we

Impact Silver’s Capire site to upgrade its deposit. Outside

will grow.

of this, we are doing some work at Goldcorp’s Peñasquito site in Zacatecas.

Q: What are Halyard’s main objectives moving forward? A: Throughout the ebbs and flows of the market we have always managed to stay busy and stay profitable which is

Halyard

evident by our sustained growth year by year. I believe that

construction and management (EPCM) for the minerals

as long as we can continue to be involved in good projects

processing and mining industry throughout North America

Inc specializes

engineering,

procurement,

| INSIGHT

MIGRATION TO INDUSTRY 4.0 INEVITABLE LUIS RODRÍGUEZ Director of Operations at IIPSA

140

The Mexican mining industry is at a turning point, with

is to be accomplished. These are translated to productivity

Industry 4.0 staring it in the face and demanding a migration

and efficiency indicators.”

to new technologies, says Luis Rodríguez, Director of Operations of IIPSA, which specializes in helping miners take

IIPSA works with its clients, including Industrias Peñoles,

the leap to automation. “Mine facilities and equipment are

Fresnillo and Grupo México, to choose the technology that

becoming obsolete so mining companies are preparing for the

will deliver the highest ROI. “We always speak to our clients

modernization that the Fourth Industrial Revolution promises

in terms of the ROI they can expect per dollar invested in

to deliver.”

us. Our team then focuses on fulfilling all our promises,” Rodríguez says. “The promise we make is that we will help our

Dependability is an essential factor in an industry that is

clients be more efficient so they can reduce operating costs.”

expected to deliver on the world’s incessant demand for

The ROI a company can expect depends on each solution.

minerals, and automation solutions like those provided by

“For example, for control systems specifically designed for

IIPSA could become make or break for many companies. “The

optimization, we can guarantee an ROI from 1 to 2 percent,”

mining industry has a very broad value chain. We add value

Rodríguez says. “This may seem like a low percentage but

by making the industry’s processes reliable so they keep up

given the high levels of investment, it becomes a significant

with the never-ending demand for minerals,” Rodríguez says.

win for the client.”

“Facilities need to remain productive and operate efficiently; we provide automation equipment that enables this goal.”

To adhere to its commitments, IIPSA continuously invests in the training of its people and in R&D to improve its services.

IIPSA has worked in the Mexican market for 40 years and

“We work with our partners and our clients to get the

offers a broad solutions portfolio, including but not limited to

right feedback that allows us to be strategic in our R&D

instrumentation, valves and control systems. Rodríguez says

programs,” Rodríguez says. IIPSA also provides training to

that control systems are among the company’s most popular

its clients on the systems it offers so the client understands

solutions. “These systems are revolutionizing the amount of

the benefits beforehand. In Mexico, IIPSA mainly works along

information a company can obtain, allowing for enhanced

the Pacific coast, covering the states of Baja California, Baja

decision-making. Our control systems work collaboratively

California Sur, Sonora, Chihuahua, Sinaloa and Jalisco. “We

with instrumentation, valves and even other equipment that

have a direct presence in this area with offices and technical

we have not provided.”

staff. While this is our natural territory, we also work in the mining regions of Zacatecas and Durango.” IIPSA previously

The company also focuses on partnerships to bolster its

worked in Arizona but decided to focus its operations mainly

offering. Emerson, for example, has been one of IIPSA’s main

in Mexico.

business partners since 2007. “Emerson provides automation and control equipment,” Rodríguez says. “Together, we can

Rodríguez sees a bright future for both the company and the

guarantee the mine plant’s efficiency and dependability.”

country in mining as long as the focus remains on Mexico as

IIPSA alliances also include strategic partnerships with

a whole and not on its current administration. “We perceive

suppliers across the value chain, such as Phoenix Contact,

a favorable government for the mining industry, so I think

Delta Electronics and Rittal. Rodríguez says the goal of the

that we will keep growing at a good pace. But aside from its

company’s in-house offer is to put Industry 4.0 into the

government, Mexico will remain a job and wealth generator

hands of its clients. “We offer a combination of software and

for those who decide to invest in it,” he says. “The Mexican

hardware that is collaboratively adapted to each customer’s

philosophy is to keep producing wealth for their families. This

needs,” he says. “When working on a client’s projects, it is

will make the country thrive regardless of the government

crucial to understand the company’s expectations about what

in power.”

VIEW FROM THE TOP |

FOCUSING ON THE MINING TRANSITION DIANA CATARINO Manager for Mexico and Central America at IMDEX

Q: How are you integrating your branded solutions to

Ultimately, our goal is to connect all our solutions to

offer a more comprehensive portfolio to the industry?

IMDEXHUB-IQ, a digital platform that can secure, audit

A: IMDEX delivers a range of end-to-end solutions to

and control all data to have it available for exploration,

the global mining and non-mining industries, such as

resource and drilling companies. For example, a company

civil and construction of water wells. We are not just in

may need to verify something that was drilled six years

exploration, we have the technology to help the whole

ago and to prove that it yielded real and precise data.

industry evolve, which nobody else is doing. By integrating

Before, it had no way to do it, but IMDEXHUB-IQ ensures

our AMC and REFLEX brands, our solutions for drilling

it has all information in real time. We are about to show

optimization, downhole navigation and structural geology

Mexico what real time means. Once we generate the

allow clients to drill in a better way and at full-speed. These

first Mexican data with it, word of mouth will spread it

are also easy to use. Regardless if you are a geologist or

all around.

a geoscience engineer, you can push a button and have all the data at your disposal; we do the job of processing

We are experiencing a transition to get everybody on

it for you.

board with our connectivity view. We started by explaining each of our tools to the market and how they can benefit

We always want to be one step ahead of our clients to make

from these. As most miners in Mexico are doing things

things simpler, more efficient and cost-effective for them.

the old way, we have designed a two-year business plan

We need to educate the industry to exit the false economy

to make this transition easier and we are advancing fast.

in which it currently finds itself. For example, you may have

This has and will continue to be a big disruption to the

two fluids competing, one more expensive than the other.

way things were being done.

The false economy is to have them only compete on price without analyzing their active components and how these

For example, drilling was being done with grease, water

make a difference. Our focus is on cost per project. We tell

and Foca soap. We came up with a range of products that

our clients what they need and for what reasons. We build

are environmentally responsible and efficient and after

the entire picture instead of just comparing product per

some time educating and generating the culture for the

product. REFLEX may have competitors, AMC may have

correct use of AMC drilling fluids, the perception of the

competitors, but IMDEX stands alone.

industry changed for the good.

Q: What is the story behind IMDEXâ&#x20AC;&#x2122;s recent rebranding

Another example is our REFLEX TN14 GYROCOMPASS

strategy and how will it add value for your clients?

technology that aligns the rig in 25 minutes and with

A: It is general knowledge worldwide that the IMDEX

perfect precision, compared to the three hours this

Group owns REFLEX and AMC but somehow these three

would take manually. We can also align multiple rigs in

were not connected in Mexico. For example, REFLEX was

just one day, which implies an enormous saving for mining

acquired 11 years ago but it was never branded as IMDEX

companies in terms of time and money. We are giving time

in Mexico because we had different distributors. In 2016,

back to our clients so they can invest it back into having

we started the rebranding of IMDEX and today, instead of

a better performance.

having three logos, we present the company as a whole. The purpose of the rebranding is to really accomplish our mission, which is to offer drilling optimization solutions

IMDEX is a leader in real-time subsurface intelligence solutions.

to our clients. To do so, we need the REFLEX technology,

It also provides a comprehensive range of quality drilling fluids

the AMC fluid solutions and the IMDEX equipment and

and specialty products to the mining, water well, HDD, CBM, civil

software to connect the whole solution.

construction and tunnelling segments worldwide

141

| VIEW FROM THE TOP

SOFTWARE BOLSTERS CONTROL OF AN OPERATION LENIN ESCOBEDO Country Manager of Datamine

142

Q: Why should companies invest in digital technologies

of purposes, such as conducting a stability analysis. Our

for their operations?

star product, however, is Studio RM. This is used to produce

A: Datamine offers software for what we call optimization

models of resources and reserves. It can represent information

solutions. These are applicable across the whole value

such as geological structure, mineralization and grade while

chain of mining, from prospection and exploration, to the

combining data from samples and images. Studio UG is our

mining operation itself and the logistics of delivery. They

solution for underground mines. It allows you to integrate mine

provide the ability to manage a detailed operational plan,

designs and different scenarios when scheduling an operation.

from the short to long term. Through the use of different

The operation can be updated in seconds. Studio OP is used

parameters and indicators, companies can map out a variety

for open pit mining. Both these packages make use of EPS

of scenarios to help with decision-making. For example, a

software, which is a scheduling and communication platform.

company can anticipate the course of its operation under

Another important software product is NPV, which allows you

different market price rates. The ability to plan over the long

to combine many different utilities, from pit optimization, to

term is important in this industry.

mineral mixes and ore control, to scheduling what machines need to be used and personnel teams. Our MineMarket

Q: How would you measure the benefits of your programs?

software maps the entire process of production and delivery

A: The benefits are in the savings our clients experience

logistics and can adapt to fluctuating market prices.

in all areas. Being able to anticipate where you will stand in half a year, a year or longer allows for wiser investment

One of the advantages of these software products is that

strategies. In the shorter term, having better control

they not only give the mining company more control, they

of your operation allows you to run your business more

provide its clients and financing partners certainty about

effectively. You can monitor spending in different areas,

its operation.

manage your equipment and teams better by monitoring their behavior and determine when you are going to carry

Q: What success cases best illustrate the impact of your

out maintenance. Overall, this creates a better flow from

software solutions?

beginning to end.

A: Both Fresnillo and Grupo PeĂąoles make use of our technologies in all their operations and have done so

Q: What specific solutions do you offer?

since 1996. We also have other clients, such as Leagold,

A: We offer more than 26 products and are in the process of

Pan American Silver, Grupo Mexico and Autlan to mention

launching new products. In the area of geological analysis,

some of them, for whom we provide recommendations

our staple tool is called Discover. This software allows you

on our software and training for their engineers. These

to compile and analyze geo-scientific data in 2D and 3D

technologies have had a significant impact on how

images. It can be used from the prospection phase, through

decisions are made. Now, you can collect a lot more data

to drilling. Recently, we upgraded Discover to make it available

and generate models in a much shorter time. With the use

as a mobile app. Another key software is Sirovision, which

of cloud technology, information can be shared and edited

is a drone-driven mapping tool that creates 3D images of

in real time.

open pit or underground mines. This is useful for a variety Q: What do you want to achieve over the next year? A: Our primary target is to consolidate in the area of open Datamine offers software solutions for a wide range of mine

pit mines. We also want to promote the fact that we do

operations. From mapping of terrain to scheduling production

not just offer mine modeling software. We also provide a

activities and logistics of mineral transport. Its 26 software

variety of solutions for the commercial and logistics area.

products can be applied throughout all mining stages

Our software is made to optimize the entire value chain.

VIEW FROM THE TOP |

COMPREHENSIVE TECH SOLUTIONS ACROSS MULTIPLE VERTICALS NICK FOGARTY General Manager Mining and Minerals for Seequent

Q: What tangible benefits have Seequent’s clients in the

Q: Do you see a race developing among platforms offering

mining sector enjoyed from the company’s solutions?

centralized solutions? How will Seequent stand out?

A: We have been working with the major companies in Mexico

A: We try not to think of it as a race with other players;

for many years now, including Peñoles-Fresnillo. We provide

we are just trying to enable collaboration. Clients want a

tools that allow our clients in the exploration segment to make

seamless experience. We try to ensure that our systems

important decisions faster. Quicker decision-making leads to

work together seamlessly with external solutions.

savings by increasing efficiency and productivity. Moreover,

Ultimately, we focus on what the consumer needs

our clients avoid investing in areas where they should not be

and wants.

investing. A core part of our strategy is to actively engage with other Q: How are your products changing the way geologists and

developers to provide compatible solutions. We are always

decision-makers operate?

studying other companies and emerging technologies. We

A: The company began operations in 2004 with a single tool

take our time talking with customers to understand the

that allowed the creation of geological models. Now, we offer

problems that they are trying to solve and to develop

comprehensive solutions across multiple verticals. Whether it

better solutions.

is a geological model or a management tool, one of the main challenges is connecting the data input with the decisions

Q: What partnerships has Seequent developed to improve

being made. At one end of the spectrum you have the creators

its solutions for the mining industry?

of the geological models and at the other you have those who

A: We engage with many leaders in their respective fields.

use that information. All are important in the decision-making

In recent years we have formally partnered with IMDEX for

process and for that reason we are increasingly focused on

geochemistry analysis and real-time drilling applications.

communication across the entire value chain. For instance, our

We also continue to invest in complementary cloud-based

recently developed Leapfrog View prioritizes communication.

solutions companies such Minalytix that provide a highly

Our products support the ecosystem of those involved in the

scalable cloud-based drill-hole database solution. We are

decision-making process.

constantly looking for new opportunities to provide extra value to our customers through interoperability and are

Q: How is centralization affecting operators in mines who

actively involved in industry groups like the Global Mining

may feel that they are losing decision-making power?

Guidelines Group.

A: This happened when we first launched our products but we quickly addressed that problem. In the end, what our users

Q: What will success for Seequent look like by the

want is to be as efficient as possible and to be using the

end of 2019?

best tools available. Our users are seeing the advantages of

A: Success comes in many forms; we do seek financial

increasing cooperation and centrality in other applications

success, but we also look to have enduring relationships

they commonly engage in, such as social media. Those types

with our customers and, through the value of our

of collaboration tools now are expected to permeate the

solutions, deliver and provide opportunities to develop

working environment. What senior managers really love about

our people.

our system is that they can access the rationale behind all decisions made. This system also gives managers the ability to find years-old information easily, which is especially useful

Seequent is a global leader in the development of visual data-

for old projects where managers may have left the company.

science software and collaborative technologies. Its solutions

A centralized system allows current managers to quickly find

enable people to create rich stories and uncover valuable

that information regardless of who worked on the project.

insights from geological data

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| VIEW FROM THE TOP

MAINTENANCE FOR SMOOTHER OPERATIONS, HIGHER ROI FELIPE DE JESÚS ESQUIVEL Director General of AMMMEC

144

Q: How are maintenance and service companies impacted

Q: How does AMMMEC divide its maintenance services for

by the fluctuation of metal prices?

the mining industry?

A: Variations in prices do not hit us that much. Services

A: Maintenance has three variants: autonomous, specialized

like the maintenance and technical support we provide

and analysis. Autonomous is carried out by the operations

are constant. If you provide a good service, you will not be

team and specialized maintenance includes corrective

impacted by cycles. Our business actually was created in the

and preventive. In the analysis part, we concentrate all

middle of a mining crisis. Although we have seen a decrease

the information generated regarding the conditions of the

in activity in 1H19, this is mostly because of the uncertainty

machine and use that to make the best decisions for that

regarding the change in political administration.

operation. Preventive maintenance is then divided into two segments based on time and condition of the machinery. For predictive maintenance, we provide tools that help make

Asesoría, Montaje y Mantenimiento Mecánico en Empresas

decisions to optimize operations. Maintenance should be

Mineras (AMMMEC) , founded in Chihuahua in 1990, provides

carried out to keep machinery from malfunctioning. It also

monitoring, mounting, maintenance and technical support for

allows us to generate data and maintain the health of the asset.

mining machinery

We offer installation, maintenance and technical support.

| VIEW FROM THE TOP

PREDICTING MACHINE FAILURE IS A MULTIMILLION DOLLAR AFFAIR FELIPE ESQUIVEL Director General of Smart Condition

Q: Smart Condition grew out of the maintenance company

dollars in potential costs, mainly from production losses

AMMMEC. What is its goal?

caused from unscheduled machinery failure. We work with

A: Smart Condition is focused on predictive maintenance.

a software called Asset Care, which collects and tracks the

What this means is that we evaluate equipment and anticipate

status of equipment. It comes with hardware that can be used

any problems that could occur in the near future. Based on

to measure data related to vibrations, one of the methods we

our analysis, we offer advice on what measures should be

use to determine the state of equipment.

taken to correct the equipment. This could be as simple as applying more lubricant, or as elaborate as taking the machine

Q: What training does Smart Condition provide?

in for a full repair. Such interventions can save millions of

A: We have held seminars and a variety of training courses on the topic of predictive maintenance. One of our courses provides a certification that allows personnel to conduct

Smart Condition , founded in 2018, is expert in a variety of

tests and analysis. These programs are meant to show

areas related to predictive maintenance, a practice that has

the potential of this field and to demonstrate real-life

been shown to reduce maintenance costs and unplanned

expectations. It is impossible to predict to the exact day

shutdowns, resulting in improved productivity

and hour when equipment is going to fail.

VIEW FROM THE TOP |

PRODUCT OFFERING, MINING NEEDS ALIGN TO BOOST MEXICO ATTRACTION LUIS TEJADILLA Regional Sales Director at Belden

Q: What have been the company’s greatest achievements in

Q: How does Belden ensure that the end user experiences

the mining industry over the last year?

100 percent of the possibilities presented by its products?

A: Belden offers a structure of integral communication for

A: We have a global virtual training platform for commercial

industrial processes and in the last 12 months, we have

engineers called Belden University. This training extends to

positioned ourselves among the main mining groups,

the sales engineers at our distributors in each country. In Latin

although we still have a long way to go. Grupo Peñoles

America, there is also an initiative called the Industrial Training

is a client and we have positioned ourselves with Grupo

Program 2019, an online program of 40 minutes per week for

México. In addition, we are in contact with the main

our commercial teams that explains the technology related

directors of mining projects in Mexico. Between 2017

to each product and how it can be sold. To this we must

and 2018, our market in the country grew by 12 percent.

add two other initiatives. The first is the so-called business cluster: periodic meetings in which representatives of Belden,

Q: What factors led Belden to make mining a key sector for

the distributor and the end user interact to provide the best

its growth in Mexico?

possible solution. The other initiative is multiple certifications

A: The first factor was the growth of the sector and

based on international standards that Belden offers its users,

projections for the medium term. The second factor was

whether distributors, integrators or end users.

the alignment of the products offered by Belden and the needs of the mining sector in Latin America. We

Q: What impact do you expect the new administration to

offer the data transmission speeds needed to obtain a

have on the development of mining in Mexico?

positive response in case of failure. The industry needs

A: The impact from the new administration cannot yet be

to be able to trust a product and we offer 99.99 percent

measured because the rules have not yet been clearly defined.

reliability. Another factor that helped decide our bet on

What we do believe is that it will affect direct investment,

Mexico is the country’s need for cybersecurity, which

since there will be less FDI in certain sectors. But the sector

our portfolio addresses. Many solutions offer perimeter

is also projecting growth so I believe that mining will not be

network security to stave off hackers. Belden not only

affected by the change of government. In this context, the

addresses the external security of a server but also the

mining sector continues to be key for Belden in Mexico.

PLC level, which is the brain of the robot. On average, there are nine attacks per day on each industrial network.

Q: What is Belden’s most successful product in Mexico in the last 12 months?

Q: Mexico is a traditionally conservative country when it

A: Our armored cable, in all its variations, has been a

comes to implementing changes. How does Belden get

great success. It comes with a 10-year warranty, while the

past this?

competition offers a maximum of two years on similar

A: About 10 years ago, the internet was consolidated in

products. Wireless switches have also been a very successful

Mexico as an accessible technology for everyone. Mexican

product, since a good part of mining operations takes place in

society became more open to the possibilities of change,

remote areas that lack internet. Our industrial switch, named

especially because it had the advantage of studying

Owl, converts the Wi-Fi or Ethernet signal into 4G, which

the trends in other more technologically-developed

allows it to operate without problems in remote locations.

territories. I think that at a professional and industrial level, Mexico is more open to change than before. One advantage Belden has is that all our solutions are modular,

Belden Inc. is an American manufacturer of networking,

which allows the user to start small and move forward

connectivity and cable products. The company designs,

as required. This generates a great deal of trust among

manufactures, and markets signal transmission products for

our customers.

demanding applications

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COMMUNICATING AT MAXIMUM CAPACITY GERARDO GARDEA Director General of Delta Solutions

146

Q: What is your assessment of the main advancements

One of the innovations we offer is a turbonet system

in Mexico over the last year toward having unified

called MOTOTRBO Capacity Max. This is a trunked radio

communications?

communications solution from Motorola, our main and

A: Honestly, we have not seen clear steps. We are in

closest ally. One of Motorolaâ&#x20AC;&#x2122;s main production plants for

contact with the Federal Institute of Telecommunications

this technology is located in Matamoros, Tamaulipas, and

(IFT) and we understand that the new administration

is recognized as one of the best in the world.

is moving toward savings and cost reductions, which makes it give up valuable collaborators. We believe this

We have almost 33 years of experience working in this

phenomenon has also occurred in other government

industry. We took advantage of our 30th anniversary to

agencies, which in turn has slowed the process. The end of

revolutionize the company and expand and improve our

the last administration opened two new ways of obtaining

team. For example, 40 percent of our workers took a project

radio frequencies. The positive inertia that this created is

management course to acquire new skills and knowledge.

what has helped us so far.

We also focus on a young and gender-equal workforce. The average age of our workforce is 32 and 55 percent of

Radio and IoT communications have put part of our world

our team is female. We are convinced that our customers

in the cloud by using various frequencies. This is relatively

feel, perceive and benefit from this revolution, which in turn

new, so there is a lack of regulation that we hope will not

provides them with a better service to facilitate their own

hinder innovation. For example, the release of frequencies

transition to new technologies. Because regulations have

allowed us to update our technologies with those of

changed recently, we are helping mining companies not only

the international market. This sets the pace for future

to make the technological leap, but also to normalize all their

developments, such as our collaboration with a mining

radio communications in accordance with current legislation.

group in the implementation of Mexicoâ&#x20AC;&#x2122;s largest and most modern radio communication system. This project will

Q: What role does security play in the services you offer

last about a year and a half and will enable the unified

and where in the mining value chain do you expect

management of more than 20,000 radios.

further growth? A: Although we have a security division and obtained the Top

Q: What does the industry need to know about the

10 Security certificate from Bosch in Mexico, we only provide

potential benefits of unified communications and what

radio communications systems to the mining industry, as

role does Delta Solutions play in this transition?

implementation is easier. Implementing a mine security

A: Unified radio communications allow radios to transmit

system would require a lot of human resources on our part

on different platforms, such as Wi-Fi and cellphones. In

and monitoring complications. Why do this when there is a

addition, they use telemetry systems to monitor all machines

surplus demand for security services in urban areas?

in operation and thus be able to track temperature, vibration and energy. For example, the electrical indicators

When it comes to mining, we barely have any competitors in

are delivered to the power equipment, which significantly

radio communications. On the other hand, we have strategic

reduces the response time in case of a contingency.

allies. We are designing a managed services program to serve all those companies that do not want to make the capital investment but prefer to pay a fee for all their radio

Delta Solutions is a Mexican company that distributes

communications. We also offer MANTTO coverage, which

radiocommunication solutions to the mining industry. The

completely covers any damage to our radios between three

company represents top brands including Motorola and

and five years. The average annual cost of this coverage is

Kenwood and celebrated 30 years of operations in 2018

US$40 per radio compared to US$900 per radio.

VIEW FROM THE TOP |

EFFICIENT COMMUNICATION FOR A PRODUCTIVE MINE OMAR PEDROZA Country Manager of PBE Group

Q: What is the importance of an integrated communication,

emit an alert if there is a leak. This system includes telemetry

security and alert system in a mine and what role does PBE

that can detect carbon monoxide and sensors that alert the

Group play in facilitating this?

control room when there is 90 parts per million. This alert may

A: PBE uses its experience in mines to create and improve

sound through either the radio or even lights within a mine.

its solutions to increase security and communication, which

The control system must always have an operator present to

ultimately leads to improved efficiency. In so doing, our first

respond to the alerts that may arise. These solutions are all

priority is the workforce’s security so we try to automate

integrated through our software, making it easy to access and

processes and increase the control of activities. We offer a

understand. The entire mine is mapped out to specify where

wide array of solutions and have experienced a 90 percent

most of the people will be throughout the operations.

increase in productivity in some cases. The company specializes in tracking and telemetry services and devices that can alert teams when there is a problem. The most

PBE Group , founded over 45 years ago, is a global heavy

efficient way to communicate within a mine is through radio.

industries technology company. Serving multiple markets

The tracking devices help keep track of all personnel at all

including, mining, tunneling and construction, PBE has a range of

times. We also offer devices that detect dangerous gases and

safety, communications and productivity systems

VIEW FROM THE TOP |

OPTIMIZING MINE EXPLORATION THROUGH MECHANIZATION DAVID JUÁREZ Managing Director of Herrenknecht Tunnelling Services Mexico

Q: You offer high-tech products. How do you train your

Q: How do you convince the Mexican mining industry

clients to take full advantage of the potential offered by

that an investment in Herrenknecht will have a long-term

these products?

economic return?

A: The sale of a machine includes the availability of our

A: These types of decisions are not unilateral because different

staff, who are responsible for making it work at full capacity.

actors come into play, including consultants, banks and

Our aftersales service is another of our added values. As

engineering studies. We work with all of them, in addition

for our workforce, it is made up of Mexicans, although it

to Hermes, an investment fund dependent on the German

is true that only two out of every 10 hired workers adapt

government. This gives us a significant advantage over our

to Herrenknecht’s work methodology. However, when

competitors.

important projects arise, not only in Mexico but in any other country in the world, we move personnel from other places to cover the specific needs of those projects. The degree of

Herrenknecht is the leading provider of holistic technical

specialization required by some of our projects means that

solutions in mechanized tunneling for tunnel infrastructure. It

up to 20 different nationalities can be brought together for

has worked in over 4,100 projects around the world in all areas

the same project.

of application, such as railway, utility, mining and exploration

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SIGNAL SENT: HOW SATELLITE TECH BENEFITS MINING JOAQUÍN PATRÓN Director General of Ankla

148

Q: How has the IoT impacted operations and development

information is not available to have an impact on decision-

in the mining industry?

making. IoT allows the centralization of that data that was

A: Technology today is helping us take information from

once stuck in the field, making it available in real time any

point A to point B. The important part is centralizing all

place in the world.

the information so that it can be processed. The problem we have encountered in the mining sector is that most

Q: How does Ankla help secure information and reduce

operations take place in remote locations with little or

the vulnerability of miners’ data?

no access to teleconnections. This means that much of

A: Vulnerabilities occur when data and connections are

the data gathered in the field, stays in the field, and that

housed on public networks. The internet is like walking in a mall, where everybody can see your activity. The vulnerability of the data decreases when it is transferred

Ankla is a Mexican company with 14 years of experience in

to a private network. It has to be physically separated from

satellite communication. It provides tailored solutions for the

the network. We create a private network using satellite and

mining industry, including voice and data transmission systems

then the client decides what security protocols it wants to

that lower costs and improve safety

implement and how it wants to receive the information.

| INSIGHT

BEV FLEET TRANSITION, PROS AND CONS RENÉ VALLE Country Manager of MacLean Engineering

Battery Electric Vehicles (BEVs) in mining may seem like

companies already have some electric equipment and others

a novelty but René Valle, Country Manager of MacLean

are starting to ask around about it but none is considering

Engineering, says BEVs have simply been overlooked.

going fully electric.” For those looking for reasons to give

“Tethered electric equipment has been in the market for some

electric equipment a chance, MacLean’s work with Newmont

time but high-density battery electric equipment was not very

Goldcorp best illustrates the benefits of betting on this

developed before,” he says. “Today, the Mexican market is

transition. “We started to develop our BEV solutions at

ready to embrace this technology and we are happy to see

Goldcorp’s Borden project in Canada, which completed

that the industry is beginning to consider the benefits of an

its development phase using an almost entirely electrified

BEV transition.”

fleet except for haul trucks. Goldcorp wanted to create a silent, invisible and green mine of the future where diesel-

Valle says that the industry simply needs to receive better

free mobile mining vehicles were a key component. “Battery

information regarding the pros and cons of BEVs. “Mexican

electric vehicles deliver low-heat, low-noise, low-maintenance,

mining is not digging into the BEV fleet transition yet as it

emissions-free operations, so they check all the boxes for

still fears change, mainly rooted in mistrust and a lack of

what the mining company was looking to achieve with this

knowledge about new technologies,” he explains. “Some

landmark underground mining project,” Valle says.

VIEW FROM THE TOP |

CHANGING CONSUMER FOR PROSUMER FELIPE RIVERA Industry Business/Process Automation Hub Leader Mexico and Central America at Schneider Electric Systems

Q: How can innovation be ingrained into the fabric of

contribution to the industry is our ability to acquire information

organizations and what is Schneider Electric’s role in

from all its phases. This technology was available before, but

accomplishing this?

today it has also become more affordable.

A: The mining industry is under constant pressure to be more sustainable and cost-efficient. As the industry is intensive in

Q: Where is the Mexican mining industry in terms of energy

energy consumption, cutting costs is directly related to energy

diversification and how are you helping it to achieve this goal?

efficiency. In turn, achieving energy efficiency will impact the

A: The industry’s energy diversification must consider a solid

national energy production. I perceive that the industry is

energy strategy. The idea is not to completely change mining

committed to these goals and to complying with and even

activities from fossil to renewable fuels, but to aim for a hybrid

exceed related regulations, which leads it to pursue innovation.

transformation for mining activities and its supply chain. This

At Schneider Electric we have all the required mechanisms

will allow a stretch from mineral exploration to the delivery

to help our customers achieve operational benefits in this

of the final product. All the stages of the mining cycle are

transformation. This path also demands the integration

feasible for energy diversification, especially given that most

of the whole mining supply chain. The end-user expects

mine operations in Mexico are located in areas with a high

personalized products with more precise delivery times. These

solar capacity. Schneider Electric’s EcoStruxure Grid enables

demands require the industry to be more competitive in its

clients to create their own energy grid, turning clients into

supply chain, which implies a digital transformation. The aim

prosumers, that is, changing from being a consumer to a

is to archive an integration of the information in each link

producer-consumer. Some mine operations generate energy

of the chain to enable traceability of every product, which

while others consume it.

results in more efficient sourcing times. This is particularly important as inaccuracies represent expensive downtimes

Q: On the path to a digital transformation, how can you

for mining companies.

guarantee a cybersafe environment for your clients? A: Companies need to gather information from their operation

Q: With innovative technologies, new ways to approach

and then share it. When entering this phase, the dilemma

mining abound. What blue oceans is your company finding

revolves around how safe it is to share information. Schneider

in the mining industry?

Electric considers cybersecurity one of its technology pillars.

A: Schneider Electric designed the EcoStruxure architecture.

We have two world-class development centers in Germany

Its added value to the industry is a layer of software,

and the US. One promotes the development of new services

apps and digital services. We are software innovation, app

and the other is focused on implementation. In Mexico, we

development and digital services leaders. We work to guide

have been working with many clients in several mine sites

our clients in their digital transformations. This transformation

to implement process control systems with the highest

is not a product but a substantial change in the ways to operate.

cybersecurity standards. We are also developing digital

For example, a company with the goal of reducing its carbon

twins for our clients. This digital twin can then be shared with

emissions by half must rethink many of its processes deeply.

experts on a specific mining phase in a safe way, allowing

We can contribute to this makeover throughout the whole

companies to get the most accurate and effective suggestions

mining supply chain by integrating digital solutions that allow

for their needs.

our customers to make more strategic decisions. Schneider Electric’s EcoStruxure is designed to meet the needs that our clients may have in their transformation processes. We strive

Schneider Electric is leading the digital transformation of

to increasingly create interconnectable products that foster

energy management and automation. With a presence in

open communications. We are committed to the opening

over 100 countries, Schneider is the undisputed leader in power

of protocols and the development of network devices. Our

management and in automation systems

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BUILDING A SMART MINE JESĂ&#x161;S FLORES Director General of Lasec

150

Q: Why did Lasec choose to establish at the Science and

inside the mine. During the development of these systems

Technology Park in Zacatecas?

we are in continuous contact with the client, and in some

A: We decided to settle here because we wanted to make

cases mine consultancies as well.

Lasec an innovator and developer in the mining industry. This space provides an opportunity to do that. To achieve

Q: What is Smart Flow and what benefits does it offer?

this goal, you cannot simply improvise, you need to take a

A: Smart Flow offers an alternative for the mining industry.

very systematic approach and seek the right environment.

Its primary importance is that it provides more safety.

Although we now have a special team dedicated to

Norm 023 demands that the location of people in a mine is

developing solutions, we will always remain distribution

known at all times. Smart Flow provides a clear overview of

and selling partners. One of the things we try to do here is

where your assets and personnel are at any given moment.

identify what changes the mining industry is experiencing

This allows you to use your equipment and personnel

and anticipate the resulting needs. Another is digitalization

more strategically, and thus increase your productivity.

and automation as mines increasingly becoming smarter.

Additionally, the system allows you to collect data about your operations. This can then be used to analyze how

Q: What other businesses or centers do you work with

equipment is going to perform in the future. We are in the

at the park?

process of implementing Smart Flow for Grupo PeĂąoles.

A: We are still small, but we do have several collaborations. The Mathematics Research Center (CIMAT) is helping us determine

Q: Can you provide an example of a success story?

how we can meet the regulatory standards, specifically norm

A: Since last year, we have been involved in several assignments

29110, and provide programs of certification for our software.

with Core Mining. This included infrastructure to locate people

We have several software projects, of which many are in

and vehicles. It also involved installing a telecommunications

association with the Zacatecas State Polytechnic school.

network for a mine using the latest technology. This mine

Apart from the polytechnical school, we have agreements

has practically become a smart mine. The infrastructure can

with the Technology University of the State of Zacatecas

be used to control motors, ventilation and pumps. Another

(UTZAC) and UNAM Zacatecas. We have 25 to 30 engineers

success case is our recent demo for 4G at a mine in Saucito.

developing technology who came from these universities.

This was the first in Mexico, and was developed in collaboration with Huawei. This prototype has functioned well. One more

Q: What makes LASEC different?

example is that we have been able to install Leaky Feeder

A: We have been working on integrated solutions for 30

systems in underground mines with over 300km of tunnels.

years. We started with telecommunications infrastructure

This is a true revolution in the industry. Lately, we have also

and now offer the energy distribution that supports it.

been working on a system that uses devices to detect when

These days, you need systems that can connect every

individuals enter areas of the mine without authorization. This

element in a mine. We study the requirements of a client,

is technology that will drastically improve security.

and build the solution. These can include optical fiber systems, wire networks, and leaky feeders. Our ability to

Q: How does the company develop its portfolio?

install 4G, and soon 5G, allows the use of mobile phones

A: We are constantly developing new projects with clients. They ask us for solutions and we offer new products. It is essential that we work together to identify their needs. We

Lasec offers integrated solutions for digital networks in

also have a strong relationship with manufacturers, such as

mines. These networks serve different purposes, including

Huawei, Ericsson, Cisco Systems, Sierra Wireless, Siemens

telecommunications, localization systems, energy distribution

and Schneider Electric. They come to us because we offer

networks, and detection devices

a very clear concept: a mine that is digitally connected.

VIEW FROM THE TOP |

BOOSTING THE RELATIONSHIP BETWEEN PRODUCTIVITY AND SAFETY ÁLVARO CHACÓN Managing Director of Martin Engineering

Q: What changes are required in the Mexican mining

lead to a 3 percent increase in productivity. We showed

industry to boost its development?

we can give clients a clear answer regarding ROI when

A: A better link between the industry and academia is

investing in this technology. We finished the analysis of

required to boost the integration of technology. Some

Peñasquito in 2018 and believe the mining industry will

steps have already been taken in this regard. Universities

benefit from these findings.

are inviting companies to learn about new technologies and the benefits they could reap from investing in

Q: How has demand for Martin Engineering’s services

innovation. The University of Guanajuato, for example,

evolved in the past year?

is helping companies understand how they can achieve

A: Since January 2019 our EBITDA is 30 percent below

automation and implement the IIoT. Universities are also

our expectations for this period, while sales are 50 percent

providing courses on how to adapt to changes related to

below expectations as the economy has slowed. Martin

human capital; for instance, how to coexist with millennials.

Engineering has 14 factories worldwide and in 2016, 2017

This generation already understands how to use all the

and 2018, the facility in Mexico was the most profitable.

new technologies available. In addition, companies such

The situation today is difficult and we have implemented

as Fresnillo and Peñoles have opened innovation and

some budget cuts. Our main success story is related to

technology departments that did not exist before, which

the productivity study we presented to Goldcorp for

highlights how important digitalization and automation are

Peñasquito, which we hope to build on.

becoming in the industry. Q: What strategies has Martin Engineering implemented Q: Last year, you highlighted a need for more diversified

to protect itself against external factors such as Brexit or

FDI. What is your view now, given the current mining

the US-China trade war?

landscape?

A: The key is diversification. Gold, for example, has once

A: The banking sector is evolving and adapting to the

again become a safe haven and that is something we have

specific needs of the mining sector, which changes the

to take into account. In Latin America, we have operations

equation somewhat. Although it is great that there is

in Mexico, Peru and Brazil. Our priority is to identify the

abundant FDI investment in the industry, we also need

most profitable operations. We have even moved resources

to strengthen small and medium-sized Mexican mining

temporarily from Mexico to Peru to distribute costs and

companies to continue growing and these SMEs benefit

improve margins with respect to EBITDA.

from local financing. The priority now is to promote the national banking sector so it can support the growth of

Q: What are Martin Engineering’s expectations in the short

mining SMEs.

and medium terms? A: Our goal is to improve the profitability of our Mexican

Q: Martin Engineering carried out a project with Penn State

operations by reducing costs and attracting new customers.

University to study the relationship between productivity

Through these actions, by 2020 we expect our sales to be

and safety. What are the main results of this research?

only 35 percent below expectations, with EBITDA coming

A: The research resulted in an algorithm we use to calculate

in just 15 percent below expectations.

what we call return on belt conveyer safety. The theory is that implementing safety technologies provides a return on investing and this return can be calculated. For

Martin Engineering is an engineering firm with more than 70

instance, GoldCorp invested US$158,000 to install safety

years’ experience and a global presence of highly-experienced

improvements at its Peñasquito mine. Our analysis using the

technicians and engineers in 19 countries on six continents and

Penn State algorithm showed that this investment would

customers in dozens of industries

151

General view of the Calidra plant in San Luis Potosi

SUPPLY CHAIN

Everything that is not grown is mined, and everything that is mined requires a huge supplier base to keep it rolling. While operators and explorers guarantee the continuity of the pipeline of projects and production, it is the supply chain that enables them to operate and guarantees that output reaches end-consumers. As the mining sector encompasses a collection of industries carrying their own dynamics, supply chain links must apply strategic planning to best win their share of a targeted market.

This chapter makes an in-depth review of the broad mining supply chain directly from its leaders: from machinery and precision equipment providers to high-end valve manufacturers.

CHAPTER 7: SUPPLY CHAIN 156

INSIGHT: Gerardo Angulo, Timken Mexico

157

VIEW FROM THE TOP: Anuar Barake, Emerson

158

VIEW FROM THE TOP: Bulmaro Rojas , Generac Ottomotores

159

VIEW FROM THE TOP: Montserrat Montesinos, DICISA

160

INSIGHT: Maricela Verdugo, RYASA

160

INSIGHT: Héctor Ruiz, Astralloy Steel Products

161

VIEW FROM THE TOP: Felipe Mues, Garlock

162

VIEW FROM THE TOP: Jonathon Bell, Dynapro

163

VIEW FROM THE TOP: Javier Padilla, Bray Válvulas de México

Rodrigo Garza, Bray Válvulas de México

164

VIEW FROM THE TOP: Omar Coronel, Mining Valbest

165

VIEW FROM THE TOP: Gerardo Guillén, Elastómeros Taza

166

INSIGHT: Pedro Pacheco, Kal Tire

167

VIEW FROM THE TOP: Carlos Cortés, Mettler Toledo

Raúl Reyes, Mettler Toledo

168

VIEW FROM THE TOP: Luis Vega, Motion SI Mexico

169

VIEW FROM THE TOP: Ernesto Ramírez, Puerto Carguero Logistics

José Raúl Ramírez, Puerto Carguero Logistics

155

| INSIGHT

RELIABILITY KEY TO STAYING AHEAD OF THE CURVE GERARDO ANGULO Director General of Timken Mexico

Timeliness and high-quality products are the hallmarks of a

with authorized distributors in the mining industry. Timken

dependable supply chain provider. Although there are many

also works with major mining companies in Mexico.

ways to achieve this goal, for giant bearings and power 156

transmission products manufacturer Timken, it boils down

To keep up with demand, innovation is also key, but according

to a two-pronged strategy: communication and quality. “We

to Timken’s values, it must be carried out strategically. “When

communicate directly with our distributors and end-users

investing in new machines, we must be careful to avoid those

to maintain a solid communication channel that allows us to

that use parts that become obsolete. This is the fairest thing

keep up with demand,” says Gerardo Angulo, the company’s

we can do for our distributors,” Angulo says. “Our offering is

Director General for Mexico.

key for the mining industry as miners rely on products that they can trust.”

The second part of the equation, quality, is a direct legacy of company founder Henry Timken’s approach. “Mr.

In its attempt to consolidate a comprehensive portfolio

Timken always said that he would not put his name on any

offering for mining, Timken embarked on a series of

product that could taint it,” says Angulo. The brand and its

acquisitions, starting in 2003. Today, its acquisition targets

reputation for quality are the company’s most important

in the mining sector are focused on power transmission lines,

assets, he adds.

such as chains, couplings, belts and lubrication systems. Some

“

I believe that the mining outlook through 2020 is positive and if the market contracts, it will be due to commodity prices”

of its acquisitions include Philadelphia Gear, Drives, Revolvo and Carlisle. “When thinking about buying a company, we look for products that match our portfolio, that we do not have and would be nice to include, and that we can potentialize through our distribution network,” Angulo says. Sometimes the bought companies lack the resources to grow and Timken, with its solid distribution network and renowned brand, helps them reach full potential. “We typically buy SMEs that offer high quality and that enjoy a good reputation

Also playing into both elements are reliability and stock

in their markets,” Angulo says. “Quality is always our top

availability and to this end, Timken defines inventory through

priority, as the Timken name is our main asset. We see a

the analysis of historical data to make future projections. “We

niche where we can become a player and we invest in it.

try to understand the future requirements of our clients and

This is our strategy.”

work with our internal supply chain to have the product ready on time,” Angulo says. As some products are specific to a

Mexico remains a crucial market and its mining revenue

machine, delivery times can be between eight months to

is expected to grow up to 10 percent over the next year.

one year, so the company must work based on long-term

“Mexico’s culture, resources and people make it a very good

projections.

place to grow,” he says. While political uncertainty may echo across the industry, Angulo emphasizes that mining is more

Timken employs three models for inventory management and

dependent on commodity-price cycles. “I believe that the

distribution: stocking inventory itself, leaving critical parts with

mining outlook through 2020 is positive and if the market

distributors and offering consignment programs to users. “The

contracts, it will be due to commodity prices,” he says. Overall

key is to have the product ready when it is needed,” Angulo

positive about the country’s outlook, Angulo also believes that

explains. The company has a large storage warehouse in

the future will be shaped by the new government’s reform

Estado de Mexico, which is complemented by its collaboration

initiatives regarding taxes and mining law provisions.

VIEW FROM THE TOP |

SPURRING PRODUCTIVITY IN THE DIGITAL AGE ANUAR BARAKE Country Manager of Emerson

Q: What opportunities do Emerson’s technologies open for

strategies to improve KPIs of reliability, safety, production and

rethinking strategy and unlocking the productivity of mine

energy use. Second, operational analysis, the most complete

operations?

portfolio of predictive diagnoses and advanced analyses in

A: At Emerson, we perceive a growing interest in mining

the industry, which provides information on the performance

companies to adopt new technologies so as to integrate

of operational assets. Third, industry solutions, including

themselves into the new landscape that is emerging from the

deep and specific knowledge of the industry to boost KPIs.

digital revolution. Emerson helps mining companies to obtain

Fourth, pervasive sensing, putting into the client’s hands the

accurate and real-time process data management. The proper

largest portfolio in the industry of connected, intelligent and

administration of processed information is an advantage for

easy-to-install devices, including wireless instruments. Fifth,

companies, as it allows them to make better decisions based

project management: best practices, tools and resources to

on specific information and hard facts. Emerson is committed

implement a digital transformation project with confidence.

to harnessing for the benefit of its clients all the corporate

Emerson’s Plantweb Digital Ecosystem leverages the power

knowledge and experience it has acquired during its almost

of IIoT to expand digital intelligence throughout the company

130 years of global consolidation and close to 60 years of

and help achieve greater performance.

presence in Mexico. We offer this experience, together with the experience of our clients, with the aim of making sure data

Q: Emerson has a mining center in Chile where Ph.D.

is put directly into the hands of experts. This dovetails with

candidates and specialists work with local industry and

one of the strongest current trends in the industry today: the

universities to develop mining applications. What are the

implementation of digital transformation strategies in order

newest advances?

to obtain more comprehensive, flexible and cost-effective

A: The Chilean group, in fact working for the entire region, is

monitoring and control. Emerson’s solutions for the mining

our Mining Center of Excellence, which produces solutions

industry integrate a broad portfolio of products and services

for major industry problems worldwide. As part of Plantweb

to develop comprehensive solutions for the entire industry

Digital Ecosystem, the group developed a specific tool for

value chain, from mine to port. The main focus is on process

the mining industry called Plantweb Advisor for Mining

monitoring and control of operations.

Equipment Health. This is a platform that allows remote online monitoring of asset reliability. Predictive intelligence

Q: What solutions has Emerson recently made available for

identifies and detects abnormal conditions that generate

mining companies?

equipment failures, the type of failure or the abnormal

A: Emerson recently announced the launch of its Digital

functioning of the assets or of any of its components. In

Transformation business group, which brings together

this way, it helps to ensure the operational continuity of

important resources to help manufacturers develop and

critical assets and avoid production losses due to unforeseen

implement pragmatic digital transformation strategies

failures. The prodigious optimization of maintenance chains

that offer industry-leading performance or superior

that this solution offers is just one example of Emerson’s

quartile performance. This combines existing experience

continuous commitment to invest in scientific research

in consulting, project execution, smart sensor technologies

and develop state-of-the-art technology to boost mining

and data management and analysis. The system will help

operations.

customers not only to establish the clear vision of the digital transformation they need, but also to execute it with confidence and obtain measurable results at every step of

Emerson is a global industrial automation company that serves

their progress. The new Digital Transformation business

diverse industries, such as oil and gas, automotive and mining.

group brings together existing and new Emerson resources.

Founded in 1890 in the US, it helps mining companies improve the

First, consulting on operational certainty, which includes

efficiency of their energy useage and mineral handling operations

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| VIEW FROM THE TOP

RELIABLE ENERGY SOLUTIONS SECURE MINE OPERATIONS BULMARO ROJAS Managing Director of Generac Ottomotores

158

Q: What is your assessment of Mexican mining industry over

with the advantage that the engine’s cylinders can work

the last three years and how has it impacted your business?

given the demand. For biofuel equipment, as I mentioned,

A: Mexico is one of the main mining players in the world,

gas should be used after running at 60 percent of capacity

regardless of who is in office at any moment. Mines remain

and diesel below that.

but prices set the tone for when it is profitable to operate and exploit them. We perceive that there is great uncertainty

Q: What is the greatest challenge for mine operations and

in the sector, which comes from a couple of years of

how can Generac add value and contribute to tackling it?

negative growth, with a contraction of 9.8 percent in 2017

A: I think the greatest challenge in Mexican mine operations

and 6 percent in 2018. While the Ministry of Economy’s

is security. Generac offers highly reliable equipment

forecast for 2019 is 4.1 percent growth, uncertainty during

to guarantee electricity supply, which in turn is key to

ramp-ups can mitigate growth.

guaranteeing the security of the operation. Our solutions work with diesel, gas or biofuel. Also, we offer lighting

Our role in this scenario is to be at the forefront of

towers that can operate with an independent generator. As

innovation by developing new products to match all the

mines are often located in remote areas and far from urban

industries in which we participate. In mining, we have a

centers, proper lighting becomes crucial to ensuring safety.

solutions portfolio from exploration to operation, including pumps, lighting towers and electric generators. We keep

Our main added value is to secure the continuity of an

innovating because we understand that this world never

operation, we understand that any electricity interruption

stops, not even during downcycles. That is why we make

implies a high risk. We are the biggest manufacturer of

a significant investment in R&D globally each year and we

specialized reliable energy solutions in Latin America and

constantly monitor worldwide energy consumption to be

we have around 300 engineers working worldwide on

ahead of the demand needs. In Mexico, we offer a premium

innovations, which are our main differentiators. We are not

product to the mining industry but we foresee the need for

the cheapest option, but the most dependable. Our clients

a more affordable line to diversify our market segments.

pay for the quality they receive. Generac also offers health solutions that can be applied to mining, such as our Dust

Q: Why should the mining industry choose Generac’s

Fighter, which mists water in the mine area to remove dust

generators over other options in the market?

and create safer operations for workers.

A: Our most demanded solution at the moment is our generator but the dust fighter is also popular. We do not

Q: What role will mining play in the company’s future and

care about only selling products, but providing solutions.

how is the acquisition of Selmec expected to impact your

Our generators vary from 15kW to 3,250kW, so they can

participation?

adapt to every mining need. As for how to choose which is

A: Mining represents about 5 percent of our Mexican

more appropriate for each type of operation, it is important

portfolio given the slow growth of the sector but we do

to first guarantee the gas supply. Gas is the cheapest option

have a higher participation with the players involved in the

for big equipment operating above 60 percent of capacity.

mining value chain. For example, we work with some of the

But if a good gas supply is unavailable, diesel is the best bet,

main players by selling them generators and our goal is to become their electric solutions partner. As for the future, we expect to at least double our mining business in Mexico

Generac Ottomotores specializes in reliable energy solutions

over the next five years to 10 percent of our portfolio. Our

for the mining industry with the best cost-benefit ratio.

strategy, starting in 2019, is to have a team of around five

Since 1959, the company has been a leader in the design and

people specialized in mining solutions and exclusively

manufacturing of energy generation equipment

overseeing this sector.

VIEW FROM THE TOP |

RESILIENCE IS KEY MONTSERRAT MONTESINOS Director General of DICISA

Q: How is the change in federal administration impacting

present every day with our clients. We are also in close

DICISA’s mining segment?

contact with manufacturers to understand and be aware of

A: Changes in administration often spur fresh opportunities,

the new innovations coming into the market. The company

but this last shift was quite drastic. What I see is a rupture

represents many brands, and our sales process is cyclical.

between the public and private sectors caused by the

On the operations side, we have contact with manufacturers

government’s macroeconomic decisions. We are being very

through quarterly seminars and product-release events. In

cautious because our priority is to keep our operations up

addition, industry events like Expo Minera are great platforms

and running. In the short term, there is no room for large

to present these innovations to potential users.

investments. Instead, we are optimizing resources and strategizing to achieve maximum performance. Generally,

Q: What is DICISA’s flagship product and how does it

both the public and private spheres have reduced staff

help clients?

numbers. As a result, government institutions are less efficient.

A: At the moment, we are working on a lighting automation

Although this strategy could translate to the optimization of

project in the tunnels of a mine. In fact, we were already

resources and the eradication of corruption in the long term,

working with this company on an optimization project

it is impacting the country’s general growth in the short term.

regarding its security boards to protect mine operators.

For us, 1H19 was marked by greater competition, and we do

Now, we are implementing energy efficiency technologies

not see major changes for 2H19. Even though the mining

to optimize the mine’s energy resources. This activity has

industry is cyclical, it is one of the most stable economic

been our main focus, but we are also exploring Industry

activities in the country.

4.0. The deployment of these technologies will take place in the medium to long term, but it is important that we begin

Q: What is the company’s strategy to maintain its position in

providing this information to end-users so they can start

the market during critical times?

understanding these processes.

A: Based on the expertise we have developed over these years, the company is able to adapt to these changes. Our

Q: In what other industry segments is DICISA seeking to offer

company is focalized in a very specific industry segment that

its services in the near future?

has specific characteristics and intricacies. By getting to know

A: One of our strategic objectives is to dynamize our product

our clients and personalizing our service, we can rely on our

portfolio. We focus on low and medium-tension applications,

experience to detect areas of opportunities in companies that

as well as lighting systems. Nevertheless, by working closely

are undergoing a crisis. We know how to identify these needs

with the operations side, we have identified a product demand

and help them optimize their resources. When necessary, we

out of the electric segment. Hence, our goal is to support

will also implement restructuring processes or postpone

our existing clients with other needs. One of the products

certain investments. We have to be resilient.

we are trying to introduce are pumping systems. We are working with a national manufacturer, reviewing its product,

Q: How does DICISA bridge the technology gap in a

including quality, and visiting the company’s facilities as we

traditionally conservative industry?

will integrate the company’s product into our portfolio once

A: Mining is one of the most conservative industries. Its

we enter this segment.

operation is complex and involves heavy machinery and remote locations. The challenge is in demonstrating the benefits companies can acquire by using new technologies.

Distribución, Control e Iluminación, S.A. (DICISA) is a 100

We are the link between manufacturers and end-users. As

percent Mexican company founded in 1982. It participates in the

such, we need to identify our client’s needs and match them

design, development and implementation of integral solutions

with the best technology available. We achieve this by being

in the distribution, electrical control and illumination segments

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| INSIGHT

FROM PREMIUM DISTRIBUTION TO IN-HOUSE ENGINEERING MARICELA VERDUGO Regional Manager of RYASA

160

Well-established companies in the mining industry cannot sit

with manufacturers so we can both make sure our clients

back on their laurels. They need to grow along with the sector,

receive the best service,” Verdugo says. “We have over 500

improving current services and branching out into other areas,

trained salespeople who provide our customers a premium

says Maricela Verdugo, Regional Manager of RYASA, a Mexican

service that goes beyond selling the equipment. We are 100

leader in the distribution and commercialization of power

percent focused on power transmission but we also offer

transmission products. She points to her own company as an

complementary services such as vibration analysis,” she adds.

example. Having achieved recognition as a supplier, RYASA

The company has been serving the Mexican mining industry

wants to be known for more than selling gears and spare

for over 30 years, with 60 distribution points across the

parts. “We are working on improving our customer service

country and a presence at the mine sites where it operates.

because that is the fuel for our expansion strategy,” she says.

“Our broad experience in the market helps us understand the industry’s needs in terms of equipment,” Verdugo says.

To achieve its goals, which include moving into other markets

“We are leaders in our field and work at the major mines

and the prospect of becoming a manufacturer, RYASA works

in Mexico through contracts and consignments.” RYASA

closely with the brands it represents to ensure clients receive

represents over 100 renowned mining brands, including

a top-notch service experience. “We work hand-in-hand

Timken, Diamond and SKF.

| INSIGHT

BOOSTING PROFIT THROUGH COST-EFFICIENCY HÉCTOR RUIZ Technical Manager of Astralloy Steel Products

Because mines often present extreme environments for

be highly abrasive, making resistant steel a highly desired

machinery, OEMs continuously pursue the development of

feature. Decreasing the frequency of part replacements

higher-quality standards for their products. However, better

saves costs in maintenance and downtime. One of the

materials are often associated with higher investments.

main reasons for mining equipment failure is the fatigue of

“Mines need to constantly balance production costs and

material, Ruiz adds.

ore value for operations to be profitable, and sometimes the ore value does not justify the cost,” says Hector Ruiz,

Constituted primarily by steel, mining equipment degrades

Technical Manager at Astralloy, which offers anti-abrasive

as a result of its interaction with different types of rock,

and industrial steel solutions with applications in a variety

soil and abrasive materials. Designed to operate on a 24/7

of industries, including mining.

basis, some pieces of equipment are subject to 200 impacts per minute. The repetitive impact of particles against the

Ruiz says a strong initial investment in stronger steel, however,

equipment’s surface gradually removes material from its

often results in long-term savings for companies. “Variable

outermost layers. The erosion rate of steel used in mining

costs represent 90 percent of a mine’s expenditures,” he

operations depends on the metal’s properties and on the

says. Materials encountered by mining machinery tend to

hardness of the particles it interacts with, says Ruiz.

VIEW FROM THE TOP |

SEALING SOLUTIONS ARE THE BEDROCK OF SUCCESFUL OPERATIONS FELIPE MUES President and Managing Director of Garlock

Q: What companies is Garlock working with and what

A: These seals are good because they do not require a flush

opportunities are you excited about?

and minimize the overall operating cost. They are designed

A: We have renewed our contracts with some of the country’s

to eliminate the risk of clogging, which leads to seal failure.

main mining groups, along with other important clients. We

But this year, we have seen investment contraction. The

want to focus on power transmission products, which are

implementation of GPA seals requires a period of time

critical in mining. Likewise, we have developed technology

for it to bear fruits. We have seen hesitancy in the mining

to increase the life of bearings in mines. We are actively

industry, especially concerning big projects. At the moment,

promoting these new products.

we are focusing on generating short-term benefits for our customers. The Mexican industry is experiencing a period of

Mining environments are full of aggressive elements, like dust

economic uncertainty and companies are reluctant to go for

slurries and chemicals. Our focus is on delivering solutions

new solutions in the short term.

for bearing protection in dynamic equipment, sealing pumps and flange sealing control; additionally, we specialize in

Q: Is there a particular product in Garlock’s portfolio that is

protection for equipment like VFD Driven motors and

more in demand than before?

jukeless trucks.

A: Our most popular products are gaskets and compression packing. We are now focusing more on metal and elastomeric

We want to increase awareness among our customers about

expansion joints. These products have seen an increase in

the benefits of bearing isolators known as noncontact seals

demand lately. Other products that traditionally are needed

over older products like lip seals, as the new bearing isolators

in the mining industry are static sealing, Garlock has patented

products improve cycle time, reliability and energy savings.

a new technology called multi-swell® 3760, a gasket material focused on seal highly effective oil and water applications.

Q: What benefits do noncontact seals provide?

This technology is able to produce its own compression load

A: Lip seals are static, so the machine’s shaft, as it

and may alleviate issues found in some equipment where

rotates, produces friction against the rubber lip seal and,

there is not enough clamping force to create the proper

consequently, heats them; as temperature increases, the

gasket compression, thus resulting in oil leaks.

rubber material hardens, this hardness damages the shaft, and if there is dust or water in the environment, a door

Q: In a time of uncertainty and lower investments, how does

is opened to pollutants in critical parts of the machine.

Garlock maintain the highest quality?

Remember a single drop of water in the bearing house can

A: From all the gaskets Garlock provides worldwide, 70

decrease the life of bearings by 40 percent. Noncontact

percent are proudly produced in Mexico. This country is

bearing isolator seals such ISO Gard® and Guardian® eliminate

known for its manufacturing capacities, based on skilled

this and other hazards. Also, they save power because

labor and competitive costs. Being in Mexico allows us

friction is eliminated. This technology is named zero contact,

to deliver in the shortest possible time. In addition, our

since the rotor of the seal turns with the shaft connected

rapid response capacity is due to the alliances we have

to the ID Oring of the seal. In fact, we have the capacity to

built with distributors within the mine and with mining

conduct analyses based on our clients’ needs and let them

companies.

know how much money, in kilowatts per hour, they would save if they implement the new technology we offer. Garlock is a multinational manufacturer of fluid sealing control and

Q: You mentioned last year you were working on introducing

bearing protection solutions. It works closely with its customers

GPA seals more thoroughly in the Mexican market. Is that

to understand their unique fluid challenges and to respond with

still a focus?

innovative solutions that increase safety and productivity

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CANADIAN EXPERTISE TAILORED TO THE MEXICAN MARKET JONATHON BELL Sales and Marketing Director of Dynapro

162

Q: How long have you been in Mexico and how have you

Q: What importance does USMCA hold for Dynapro's

adapted to the country’s market?

operations?

A: We have been in Mexico for two years, after more

A: It is of capital importance that this agreement is ratified

than 30 years of experience in Canada, building strong

by the three countries. Part of our production is done in

connections in the industry there. The presence of

Canada and exported to Mexico and vice versa, so tariffs

Canadian mining companies in the Mexican mining

would impact our business considerably. The tariff war

sector resulted in a natural transition for us. It could be

between the US and China, particularly the 25 percent

said that they brought us here with them because they

tariff on Chinese steel, is reconfiguring relations with

trust our technical support and the products we offer. It

the US, and companies have to adapt to the emerging

has been the optimal challenge we were looking for in

situation. Be that as it may, Canada and Mexico have a

every aspect, the opportunity to create a new company,

strong relationship that will most likely remain healthy

a separate entity supported by the Canadian operation.

and fruitful.

Our focus is to tailor to the Mexican market utilizing the

Q: What products are in highest demand among your

experience we have gained in Canada and other parts of

clients in Mexico?

the world. The most important task we have undertaken

A: Our clients come to us with very particular needs,

in these two years has been building our team. The

and we provide solutions depending on those needs. We

right team is crucial to our success and is currently the

adapt to a considerably varied demand. Our pumps are

difference in us taking the right steps to service clients

suited to different types of applications — water, slurry

and be successful.

and chemical. We focus on the mining industry because that is where our customers can make the most of our

Our customers stay with us because we are honest and

products. Additionally, we sell wastewater pumps to other

passionate, and our team members have to also reflect

sectors of the industry.

these qualities.In terms of products, pump technology has not changed all that much in recent years. What has

However, we do focus heavily on working with different

changed are the materials available, and pump life has

types of steel and rubber compounds to provide the best

been extended as a result.

wear resistance so as to enhance operations. Often, we can solve issues in a simple way. A case in point is a

When talking with our customers and evaluating their

project we recently undertook here in Sonora. Like in

needs, we often see that the pump they have is the

most mines, there is a lack of clean water in this particular

right one but the materials are not. We have often found

location; nevertheless, the mine managers installed a

that in Mexico companies do not consider application

pump designed for clean water.

details before selling their products. That is where we come in and provide the right engineering and materials.

As a result, the pump had to be repaired every month

Furthermore, we are working with several foundries that

because particles in the water were destroying its internal

are world class and enable customers to lower costs.

components. We came in, analyzed the situation and provided the right pump, making sure the steel was the best-suited for the mine’s particular conditions. The new

Dynapro Pumps Mexico manufactures slurry and process

pump has been running for one year now, saving the client

pumps customized for individual applications. It works closely

over US$200,000 in repairs, plus all the costs implied in

with maintenance teams to solve pumping issues and extend

stopping operations to fix the pump. From the time of

wear life

identifying the problem to fixing it, two months elapsed.

VIEW FROM THE TOP |

A WELL-CHOSEN VALVE IS A SAFE VALVE

JAVIER PADILLA General Manager of Bray Válvulas de México

RODRIGO GARZA Branch Manager of Bray Válvulas de México

Q: Bray works with a broad range of industries. How are you

JP: We worked with Grupo Mexico in the ESDE III project in

positioned in the mining sector?

Cananea, which is the largest lixiviation plant in the world.

JP: Mining is an important market for us, not only in Mexico

We provided the majority of the valve system for this project.

but worldwide. As a global company, we have divisions in

The project started operations in 2014, and to date we have

countries such as Canada, Australia, South Africa, Chile,

not had a single complaint. This is a big achievement given

Peru and the US, where mining activity is high. For instance,

the system has been working under aggressive conditions

the Australia mining segment represents 90 percent of

for over five years.

our activities there; in Chile, our subsidiary works almost only in this sector. In Mexico, 30 percent of our activities

Q: Bray develops its products in close collaboration with its

are dedicated to mining. For this economy in particular, the

clients. What has been the result of this strategy?

evolution of the market will depend on metal prices, mainly

JP: We have a client-oriented focus, and our products have

copper. Given our involvement in lixiviation processes, the

to withstand corrosion and abrasion. The company has

company’s activities depend on its price. When investment

its own laboratories and works together with our clients

is deployed into the sector, mine expansions take place and

to conduct tests in real facilities. We have developed very

we can participate in those projects. Our products relate

specific products, such as butterfly valves with internal

to exchangeable consumption, meaning that if you install a

ceramic coatings, as well as knife-gate valves with special

valve and it is defective, we can replace it.

rubber sleeves to deal with abrasion. Many of our products are applied not only in the mining industry, but also in other

Q: What is the role of valve systems in the development of

sectors, such as the petrochemical industry.

successful mining operations? JP: Mining processes are very sensitive. For example, many

RG: We always consider our client’s feedback. Bray’s

acids are involved in lixiviation, which leads to corrosion.

industrial and product line managers help us integrate user

This is important for environmental reasons: If a valve fails,

feedback into our products. Much of this process starts from

an entire ecosystem can be polluted. The market has many

the sales area, passes through our design division and works

valves that have different levels of quality. We manufacture

hand in hand with our manufacturing and operation areas.

high-quality valves because poor valves not only threaten the environment but also the operator. If a specific valve

Q: How has Bray innovated its offer in the market?

is designed to carry a certain product, it should execute

RG: In 2013, Bray acquired a new division known as VAAS

this process based on those conditions and be subjected

to enter the knife-gate valve segment. These are applied

to a certain amount of pressure, and hence we should

in applications such as slurries and sludges that contain a

overestimate the conditions. Our valves comply with the

large quantity of solids. These valves are commonly used in

necessary certifications, providing our clients with the

mining processes and we have them installed throughout the

security they need.

country, with a focus on Sonora. In 2017, we also acquired the AMRESIST line for use in the Americas. This valve is coated

RG: Our job is not just about offering the best product

with PFA teflon, which is used for severe acids and bases, and

available in the market, but helping our clients select the

is manufactured in ball and butterfly type models.

product that best suits them. We manufacture a combination of materials that is quite extensive. When talking about security, a well-chosen valve is a safe valve.

Bray International is one of the premier quarter-turn butterfly valves ball valves, and pneumatic and electric actuator

Q: What project best highlights the company’s leadership

manufacturers in the world. It is the largest manual and automated

in the valve segment?

butterfly valve manufacturer in the western hemisphere

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| VIEW FROM THE TOP

TAILORED VALVES GUARANTEE SAFETY, PRODUCTIVITY OMAR CORONEL Sales Country Manager of Mining Valbest

Q: How does Mining Valbest add value to Mexico’s mining

long operational life, especially in processes where there is

industry?

corrosion and abrasion.

A: Valves are one of the most delicate and crucial parts of the 164

mining supply chain. Pipes simply transport fluids but valves

Q: What services differentiate you from your competitors?

have mobile parts that make their operation more complicated.

A: Our main concern is that our customers improve their

In mining operations, corrosive fluids, often containing sulfuric

operational processes. To this end, we constantly collect

acid, need to be well-handled. A valve failure can lead to a

information directly from our clients and tailor solutions for

high-risk accident. The opportunity for adding value to

them. This information also helps us build our stock with

our clients’ businesses is recommending alternatives that

their needs in mind, and we are able to deliver our products

improve their operations. We offer technology that has a

within a competitive time frame. We also capacitate our clients’ engineering departments, with the goal of making them as knowledgeable as possible about how to select and

Mining Valbest is an American company specialized in the mining

use valves. Using a metal valve when a plastic one would be

industry. It sells valves and other products to improve fluid

more appropriate can impact negatively on the safety and

control. It began operations in Mexico in 2017 and is the exclusive

productivity of a mining operation. This technical capacitation

distributor of SAFI’s thermoplastic valve solutions in Mexico

is free of cost to our clients.

VIEW FROM THE TOP |

TAKING NEW PRODUCTS TO THE MINING MARKET GERARDO GUILLÉN CEO of Elastómeros Taza

Q: What are your expectations for the Mexican mining

pieces. But it is very useful for our design process and to

industry during the new administration and how will this

help us innovate.

impact your business performance? A: We think that it is fundamental to have good and

Q: What are your growth expectations for the next five

collaborative relations with the industry as the opposite

years and how are you working toward this goal?

would be very harmful to its performance. For instance, we

A: We want to grow our sales 30 percent annually. To do so,

should implement careful and sensitive management of the

we need to keep attracting and developing new talent. Our

concessions as suddenly taking these away from a company

long-term goal is to build a manufacturing plant exclusively

significantly harms its operations. To take disruptive actions,

for the mining industry, given our growth in sales in mining,

such as modifying concessions or taxes, can discourage

which has been over 50 percent annually. But mining still

investors and scare capital off to other mining jurisdictions

represents only 10 percent of our total business. Our total

that seem more profitable. We see that mining stocks

debt as of the end 2018 was close to MX$100 million,

globally have suffered due to this uncertainty.

representing around 20 percent of the company’s total value.

My forecast for the industry is that it will not grow in the

We would like to further gain market share in Chile, Canada

short term, but production will remain steady. As for our

and Peru and the US. For instance, in the US, we are mainly

company, we keep growing our solutions’ portfolio to

present in Arizona and we sell through a distributor called

maintain our market penetration. Our main clients are

Arnet Solutions. But our goal is to start selling directly to

Peñoles, Grupo México, Frisco, Capstone Mining, Agnico

the mine to save costs.

Eagle, First Majestic Silver and Goldcorp. We work with the most relevant players in the industry. We are researching

Our strategy for remaining competitive in the uncertainty of

and developing new materials on a daily basis in order to

a transition year is to keep prices steady, instead of raising

provide more polymer solutions and specialized products

them in 2019. Compared to the average price for similar

for abrasion resistance. For example, we substituted rubber

solutions in the market, we may be more expensive than

and steel. As we keep developing new products, we do not

the average, but the cost-benefit of our products is much

expect our business to be harmed. Continued innovation is

better. Our durability compared to other materials means

our secret for navigating mining cycles.

our products can last between 50 and 1,000 percent longer that those of others in the market.

Q: What can the industry expect as your next breakthrough innovation?

Q: What advice would you give to a mine manager to

A: We are developing an interior coating for raw mills using

increase productivity?

our polymers. This is specifically designed for durability

A: I think that mine operators need to keep a more thorough

and to resist higher impact and abrasion. Greater durability

logbook of their operations to better control how many

equals fewer payments and higher savings for our clients.

tones are processed per equipment piece. Digitalization and

For example, a regular coating lasts three months given

automation are increasingly helpful in keep productivity up.

the high impact inside a raw mill while ours will last over

The use of an hour meter is also key for accurate measuring.

five months. We expect to market this mill coating by mid2019. We tested it with Capstone Mining at the Cozamin mine to detect any failures in the prototype. We have also

Elastómeros Taza has been providing mining components for

started to use 3D printing to build our prototypes. For now,

over 45 years, specializing in polymers. The company focuses

the materials available for this technology do not have

on developing molecule-based formulas that are adapted to the

mechanical resistance so they cannot be used to build real

abrasion and resistance particular to each client’s operations

165

| INSIGHT

NEW APPROACH TO TIRE SUPPLY PEDRO PACHECO Director of Latin American Operations at Kal Tire

Kal Tire is not trying to reinvent the wheel but it does

benefit from this new model. At the end of the service

want to change perceptions about the tires around them,

life, the tire becomes the property of the client.

particularly in mining. Pedro Pacheco, Vice President 166

Latin America of Canada-based Kal Tire’s Mining Tire

Kal Tire’s goal is ambitious: to revolutionize the business

Group, says there is a great opportunity to increase tire

model of industrial tire companies. “We aim to give our

performance and reduce cost per hour.

clients a lower final cost by translating the expense of our products into productivity and efficiency,” Pacheco

“Most miners dispose of their tires well before they reach

says. “There are cheaper tire options in the market but

the end of their lifespan,” he says. “Our added value is to

they provide lower performance.

help companies use the whole service life of their tires.” Pacheco compares a tire with a new car that is sold five

Performance, in this case, means number of downtimes,

years after purchase when it could last up to 10 years.

the number of tons moved at the mine site and the productivity of the operation.” Pacheco adds that using

OTR Tires are usually designed to endure up to 10,000

Tier I tires can increase tire operating efficiency by 20-

hours but are only being used from 6,000 to 7,000 hours.

35 percent.

“The key is in the service and how the owner maintains the tire,” he says. “If we buy, install and take care of a tire

But revolutionizing this particular business model is

from the first day, it will last. Kal Tire provides these tire

not just about expanding a tire’s lifespan; disposal and

management services along with retreading services.”

recycling are also necessary. Kal Tire has been researching the treatment of tire waste in mining for many years, as

The retreading or refurbishment of tires can make them

their size makes them hard to process.

like new. “When focusing on the total lifespan of a tire, retreading has great benefits,” Pacheco says, adding that

“We are building a pyrolysis plant in Chile to achieve

technology is the key element in a successful retreading.

thermal conversion of the tire. The biggest tire that we

“The refurbishment must be done in a modern plant with

offer weighs 5 tons and has a 4m diameter. This process

world-class technology,” he says.

cuts the tire in pieces and puts them into a vacuum reactor that degrades the tire with no combustion, in 24

Kal Tire has five earthmover retreading plants: two in

hours only by using heat,” Pacheco says.

Canada, one in the UK, one in Ghana and another one in Chile. Their sixth plant opened in Mexico in the summer

The steel from the tires is easily recycled and lastly the

of 2019. Kal Tire’s Mining Tire Group is a leader in mining

synthetic gas is used to provide the energy to operate the

tire service and supply, servicing more than 150 mine

plant which makes the whole process net energy positive.

sites across five continents. “We are a one-stop shop

“But for such a project to be feasible, it must be paid by

for mining tires and we are an independent tire dealer,”

the processed ton because just selling the final products

Pacheco says. “The future that we foresee is not about

is not profitable enough,” he says.

selling tires but guaranteeing our clients a certain cost per ton or per hour,” he adds.

“The user must pay a cost to process the tire disposal.” In Mexico, there is no policy regarding how to dispose

This approach centers on its service model called Cost

of mining tires. “Miners store their old tires in authorized

per Millimeter, in which it retains ownership of the tires

areas and this is an issue because the country has over

and takes care of inventory and tire management through

50,000 tires over a 3m diameter waiting for something

a service contract with its client. Mining companies can

to be done with them,” Pacheco says.

VIEW FROM THE TOP |

MINING INDUSTRY NEEDS TO STAY UP-TO-DATE

CARLOS CORTÉS Director Process Division of Mettler Toledo

RAÚL REYES Director Industrial Division of Mettler Toledo

Q: What key differentiator sets Mettler Toledo apart in the

characterization of the process. For instance, by measuring

mining industry?

pH levels, the sensor has the capability to warn the

RR: Rather than selling equipment, we are consultants. We

maintenance team when a replacement or a calibration is

offer tailor-made solutions for specific applications and

needed. Main mining companies in Mexico are already using

processes. Our area of expertise is in industrial weighing,

these applications. The digitalization of these processes

micro-weighing, laboratory & process analytics and we

also minimizes stock surpluses because materials are

combine the knowledge from these processes with Mettler

requested in a timely manner.

Toledo’s solutions to provide equipment, software and services required by each specific need. The market is

RR: The most important aspect of these solutions is that

advancing toward data management, and Mettler Toledo's

our customers can make real-time decisions. Reactionary

technology is aligned to this requirement as well.

decisions are often associated with higher costs. With the support of Big Data, users can make opportune choices. In

CC: Our technological proposal is focus on offering added-

terms of security, we can obtain information to establish

value solutions, and this approach is aligned to the specific

preventive measures to execute maintenance services and

demands of today’s industry. Our added-value solution

equipment replacement. These applications can be used not

integrates technology, software and associated services. We

only by mine operators, but by all the players that participate

are constantly assessing the productivity of our customers

throughout the value chain. We train our customers on

to ensure they are benefiting from the technological solution

following aspects: operators and maintenance. We guarantee

we are providing. This is done throughout the lifetime of the

the correct operation of our solutions.

project. To support this service, we have invested in training with the purpose of having specialized consultants. In other

Q: How does the company’s training strategy complement

words, speak the same customer’s language.

its commercial strategy? CC: We deliver training programs on the basics of good

These professionals need to have technical knowledge

weighing practices, chemical titration, pH measurement,

about our products, but they also need to develop an

dissolved oxygen and other related industry applications.

expertise in applications for mining industry to have a

Often, equipment is running and the operators did not have

better understanding of the main challenge of this segment.

any previous training. This is vital for Mettler Toledo with

At the end of the day, the objective is to improve customer’s

the purpose of keeping the mining industry updated. Mine

productivity through streamline processes, compliance

operators should know how to face specific problems.

with regulatory requirements, cost optimization and waste reduction, among others.

RR: In addition to the training on Mettler Toledo equipment and solutions, we also provide to our customers

Q: How is the company incorporating innovative

with additional knowledge to have a comprehensive

technologies such as IoT and Big Data into its offer?

understanding of the technology, such as metrology,

CC: Mettler Toledo invests 5 percent of its annual sales in

industrial instrumentation and even physics variables. We

R&D. All our equipment and solutions have been developed

can support our customers in this training at their facilities.

from this viewpoint and we are already prepared to enter into this connectivity scheme. Through our weighing and instrumentation solutions, we can manage information

Mettler Toledo is a leading global manufacturer and marketer

of different scales and complexities, using data to our

of precision instruments and services for use in laboratories

advantage. A very good application are intelligent sensors

and manufacturing. It offers solutions for laboratory, process

located in leaching tanks that learn about the behavior and

analytics, industrial weighing and product inspection

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| VIEW FROM THE TOP

ON-FIELD, TAILORED LOGISTICS LUIS VEGA Director General of Motion SI Mexico 168

Q: What value does Motion SI Mexico add to the local mining industry? A: Our team members have prior work experience in the mining industry, at El Sauzal, Pinos Altos and Peñasquito. Thanks to this experience, we obtained an insider perspective and are now able to think from the client’s point of view. People normally associate logistics with outsourcing. But we are not an arm-chair logistics company. We are on the field, working closely with clients and involved in every link of the logistics chain. We invested in field personnel to supervise all goods being loaded and shipped, making sure our partners meet all regulations. We also make certain that the drivers transporting the goods entrusted to us can pass all drug tests. This is of capital importance because mines are often located in far-flung places. Security is a recurrent issue, too. Motion SI Mexico takes these and other factors into account before offering its services to clients. We research the reception and delivery points, the security conditions and all possible roads. Only after this analysis we offer our service. Q: How do your competitive advantages allow you to deliver a superior service in specific mining operations? A: Our strategy gives us such a thorough knowledge of mining companies we already work with that we can recognize their needs before they arise. We try to be one step ahead. At Peñasquito, for example, we have an on-site team to receive and escort our shipments to their final destination inside the mine, making sure they comply with the site’s paperwork and safety requirements. Another example is the in-house personnel we have at Epiroc, in Zacatecas, where we coordinate all the machinery transportation that they ship to their clients at mines all over Mexico.

Motion SI Mexico is a team of highly-qualified personnel, specialized in transport logistics. It is based in the NAFTA area and is primarily focused on the mining industry, specializing in heavy-machinery transportation

VIEW FROM THE TOP |

QUALITY, PERSONALIZED ATTENTION KEYS TO SUCCESS JOSÉ RAÚL RAMÍREZ Director of Operations at Puerto Carguero Logistics

ERNESTO RAMÍREZ Director General of Puerto Carguero Logistics

Q: What has been Puerto Carguero’s most important

insurance, the price of which has increased since 2014.

experience in the mining industry and how has it

Those are very high costs.

achieved success over the years? ER: The market has changed a great deal in recent years.

Q: What is the company doing to mitigate the impact of

2014 was very important in Sonora, as the expansion of

these factors on your business?

the Cananea mine was a big investment for the state. At

ER: The use of technology has completely changed the

that time, the company experienced its greatest growth.

way we do business. For example, the use of GPS has

Since then, the industry has undergone both legal and

long since ceased to be optimal for us. We even have a

fiscal changes, which have had an impact on exploration

specific person in charge of monitoring each and every

and on the operators themselves. Our success in 2014

unit, which also involves an additional cost.

was due to our well-known reputation among suppliers, which allowed us to increase our customer base.

JRR: We have also developed a marketing department because we want to diversify our activity. We are

We are a versatile company and we adapt to the specific

committed to the mining industry, but we are not seeing

requirements of the client. Most of our clients are mining

stable and sustainable growth in the sector at the

companies such as Grupo México, Peñoles, Fresnillo, and

moment. We want to open new markets in the industrial

Peña Colorada. Globe Explore, Komatsu, Liebherr and

sector, in construction or energy, for example, because

Megamak are some of the suppliers we have worked with.

these are sectors where we would like to grow and where we see various areas of opportunity.

JRR: It is important to point out that all the services offered by Puerto Carguero are focused on quality and

The lack of road safety has led to an increase in insurance costs by as much as 25 percent

not on price, which is what most of our clients are looking for, in addition to personalized attention. Q: What impact does the current state of Mexican infrastructure and security have on Puerto Carguero’s operations? ER: The state of the roads is good, with much of the work

Q: What is Puerto Carguero’s main goal in the short term?

that began a few years ago now completed. Safety is a

ER: The main objective is to boost our infrastructure,

high cost for us but what has impacted us most is the

our units and our available equipment. We believe this

price of fuel. On many occasions, we have had to assume

is the best path to the diversification we are looking for

fuel costs so that it would not impact our customers.

as a company. We also want to have a greater presence on the border to open new markets in both Mexico

JRR: In the US, service prices fluctuate depending on the

and the US. The company is also diversifying the type

cost of fuel, but that does not happen in Mexico. I think

of units it uses so we can offer our customers a more

we should start adopting this model. The state of the

personalized service.

roads has improved a great deal, but highway tolls have also increased as a result of the construction of beltways in a good part of many cities. However, the main problem

Puerto Carguero Logistics specializes in planning, executing

is the lack of road safety. This has led to insurance costs

and controlling logistics. It services companies by transporting

rising by as much as 25 percent. We are paying between

products,

10 and 12 percent of the value of a truck each year in

internationally

supplies

and

raw

materials

nationally

and

169

SECURITY & SAFETY

Behind mine operations, there is an extensive and intricate system of equipment and laborers. The smallest mistake can stop production, costing the company millions. More importantly, accidents can result in the loss of human life. Safety of both miners and the whole operation has climbed the list of priorities for investors, operators, explorers and the public sector. However, security levels in Mexico discourage investment. Miners list this issue among the most pressing that the authorities must address.

In such an extensive industry, having secure and safe processes is full of complexities. This chapter addresses these straight from the experts designing the safest equipment or providing mine security.

171

173

CHAPTER 8: SECURITY & SAFETY 174

ANALYSIS: Innovative Technologies Boost Security and Safety

176

VIEW FROM THE TOP: Juan Manríquez, Geobrugg

177

INSIGHT: Efraín Martínez, Dräger

178

VIEW FROM THE TOP: Alfredo Arce, Terra

179

VIEW FROM THE TOP: Ricardo Saucedo, Nomada Industries

181

VIEW FROM THE TOP: Armando Zúñiga, Grupo IPS

182

VIEW FROM THE TOP: Skarleth Acuña, Oruss

183

Santiago García, Oruss

VIEW FROM THE TOP: Mario Salomón, GMSI

| ANALYSIS

INNOVATIVE TECHNOLOGIES BOOST SECURITY AND SAFETY In mine operations, even the smallest mistake can end up stopping production. Among all the chain’s links, human capital is the most important, and protecting it is key. Digitalization and automatization technologies are improving safety, but they must be engrained in the right culture to be effective

174

An industry once characterized by high rates of accidents

one single stream of information that managers can easily

and fatalities, modern mining has the necessary resources

read. In collaboration with Coeur Mining, Lasec has been

at its disposal for guaranteeing the safety of its workers

successful in creating a practically smart mine. Digital

and contractors. While tragic episodes can be found in

infrastructure is now in place for locating people and

Mexico’s recent history, such as the collapse at Pasta de

vehicles and controlling motors, vehicles and pumps;

Conchos in 2006, ever more sophisticated technology

moreover, a telecommunications network has been

and standards have resulted in 16 percent decrease

installed, which allows effective communication, even

in accidents in 2018 compared to the previous year,

underground. “This is a true revolution in the industry:

according to CAMIMEX. Of these accidents, 23 were fatal.

technology such as this is drastically improving safety,”

In contrast, the US Department of Labor noted that in

says Jesús Flores, Director General of Lasec.

2017 there were 15 fatalities in coal mines and 13 in metal and nonmetal operations in that country. Fernando Alanís,

Automation is a further tendency boosting safety. Taking

former president of CAMIMEX, explains that the accident

human error out of an operation can result in considerably

rate in mining is actually lower than that of other sectors,

safer working environments. For instance, with regard to

like transport or commerce, for instance. In June 2019,

the use of explosives, one of the activities in mining with

Francisco Quiroga, Undersecretary of Mining, indicated

a high-risk potential, promising developments are taking

that during the López Obrador’s administration, 14 deaths

place in the Mexican industry. Nomad Industries has

had been registered in the mining industry, two of them

created a smart board that is able to determine whether

corresponding to illegal mining activities.

an unauthorized element is present within the predefined radius of an explosion, and if it is, to stop the blast. This is

Among the central tendencies fostering safety is

an example of an industry-wide trend. As Tom Bannister,

digitalization. When all the assets, from equipment to

CEO of Carroll Technologies Group explains in an article

personnel, are monitored by means of data-producing

for Mining Technology, “we are doing a lot of things with

devises integrated into an overarching system, managers

remote, wireless remote controls now, so the individual

gain the ability to keep key variables under close scrutiny.

does not have to be on that piece of machinery to run

A case in point is the technology developed by Nomad

it—he stays out of harm’s way and does not have to get

Industries, a Zacatecan startup that understands safety

under unsupported top, or stay out of hazardous areas

as the cornerstone to the transition to Industry 4.0.

and check equipment remotely.”

The company’s flagship product is Note, a device for visualizing all the factors in a mine ecosystem, both

But automation and digitalization, while greatly

underground and open pit. It enables operators to

contributive to safety, are not enough. They have to

determine the exact location of each asset and evaluate

be engrained in a culture where they can be effective.

safety according to predetermined parameters. Deploying

Developing protocols and regulations that workers

Note throughout a mine operation generates massive

understand and adhere to is key in this respect.

amounts of information, which not only is conducive to

Alfredo Arce, director general of Grupo Terra, an

monitoring safety on a real-time basis: as the data is

explosives company, explains that Mexico is lacking in

stored in the cloud, a sort of black box is created, useful

these instruments. “There is no guideline specifying

for understanding accidents whenever they do happen.

the characteristics with which users must comply to

“Digital technology like Note is ideal for pinpointing the

handle explosives,” he says. To fill this gap, Grupo Terra

reasons for failure, preventing them and making sure

conducts training, both for its own workers and for its

they never happen again,” says Ricardo Saucedo, CEO

clients. Additionally, the company is developing a training

of Nomad Industries, says. Another Mexican company

center, involving government, universities and industry

leading the way in digital technology for increased safety

members, where best practices will be exchanged. Three

is Lasec. The company has pioneered Smart Flow, a system

key areas will be emphasized: practical use of explosives,

that integrated different telecommunication devises into

supervision and blasting control. This initiative is in line

with the experience of Efrain Martínez, Regional Manager

minerals such as gold, like Guerrero. “We have some

at Dräeger. “Despite technological advances, promoting

concessions in Guerrero and will probably explore there in

a safety culture in the mining industry should be the

the near future. But the circumstances are very complex.

top priority. As mines become bigger, deeper and more

State and federal governments are working to improve

isolated, it is vital that governments and key players

them. However, more work still needs to be done,” says

throughout the mining value chain enter a dialogue

Octavio Alvídrez, CEO of Fresnillo.

to further develop and standardize effective safety protocols and practices.”

Ingenuity is key for ameliorating the security conditions miners need to successfully carry out their activities. A

Security also is among the main areas of concern among

relevant example is Oruss, a young Mexican company

investors considering the Mexican market. In the words

that has developed an innovative GPS technology

of Darren Blasutti, President and CEO of Americas Gold

for preventing theft of cargo. The device makes sure

and Silver Corporation: “The Mexican mining industry

containers in a truck cannot be opened until they reach

is second to none in many respects, including its

their final destinations. Once the cargo has arrived,

workforce, but a recurring issue is having the confidence

the operator can verify whether there has been any

to invest given the pervasiveness of organized crime in

kind of tampering or manipulation. Grupo Peñoles has

the country.” This issue is effectively holding back the

incorporated Oruss’ services at its Francisco I. Madero

development of regions with world-class potential in

mine with excellent results.

As the world population continues to grow, pressure on the mining industry intensifies. According to IBM, all crew members of spaceship Earth will require approximately 3.11 million pounds of minerals, metals and fuel during their lifetime. Among the key productivity-enhancing trends that will satisfy demand is the Internet of Things (IoT). IBM explains that equipment, machinery and eventually all assets in a mine operation, including human beings, are being armed with sensors that generate huge amounts of data. This data, in turn, is analyzed in real time and translated into recommendable actions for mine operators. While this improves performance and boosts productivity, it also cuts down costs and waste and helps prevent machinery failure. As Lenin Escobedo, Country Manager of Datamine, points out, “By implementing IoT technology, our clients experience benefits in all areas. They gain strategic knowledge for the long term and operational finetuning in the short term. This creates a better flow from beginning to end.” But the IoT not only improves productivity. Safety is another fundamental aspect of a mine operation that is benefiting from this trend. To give a basic example, IoT can help prevent the collapse of unstable shafts, because the sensors will register data, make information available to an operator in real time and allowing the operator to predict failure before it happens. Another instance would be integrating workers into an IoT network, and thus warning them not to venture into hazardous areas at predefined times. Miners that have incorporated IoT in their operations as a means to improve safety include Goldcorp, which, as Mining.com notes, fitted tracking devices to the helmets of employees to monitor their real-time locations. The company also developed an IoT solution to regulate air flow in mines. For its part, IoT technology is at the core of Rio Tinto’s world-renowned autonomous haulage system trucks, which are in operation at the company’s Pilbara sites. These trucks are operated by a supervisory system and a central controller, rather than a driver. They use pre-defined GPS courses to automatically navigate haul roads and intersections and to know actual locations, speeds and directions of other vehicles at all times. But these autonomous trucks have to be integrated into a network of data-producing sensors so that operators can assess and prevent any possible collisions. Fitch Solutions emphasizes the usefulness of gas detection and air flow or ventilation monitoring sensors. These can prevent potential hazards through assessing levels of toxic or flammable gas in a mining operation and alerting workers accordingly. Furthermore, having all these elements interconnected through a central system would also improve evacuation procedures and rescue operations in case of a disaster.

IoT FOR ENHANCED SAFETY

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| VIEW FROM THE TOP

MININGâ&#x20AC;&#x2122;S SAFETY NET JUAN MANRĂ?QUEZ Former Sales Engineer Northern Mexico at Geobrugg

176

Q: Why should the industry choose Geobrugg over other safety equipment options? A: Our mission is to increase the security level of a mine operation. By working with our systems, miners can enhance the physical safety of their workers. Geobrugg has broad experience in protecting the industry against collapses and rock bursts through steel meshes and barriers. Steel is the main feedstock of our products given its higher tensile strength and slow deformation compared to concrete. The mesh can be manufactured in several ways, the most common in mining being a rhomboid using simple torsion. Also, our solutions are more sustainable as they do not use concrete, which releases significantly more contaminant carbon dioxide to the atmosphere than steel. Q: What is the added value that Geobrugg adds to a mine operation? A: The main added value of our meshes and nets is the high resistance to tension. Geobrugg standard products have more than 18,000 kg/cm2 tensile strength, that compared to the traditional 4,200 kg/cm2, gives us a major winning point. We need smaller diameters of wire to fulfill the requirements of the project. Our products are reliable and safe and our supply is quick. Q: What are your most popular solutions in Mexican mining? A: Our most popular solutions for the industry are soil reinforcement systems used to stabilize any cavity or excavation. While accidents in mining are unpredictable and we cannot guarantee that the soil will behave in a certain way, we can prevent collapses through a deeper stabilization.

Geobrugg is a Swiss company that specializes in protection and safety solutions. It is a global leader in high-tensile steel wire safety nets and meshes. It is part of BRUGG Group, which focuses on cable systems and rope technology, among others

INSIGHT |

TIME TO PRIORITIZE LABOR SAFETY, CUT OPERATIONAL RISKS EFRAÍN MARTÍNEZ Regional Marketing Manager, Mining Segment CSA at Dräger

Mining is a high-risk environment that can put a labor force

Dräger also specializes in occupational health and safety

in jeopardy but safety regulations for mine processes differ

equipment, such as gas detectors and respirators. This is

significantly. Efraín Martínez, Regional Segment Mining

particularly relevant in underground mining, where many

Marketing Manager for Dräger Mexico, says that in Mexico,

companies have adopted a zero-accident targets. The

plans are finally afoot to strengthen the rules. “Mexico has

company’s expertise extends self-contained self-rescue

not done a thorough review of these norms since 2012, but

devices and refuge shelters for emergency situations,

I know there are plans to do it soon to implement stricter

providing solutions across the entire safety and security

policies,” he says. Dräger, a leading safety technology company that collaborates with the industry’s key players, such as Grupo México, Industrias Peñoles, Pan American Silver, Goldcorp and Endeavour Silver, contributes to the safety revisions carried out by the regulatory bodies. “Usually, these entities review international standards and replicate them, instead of creating their own based on local needs,” says Martínez. Gases, dust, exposure to high vibrations and stress, just

“ value chain.

I believe that we are very wellrecognized in mining, especially due to the quality of our safety equipment”

Despite technological advances and efforts to improve

to mention a few, are factors present in mine operations

existing regulations, the mining industry still experiences

that often cause long-term illnesses. “We strive to promote

many accidents. To address this issue, Martínez believes the

safety and make the industry realize why the issue plays a

first priority should be to focus on training and promotion of

vital role in mine operations,” says Martínez. “We cover the

a safety culture. “We must make miners aware of why they

operational part of worker safety, such as breathing and

must use personal protection equipment and how to do so

eye protection. Dräger has always been recognized as a

properly. The government should make concerted efforts

high-quality technology provider.”

to promote a safety culture and to foster investment.” It is also vital to regulate the safety equipment operating

Mining shelters, rescue vehicles, gas detectors and monitors,

in the country and to ensure that it is of the highest

are some of the products Dräger offers. The company also

quality, he says.

specializes in rescue and escape solutions, detection of high-risk environments and in ensuring that the equipment

With mine development involving bigger, deeper and

matches the quality required by international standards to

more isolated mines, the industry faces important security

guarantee miners’ security, says Martínez.

challenges. “As a technology company, Dräger endeavors to develop new technologies that allow our clients to address

With over 100 years in the industry, mining is a key segment

these risks,” Martínez says. Many mines are using drones for

in Dräger’s global strategy, along with oil and gas. In

safety purposes. One application is to measure the potential

1904 it developed one of the first autonomous breathing

gases left post-blasting without risking the wellbeing of a

apparatuses, used for first time one year later in a mine

miner. But as new technologies revolutionize the industry,

fire in France. Since then, the company has grown globally

he says the purpose of safety equipment may change. “We

and across several industries. “I believe that we are very

must analyze the industry trends to better understand what

well-recognized in mining, especially due to the quality our

miners require,” he adds. “Maybe the need is no longer to

safety equipment,” says Martínez.

protect humans, but assets.”

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| VIEW FROM THE TOP

EXPLOSIVES CAN BE SAFE ALFREDO ARCE Director General of Grupo Terra

178

Q: How do blasting designs and use of explosives translate

deliver a project if the environment or our workers are

into better mine operations?

not supported by the right security measures. The security

A: In Mexico, Grupo Terra works with both subterranean

protocols we follow are a product of international best

and open pit mines. We have been present in this industry

practices and previous local experience. Limestone mines

for 15 years and explosives are our working tool. Part of our

have very strict security protocols, for example, and by

success is that we always incorporate innovation into our

working in this environment we have complemented

offer, modifying our approach to reflect our clientsâ&#x20AC;&#x2122; specific

our knowledge for developing proper security plans

conditions. This has allowed us to generate substantial

when blasting.

savings for our clients. For instance, in 2017, we did some blasting at a Frisco mine. When designing the operation, we

Q: How is Grupo Terra supporting industry players to

decided to use less steel, machinery and explosives, which

implement secure practices at their operations?

translated into MX$62 million in savings. An efficient blasting

A: To be able to drive a vehicle, you need a driverâ&#x20AC;&#x2122;s

design can improve the development of a mine, leading to

license. Yet, in Mexico, you do not need a license to handle

better volume production because processes are shortened

explosives. To address this, we are planning to create a

and operators can advance to the operational stage.

specialized training center. This initiative has to involve the government, educational institutions and industry

An efficient blasting design can improve the development of a mine, leading to better volume production

players. We want every company that uses explosives for blasting purposes to have access to this training. The center is under construction and its inauguration will take place in November 2019. The main idea is to share industry best practices through conferences, events and specific trainings. For instance, we are developing a course that defines the minimum level of knowledge end users must

Q: What challenges have you faced in working with

have in three areas: practical use of explosives, supervision

explosives and how has the company overcome these?

and design and control of blasting.

A: In Mexico, there is no norm guiding the use of explosives. The only related framework is the Federal Law of Firearms

Q: What innovations is the company developing?

and Explosives. But this is a law, not a norm. It establishes

A: We have developed an innovative method to execute

the process for obtaining a permit, what kind of companies

blasting through the use of trucks. In open pit mining

can hold this permit, or the required conditions to store,

operations, storage facilities hold raw materials that

transport and use these elements. But there is no guideline

compose the explosives. Our method consists in adding

specifying the characteristics with which users must comply

the explosive that acts as a catalyzer while injecting these

to handle explosives.

materials on the drill hole. Two mines in the country are implementing this system but for further development, the

At Grupo Terra, every employee that has direct contact

Ministry of National Defense has to define the regulation

with explosives receives practical training. We will not

for these trucks. We are also working with electronic systems that allow us

Grupo Terra provides explosives and blasting solutions for

to control vibration and hence, the size of the rocks from

work related to roads, mines, pipelines, hydropower plants,

the blast. This is important because industry players are

marine and submarine activities, seismic prospection, wind

demanding a specific range of size resulting from these

farms and slope control

operations.

VIEW FROM THE TOP |

GIVING RISE TO THE FOURTH INDUSTRIAL REVOLUTION RICARDO SAUCEDO CEO of Nomada Industries

Q: As new technologies reshape the mining industry, how will

how to prevent accidents and stop extraordinary situations

Nomada Industries be a key player in the industry’s future?

from happening. It eventually plans autonomously.

A: Industry 4.0 is a trend that is totally changing the industry. It opens up endless possibilities for optimizing procedures. At

Q: How do NOMADA boards add value to a mining operation?

Nomada Industries, we focus on technologies that optimize

A: They are the brains of technology like 3D printers, drones,

mineral production and processing. For instance, we have

NFC and RFID. In mining, NOMADA boards are mainly used as

developed NOTE, short for Nomada Telemetrics, a device for

the operational core for detonation systems. We implemented

visualizing all the factors in a mine’s ecosystem, both open

them with this end at Los Pelambres, a copper mine in the

pit and underground. NOTE dramatically enhances, not only

Chilean Andes. Conditions there are extreme, and our boards

safety, but also productivity. It enables operators to exactly

have performed beyond our already high expectations. They

determine asset location and performance, as well as control

are military and aerospace-grade, allowing them to withstand

the time it will take them to carry out a particular task.

temperatures of -40 degrees Celsius. There have been no accidents, and our boards are still in operation, with excellent

Q: What differentiates NOTE from other alternatives in

results, five years after installation. We have only provided

the market?

preventive maintenance, never corrective.

A: It makes it possible to visualize and control any variable, anywhere in the world, in real time. For example, it gives

Partnering NOMADA boards with NOTE devices results in

detailed access to a machine’s temperature, humidity, pressure

the finest consoles in the world for detonating explosives.

and pH levels. If these variables fall outside the predefined

Commonly, once a detonation system receives the order,

parameters, NOTE alerts the operator. It has three data

it simply detonates. But thanks to NOTE, our consoles

encryption keys, making it practically impossible to hack. Also,

can detect if there are people within the explosion area,

NOTE is immune to electromagnetic noise, which abounds in

or anything that should not be there. Detonation is

mining sites.

automatically stopped, which adds incommensurably to safety.

The data generated is stored in the cloud. Whoever has an internet connection and authorization can quickly access

Q: What is your growth strategy for the next five years?

the data. This way of storing information creates a sort of

A: Mining is slow to include new technology. We want

black box. Companies intend to keep everything running

to consolidate our relationships with the most important

optimally but when for any reason it does not, this data can

companies, like Goldcorp or Peñoles, because that is

help pinpoint the reasons for failure and make sure it never

how our solutions will become widely sought-after in

happens again.

Mexico. At present, most of the Mexican industry is rather conventional. It lacks a systematized, digital-control

At present, NOTE is controlling and optimizing manufacturing

system that helps to obtain the best results efficiently.

processes at a Bombardier plant. For instance, the company

The transition, however, is gradually taking place. Cyber-

can know how many cuts and hits per minute its die-cutting

connected systems for boosting productivity are the

machines are carrying out. The efficiency of the process and

future. For Nomada Industries, the future is now.

the productivity of the workers becomes transparent. We are working on a neural network, fed by NOTE, that will

Nomada Industries is a Mexican company founded in 2008. It

learn from past events so as to consistently replicate them. We

serves the mining, construction and manufacturing industries,

are using machine learning that weaves together increasingly

among others. Its flagship products are NOMADA, an industrial-

complex data patterns. The system adapts on its own, learning

grade board for developing IoT and mechatronic applications

179

VIEW FROM THE TOP |

SECURING MEXICO’S NORTHERN TREASURES ARMANDO ZÚÑIGA CEO of Grupo IPS

Q: How is the private sector working with the new

100 of these companies have permits to carry weapons.

government to foster the growth of the Mexican

That is a competitive advantage that distinguishes us

industrial sectors?

from other companies, and what will be our main added

A: We are seeing progress in the effort to create synergies

value to the mining industry. 181

between the private sector and the public sector to promote the Mexican industry. Sales are down in a

Q: Why is it important to establish a working culture in a

number of industrial sectors in Mexico and we have had

security company and how does it reflect on the services

some clients looking to renegotiate contracts to get new

Grupo IPS offers?

payment dates. We have also seen a drop in our internal

A: Our competitive advantage is our culture. IPS has

sales in comparison to 1H2018. We see optimism from

a culture that focuses on the people and we are the

one side, but on the other side we see the reality of the

only security company with a Great Place to Work

situation, which is lower sales. Our strategy to mitigate

certification. A high rotation, especially at security

this economic reality is to look for ways to decrease our

companies, has a great impact on costs and generates

costs without any cuts to our human capital. Whenever

operational problems for companies. If you have your

there is a crisis, companies must reorganize their

team wear the company t-shirt, it creates a strong sense

strategies and sometimes that means becoming more

of belonging, they are more motivated to stay and work,

cautious when making investments. Our largest clients

therefore generating trust with customers and lowering

at the moment are banks: BBVA and Santander.

your costs in training new people.

Q: What innovative technologies will Grupo IPS introduce

Q: What are Grupo IPS’ goals for the short term and what

into the Mexican market to ensure safety of products?

strategy will it implement to increase its market share?

A: Grupo IPS has three divisions. Among these, our IT

A: Our main focus is expanding our reach into other

division focuses on developing new security technologies

Latin American countries. We are already present in

to reduce theft on highways. What usually happens is

Peru and we are entering the Costa Rican market. In five

that thieves use signal inhibitors to block GPS tracking

years, our goal is to be in at least 12 countries in Latin

devices that use phone signals. This is how most cars are

America. In Mexico, many children are scared of the

stolen. We developed a new device that sends an alert to

police, who inspire distrust rather than being seen as a

the driver and company as soon as the signal from the

protection figure. We are striving to change this through

GPS is blocked, allowing them to take preventive actions

the creation of our mascot, Vigiman, and by fostering a

instantly. We are still testing it but so far it has been

family environment within our company. We also want

working well.

to ensure the company’s sustainability by establishing proper corporate governance in the coming years. As a

Q: What key opportunities has Grupo IPS identified in

family company, we want to create a board of directors

the mining industry?

to institutionalize our processes. We would also like to

A: We recently started operations in the mining industry,

list on the BMV in order to attract private investors to

with Holcim-Lafarge: we indeed see a great amount of

continue our expansion into Latin America.

opportunity in this market. Sometimes mining requires armed guards because of the industry’s high-risk operations, including the transfer of precious metals. We

Grupo IPS is a private security firm that provides services to the

have the infrastructure necessary to provide the mining

industrial sectors. The Mexican company offers alert systems,

industry with a complete service. At the national level,

GPS tracking, armed and unarmed guard services to financial,

there are 7,000 private security companies but fewer than

automotive, mining and manufacturing companies

| VIEW FROM THE TOP

GPS-CONTROLLED DEVICE TO PROVIDE NEXTLEVEL SECURITY SKARLETH ACUÑA CEO of Oruss

182

SANTIAGO GARCÍA Head Software Developer of Oruss

Q: What are you bringing to the market to improve safety

Apart from providing a constant update about the state of

of mineral transports?

the transport, footage can be used to analyze the cause of

SA: The theft of cargo continues to be a significant

incidents. In several cases, road accidents were the result

problem in Mexico. About one and a half years ago, we

of human error, such as a driver who is distracted by his

proposed a device that would ensure that a container

mobile phone. We can store video footage so that the

on a trailer could not be opened until it had reached its

client can access it.

destination. We are now in the stage where our device prototype has been tested and works successfully.

So far, our principal clients have been transportation operators for the mine Francisco I. Madero, operated by

At times we were concerned that we might not gain the

Grupo Peñoles, and include Auto Express Minero and

market’s trust because we could be perceived as too

Transporte Cuevas, as well as Transveta and Transportadora

young in the business. We are thankful for the opportunity

Madero. The routes are between the mine, Torreon and the

to develop and test our device with the support of Grupo

port of Manzanillo. We provide Grupo Peñoles with access

Peñoles. Now, we have to get approval from relevant

to the monitoring. One of the advantages of working with

authorities in Torreon so we can start selling it to clients.

Grupo Peñoles is that the company often requires new transport partners that can also use our services.

Q: What technology powers your prototype device? SA: The device works on the basis of GPS. The idea is

Q: In what other areas would Oruss like to be active?

that the system ensures a container can only be opened

SG: We want to further expand our services in telematic

once it is in certain areas. These areas are configured

communication. We are expanding our ability to gather

through remote access and usually refers to the point of

data on the performance of the vehicles and the drivers.

arrival. Once the cargo has arrived at the destination, the

We could collect data on revolutions per minute,

operator can see whether there has been tampering or

temperature, levels of oil, and other indicators of motor

manipulation of any kind. The device is an adapted version

performance.

of a product built by a manufacturer in Lithuania that has been in the GPS devices business for 30 years. We have

This would allow us to provide the transport operator

an agreement with the company to integrate their device

with more specific information on where maintenance

with our system.

needs to be performed or in the case of an accident, what exactly went wrong. We are also working to provide

Q: Who are the target clients of your product?

training for operators to avoid human errors. Both these

SG: The target clients are the operators who transport

services would reduce the risk of accidents. Additionally,

for mining companies. Our company already offers a GPS

better maintenance would significantly extend the

tracking and video monitoring service for transporters.

lifetime of vehicles, and in some cases by as much as

The latter provides real-time video and audio footage of

three times.

the driver, the cargo and the road. The footage can be accessed from computer and phone by authorized parties.

Q: How do you distinguish yourself from your competitors? SA: Our main competitors are American companies. One thing we do well is support. In the event of an incident

video

with an operator, our competitor companies tend to

monitoring of cargo-carrying minerals. The company is in

contract third parties to determine the cause. We have

the process of launching a device that secures trailers with a

our own service to investigate and provide solutions. This

GPS-controlled system

means more efficient, faster action.

Oruss

provides

services

GPS

tracking

and

VIEW FROM THE TOP |

STATE-OF-THE-ART SECURITY FOR MEXICAN MINERS MARIO SALOMÓN Country Manager of GMSI

Q: How has Mexico’s insecurity impacted its industries

only private C5 system in the country. We offer products

and what could be changed to enhance security within

with state-of-the-art technology that differentiates us

the mining sector?

from the competition.

A: Insecurity in Mexico has increased in all industries, which has forced us to strengthen our protocols. In addition, there

Q: What is GMSI’s strategy to attract and retain human

is no evidence that this increase in insecurity can be reversed

capital and what are the main challenges it encounters?

despite all the efforts that are being made. One example

A: It is not just about attracting talent but using those

is the appointment of the new National Guard. We are in

human resources well. Due to the characteristics of

favor of this strategy because we believe the army is the

the industry, we also have to be more demanding. For

only institution with the capacity and discipline to combat

example, in the mining industry we only hire one of every

organized crime in the country. We coordinate with the army

20 candidates; in other industries, one in 10 is hired, on

for some of our activities in certain sectors, including mining.

average. We are much more careful with our testing procedures, and we also hire people who are not from

We are proposing the creation of a General Private Security

the area where the activity takes place in order to avoid

Law so that consistent criteria can be applied throughout

possible conflicts of interests.

the country. There is confusion regarding the application of regulations due to the overlap of federal, state and

When hiring personnel, we have 22 internal filters,

municipal laws. Security in Mexico should be governed by

such as socioeconomic studies, criminal record checks,

a general law, which would also provide certainty to those

psychological exams and polygraphs. Most of our

involved in the industry.

workforce is armed, so our protocols are scrupulous. We are very clear

Q: What are GMSI’s most demanded products and services in the Mexican mining sector? A: In terms of security, prevention is vital. We believe that security is 80 percent

The number of subsidiaries GMSI has across the country

prevention, 15 percent deterrence and 5 percent response. For us, intramural

about the situations in which one of our employees can use a weapon and how to use it. Q: GMSI has 34 subsidiaries across the country. What advantages does this structure offer to your customers?

protection of mining facilities is important. We not only

A: Our decentralization is a result of geography

protect facilities from external threats but also internal,

because we seek national coverage. Many of our

such as petty theft, which is very relevant in these facilities.

clients have facilities in different parts of the country

We have also increased our security activities in everything

and decentralization allows us to serve them in the

related to logistics and transport of materials.

best possible way. However, the security protocols and hiring processes are the same throughout the country.

Video surveillance cameras with motion detectors and

Obviously, we have the ability to adapt to the needs of

drones are some of our most popular services. The GPS

our customers depending on the state or municipality.

that we include in logistics services to enhance control of goods and transport units is also in demand. We are innovating in the sector and have developed our

Grupo Multisistemas de Seguridad Industrial (GMSI) is dedicated

own facial recognition software as well. Technology

to the provision of heritage security services, with the firm

is significant for us. For example, the use of drones is

purpose of increasing its added value through the progressive

common in our mining-related activities and we have the

integration of its human and technological resources

183

Compañía Minera Cuzcatlán's construction of church at San Jose del Progreso, Oaxaca

SOCIAL & ENVIRONMENTAL LICENSE

In some industries, complying with all the lawful regulations to carry out a project may suffice. In mining, however, the license to operate is not only given by authorities. The industry must also obtain social and environmental licenses if it wants to operate in harmony with local communities. According to Deloitte Tracking Trends 2018 report, it is crucial to transform stakeholder relationships, given the growing need to achieve a measurable social outcome. To this end, transparency is fundamental. An adequate communication, a comprehensive mine plan from exploration to closing and other mining best practices are discussed in this chapter, gathering expertise from the operators and consultancies drafting the ideal agenda for corporate social responsibility.

185

CHAPTER 9: SOCIAL & ENVIRONMENTAL LICENSE 188

ANALYSIS: Sustainable Development at the Core of Modern Mining

189

VIEW FROM THE TOP: Paula De La Fuente, Tractebel ENGIE Mexico

190

VIEW FROM THE TOP: Renato Urresta, ERM

192

VIEW FROM THE TOP: Federico Casares, Veolia

193

VIEW FROM THE TOP: Ben Whiting, Belcarra Group

194

INSIGHT: Gabino Fraga , Grupo GAP

195

VIEW FROM THE TOP: Alfonso Caso, AOS

196

INSIGHT: René Krist, FullSpectrum Leadership

197

VIEW FROM THE TOP: Daniel Bernal, MADAI

197

INSIGHT: Len Donovan, Phoenix Plastics

187

| ANALYSIS

SUSTAINABLE DEVELOPMENT AT THE CORE OF MODERN MINING Miners are not tied only to governmental regulatory frameworks. The industry is also bound by social and environmental licenses that allow it to operate in harmony with local communities. Communication, a comprehensive mine plan, social inclusion and a responsible use of natural resources are essential for the completion of projects

188

Mining is a highly capital-intensive activity, and it is

There are a number of strategies to obtain and keep

crucial that each stage in a project runs smoothly, leading

community approval. An outstanding example is that of

in a productive manner to the next stage, in order to

Compañía Minera Cuzcatlán, that, since 2011, has been able

effectively recover investments. Any amount of downtime,

to successfully run its mine in Oaxaca, a state of notable social

even if minimal, can result in millions of dollars’ worth of

complexity. Luiz Camargo, the company’s country head, says:

losses. One of the keys for ensuring continuously fruitful

“We have worked hard to gain the trust of our stakeholders.

operations is a strong social license to operate. This is

We sponsor and manage several social programs regarding

understood as the level of acceptance local communities

production training for farmers, dressmaking courses for

and stakeholders have with regard to a given mining

local women and student grants for remarkable youths.”

project. Experience supports the notion that companies

Coeur Mining also has effective social initiatives in place.

not only need regulatory permission to carry out their

At its Palmarejo mine in Chihuahua, Coeur has nurtured the

business. They also require social approval, which stems

local community and made a point of becoming a source of

from proper engagement with its communities of influence

employment. The company provides scholarship opportunities

and adequate care of the natural resources at their disposal.

for university students, in addition to a youth apprenticeship

Examples of mining projects with strong social licenses

program that has resulted in 75 workers obtaining fulltime

abound in Mexico. Cárlos Barcena, Minister of Economy

positions at the mine. Mitchell Krebs, president and CEO

of Zacatecas, appreciates good practices undertaken in

of Coeur Mining, notes: “We want to help local inhabitants

other states: “Peñoles is doing an excellent job in Guerrero,

develop their skills and establish a long and rewarding career

a state traditionally considered too difficult for undertaking

with the company.” While approaches to social responsibility

mining projects. They have ‘Peñolized’ their communities

differ according to each company’s philosophy and each

of influence and made a point of becoming interwoven in

community’s characteristics, the common element should

the local social fabric.”

be a commitment, not to give charity or attempt to solve all social problems, but to comprehensively raise living standards

The first element mining companies need to comprehend is

through inclusion and participation.

that investing in all the requisites involved in a social license is not an additional burden. Rather, as Renato Urrestra,

While a social approach to community relations is an

principal consultant at ERM notes, “there are multiple

inescapable requirement in modern mining, companies should

researches showing that responsible behavior results in

not disregard purely legal matters. In fact, the latter must also

more profitable businesses. Companies’ reputations become

be taken into account as a factor constitutive of the social

heightened and fines and blockades are avoided. Social

license to operate. For example, Mexico’s agrarian distribution

strategies eventually pay themselves off.” It is imperative

means that property rights are often in the hands of just a

that projects count with a strong social license from the very

few community members. As Gabino Fraga, Managing

beginning; also, they should envision the venture’s whole life

Partner at Grupo GAP, notes, “The populational community

cycle. Federico Casares, director of business development

is bigger than its judicial element, and these two have different

and institutional relations of Veolia, explains: “Miners need

rights. Social advisory must be based on legal grounds.” As

a long-term vision of the impact their activities can have.

projects often take place in far-flung regions with outdated

They have to consider every stage, from exploration to

or incomplete registries, it is also important that mining

closure.” Additionally, it is advisable to clearly document all

companies are completely clear on who actually owns the

dialogue that takes place, for projects often change owners

land. Fraga explains that understanding the intricacies of the

as they progress through stages—for example, exploration

community in terms of legal property has to be a cornerstone

companies rarely ramp up projects to production. In this

of the company’s strategy. According to its particular legal

regard, Alfonso Caso, founding partner of AOS says:

standing, every element in the community asks for a different

“Commitments should be kept as the project moves on; if

approach. “This does not mean the company will pay twice,”

promises are not fulfilled by whoever buys the project later

Fraga notes, “but that it will seek a social equilibrium.

on, conflicts with the community become more likely.”

Preventing a socio-economic imbalance is crucial.”

VIEW FROM THE TOP |

SIMPLE MEASURES SAVE A GREAT DEAL OF ENERGY PAULA DE LA FUENTE Business Area Manager of Energy Transition and Urban at Tractebel ENGIE Mexico

Q: How important is decarbonization, or the reduction

to pump water during the sun hours, when electricity is

of carbon consumption, in the sector?

cheaper. This had zero costs of implementation. Another

A: Decarbonization is becoming an increasingly important

example is to determine the optimal usage of a mill

topic for mining companies in Latin America. There is

machine with regard to levels of energy consumption.

a slight difference between national and international

We are not changing the mill, simply rectifying its usage. 189

mining companies. National mining companies are focused on reducing their operational costs. International

In other cases, we have offered more elaborate solutions.

companies have a stronger will to fulfill decarbonization

Our goal is to build a long-term relationship with our

to lower emissions and reduce impact on the environment.

clients to support them in their decarbonization process.

Interestingly, the countries with the biggest mining sector have a great deal of potential for renewable energy. Mexico has that potential, but there has to be a greater push in this direction. To begin with, there is a need for more consultancies or engineering firms that understand mining operations as well as decarbonization strategies. Q: How do your consultancy services work?

Tractebel ENGIE's solutions on average lead to 5-15 percent in energy savings

A: When we are contracted by a company, we first conduct diagnostics of its energy consumption. We find

Q: Do you enter a project while it is already operating

out what they are consuming, where and how much.

or can you also help a business to design a new project?

In some cases, the owner of the mine will have an idea

A: Traditionally mines were designed for production, not

that is very different from the real situation. It is hard

for the efficient consumption of energy and reduction

to control what you are consuming if you do not know.

of emissions. For those that are already running, we use our study to enact a transformation. We also offer what

The next step for us is to define a series of actions that

we call "Design to Green", which means a support from

can be implemented. Some are what we call â&#x20AC;&#x153;quick

the very beginning of the project, contributing with a

wins,â&#x20AC;? small steps that can be taken quickly and at a

sustainable look along the design of the plant.

low cost. We offer advice on energy generation and purchasing, equipment control and monitoring, and also

Q: Mining companies also aim to develop their

offer greener alternatives for transport. Apart from our

surrounding communities. How involved are you in this?

energy diagnosis, we can do more integrated studies

A: ENGIE is able to support mining companies in

with a software called Prosumer. This software allows

their relationship with the surrounding communities,

us to simulate different scenarios for the generation and

helping them to generate relationships that foster the

consumption of energy. The scenarios can be set to the

development of the community, as well as that it can

objectives of the client.

benefit from the existence of the mining company, such as by surrendering excess energy generated.

Q: What specific solutions do you offer? A: Our interventions on average lead to 5-15 percent in energy savings. The first are operational and focused on

Tractebel is part of ENGIE group and offers life-cycle

saving. Some simple measures can save a lot of energy. To

consultancy and engineering in power, nuclear, gas and

give you an example, one client was pumping water from

infrastructure for national and international institutions and

the sea to its plant outside sun hours. We advised them

customers in public or private markets

| VIEW FROM THE TOP

SOCIAL, ENVIRONMENTAL RESPONSIBILITY CREATES STRONGER BUSINESSES RENATO URRESTA Principal Consultant at ERM

Q: What main changes have you observed regarding

become dramatically more valuable, and new players are

the mining industry since the new administration came

interested in a level playing field.

to power?

190

A: Any change produces ambiguity, and Mexico as a

Q: What practices do you recommend to foster a healthy

country is still in a stage of uncertainty with respect to

and productive relationship between companies and

the new government. Nevertheless, many positives are

communities?

discernible on the horizon; for example, the political agenda

A: Starting from the early stages, such as the exploration

now contains stronger social awareness. Human rights,

phase, it is important to establish effective first contacts and

inclusion and participation are now central to economic

promote constant feedback from communities. The rules of

development. Certainly, procedures still have to be worked

engagement have to be clear from the get-go: frameworks

out and polished, and this is taking too much time. Revisions

must be created and consequently, agreements between all

to mining’s legal framework are being undertaken; for

parties will be universally comprehensible.

example, proposals related to the mining fund and wealth redistribution.

A major challenge we often encounter is that in the exploration phase companies tend to make commitments that they are

Q: How can companies and the public be certain that

unable to fulfil in subsequent phases. Often, companies fail to

mining taxes and other contributions are reinvested in

follow through with the communication practices described

community development?

above, and after the initial phases of the project, they lose

A: Under the previous administration, the turbulence that

interest in dialogue. Communities resent this. ERM helps

the Mining Fund produced began to abate. However, the

companies strengthen their relationships with communities,

rules are now being changed again. The debate hinges on

which are as important as operational processes at the mine

whether the Mining Fund should be employed primarily in

because a blockade can stop operations for a long time and

infrastructure or in direct wealth redistribution to mining

have serious consequences.

communities. It is a fascinating discussion. What operators demand is that their contributions are invested back into

Q: What is a specific example where ERM applied its social

their areas of direct influence but communities are usually

and environmental expertise?

located in remote areas that lack not only infrastructure

A: Alamos Gold, one of our main clients in Mexico, had a

but also basic needs like drinking water. I do not think there

challenging relationship with a community located near one

is an incompatibility between operators’ interests and the

of its mines. This went on for a decade. In late 2014, we were

amelioration of communities’ living standards.

hired and began by setting up a dialogue table to validate and legitimatize community representatives. We held meetings

Q: What are the main concerns expressed by your clients

with the community, adjusting ourselves to its ways and

about potential changes in mining concession schemes?

schedules, and included local authorities, because they are

A: Consulting communities on projects could become

always important in this kind of dialogue. We started building

crucial for obtaining concessions. This should already

a common agenda, taking into account the community’s

be a basic practice in Mexico. It does not have to be a

concerns. We then co-created a plan to move forward.

source of problems. However, in Mexico protocols are in the process of being clearly established; therefore, there

Throughout 2015 and 2016, the dialogue between the parties

is still no guarantee that consultations are transparent and

defined that the best alternative for a definitive solution was

effective. Communities and other stakeholders can organize

to undertake a voluntary resettlement process. As both sides

to stop new concessions if there is not a clear position by

agreed to this, we began a relocation plan, which was co-

the government. If this happens, current concessions will

designed and took about a year. Then, the implementation

phase began. Some community members decided to relocate

or more red tape. However, we energetically emphasize the

on their own (individual resettlement), while others decided to

importance of these types of studies.

collectively move to another part of the area that was already inhabited (collective resettlement); we therefore undertook

Q: How can social and environmental practices be

a mixed process.

implemented without resulting in extra costs for companies? A: There are multiple researches showing that responsible

Those who left on their own received compensation in kind,

behavior actually results in more profitable businesses. On

which is to say, if they left a house behind, they received a

one hand, companiesâ&#x20AC;&#x2122; reputations are heightened, which has

house in exchange wherever they moved, with the added

a positive impact in brand placement and stock value. On

benefit of having all the ownership titles worked out by

the other hand, halting operations due to social discontent

the company. The collective part of the process was more

results in colossal costs; a medium-sized operation can lose a

complex. We carried out studies to find a suitable relocation,

considerable amount of money a day. Investing in a social and

and in 2018, the process finally ended. However, this is not

environmental strategy eventually pays itself off by preventing

the end of the story; we are working on the design of a

blockades, strikes or fines that are always hugely expensive.

social investment plan, since the company is committed to these familiesâ&#x20AC;&#x2122; future well-being. Therefore, the process goes

Q: How does ERM implement international best practices in

well beyond merely showing up and handing a check to the

its projects in Mexico?

community to stop their complaints. Rather, it is a complex

A: ERM is a global company, and its consultants permanently

and delicate cycle.

share information and knowledge with each other. A consultant based here will work in different countries, learn

Additionally, we have successfully worked with other global

new things and bring them with him/her wherever he/she

mining companies that have operations in Mexico. Moreover,

goes. In this way, international best practices are sure to be

outside of Mexico, we have, for instance, a remarkable

included, almost spontaneously, in any given country where

success story in Panama where Minera Panama hired us,

we work in, including Mexico. More specifically, in the last

and we supported in the relocation process of indigenous

few years we have developed an initiative called The Mine

communities deep in the Panamanian jungle, under the

We Want to See, which, as its name suggests, invites our

highest international standards, like the IFCâ&#x20AC;&#x2122;s performance

clients to think about the kind of mine they want to become,

standard 5 and 7.

emphasizing social, environmental and sustainability issues. Then, ERM advises them on the services it can to provide, as

Q: What strategies should the Mexican government

a result, we gain experience in solving issues from around the

implement and will a reform to the Mining Law include

world, and subsequently disseminate this experience in the

social issues?

industry and among our clients.

A: There are no major strategies, really. What we have in Mexico are voids. ERM abides by international standards to try to fill these voids. Regarding the potential reform to

ERM is a leading global provider of environmental, health, safety,

the Mining Law, there is talk of making social impact studies

risk and social consulting services, as well as sustainability-

mandatory, like in the oil and gas industry. This would be

related services. It employs more than 5,000 people in over 40

valuable. Operators may see this as just an extra requirement,

countries and territories working out of more than 160 offices

191

| VIEW FROM THE TOP

STRATEGIC PARTNER FOR ENVIRONMENTAL COMPLIANCE, SUSTAINTABILITY FEDERICO CASARES Director of Business Development and Institutional Relations at Veolia

192

Q: How can the industry better integrate new materials

offers miners the design and operation of plants and the

and recycled waste into its value chain and how is Veolia

necessary equipment. We typically work on five-year

contributing to this change?

operational contracts in which we recover our investment

A: Veolia follows a circular economy model in which it partners

through service fees. In water management, an example fee

with its municipal and industrial clients to create a production

is applied per m3 of treated water but we also return the

process that reuses waste. For example, we worked with

recovered ore to the company. Their net fee is almost covered

Goldcorp at PeĂąasquito for two years implementing total

by the service itself. The initial investment that we make, up to

waste management. We separated, recovered and integrated

US$5 million depending on the project, is not representative

mineral bi-products and achieved savings of over US$4 million

when compared to the cost of developing a mine.

in just two years. We have accomplished similar success stories in other mining countries such as Chile, where we installed a

We promote a model of collaboration and shared responsibility

plant to recover low-grade copper that was being wasted.

with our clients where we guarantee we will operate with

Our goal is to implement this plant-model in Mexico as well.

the most updated technologies, without our client having to

In recent years, we have worked with Coeur Mining at the

employ specific staff to operate them. The introduction of

Palmarejo complex in Chihuahua to develop a similar project.

even more complex environmental regulations has made us

Previously, it was not economically feasible to recover much

a strategic partner to the mining industry.

of this waste but our technology now makes it profitable. We help our clients to be more efficient in their processes through

Q: To what extent can Veolia help miners obtain their social

the recovery of material or residues.

license to operate? A: Miners need a long-term vision of the impact that their

When it comes to water management, we offer a variety of

activities can have, considering not only the immediate impact

technologies. These help recover and reuse both materials and

but the whole lifecycle of a mining project, particularly the

minerals, as well as facilitate the compliance of environmental

closing phase. We find that closure plans in Mexico are quite

regulations, helping our clients to expedite their process to

relaxed. Veolia offers to take control of the entire closure

obtaining their operational license. We can deliver efficiency

phase. We have environmental monitoring contracts of up to

and cost reduction benefits that vary between 30 and 40

10 years after the mineâ&#x20AC;&#x2122;s closure. We typically install perimeter

percent. As mines are usually located in isolated areas with

monitoring wells in all surrounding water bodies. Our role is

limited access to water and energy, any savings that we can

beneficial to both the mining company and communities

provide become even more valuable. Altogether, we promise

because we act as a third party that oversees the proper

to provide an ROI in less than five years so our clients can

application of all environmental regulations. We have become

receive the benefit of our work during the active lifespan of

our clientâ&#x20AC;&#x2122;s representative regarding environmental matters,

their projects and optimize their capital expenditure.

communicating their commitment to regulatory compliance.

Q: What schemes and contracts do you operate under?

As an example, we filled an open-pit mine in Australia with

A: Mine services, such as water management or energy

organic waste and created a bio-park to produce energy and

provision, are commodities for the mining process. Veolia

reuse the land that was modified by the mining activity. We want to reduce the environmental footprint of mine operations throughout the entire life cycle. In an ideal scenario, miners

Veolia Group is the global leader in optimized resource

would include us as their closure partner from the beginning

management. With nearly 171,000 employees worldwide,

of the project. We also assist companies in obtaining their

the group designs and provides water, waste and energy

operational licenses by highlighting the risks that come with

management solutions

changes in regulations or unseen impacts on the community.

VIEW FROM THE TOP |

COOPERATION, A TOOL FOR THE FUTURE BEN WHITING Vice President of Exploration at Belcarra Group

Q: What is your assessment of the level of cooperation

think that AI will replace geologists in the medium term,

between explorers and operators when it comes to

but this technology might replace routine tasks like core

realizing Mexicoâ&#x20AC;&#x2122;s mineral potential?

scanning. Artificial intelligence has its place but it is part of

A: Regarding cooperation, major players like Fresnillo usually

the cycle of technological advancement.

have very few joint ventures outside of their own groups. I think that more cooperation between different companies

When AI is completely deployed, it will represent an

could be beneficial. As for how this relationship works, there

advantage for some segments of the mining industry. This is

are four levels or types of mining companies. First, generators

more likely on the mining side, not necessarily the exploration

of projects and prospectors; they establish a project but they

side, in terms of automating some of the underground work.

do not really explore it much because they do not have the

With AI, you can get real-time feedback and know when

money. Second, added value explorers like Orex Minerals that

the deposit is depleted because there is a formula that is

undertake diamond drilling, explore and map projects. Third,

going to process the real-time data. But there is still a role

small to midtier mining producers, which are not big-scale

for the operator. I think it also will make the industry safer by

producers but have an important role in the industry and

reducing the number of lives lost in underground operations.

increasingly will be takeover targets by the major producers in the future. Fourth, are the big producers such as Fresnillo,

Q: What is an example of data interpretation in Mexico

Pan American Silver, Coeur Mining and First Majestic that

and how do you engage the local community at this early

operate major projects. Closer communication between these

stage of a project?

four levels could lead to faster advancement of projects.

A: Orex is working with Geotech Limited, a geophysical company about to deploy a helicopter near our San Luis

Q: Where are the best opportunities for further silver

del Cordero project located in a small ranching town in

discoveries in Mexico?

Durango. Cordero is a skarn deposit similar to the San

A: Mexico is the No. 1 silver producer in the world and I

MartĂn project in Zacatecas. Interpretation of geological and

believe there will be more discoveries, particularly in the Mesa

geophysical data is happening there. They are about to fly a

Central part of the country. The understanding of how mineral

combined geophysical survey that will do electromagnetic,

structures work in this region is what allows us to make blind

magnetic field and radiometric surveys at the same time.

discoveries. I think this is how future discoveries are going to

That is an example of us looking at a target where there is

be made. Also, older mining camps will turn out to have new

known mineralization but little outcrop. This zone has not

discoveries. One example is the Juanicipio project, discovered

been studied with a modern approach because previous

by MAG Silver, which will be taken to production in a JV with

operators did not have the opportunity.

Fresnillo and is expected to be the biggest silver mine in the world. So, a 400-year old mining camp can still surprise us.

Regarding community relations, the key to success when developing a project is to keep the community informed.

Q: What will be the main advantages and disadvantages

We need to be transparent and provide inhabitants with

of introducing AI to mine operations?

advance notice of any impending activity so they know

A: AI is another tool the industry can use in interpretive

what to expect.

processes. Nevertheless, this technology is only as good as the data it interprets. For example, a geophysical survey requires multiple layers of geophysics to read the physical

Belcarra Group is a Canadian management team specialized in

properties beneath the surface, but there are always

the identification and progress of successful mineral exploration

anomalies. Interpretation is a key component in this and

projects. Its companies are Orex Minerals Inc, Barsele Minerals

human intuition is a big part of that interpretation. I do not

Corp, Silver Viper Minerals Corp and Dolly Varden Silver Corp

193

| INSIGHT

LAND MATTERS IN MINING GABINO FRAGA Director General of Grupo GAP

194

If not managed correctly, land negotiations can be a

In this scenario, the company should agree on a legal

headache for any company pursuing a project in Mexico,

settlement with the land owners and negotiate with other

says Gabino Fraga, Managing Partner at Grupo GAP, who

occupants of the property for their possession of the land.

adds that knowledge of the judicial requirements specific

“This does not mean that the company will pay twice, but that

to each party equals negotiating power. “Land issues

it will seek a social equilibrium,” Fraga says. “It is important

often arise from a lack of clear information regarding

to prevent a socioeconomic imbalance. The company must

the land owners who the project is going to impact.

invest in tailor-made social initiatives for every community.”

Companies must understand the rights and duties of

Instead of bringing in desk-designed projects, companies

land owners to be able to sit down and negotiate with

must involve the community in designing and choosing the

them,” he says.

social programs that it needs the most.

While the Mexican judicial framework for land access is

When seeking social balance and negotiating a fair deal

comprehensive, mismanaged negotiations can result in one

with communities, companies usually do not know who

ejidatario stopping a project. “The community approach of

owns what. But mining operations are often located in

mining companies often lacks clarity in explaining to the

remote areas with unclear and incomplete public registries.

community its rights and duties,” says Fraga, whose firm

“It is also important to conduct a deep analysis of property

offers legal and social consulting specialized in resolving

ownership,” Fraga says. Illegal squatting is common due

conflicts related to land access and agrarian issues, in

to the many layers of property ownership. “In these cases,

particular communication with ejido communities. But as

we must examine the title because the deed is indefinite.”

companies sometimes do not even know these obligations, social conflicts are more likely to arise. “It is fundamental

For those cases in which the due diligence on social and

to get expert advise on how to approach land and ejidos

legal matters was not thorough enough and an ejido is able

to ensure an effective communication of the commitments

to stop a project, the right to public use and the cause of

that the company is willing to make.”

public interest must be defended. “The project will not be

“

Companies must understand the rights and duties of landowners to be able to sit down and negotiate with them”

suspended if it is proved that doing so would harm a right of the majority to protect the right of a minority.” Fraga is convinced that many foreign companies in Mexico do not have this kind of detailed insight. “We must get into the details to win cases,” he adds. As mining is often carried out by private investment, it could be tricky to prove to a judge that protecting the mining project equates to protecting the interests of the majority. “Mining is a public domain good of the federation, concessioned to

Fraga also explains that social conflicts come up because

an individual party,” Fraga says. “The public utility cause is

land matters in Mexican mining are typically considered on

the extraction and processing of minerals to serve society.”

their social aspects while disregarding property elements.

Grupo GAP has advised numerous companies in social and

An example would be a community of 1,000 people where

land matters, including Alamos Gold, Torex Gold and Agnico

only 200 have land rights. “The populational community is

Eagle. Fraga’s final tip for mining companies is to prioritize

bigger than their judicial counterpart and these two have

communication with communities and local governments.

different rights. In this case, any social advisory must be

“Even if it is not legally necessary, it is always beneficial to

based on legal grounds.”

make the local government feel involved in the project.”

VIEW FROM THE TOP |

VACCINATING PROJECTS AGAINST SOCIAL DISCONTENT ALFONSO CASO Founding Partner of AOS

Q: Why did Anaf Energy and Overflod Social decide to merge?

The first step to turning opposition to a mining project into

A: Anaf Energy and Overflod Social were two companies

support from its surrounding community is to share the

working on social projects across several industries, including

idea that the community can do better with the project

infrastructure and mining. We collaborated on several projects

than without it. In this case, the benefits it will yield must

regarding indigenous consultation and realized that merging

be communicated by an external actor that is perceived

into a new company would be a win-win for both. From

as trustworthy by the community. The company needs to

2019 onward, all our projects will be carried out by AOSocial

create valid interlocutors. Our work is to identify strategic

(AOS). Our combined years of experience working with the

stakeholders that will develop an understanding relationship

mining industry will allow us to serve our clients better.

with the company's goals and commitments.

Q: Why is AOS’s expertise in social issues an advantage in

Today, we must understand that social and environmental

the mining industry?

matters are the premise of mine operations and not a

A: A revision to the Mining Law is highly likely in the coming

condition. Those companies trying to minimize their social

months so leveraging our expertise in social matters is

and environmental responsibilities are wrong, as these

especially crucial. There are many details to take care of

are an inherent part of modern mineral production. AOS’

when approaching communities and making promises to

message to the industry is that operators cannot avoid CSR.

them. For example, it is vital to establish a communication

Rather, if they address it properly, they will thrive.

channel with no leaks. It is rare to have the exploration company ramp up projects into production. This means

Q: How can operators create shared value from mine

the commitments made by one side are often not delivered

operations and why is this crucial?

by the operator that buys the project later on, so the

A: A sense of social justice is key to a good feasibility study.

community ends up with unfulfilled promises.

This is what I call vaccinating the project against social distrust. When wealth starts to blossom from the land, social issues

I am convinced that the social impact study for mining

arise but if a community has the same level of wealth, issues

projects is as important as the pre-feasibility study. We

are scarce. When a company rents a piece of land and pays

already have had a case of a great ore reserve project with no

one owner and others are left with nothing, social inequalities

social feasibility. My advice for companies is that just as they

appear. These are the details that need to be taken care of.

do a diagnosis for all the technical aspects of projects, such as water and electricity sources and available infrastructure, they

It is important to create opportunities for all members of the

must perform a social counterpart. Maybe the community to

community in order to distribute in the best way possible.

be impacted is 100km away but the only road to get to the

In this scenario, local content is a key element. Companies

mine crosses it, while another community just 3km away is

must seek to buy some percent of the project’s inputs from

separated by an abyss so there is no issue for the mine.

the community. This may be a marginal expense for the company but has a great impact on the community. Also,

Q: What is AOS’ methodology for approaching community

the local content implementation serves to shield the project

matters in mining?

because if the mine does well, the community will do well.

A: Approaching community matters is not about talking but about listening, which is the most important thing. If you listen well, you will understand community concerns

AOSocial (AOS) is a multidisciplinary company that designs

related to everything from water and traditions to flora and

and develops solutions for energy, mining and infrastructure

fauna. It is about building agreements, not buying territory.

companies. It has a strong focus on CSR and complies with the

Community relationships require time and understanding.

OECD’s anticorruption program for Latin America

195

| INSIGHT

THE EMERGING CONCIOUSNESS IN MINING RENÉ KRIST Managing Director of FullSpectrum Leadership

Social license does not exist, says Managing Director of

spectrum of mining stakeholders to create the future that

FullSpectrum Leadership René Krist, which focuses on

they are committed to, each taking ownership for their own

empowering and aligning the human commitments of any

reasons and not only those of the company.”

operation. He explains that the term social license to operate 196

has become an overused response in an industry pressured

As each mine, operation, and community is unique and at

by popular concerns and that it is not only ambiguous, it is

different phases of their own development, Krist asserts

also inaccurate. “When I hear the term social license, I ask

that there is no one approach to address them all. “A

people to reach into their pockets and show me where their

key consideration is to understand at what stage you are

social license is. There is no issuing authority.”

engaging key players in their own individual development cycle. This, coupled with an awareness of the maturity

If a company cannot go to a government entity to receive its

phase of the company, is essential in the design.” In this

social license but nevertheless needs it to operate, how does

regard, Krist emphasizes that mining companies have

it solve this conundrum? According to Krist, the key is to shift

three assets to develop: the physical, financial, and human.

our relationship with the term. “Social license is an artificial

“The first two assets have been developed almost to their

construct that many mining companies pursue because they

pinnacles but we have not kept pace with the human asset.

require social acceptance on an ongoing basis in order to

If we are not fully engaging our humanity, we can never

advance the long-term economic viability of their projects,”

reach the full potential of operations, nor its contribution

he says. “In our experience, when all those with a vested

to the community.”

interest in contributing to that economic viability — company, management, workers, union, community, government – are

In awakening this emerging consciousness of full contribution,

freed up and can make choices independently of one another,

FullSpectrum Leadership has developed a methodology

all the contractual restrictions and compliance that a social

by which there is a confluence of human learning,

license implies become unnecessary because collaboration

communications and leadership. “It is about understanding

on behalf of mutual success just happens.”

the relationship between the human being and the nature of that human being’s commitment to something. For

Economic viability is the road to independence, Krist adds.

example, where does it come from, how does it manifest

“The role of the mining industry in the future must be

itself, and how can it be aligned to the mutual interests of

understood as providing an economic engine for the long-

mining companies, communities, workers and government?”

term viability of the communities that it serves,” he adds. “An

Krist says. “Much of our work is about surfacing and aligning

economy is created by the imagination and inspiration of the

these commitments. This manifestation gives people a sense

people. Mining must be seen as a tool that prepares, equips

that what they do and who they are is both meaningful and

and empowers people to create their own economy based

powerful. They have a purpose and they make a difference.”

on the long-term possibilities that they see for themselves.” Applying this premise to local communities and the social FullSpectrum Leadership’s most recent work in Mexican

license to operate puts the magnifying glass on what mining

mining was with Primero Mining’s San Dimas mine in Durango,

makes available for people to generate a livelihood. It is like

now owned by First Majestic, during its return to viability from

bringing a piano to a community that did not have one,

2012 to 2015. “During this period, it achieved a zero-accidents

teaching people to play it and then taking the piano away

rate and record productivity, while changing its management

and leaving the community with no instrument to practice

philosophy, benefiting from unprecedented employee and

what it has learned. “Their reliance on the mine or company

community engagement,” Krist says. “FullSpectrum learning,

for both the provision of the instrument and the lesson has

leadership and communication are an invitation to the entire

made them dependent,” Krist says.

VIEW FROM THE TOP |

PRODUCTIVITY, SAFETY GO HAND IN HAND DANIEL BERNAL Director General of MADAI

Q: What are the main elements of MADAI's consulting services?

standards, and the laws of their own country. Some of these

A: Safety is the most important theme in our consulting

laws will eventually come to Mexico, considering that many

service. We help companies acquire permissions from the

regulations in this country are translations of foreign laws.

Ministry of Labor and other authorities. Environmentally, we

Unfortunately, there are companies here in Mexico that do not

work with companies to determine what is needed to gain

value regulations as much. This is a question of culture, where

approval for exploration, use of the terrain and use of the

money alone can help get things arranged. There are cases

soil. This process involves different steps. The most important

where a company received approval for a proposed mine

is gaining permission to start a project. We inspect the

location without informing the adjacent community. Even

proposed area, in which a team, including a biologist and an

before the approval, the equipment was already in place.

environmental expert, conduct a study of the terrain, its flora and fauna, to assess whether a site will be approved. MADAI provides environmental and labor force consulting

Q: Where do you see concerns and areas of improvements?

services focused on safety for industrial projects. The

A: There are areas where Mexican law can improve.

company also provides underground and open pit mine

International companies tend to follow international

drilling

INSIGHT | A general rule of life is that it comes with many a twist and turn, and the story of cutting-edge pond floats is no exception. Originally manufactured as balls for the amusement of children at McDonald’s or Chuck E. Cheese’s, these simple yet highly useful devices have evolved into an essential water-management element in the mining industry. The first step in the process came when a gold mining company had the spherical gimmicks coated in carbon black, an ultraviolet inhibitor, to protect the material from sunlight. The black ball floats would be used to cover cyanide leach ponds, keeping water fowl out. Then came the turning point. As Len Donovan, CFO of Phoenix Plastics reminisces: “We knew the round shape was not very efficient in covering a surface area and hence developed a hexagonal structure that provides greater surface coverage and wind resistance as opposed to traditional spheres.” The modern hexagon float with its myriad applications was born.

COST-EFFICIENCY CAN BE ENVIRONMENTALLY FRIENDLY

“

We knew the round shape was not very efficient in covering a surface area and hence developed a hexagonal structure that provides greater surface coverage and wind resistance” LEN DONOVAN, CFO of Phoenix Plastics

Hexagon floats are a low-cost solution for reducing water evaporation in various industries, such as agriculture, oil

visibility of ponds, hexagon floats solve this problem. Phoenix

and gas, municipal water and mining. For the latter, this

Plastics’ floats are made of high-density polyethylene, a

technology solves an entrenched issue. Birds are naturally

strong UV inhibitor. They provide over 15 years of service

attracted to the reflection of light off of water surfaces, and

and are virtually maintenance-free. In addition, they reduce

insist on landing in cyanide and sulfuric acid leach ponds.

evaporation and odor, as well as the abatement of algae,

This is a relevant environmental concern. By reducing aerial

bacteria and pathogens threatening the fluid’s condition.

197

Landscape of Azure Minerals' Alacrรกn Project, Sonora

EXPLORATION &Â DRILLING

The mining cycle has an ending mine life set from the beginning. But while operators work on a deadline basis, it is not set in stone. Explorers come into play to help aging projects find new life through the discovery of new veins and deposits. But knowing where to drill is like finding a needle in a haystack: appropriate budgets need to be allocated to exploration. S&Pâ&#x20AC;&#x2122;s expectations for 2018 calculated a 15 to 20 percent exploration budget increase given the positive outlook in metal prices, rebounding since 2016 and extending until the present moment. Mexico receives 6 percent of the global nonferrous budget, the same as all of West Africa. Gold is followed by copper as the main exploration targets.

In this chapter, geologists and prospectors comment on the best technologies, strategies and tools used in modern mining for increasing the chances of discovery. They also discuss how to better bring a discovery into production.

199

CHAPTER 10: EXPLORATION & DRILLING 202

VIEW FROM THE TOP: Peter Megaw, MAG Silver

204

INSIGHT: Paddy Nicol, Evrim Resources

205

VIEW FROM THE TOP: Kenneth Macleod, Sonoro Metals

Melvin Herdrick, Sonoro Metals

206

VIEW FROM THE TOP: Guy De Launiere, Maza Drilling

207

VIEW FROM THE TOP: Denis Larocque, Major Drilling Group International

208

VIEW FROM THE TOP: Frederick Davidson, Energold Drilling

209

INSIGHT: Andrés Robles, Minerales Terán

210

VIEW FROM THE TOP: Juan Pablo García De Quevedo, ECODRILL

211

VIEW FROM THE TOP: Charles Lance, G4 Forage Drilling

José Alberto Morán, G4 Forage Drilling

212

INSIGHT: Peter Shortus, Landdrill

213

VIEW FROM THE TOP: Luis Sánchez, Intercore

215

VIEW FROM THE TOP: Victor Díaz, Globexplore Drilling & Analytics

216

VIEW FROM THE TOP: Jorge Bertoglia, Boytec

217

VIEW FROM THE TOP: Ramón Luna, SPM

201

| VIEW FROM THE TOP

A REGIONAL GRASSROOTS APPROACH FOR MINERAL DISCOVERIES PETER MEGAW Chief Exploration Officer at MAG Silver

Q: How does MAG Silver expect the exploration

are being developed are very exciting. Technology like 3D

investment market to evolve in the coming years?

seismic or satellite based hyperspectral imagery works

A: The market’s behavior for the next couple of years

exceptionally well for certain deposits present in Mexico.

appears uncertain but the gratifying part is that when

These systems can see things underneath the earth that

there has been an uptick in the market, a lot of money

the human eye cannot.

comes in. This suggests that there is a large amount of 202

money sitting on the sidelines, waiting to come back into

Q: What were the company’s main achievements in 2018?

the sector. The high-reward risk investors are investing in

A: Our main 2018 highlight was continuing to work with

blockchain and cannabis because a great deal of money

Fresnillo in the development of the Juanicipio mine. In

can be made in a short period of time, but our sector

2018, MAG Silver executed a PEA that serves as a good

takes longer.

representation of how the Juanicipio project will be built. Eighteen kilometers of workings have been developed; we are

Q: What is your assessment of the impact from

at the top of the vein and in position to start cutting headings.

transitioning from older to newer exploration participants? A: There is a gap in terms of exploration product. This

The company is also looking to do more exploration and

means there is an enormous number of projects in

I think we will continue to prove that the Valdecañas vein

established companies that have passed through multiple

is a truly exceptional exploration asset. Regarding our

cycles. This situation is not letting many companies do

collaboration with Fresnillo, the process at Juanicipio

greenfield exploration or introduce new ideas. If we do

is mostly controlled by them but we are very involved

not bring fresh ideas to fresh targets, companies that are

through our participation in a technical committee. It has

already in the sector will not be interested in investing. I

been very exciting to work with Fresnillo on what will be

am gratified to see some young companies focusing on

the world’s biggest silver mine. Within the committee, we

a more regional grassroots approach to generate a new

have already talked about the targets for the immediate

project and some of them are actually getting financing

and long-term future. We try to map these out as far in

directly from private equity. Once the cycle recovers, a

advance as we can, understanding that the result of any

great number of fresh exciting discoveries should emerge.

given hole can change the program dramatically.

Q: What role will disruptive technological advancements

Q: What have been the major advantages of developing

play in driving these discoveries?

a JV with Fresnillo?

A: Technology will always advance but we will still need

A: Fresnillo decided to partner with us for this specific

humans to operate these tools. The human component will

project after we made the initial discoveries on the

change as new tools allow companies to deal with larger

property. There could not be a better partner for us, they

datasets but for greenfield projects, this requires having

bring to the table a full array of operational expertise,

the actual data to begin with. There are many places to

including community relations and a team dedicated to

explore where we do not have available datasets and

acquiring the required rights to drill and develop. The mill

someone still has to generate that information.

will be optimized by the fact they have been mining the same ore from the other end of the vein for a couple of

Where I see this potential, especially in Mexico, is exploring

years, so we get the benefit of that.

through cover. This is more complicated than simply crunching data because you have to understand what data

Fresnillo has gone from being a relatively unimportant

goes in and what it means in order to interpret the results.

district prior to 1975, when it had only produced 250 million

There is no question that new geophysical techniques that

oz of silver. But since 1975, with the discovery of one group

203

of blind veins after another, production plus resources at

Regarding the entrance of the new administration, I think

Fresnillo rose to 3.3 billion oz. It is now the worldâ&#x20AC;&#x2122;s biggest

it is necessary to establish a clear policy for the mining

primary silver camp and most of those discoveries have

industry and follow it. Taxation also needs to be fair:

been made blind. There is more to be found and I can see

our company agrees to being taxed at a fair rate, but

the district doubling in terms of size over time. We could

if companies cannot make enough money, they cannot

be talking about 5 or 6 billion oz of silver, which would

employ more people and the economic benefits will not

leave any other silver deposit in the dust.

spread. In many communities, there is no alternative option for an adequate income so these projects make a

Q: What major hurdles has MAG Silver faced when

tremendous difference to the local economy.

developing projects in Mexico? A: At the Cinco de Mayo property, we have been working

Q: How would you assess the taxation process?

with the local ejido to re-establish access to the property,

A: The original philosophy of the Special Mining Tax was

but that has been a long and tedious process therefore we

to benefit local communities and the overall philosophy of

took an impairment in 2016. We are really excited about

AMLOâ&#x20AC;&#x2122;s government is to improve the lives of impoverished

what we found at Cinco de Mayo and the social situation

people. This is a good concept, however, when multiple

is very unfortunate.

different entities are involved in managing and distributing these funds, bureaucratic attrition takes place before this

With the change of government, there have been some

money reaches local communities. If the total tax is 7.5

steps forward and maybe some steps back, but we are

percent, it might make more sense if 2.5 percent was

getting great support from the state of Chihuahua. The

directed to the federal government and the rest go directly

federal government seems to have other priorities in terms

to benefit these communities. I would argue that the best

of releasing expired mining concessions where companies

way to do this is for the mining company to invest directly

want to explore, find and develop resources. It is most

in the region in which it works with the proper community

unfortunate for Mexico that the legal framework has not

consultation and agreement. The mining company could

been diligently enforced as this discourages companies

be given a credit against their total tax bill which would

from investing further.

let the money be spent directly in the communities so that most of the tax amount actually benefits these

Another factor is the timeline from discovery to

communities in the manner they want.

production, which is quite long. At Juanicipio, we drilled the discovery hole in 2003 and production will take place by 2020. These 17 years are a little over the average but

MAG Silver Corporation is a Canadian exploration and

from an investment viewpoint, this is a very long time. If

development company focused on becoming a top-tier primary

you want exploration in your country, you have to provide

silver mining company by exploring and advancing high-grade,

enough certainty to invest in that timeline.

district-scale, silver-dominant projects in the Americas

| INSIGHT

TURNKEY SOLUTION MITIGATES EXPLORATION RISKS PADDY NICOL President, CEO and Director of Evrim Resources

204

The risks are high when fishing for ore in a sea of ROM but

One example is Evrim Resources’ partnership with Newmont

President, CEO and Director of Evrim Resources Paddy

Mining in 2012. “While the initiative went well geologically,

Nicol believes that many of the risks facing exploration

it ended due to external factors. But we developed a good

companies can be mitigated, including those related to

relationship and have maintained the relationship ever since,”

mineral discoveries. “We are a boots-on-the-ground type of

Nicol says. Evrim is collaborating with Newmont once again

company and our secret to mitigating exploration risk is a JV

in the search for large-scale, world-class gold deposits at the

business model and having the best team possible,” he says.

Astro project in Northern Canada.

There are many exploration companies in the industry but an operator’s challenge is to find the right one to carry out the mission of finding new deposits”

Although the offer of a turnkey solution leads to strong

“

relationships with business partners, which in turn mitigates the high risk inherent in exploration, Nicol points out that people remain the underlying key factor for success. “We have very good board members supporting the company and a great geological team,” he says. “We are doing all the right things and as we continue to do so, we develop valuable business relationships, even if projects are not always successful.” Nicol adds that the reality is that projects will not always go according to plan, but if there is a good team in place, the

Since its establishment in 2011, Evrim Resources has pursued

company eventually will succeed. He points to the company’s

a collaborative approach to developing project opportunities.

Cuale project, which Evrim decided to undertake single-

“There are many exploration companies in the industry but an

handedly, assuming all the associated risks. While Cuale was

operator’s challenge is to find the right one to carry out the

not as successful as expected, Evrim’s faith in the project left

mission of finding new deposits,” Nicol says. “Big producers

it with a treasury of over CA$11 million from various investors.

are always looking for companies like us to make their job easier but only providing them with data is not enough. We

The question now is where to deploy this capital next. Evrim is

must aspire to implement a turnkey approach, which is what

looking at some projects throughout North America and has

we are great at.” Evrim describes itself as a project generator

three more in the pipeline in Mexico. “If a project comes our

that builds strong relationships with its partners. When

way again and we need to carry it by ourselves to maximize

developing such alliances, Nicol is convinced that the key is

shareholder value, such as the case with Cuale, we will still

to know your partners and understand what they want and

go for it,” says Nicol.

their expectations. “This knowledge allows us to undertake exploration that meets their needs.”

Evrim recently finished drilling at the Sarape project in Sonora, which was optioned to Coeur Mining at the time,

To efficiently tackle exploration programs, Nicol highlights

and at Cerro Cascarón in Chihuahua, optioned to Harvest

the importance of constantly touching base with its partners

Gold Corporation. Later in the year, Evrim will be drilling

to keep updated on their annual operational plans. “This

with Newmont on the Astro project and with Golden Ridge

enables us to focus our generative programs,” he says. While

Resources on the Ball Creek project. “We are also looking

generating new ideas for exploration is always a challenge,

forward to seeing the crystallization of our 2 percent net

staying abreast of a company’s requirements has enabled

smelter royalty from the Ermitaño deposit in Sonora, which

Evrim to identify the ideal partners for particular projects.

is expected to start production in Q42020.

VIEW FROM THE TOP |

DISCUSSION OF UNCONVENTIONAL FINANCING FOR EXPLORATION PROJECTS KENNETH MACLEOD President, CEO and Director of Sonoro Metals

MELVIN HERDRICK Vice President and VP of Exploration of Sonoro Metals

Q: What is Sonoro Metals’ view of financing for exploration

as much up to them as it is up to us, so we are all in the

and what financing tools is it looking at for its projects?

same boat. We would then build a pilot plant that we expect

KM: The junior mining sector has only marginally improved

could enter production by late 2020 and we already have

in terms of financing, even with gold’s recent gains.

the people in the company with the experience to do this.

Companies mainly look to the Toronto and Vancouver stock markets to raise capital but it remains very hard to

Q: Which projects does the company want to position by

raise money for exploration or developing smaller gold

the end of 2019?

operations.

MH: We are working to advance the Cerro Caliche concessions. The key question is how to develop this

Our strategy for unconventional finance really started when

resource and grow it over time. The company has set 1

John Darch joined as Chairman in 2018. He has an extensive

million oz of gold as a target. I think there is a good chance

history developing major projects in Thailand, Africa and

we can get 2 million oz because we already are well-

the Philippines. He brought in Neil Maedel as our Director

established toward achieving our initial target in the overall

of Finance, who lives in Asia, so it was a logical step to look

gold content and we have only explored about 30 percent

at the Asian markets as a way to raise money. We started

of the concession. We are really getting great results for

in Singapore through a small outfit named Inproved and

the money we have spent.

they were really helpful and led us to a pretty established company in China called New Tigers Consulting.

The objective is a heap leach open pit in the 60,000t/d range, which offers the lowest-possible mining costs. So

New Tigers is run by a former China State Council official

far, the mineralization we have found is very shallow, within

named Dr. Wei Qian and they have been around for decades.

the top 70m of the surface. It also has the consistency over

Qian introduced Sonoro to some very large Chinese EPC

broad areas that could be open pit mined, both within

companies that are really experienced in developing low

the area we will be working in and outside our property

grade oxide gold deposits and are quite interested in what

boundaries. We will probably be looking into acquiring

we are doing. The idea is to get EPC business while they also

several other areas adjacent to that concession, so the

provide mine finance and get a stake in Sonoro. This means

potential mineable resource just keeps growing.

they can get started doing business in a new territory and grow from there. It really seems like a little project for them

Q: How would you assess the development of the local

initially, but by getting started with our pilot operation they

workforce within the company’s operations?

can see it leading to a much larger operation, followed by

MH: In Sonora and Chihuahua, we work with high-

much bigger new projects and more business.

quality geological and technical professionals. There are really exceptional technical and nontechnical people,

Cerro Caliche’s operation alone could grow from a pilot

consultants and contractors in Mexico. Some are already

operation of around 3,500t/d to fully built out at a potential

consulting for companies like Agnico Eagle, Argonaut

60,000t/d. We internally estimate we already have 500,000

Gold and other Canadian companies, so their capabilities

oz in a mineable state at or near the surface at Cerro Caliche,

are quite recognized.

so we could put 100,000 oz under another subsidiary and finance it. Like a gold bond, the project debt would be supported by the 100,000 oz from this particular part of the

Sonoro Metals is a gold and silver mineral exploration company

property where the pilot operation would operate. As the

with a portfolio of exploration-stage properties in the jurisdiction

EPC company, they really can get comfortable with what

of Sonora, Mexico. The company has a highly experienced

we are doing and de-risk the project. Its success becomes

management team of mining, business and finance professionals

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ANTICIPATING DEMAND AND TRAINING: A STRATEGY FOR RELIABILITY GUY DE LAUNIERE Founder and Director General of Maza Drilling

206

Q: What was Maza Drilling’s learning curve like when it

is another delicate factor to consider because dealing

ventured into the Mexican mining market and what are the

with ejidos can be complicated. It is important to focus

company’s growth plans?

on developing healthy communication between the

A: I started to think about founding the company in 2004

landowner, the ejido community, the exploration company

while I was working for another drilling company and saw

and the drilling partner. In this case, our strategy is to

that exploration investment in Mexico was booming. This

employ a percentage of locals to incentivize trust and

opportune moment allowed me to jump in and buy my

acceptance in the community. While locals may not have

first machine but I did not count on beginners’ luck as a

all the technical knowledge to operate the machines, they

river took my entire operation away. I tried again, confident

can assist with many tasks and learn in the process. I have

because I was in the market, and bought another machine

operators who started as assistants a couple of years ago

the next week. My company has grown ever since and now

and now operate rigs.

it owns 17 machines. We operate in Chihuahua, Sinaloa, Zacatecas and Coahuila.

When talking about launching drilling programs, one must think like an exploration company. They want to

As for the future, I believe the key to our competitivity lies

hire a drilling company that can complete projects on

in the diversity of drilling types. While diamond drilling is

time, quality and budget. We ensure this by teaching and

our core business, we want to expand to reverse circulation

training our people, so we have the right supervisional

because we see a demand in the market for this type of

and problem-solving structure to guarantee that the

perforation, which is very fast. We will also continue with

project will go exactly as planned.

diamond drilling, which requires less equipment, is very precise and allows deeper drilling. The Mexican market also

We also rely on our customer’s feedback to accomplish

lacks raise boring equipment.

these goals. We strive to provide a quality service, with good pricing and are respectful of security and the

My ultimate goal, which is also a mindset, is to stop

environment; but the client is always the most important

looking for clients and work and have clients reach out

factor for us. We have worked with Coeur Mining, especially

to us instead because we provide a perfect service. Our

at the Palmarejo gold-silver complex in Chihuahua, where

clients already request price quotes for their projects

we have been present for four years, Excellon Resources,

and our goal is to provide prices that are competitive for

American Silver Corporation, the former Scorpio Mining,

both the company and the client. I call the industry to

Evrim Resources and Great Panther Silver.

keep investing in exploration and to continue betting on Mexico’s potential.

Q: How do you choose the equipment you work with and why are your brands the best for Maza Drilling and

Q: What are the most decisive factors allowing companies

its clients?

to resume or launch drill programs on their projects?

A: Reliability. This not only means that the equipment is

A: Financing is first, as it is the key to open projects for

well-built and durable but that it is supported by good

exploration companies. Having access to the project itself

technical service. For example, I own a Hydracore machine that experienced some failures; less than a week later, our provider had a technician come from Canada to solve

Maza Drilling is a Mexican company founded in 2007 in Mazatlan,

the issue. In the end, it is our experience with any given

Sinaloa. Its founder, Guy De Launiere, has over 20 years of

equipment that will determine if we work with it again. I

international experience managing diverse drilling operations.

have machines that are over 12 years old and they work

The company has national and international customers

well because of proper maintenance.

VIEW FROM THE TOP |

AN ATTRACTIVE FUTURE FOR EXPLORATION DENIS LAROCQUE President and CEO of Major Drilling Group International

Q: What is your view of the mining landscape and how is

nickel and cobalt, will be needed as well. Nickel also faces

this impacting your business?

large shortages, resulting in an increase in its price. I believe

A: We are entering into an early stage of the mining

current copper prices do not reflect the upcoming shortage

upcycle. In recent years, mining activity has improved,

and once the market realizes this, copper prices will move.

mostly driven by senior exploration companies. When the cycle peaked in 2012, half of the exploration in the

Q: What is the role of Mexico within your global operations?

world was conducted by junior miners. In our case, only 10

A: Mexico has always been an important market for us. Our

percent of our revenue came from junior miners in 2Q19.

main activities are in Canada and the US, but the Mexican

As soon as junior miners gain momentum and financing

market is always third and fourth on a global scale. This

becomes available, the industry will gain momentum.

region has more junior miners than other markets, which

There is still a long way to go but I am confident we are

is a positive sign. In the last upturn, a great deal of money

going to see this improvement in the next few years.

was raised to develop projects in Mexico and I believe this

Major Drilling is well-positioned to capitalize on this, as

will be replicated soon, especially with gold.

we work for all of the senior mining companies around the world and are known for safety, innovation and quality. Our safety standards match the highest standards in the mining industry. We bring innovative approaches to our customers in order to achieve expected results even in the most difficult drilling campaigns. Q: How have global mineral prices impacted your operations in the recent years? A: Our business is mainly driven by gold and base metals. In

When the mining cycle peaked in 2012, half of the exploration in the world was conducted by junior miners

fact, gold has always represented half of the dollars spent in exploration. Hence, half of our revenue comes from gold

At the moment, the largest demand is in surface and

companies. To date, gold reserves are down by 35 percent

underground exploration drilling. We are also executing

in comparison to 2012’s peak due to a lack of exploration

percussive drilling services in underground mines. As

activities. Whether gold prices increase or decrease,

Mexico supports junior miners, we expect industry growth

companies should start investing in exploration because it

will be driven by these players in the coming years.

takes up to 10 to 15 years to bring a mine into production.

The growth that will come will be directed to surface

Today’s reserves are down to levels that have not been

exploration drilling. In this line, our strategy focuses on

seeing since 2005.

specialized drilling. This segment can be different from region to region. For instance, in Chile, the focus is on

From the base metal side, we are looking at copper reserves,

high altitude drilling, while in Mexico it is based on deep

which represent the other half of our revenue. These are

hole projects. In the coming years, we want to dominate

projected to experience a big deficit in supply very soon

this segment.

given the lack of exploration in the last five years. Even though the economy might be slowing down, industry is still growing. Copper is being consumed in large amounts and

Major Drilling Group International Inc. is one of the world’s

reserves have not yet been replenished. If this continues,

largest drilling services companies, primarily serving the mining

copper companies will face large shortages in the next five

industry. Established in 1980, Major Drilling has over 1,000 years

years. With the rise of EVs, other minerals, such as lithium,

of combined experience within its management team alone

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| VIEW FROM THE TOP

A FORECAST FOR THE DRILLING MARKET: FUNDING AND PROJECTS FREDERICK DAVIDSON President and CEO of Energold Drilling

208

Q: From your vantage point as a leading drilling solutions

have about 40 percent of our rigs working in Mexico by April

company, how would you assess the uptake of the mining

2019 and this will be a function of the acquired contracts.

industry in Mexico?

Lately, we are signing a series of small contracts, which are

A: Two years ago, the mining industry bottomed out, but

easier for the client to cancel at any time. This is reflecting

every company has since been lifted up by the rising tide.

some uncertainty and it will be interesting to see what

Nevertheless, many exploration companies still cannot raise

happens over the next months in Mexico.

significant funds. They are trying to drill and keep their exploration activities going but fundraising is a challenge. The

Q: How does the company arrive at the right financing?

capital markets right now are not looking favorably at mining,

A: We have financing, but the problem in our business is

and a company really has to be attractive and hold a good

working capital. In the last year and a half, we have expanded

property to get financing. What we are finding is that more

revenue by over US$20 million. This is receivable; when you

mid-tier clients are growing. They have to replace reserves

run into juniors, they take much longer to pay than they

and their issue is that as metal prices fall, their definition of

used to. Rather than being paid in 60 days, now it is 120

the reserveâ&#x20AC;&#x2122;s cut-off is higher. The reserve base is falling and

days, which represents a third of a year. We are looking for

because of that, they have to spend money to widen it. There

working capital to continue growing. It is an issue that we

are two things driving this issue. Raising money has to do,

have always worked with in the industry. If you look at all

primarily, with the Canadian market. The Australian market

the major companies, their revenues are up, margins are still

does not raise money for Mexico and private money is not

very tight and clients are looking for drilling companies to

going into mining. What we are seeing is a change in our mix.

finance. With juniors, you have to identify which company

The juniors are not here and the intermediates are. The large

is potentially raising money.

ones like Fresnillo, are participating a bit with us but I am sure they are looking over their shoulder right now due to the

Q: How do you foresee the development of your

political environment. The landscape is certainly better than

business in 2019?

in 2016 but we have not achieved a fully healthy market yet.

A: I believe 2019 will be a tight year for operators, unless there is an upturn. As a result, market players might go for further

Q: What is the state of your current global operations and

compression of pricing. This is one reason we developed

what are your plans in the Mexican territory?

the Badger 2 underground. This equipment will save mine

A: Globally, we have 260 rigs but half of them are on energy

operators a considerable amount of money; rather than using

projects. Some of our markets in South America are dead

the traditional big rig that goes underground, it works as a

because of political issues. In West Africa, we are just

surface rig but it is cheaper and the process of going in and

recovering from Ebola. A great deal of work stopped there

out is easier. The machine is still capable of drilling what a

for three years. We are starting to see a recovery there but

conventional rig can drill.

those countries are in total disarray so it is very difficult to work. Mexico is probably our biggest market. We see some

Energold also wants to help its customers in other areas, like

hesitation regarding the political environment and the juniors

program planning. For instance, we worked with a client that

are still having trouble raising money, but we will probably

has financial constraints and helped it reduce costs up to 30 percent. We usually charge for costs and overhead expenses, while adding a profit margin. This means that the more cost a

Energold Drilling is a leading global drilling solutions company

company can absorb from expenses such as fuel and logistics,

that services the mining and energy sectors in the Americas,

the less our company will charge on overhead profit margin.

Africa and Asia. It is internationally recognized for its social and

This strategy works very well for us because we can work on

environmental approach and operates 270 rigs in 24 countries

what we do best: drilling.

INSIGHT |

THE FACTORS HARMING GREENFIELD EXPLORATION ANDRÉS ROBLES CEO and Director of Minerales Terán

Mineral exploration requires significant investment flows to

company and it is forced to give up its prior investment

keep a steady pipeline, says CEO and Director of Minerales

and yield the concession to someone else.

Terán Andrés Robles. But this investment is directly linked to the message conveyed by the government to the industry:

Minerales Terán is focused on keeping its Tlatlaya

consistency is key. “The problem is not so much if policies

concessions with the Ampliación of Minerales Terán II

are good or bad but whether or not we know what they

project, located between the states of Mexico and Guerrero.

are. Uncertainty is the issue. If they do not know where they

“We are prioritizing where to invest our resources. We are

stand, investors will not be willing to walk into this market.”

in the sampling and analysis phases and expect to start indirect analysis soon with hyperspectral flights and aerial

While convinced that the industry is satisfied with the

geophysics,” Robles says. “But the disposition of the

government’s mining officials, Robles sees a lack of

government has blocked part of our investment flows.”

consistency across the current administration. “The appointed mining representatives were the right choice.

The future of the Ampliación of Minerales Terán II project

They have broad expertise and understanding of the

now depends on investment and information. “Before

industry and more importantly, they seek to enhance

investing in costly drilling, we want to have as much

it,” he says. “But the decisions being made in other

information as possible,” Robles adds. While the plan was

spheres of government contradict the good faith shown

to start the first drilling program in late 2020 with the

by the Undersecretariat of Mining, creating an uncertain

financial support of a Chinese investor, he says that this

environment in the sector.”

outlay is on hold while the industry adapts to the change of administration.

A defined public policy is crucial for the industry to make decisions on how and where to allocate its resources.

Robles is also concerned by some local governments

Minerales Terán focuses on greenfield projects, which

prioritizing small mining cooperatives. “These organizations,

require even greater investment flows than brownfields

born from illegal mining, are asking for the termination of

to quantify mineral reserves given the lack of previous

megaprojects,” he says. “It would be harmful to the industry

geological work. “Foreign investment becomes simply

to favor gambusinaje over formal mining because it has

crucial in Mexican mining’s development as foreign

many health and security irregularities.”

companies are likely to possess the financial strength to undertake the high financial risk related to greenfield

Minerales Terán is a member of the Guerrero Mining Cluster

exploration.”

and is actively participating in voicing its concerns. “We have received strong support from the cluster and the

The problem is that uncertainty hinders investment as

Guerrero government, which makes us hopeful,” he says.

country risk increases. “If FDI drops, companies in need

“The local government understands mining as a secondary

of financing will start lagging behind or even disappear.

source of income from the state’s primary economic

The first to go broke are generally greenfield projects,”

activity, tourism. It also sees it as a tool to distribute

Robles explains. But the issue does not end when a

wealth to isolated communities.” The fact that most of the

company goes out of business due to insufficient funds.

company’s investors are Mexican has given Minerales Terán

The real conundrum is that the investment already made

an advantage when working with local communities. The

is lost. “Even if the company closes, its concessions are not

name of the company, Minerales Terán, actually comes from

suspended or forgiven. The company usually keeps paying

one of its local sponsors in Tlatlaya. “Having local investors

taxes on it, hoping to ride better winds and reopen.” But

has allowed us to have a positive involvement with the

if that does not happen, taxes eventually suffocate the

surrounding community,” he says.

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ECO-FRIENDLY DRILLING LEADS TO SAVINGS JUAN PABLO GARCÍA DE QUEVEDO Partner and Founder of ECODRILL

210

Q: How is ECODRILL integrating new technologies to make

generators use a high amount of fuel. In a one-month

drilling operations more sustainable?

period, we can generate the same amount of energy that

A: Our added value lies in going beyond traditional drilling.

an average of 29 families would use over that same time

Our intention is not purely to drill; we are committed to

frame. When we translate this to the total fuel liters that

developing the industry and ridding it of stigmas. ECODRILL

a drilling campaign would use in generating fossil energy

was developed with a focus on sustainable practices. At the

in one year, we can save the same amount of fuel used

core of these principles is a water recirculation system that

to run a car for 90,000km. And again, I am only referring

we developed and manufactured ourselves. We have been

to the savings from one solar panel on one machine. This

implementing this system for six years and it has provided

system represents an approximate investment of US$7,000

significant water savings. For example, a 10,000m surface-

per machine; we do not charge extra for it as it reflects our

drilling program requires an estimated 570L per drilled

corporate values.

meter. We have reduced this amount to 236L of water per drilled meter. When multiplying this by 10,000 and

Q: What other types of services does ECORILL offer to the

considering that this is just for one rig, the water savings

Mexican mining industry?

are incredible. What if we could save all this water for all the

A: The company was launched in 2013 and offered training

rigs in the country? Just the savings achieved by one rig in

to operators for mining companies that were interested in

one drill program can provide a constant flow of water to

doing their own drilling. Since then, we have expanded our

seven families of five for a whole year. It is also important

drilling business and today, we own one of the most modern

to note that we absorb all the water we use to prevent any

drilling fleets in Mexico and have drilled over 230,000m.

fluids leaking. We separate the sediment from the water

We specialize in diamond drilling and our clients include

before reusing it. This system is our company’s banner. We

Capstone Mining, Fresnillo PLC, Minera Frisco and Aura

do not charge for the service and will always include it, even

Minerals. We remain true to our origins and still offer drilling

if the client does not require it.

training, we also offer an array of exploration services lead by experienced collaborators. Our goal is to listen to our

As we reuse the water, some sediment may drop back

client’s needs and really help them. The secret is to do

into the machine, implying that our equipment wears

things well.

more easily. But, we are convinced that this is a minor side effect given the benefits. It is possible and we have proved

Q: What is your assessment of the drilling sector in Mexico

that water usage can be significantly reduced; we have

and how are you helping to enhance it?

achieved up to 80 percent water use reduction compared

A: Most mining companies are focused on cost reduction.

to conventional drilling on deep holes. We will continue

Drilling companies, for example, have significantly changed

working to further improve this dry-drilling system.

their cost structure over the last 15 years. Power is passed from the client to the provider and fluctuates in between.

Another of our developments is a solar panel system.

But today, cost competitiveness is perhaps the main factor

Drilling platforms work 24/7 and companies use a power

that impacts a mining company’s decision given a variety of

generator to illuminate the working area. But these

drilling companies. Almost anyone can drill, so the market has a supply surplus. But the fact that drilling can be done by many does not mean that everyone really drills well. We

ECODRILL is a leading exploration service and products

strive to boost the market’s consciousness about this and

provider for the mining industry. It specializes in executing

to prove that mining and the drilling business can really be

deep diamond drill holes in challenging environments. It also

successful. While we are still a small company, we believe

provides directional drilling and optimal core hole location

our grain of sand is making a difference.

VIEW FROM THE TOP |

OUTSTANDING R&D FOR SUPERIOR DRILLING VALUE

JOSÉ ALBERTO MORÁN Public Relations Director of G4 Forage Drilling

CHARLES LANCE Business Development Director of G4 Forage Drilling

Q: Has the surge in metal prices resulted in an increased

Q: In terms of business development, what clients are you

volume of work for Forage G4 Drilling?

pursuing, and why do they choose you?

CL: It is true that prices have gone up, but they are

CL: We are interested in working with mining companies

fluctuating. My outlook is not negative but I do not think

that understand, respect and value the work that exploration

the industry is picking up just yet. I do hope that in 2020

companies carry out. We are especially attracted to

business will increase. However, at present, we are not

companies with operations both in Mexico and Canada, as

receiving many proposals. Companies have not directed

we always try to keep one foot there and one here. In this

their extra resources to investment but to maintaining

regard, Alamos Gold is a prime example. But there are certain

current operations.

worrisome signals some customers are sending. For instance, Leagold Mining decided to invest in Brazil instead of Mexico

JAM: There is some measure of optimism. When López

and bought a mine in the South American country. However,

Obrador became president, some sectors had rather drab

they are not drilling nearly as much as they used to. They are

expectations. But companies in the mining sector have

nowhere near the 200,000 meters per year they used to drill

kept working. Growth has not been exponential; it has

in the recent past. I find this unsettling, because it is atypical

been slow and steady. Our most recent business projects

for a company like Leagold to not be investing heavily in

have not happened in new operations, but in existing

drilling, particularly at a gold mine. This tells me about the

ones, where we were chosen for our competitive edge.

current situation the industry as whole is going through.

The market for mining products is cyclical and our hopes are set on 2020.

JAM: Even in the midst of the current period of contraction, which we anticipate is near its end, clients still bring business

Q: How do you mitigate economic risks?

to us because they recognize our commitment to provide

JAM: There are two factors we take into account: the

a totally satisfactory end product. Plus, they associate the

human and the material. In times of economic contraction,

company with excellent people, knowledgeable professionals

we reengineer our operation by reclassifying our materials

at the top of their field who guarantee the best service.

so they are absolutely ready to be deployed as soon as there is a new project. Human resources are also reduced

Q: What is your goal for next year?

to the minimum required for providing satisfactory

CL: To deliver all our present projects in a timely manner,

service. We try to balance this with the need for good

with the excellence that characterizes us. Also, to optimize

personnel who can grow and develop in our company.

our resources and streamline the programs we are already

We have established an incentives plan for our workers

running. We can do so much more with five properly deployed

to pursue training and certifications. We want to foster

machines than with 10 poorly deployed ones. Out of the

their sense of recognition and belonging. Often, there is

total bill, some competitors charge clients just 50 percent

a standby period in projects and our workers experience

for drilling, while the rest corresponds to other expenses. If

it as insecurity. During these periods, we make sure our

what we charge our customers is 75 percent drilling, then

workers continue developing professionally.

we are offering a superior service. There are sound reasons for our prices being a little higher than average,

CL: It is a delicate situation with regard to our workers. The transmission of knowledge is undermined during times of economic contraction. We want a father’s drilling expertise

G4 Forage Drilling stands out in projects that present highly

to be passed down to his son so that he also takes part in

technical difficulties. It works in surface, underground,

our company and enriches it. But workers know that right

directional,

now, mining is not as strong as it was a few years ago.

knowledge and experience to reach its clients’ objectives

heliportable

portable

drilling,

employing

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| INSIGHT

IS MEXICO SET FOR A GOLD RUSH? PETER SHORTUS General Manager of Landdrill

Mexico’s abundant resources are no secret and many

investment tends to return to the country and companies

opportunities remain hidden deep under the ground, says

are motivated to spend money.

Peter Shortus, General Manager of Landdrill, a Mexican

212

drilling company with headquarters in Hermosillo, Sonora.

A key factor to opening hidden opportunities is

“There is so much in Mexico that is yet to be explored,

technology, which the country lacked during previous

including historical mines,” he says. “There are many

exploration efforts. Simply put, existing mines were

opportunities to discover good ore bodies, which may not

not exploited completely because the companies did

necessarily be high grade but are still of great quality.”

not have the technology to do so. “They did not spend enough money in Mexico and therefore only the easy-to-

With the price of gold rising in recent months, optimism

find resources could be found.”

in the sector is also gaining traction and Shortus says his company is ready to take advantage when exploration

Shortus is hopeful that 2H19 will see the relaunching of

bounces back. “With gold prices increasing, there should

operations that were put on standby with the change

be more exploration going on in Mexico. We are prepared

of government. The larger problem, he adds, is the

for this and have refurbished our equipment so that we

insecurity sweeping the country. “These issues in Mexico

are ready to start operations as soon as things pick up.

have gotten worse over the years and some projects

The gold boom will start,” he says.

are having to close down before they even get started. Guerrero and Michoacan are huge problem areas. We

There is also a knock-on effect from gold’s resurgence.

try to not get involved with these issues, and whenever

“If the price of gold goes up, it takes the price of silver

we work with a company, we make sure they take care

up with it, increasing the value of the Mexican mining

of all of the social issues that may follow,” says Shortus.

industry overall,” Shortus says. In such a scenario, Another challenge Landdrill has encountered in its projects is Mexico’s rainy season. He explains that in a project in Michoacan, a project’s entire operations were washed out and half a hill fell into a rig. But these are risks that can be anticipated and Landdrill was able to recover quickly and get the work done With so much to discover in Mexico, Landdrill is focused on working on different types of projects. “We want to work on deep-hole projects. Fresnillo is drilling some deep holes, but there are no players that truly do this. I would also like to see more reverse circulation in Mexico. It is faster, cheaper and more efficient than other methods,” Shortus says. “If Canadian investors are involved, they prefer coring and in Australia and Africa, companies tend to work more with reverse circulation. For shallow exploration down to 500m it is the better option. It depends on the rig used, but costs could be reduced by up to 50 percent.”

VIEW FROM THE TOP |

BIG ENOUGH TO MEET NEEDS, SMALL ENOUGH TO ACT QUICKLY LUIS SÁNCHEZ Country Manager of Intercore

Q: Your slogan is “Excellence in Drilling.” How do you add

peers in the sector. As we have used Cortech for a long time

value to the industry and ensure you deliver excellence?

and witnessed its benefits, we can provide potential customers

A: We are a midsize company, which is part of our added

with trial periods to ascertain performance because we know

value. We are big enough to meet our clients’ needs but at the

that we can back up our equipment.

same time we are not a big company with complicated and bureaucratic processes and long decision-making times. All

Q: To what extent is it possible to innovate in the drilling

our managers are in direct contact with our clients. We make

process and how is Intercore achieving this?

sure to cover our clients’ necessities immediately through our

A: Our rigs were designed in China. Chinese companies are

15 different equipment models and our 15 years’ experience

always looking at how to innovate and while the process of

in the Mexican mining industry. We have over US$1 million in

drilling remains almost the same, there are details to focus on

spare parts to maintain our rigs and will even change an entire

to improve the design’s safety. For example, implementing

piece of equipment when required by the customer.

hydraulic arms so there is no need to move the rigs manually.

In short, we have all the assets needed to ensure quick

All the rigs we have sold or bought are diamond drilling rigs.

response times. We have our own trucks to move our

There is a multipurpose Reverse Circulation (RC) model. It

equipment so we are always available to reach sites regardless

has a hydraulic hammer that hits the ground and yields a

of how remote or isolated they are. This gives us control of our

powder-like sample, allowing faster advances with fewer

mobilization process, its costs and its delivery times. As for our

expenses. The cost for a meter of RC can be half that of

spare parts logistics, we are distributors of Cortech and have

diamond drilling but the information you get out of the sample

all the pieces on consignment to be sold in Mexico. We have

is less reliable. Diamond drilling is more expensive and slower

sold Cortech drilling rigs in Colombia, Peru, Chile and Uruguay.

than RC but allows geologists to see where the vein goes

We have a bonded warehouse with parts coming directly from

and what kind of geological structure it has. Around 80-90

the factory that can be sent to any of the countries where we

percent of the drilling in Mexico is done using these diamond

operate. We also have our own warehouse near our office in

drilling methods.

Mexico to ensure we can provide maintenance to our own rigs and those of our clients.

We are working closely with Minera Autlán and with some junior companies such as Minera Fumarola. In the past, we

Q: Why did you choose to work with Cortech and what is the

collaborated with Fresnillo and many other key players in the

cost-benefit for your clients?

industry. Intercore is looking into new projects and the man-

A: We are a drilling company and in 2009 we decided to

portable rig is an innovation opening doors. To ensure that our

change our equipment and started looking into several brands

operations are as sustainable as possible, we are committed to

such as Sandvik, Boart Long Year and Christensen. But we

getting the best profit from the resources we employ. Drilling

found that many of those brands had higher costs for the

is a water-intensive activity, so we recirculate and reuse water.

equipment and their spare parts and delivery times were up to

While our rigs are hydraulic, they are full of seals and if one

five times longer. We chose Cortech, a Chinese manufacturing

fails, oil can be spilled. We place a special absorbent under the

company, because it uses universal components in its

rig with plastic below so nothing goes into the soil.

machines, such as Cummins motors, that are reliable and have accessible maintenance levels. Cortech’s prices are half those of its competition and the delivery time is one month. We

Intercore is a dedicated service provider focusing on the Mexican

have even sold to other drilling companies in Mexico. There

and Peruvian markets and expanding to more countries. Its

are many companies that are willing to exchange parts or

diamond drilling service operates within Mexico and Peru.

equipment and we have focused on building bonds with our

Intercore dedicates itself to meeting project requirements

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Positive community interaction is just as important as safety and production rates and therefore an extensive part of our training and daily shift change meetingsâ&#x20AC;?

VIEW FROM THE TOP |

ACTIONS FOR BUILDING HEALTHY RELATIONSHIPS WITH LOCAL COMMUNITIES VICTOR DÍAZ Founding Director of Globexplore Drilling & Analytics

Q: How important is the interaction with the local

common courtesies we have drilled water wells for ranchers,

community during the early exploration stages?

repaired many fences, upgraded local schools, supplied new

A: It is extremely important and often overlooked in the early

uniforms for hospitals, police departments, upgraded many

stages. It can simply make or break a project. During our 13

existing homes and often built completely new camp houses

years of operations throughout Mexico we have known about

that all have helped build trust and friendships that aids our

many incidents that directly affected the success or failure of

clients' goals of goodwill within the local communities they

potential mines. What should have been positive encounters

need to support their future. This is especially important as

with the local communities instead turned negative and

our current government is focusing more attention on the

ultimately ended what could have become successful

local communities’ involvement in the exploration and mine

properties. Here are just a few examples where drilling

development process.

contractors had caused serious problems for exploration and mining companies. One story was a driller who had a

Q: How have new technologies in Globexplore’s drilling

negative dating experience with the local mayor’s daughter.

methods made a positive impact for your clients’

Also, there was a drunk driving accident that killed the surface

interactions with the local communities they work within?

right owner’s brother. Then, one time,a gate was left open that

A: We have reacted quickly to the challenges our clients

caused the loss of a ranchers prized breeding bulls. Also, there

face with regards to road and drill pad permits and property

was an incident of pumping water from a rancher’s irrigation

owners concerns about the environmental impacts drilling

tanks without permission that ruined his crops. Another was

can have. The solutions we provide to these issues have

mistreatment of a local cook who turned out to be related

had a tremendously positive reaction by our clients and the

to the surface owner’s family. These are all terrible stories

communities they operate in. Our compact Man Portable

that should have never happened and not only shut down

Drill Rigs can be transported on narrow foot trails instead

development but also hurt the reputation of our industry.

of large roads required by traditional drills and a pad size can be as small as 3x3 meters with very little impact on the

Q: How has Globexplore earned such a clean track record

flora and fauna. Our clients surface right owners are often

and positive reputation with its interactions within the

much more likely to give permission when they know that

local communities it has worked in?

we can provide them with less environmental impact, less

A: We are proud that we have never had one serious or

road and drill pad scaring on their land. In addition to this,

negative event that has ever caused any issue for ourselves

we utilize new technologies of water recycling that uses up

and more importantly for our clients. We achieve this

to 70 percent less water which is a valuable resource for

because we hire and train a corporate culture that our team

livestock and agriculture ranchers. This type of drilling also

practices with respect to the local communities we interact

greatly reduces any chance of pollution and impact on the

with. Each one of our employees understands that they

ground soil. Our philosophy is to make sure we leave with

do not only represent Globexplore but they also represent

our exploration clients having the highest quality samples

our clients image—to the local communities we are all one.

on target and on time while at the same time leaving the

Therefore, it is critically important that all of our actions are

local communities with a positive impression and their

positive, considerate and appropriate. Positive community

properties as if we were never there.

interaction is just as important as safety and production rates and therefore an extensive part of our training and daily shift change meetings. This includes but is not limited

Globexplore Drilling & Analytics is an exploration drilling

to environmental cleanliness, simple courtesies at the local

company offering traditional diamond core, man portable,

gas station, motel or machine shop, to driving slowly, keeping

underground and reverse circulation drilling services, as well as

dust to a minimum and closing ranchers’ gates. In addition to

on-site mineralogy and geochemical analysis with core logging

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COMPANIES THAT ADAPT ALWAYS HAVE WORK JORGE BERTOGLIA Director General of Boytec

216

Q: In what phase of a mining project are Boytec’s

Q: Why should a company choose Boytec to extract

services employed?

their samples?

A: Our company is focused on probe perforations to

A: Boytec is an international player with a responsible and

extract underground samples for identification. The

solid track record. We endeavor to keep our employees up-

principal techniques we use are diamond drilling and

to-date in terms of knowledge in the field and we use world-

reverse circulation drilling. These probes are not just done

class equipment. Security is always our top priority. Boytec is

for exploration, we also conduct them in the approval or

a company that plays in the premier league.

production stage depending on the needs of the client. Q: How do you materialize a focus on security within

Reverse circulation drilling is much cheaper and faster than diamond drilling

the company? A: We focus strongly on creating a sense of responsibility among our staff. This means they adhere to strict rules in the workplace, following every requisite procedure when operating machinery. The idea is to avoid errors and accidents that could, for example, injure the worker’s hands. We also employ a system of alerts that indicate any issues with the equipment. This is all managed digitally

Q: What is the difference between diamond drilling and

according to the latest standards. We constantly look at

reverse circulation drilling?

ways to improve our systems, both through analysis and by

A: Diamond drilling effectively collects a solid core sample

implementing fresh ideas.

of the earth. A diamond matrix is used to drill through the rock and a core tube is used to collect the core sample.

Perforation is becoming increasingly automated, which leads

It is used particularly for exploration. Reverse circulation

to a more efficient and secure system.

drilling is a more rigorous process. A piston mechanism is used to drill into the earth, and through an inner tube,

Q: What is your take on the government’s policies and their

smaller samples of ground are extracted continuously

impact on the industry?

using pressure provided by blowing air into the rod, which

A: In my view, we need to be aligned with these changes.

circulates back up. The resulting samples are finer, and can

A company that adapts is always going to have work. This

be more indicative of the ore composition. Because the

includes any new rules for concessions and environmental

sample is continuously pushed up by the air, the collection

demands. The government is investing a significant amount

process is faster. It is also less expensive than diamond

of money into various programs that could mean more work

drilling. The solution we deliver depends on the particular

for Mexicans. We have nothing against these new directives

conditions of the terrain and the client’s requirements.

and are doing everything to adapt.

This necessitates good communication between our company and the client to ensure we are up to date with

Q: What are your growth plans for the near to midterm?

the conditions at the mine.

A: We are participating in a project in Fresnillo, Zacatecas where we have five teams at work for a large part of the year. The client has been very satisfied with our services

Boytec is focused on extracting underground samples

and we continue to learn new things every day. As for the

through diamond drilling and reverse circulation drilling

next few years, we will strive to provide our clients with the

that allow its clients to identify, quantify and model mineral

best possible service. We will also try to participate in all

resources

contract tenders.

VIEW FROM THE TOP |

MINING: MEXICO’S ECONOMIC PILLAR RAMÓN LUNA General Manager of SPM

Q: What value does SPM add to the mining industry?

A: Business has been strong so far. As is usually the case

A: Our focus is on the exploration stage. We are specialists

every six years when there is a change of government

in geology, drilling and resource and reserve assessment.

in Mexico, uncertainty was generated and investments

We have unmatched expertise in working integrally with

slowed down a little. Despite that, companies with

communities, government and companies so as to create

existing operations are continuing to work and bring their

good synergies from the start. It is important to make all

projects to fruition. New companies have been reticent

parties understand that if they work together, instead of

to invest, it is true, but those that are well-established in

looking after their own individual interests, everyone will

Mexico are showing the way to new investors.

benefit. Moreover, our technical expertise and thorough knowledge of the Mexican terrain have translated into

More than proposing new taxes and regulations, it should

profits for our clients. A case in point is our work with

be opening the doors and promoting new investments.

GoGold Resources, a Canadian company. We have a long-

The changes needed in terms of regulations are not

term relationship with the company and have developed all

many. What is needed are sound policies. There is a

its projects here in Mexico. Our efforts at Santa Gertrudis

desire at home and abroad to unlock Mexico’s immense

resulted in a 500,000-ounce project that we doubled in a

mining potential. Companies are unanimously in favor of

year. Consequently, GoGold was able to reach an excellent

complying with regulation and operating responsibly. We

deal with Agnico Eagle, and the project is key for this

all have the hope that the government will spur us on.

company’s strategy in Mexico. Similarly, we have carried

Mining has always been one of Mexico’s economic pillars.

out projects where production had been abandoned. We came in and offered a different point of view, which resulted in a revival of mines in Sonora and Jalisco.

Servicios y Proyectos Mineros de México (SPM) is a leading mining and geology service provider. It offers integral, high-

Q: What is your perception of the impact on the mining

quality services to satisfy the mining industry’s needs, always

industry from the new administration?

in strict compliance with Mexican law

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Lime Kiln at Calidra's Minorte plant, Monterrey

PROJECT DEVELOPMENT & OPERATIONS

After discovering a worthy deposit and confirming the viability of the project through feasibility studies, it is time to build and operate a mine. But this is easier said than done. Companies need to contemplate numerous factors, from site conditions and infrastructure requirements to the mine layout and where to locate staff and equipment. The goal is to make the development phase as well-planned as possible to foster smoother and more efficient operations.

This chapter analyzes the best practices for optimum mine development and a further productive operation through the voices closest to project development and operations.

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CHAPTER 11: PROJECT DEVELOPMENT & OPERATIONS 222

VIEW FROM THE TOP: Osvaldo Xu, Minera Mahakala

Rao Feng, Minera Mahakala

223

VIEW FROM THE TOP: Alfredo Bertrand, Epiroc

224

VIEW FROM THE TOP: Gregorio Castruita, Resemin México

226

VIEW FROM THE TOP: Rosana Pérez Vega, Grupo PEAL

228

VIEW FROM THE TOP: Sebastián Romero, Walden Group

229

VIEW FROM THE TOP: Javier Prados, Normet México

230

COMPANY SPOTLIGHT: Asset, Team, Game Changing Technology

232

VIEW FROM THE TOP: Héctor Miranda, Orica

233

INSIGHT: Enrique Guinea, Hanka

234

VIEW FROM THE TOP: Rogelio Villanueva, Trabis

235

VIEW FROM THE TOP: Sergio Bartolomé, Layhermex

236

VIEW FROM THE TOP: Diego Torroella, TAKRAF Mexico

237

INSIGHT: Antonio Longoria, Skysset

238

INSIGHT: César Stackpole, ACERALL Energy Solutions

239

VIEW FROM THE TOP: Bernardo Salcido, Técnica Salgar

240

VIEW FROM THE TOP: Luis Quintana, IPEC Ingeniería

241

VIEW FROM THE TOP: Miguel Rozo, TDM Group

242

VIEW FROM THE TOP: Todd Elswick, Paul’s Fan Company

243

VIEW FROM THE TOP: Erik Jensen, Environmental Products at AAF International

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A CHINESE BET ON MEXICAN MINING

OSVALDO XU CEO of Minera Mahakala

RAO FENG Director of Projects at Minera Mahakala

Q: Since arriving in Mexico in 2017, how has your market

second stage is processing. We will use a mill for grinding

participation evolved and what are your main projects here?

the minerals. We will have a total of three mills in our plant,

OX: Our goal is to increase our market participation in the

each with a processing capacity of 1,000t/d. Our goal is to

Mexican mining sector. We have been working to establish

eventually reach 5,000t/d production.

relationships with Mexican government levels, local mining

222

organizations and mineral companies. We will start with the

The key to achieving this goal is to deploy high-capacity

Mahakala project in Nocoriba, Sinaloa. Chinese companies

equipment that allows us to have better control of the

usually want to work with Chinese collaborators but it is

processing stage. For example, cameras monitor all stages

not so easy to move a whole workforce across continents.

of our processing. While we still use traditional monitoring

We are recruiting the right mix of Mexican and Chinese

methods that rely mostly on employee supervision, we

people to build a great mine in the country. We have faith

complement these with remote monitoring to increase

in Mexico’s mining potential and that is why we are betting

accuracy.

on the country. Similar procedures have been used by many big companies, RF: Minera Mahakala was founded in China in 2003 and we

including Grupo México and Goldcorp. The third stage comes

ventured into the Mexican market in 2017. The Nocoriba

down to the tailings dam and its potential contamination

mine in the state of Sinaloa was our first in the country. This

and pollution. We will use geo-polimerization technology

is a molybdenum mine and it also has a processing facility.

to consolidate our tailings dam and prevent any collapses

The first data we received for this project came from SGM,

or spills. This works by consolidating mineral particles in

which dates back to 1970. In 2017, we continued the above-

the tailings dam to prevent them from floating away. Geo-

surface exploration of the Nocoriba ore body to take it into

polimerization reactions are concrete.

production. We have not yet started production because of the time required for permitting and exploration.

Q: How is Minera Mahakala promoting collaboration between Chinese and Mexican mining companies?

The company will begin to build a 2,500t/d plant by the

OX: We have met with several Mexican mining companies,

end of 2019 and we should start production by 2020. We

such as Peñoles and Grupo México. We want to build a

also have concessions in Chihuahua, Durango and other

commercial cooperation relationship with them, we could

states, but these properties are in the very early stages of

buy their concentrated products and metals and invest

exploration. Our goal is not only to have a business division

along with them.

in the country but to invest in the projects of the future. Our goal venturing into Mexico is not to compete but Q: What technological innovations are helping you enhance

to differentiate ourselves and contribute to instilling

productivity and ramp up operations?

a collaborative mindset in the industry. But we will let

RF: We divide project development and operations into

our actions speak for themselves and help us gain the

three stages. First, we extract the minerals from the soil. In

confidence of our Mexican and foreign peers. We have

Nocoriba’s case, we will be doing underground mining. The

received some reluctance from the industry to include Asian and particularly Chinese groups, as most work with Canadians, Americans and Australians. We understand

Minera Mahakala was established in 2003 in China. Its goal is to

that Mexicans are more familiar with doing business with

be a producer of tin, tungsten, molybdenum, gold, silver, lead,

Western partners, given cultural similarities. Our message

zinc and copper, and to continue developing a solid portfolio of

is that we are willing to take the time to show and prove

properties through exploration and production initiatives

the benefits of working with Mahakala.

VIEW FROM THE TOP |

TECHNOLOGY FOR TOMORROW’S GREEN MINING ALFREDO BERTRAND General Manager of Epiroc

Q: In what part of the industry’s value chain is Epiroc’s impact

are increasingly outsourced, and this is where we want to

the strongest and where would you like to have a greater

increase our range because we see these activities expanding

impact in the short to medium term?

and becoming more professional.

A: We focus on the development and production stages. We provide equipment for drilling, transportation and

Q: The ICMM aims to minimize diesel use in mining by 2025.

exploration. We advocate for the introduction of top-notch

What is Mexico doing in this sense?

technology to improve efficiency and productivity. Last year,

A: Mexico’s Big Four are working to reduce fossil fuel for

we launched a set of products that are in line with today’s

producing electricity. They are moving toward green energy.

environmental concerns. They reduce CO2 emissions through

The public sector has not offered measures such as tax

batteries and electrical power. The plan is to first focus on

incentives, but it has sent out messages making it clear that

monitoring and control. Then, from 2020 to 2025, we will

projects with low environmental impact will be prioritized. It is

start the electrification process. We have also implemented

still vague, but the government is still partial to green projects.

automation technology. One trial program at Peñasquito has

What I have heard is that the government is looking abroad, to

been encouraging, with increased efficiency, cost reductions

Europe for example, to learn about other models where there

and better safety. This year, the project is being launched on

is a clear program for emission reduction. It is also looking for

a broad scale with the goal of having an autonomous mine,

strategic partners, like Sweden.

drilling-wise, by 2021. Q: Mexico has a number of smaller players that tend to be Q: To electrify and automate a whole mining project implies a

reticent to change. What resistance have you met in Mexico?

huge investment. Why should miners make this investment?

A: The mining industry in general, and especially in Latin

A: Mining companies are used to making steep investments

America, is reticent to incorporating new technology. Mexico

but always with a clear timespan for recovery. We can illustrate

is also like this. Having said that, Mexico is comparatively

that electrification and automation will help them recover

more open to new equipment and models to improve

much more than their initial investment in due time. What

efficiency. In fact, Mexico receives 30 or 40 visits yearly from

started as theory is now being put into practice, so we can

other Latin American countries to see how new products are

offer actual figures backed up by real case studies. We present

operating here. Mexico is a role model in Latin America. The

companies with a business plan so they can make informed

next technology wave is related to monitoring, control and

decisions. With our accumulated experience, we can also offer

autonomy. And the social cost of this must also be taken

more tailored solutions. With respect to batteries, in Mexico

into account. Resistance may come from people associating

our goal for 2020 is to hit the market with top-quality battery-

automation with layoffs. But automation can also be seen

powered equipment.

under a different light. What will be needed are different skills. The present generation is already digitally-inclined.

Q: What segments of the mining industry in Mexico is Epiroc

If we do not introduce changes toward digital products in

pursuing and who are your main clients in the country?

Mexico, the present generation will not be able to find a place

A: Our work is focused on the Big Four mining operators,

alongside older workers. In the end, technological advances

but we are also targeting medium and small companies,

can have positive social outcomes.

which we think will attract government support in the near future. We also want to look at the outsourcing sector because a new business model is emerging around it. These

Epiroc is a leading global productivity partner for its customers.

outsourcing companies focus on noncore activities. For

Its ambition is to become the leader in automation to enhance

instance, exploration and development are noncore activities,

productivity, energy efficiency and safety. Epiroc invests in

as opposed to extraction and processing. Noncore activities

making mining smarter

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SIMPLE MACHINES WITH INTEGRAL RESULTS GREGORIO CASTRUITA General Manager of Resemin México

Q: Resemin manufactures drilling equipment for

A: The low complexity of our machines helps safety

underground mining. What projects is the company

and they are designed to align with international safety

working on today?

standards. From Latin America to South Africa and

A: Our equipment is used in the main mines in Mexico,

Asia, we have never had a problem meeting the safety

both by domestic and foreign companies, as well as by

specifications they ask for. Security is playing a more

the main contractors in the country. Currently, and after

central role in the industry.

six years of presence in the Mexican mining market, we 224

have a significant number of equipment working. Our

A few years ago, productivity was still considered the top

area for maintenance and services is also growing.

priority, but a company cannot have an excellent month if an employee gets injured. Applying the right measures

Q: In the last three years, Resemin launched the Muki

means that a number of additional requirements must be

FF and Muki LHP electro-hydraulic drilling rigs. What

met and also that a company’s vision values both lower-

features make these models attractive?

ranking and higher-ranking employees. Resemin works

A: In 2018, the Muki was one of the best-selling models. It

under these standards.

is small, so it can be operated in the small underground sections of a mine and is designed to develop and

Q: Resemin has a clear focus on technological innovation.

exploit narrow vein mines. Our equipment is of simple

How receptive is the Mexican mining industry to

design, can be used in underground environments and

technological innovation?

is simple enough for maintenance work. The models are

A: For Resemin, technological innovation is a tool that

not very sophisticated in terms of electronic systems, as

we must offer. Through innovation, we make our teams

the excess water and high temperatures often found in

more reliable and profitable. To do this, we have a team of

these environments affect the electronics. A less complex

professionals whose task is to investigate and implement

system means a lower incidence of equipment failure and

improvements in our teams.

greater ease of operation. Q: How can technological innovation in the Mexican

Resemin is the only Latin American company that manufactures electro-hydraulic drilling rigs

mining industry be encouraged from the public and private sectors? A: The answer is not easy, but I think the Resemin case is an example to follow, as it is the only Latin American company that manufactures this type of equipment. Since the foundation of the company, we have implemented technological innovation, improving the technology of the equipment in such a way that we compete with highly technologically sophisticated companies. This result

Q: What role does worker safety play in designing this

achieved by Resemin as a private company could also

type of equipment?

be achieved by the public sector. Q: In which products do you expect greater demand

Resemin is a company founded in 1989 that designs and

growth in the short term? What factors will lead to

manufactures equipment for underground mine operations.

this growth?

Headquartered in Peru, the company’s base in Mexico is

A: As part of our short-term plans, we anticipate a 30

located in Zacatecas

percent increase in equipment manufacturing capacity

at our plant in Peru. We want to grow in all of the equipment models that we have, since with them we can cover all of the operations that are carried out in an underground mine. We are talking about equipment for the development of tunnels, equipment for support and equipment for production. We need to be prepared to have equipment available now that we will start working with Caterpillar distributors worldwide. Our global presence will grow significantly. Q: How has the company adapted to the new political scenario that emerged in Mexico in 2018? A: The current political scenario has not influenced the fact that we have proposed changes in the company’s growth plans. We want to continue working to continue being a different alternative for the country’s mining industry. Globally, we will continue to work to establish ourselves as the world’s third-largest producer of underground mine drilling equipment. This is our goal. 225

Q: One of the keys to your business model is to pass on all the information to customers so that they can make the most of the advantages of your products. How is this training carried out? A: The service we offer to our clients allows them to obtain the maximum possible performance and this is achieved through constant communication with them. From the moment we deliver a piece of equipment and during its operating life, after-sales service is fundamental for the best performance of the equipment. As a result, our clients have even greater confidence in us. Q: What is your view of the investment climate in the industry? A: The mining industry is cyclical: we have good cycles and we have complicated cycles, and the factors that lead to these cycles are difficult to predict and even to control. As in any other company, at Resemin we have to be prepared to take advantage of all the opportunities that arise during good periods; that is, to improve our processes and train our collaborators in the best possible way. It is about improving contingency plans when it comes to complicated cycles. Q: What are Resemin’s plans for the coming years? A: The vision that we have at Resemin is to continue positioning the brand at a global level and for this we are initiating a negotiation with Caterpillar from which an alliance can emerge at a global level. The main objective of this union is to have a more attractive business portfolio for customers. In addition, we will have the opportunity to offer our customers virtually all equipment models for the different processes carried out in an underground mine while offering greater coverage of technical support.

| VIEW FROM THE TOP

ADAPTING TO CLIENT NEEDS: THE CONTRACTOR’S ROLE ROSANA PÉREZ VEGA General Manager of Grupo PEAL

226

Q: As a Spanish company with over 50 years in the mining

A: Mexico is a traditional mining country, producing a great

industry, what is the main added value that you deliver to

deal of silver, ore and copper. In the last decade, the main

Mexican miners?

mining states have been Sonora, Zacatecas, Chihuahua,

A: Mexico is a mining country, as its history in the industry

Coahuila, San Luis Potosi and Durango. The country has

attests. The Mexican mining industry has evolved a great

become the No. 1 producer of silver, the ninth producer of

deal and today is a modern sector that relies on big mining

gold and the 11th producer of copper in the world. We see

companies, mine contractors and an overall strong supply

a great amount of opportunity within Mexico’s terrains and

chain. Its huge mineral potential continues to attract foreign

believe the mining industry can boost the local economy

investors and service companies, such as PEAL. We are a

through the creation of new jobs. Grupo Peal has worked

family company, founded over half a century ago in northern

in various mines in Sonora, Zacatecas, Chihuahua, Sinaloa

Spain. Since then, we have grown and developed to better

and Baja California. We have worked with various mine

adapt to our client’s needs and to the particular market

operators in the Piedras Verdes, San Francisco, Dolores,

circumstances of such a volatile industry.

Peñasquito, Trinidad, Boleo and Lluvia de Oro mines. We hope to continue collaborating with large mining projects

We have strived to seize all the opportunities in the industry

in the country.

and remain competitive in the international market. Today, we are a renowned mining and civil works contractor with broad

Q: How does Grupo PEAL succeed in working with different

experience working in many mining jurisdictions. It is in our

clients and types of mine operations?

capacity to adapt and learn from our experiences, which has

A: Our goal is to be seen by each of our clients as the best

helped us add value to Mexican mining since 2004. Our clients

option to operate their projects; we want to be their strategic

in the country perceive us as a strategic partner and we work

partners. To achieve this, we contribute to our clients having a

hard every day to repay their trust.

more cost-effective operation while maintaining their security, quality and environmental standards. In this scenario, the most

Q: What opportunities is Grupo Peal exploring in Mexico and

fundamental feature of our company is the adaptability to our

in what projects has it been involved in?

clients’ conduct, ethical and CSR codes.

We add value by adapting to a constantly changing world in terms of politics, social conditions, technology and innovation. We will always fully adapt to our client’s organizational structure and requirements in a proactive way, by constantly monitoring if the client is satisfied or if something should

Quality, sustainability, prevention and social responsibility are the core of our operations

be changed. We grow and evolve along with our clients. As each mining project is different, so are the ways that project

Nevertheless, it is not highlighted or magnified in the news

owners work. We must understand what our client is looking

the contribution that mines make to the communities, the

for and what that client expects from our company. If we

population in general, to the industry and the economy in

know this, we can deliver. We must be seen in the eyes of our

a region or country. And I am not referring specifically to

client as the partner they need. Our clients’ priorities are our

Mexico, this situation also occurs in my country of origin.

priorities; our success is based on our clients’ success. Quality,

The area of opportunity that I see is that of making all those

the environment, prevention and social responsibility are the

misconceptions disappear, so that we can continue advancing

core of our operations. Grupo Peal has more than 50 years’ of

and evolving. We will hardly achieve it without the resources

international experience. Its main area of expertise is in large

obtained from mining.

mining construction projects, as well as civil works. It complies with the maximum prevention, quality and environmental

Q: As a female leader in Mexican mining, what are the

standards in a socially responsible manner, both respecting

misconceptions about women in mining that you would like

and protecting the territory in which it works, adding value in

to set straight?

the communities and especially to its clients.

A: I do not think that there are any misconceptions about women in mining but rather very diverse opinions on the

Q: What areas of opportunity have you spotted in the

matter. I believe that men and women who live in the same

Mexican mining sector?

developed world have the chance to decide how to live their

A: To change the idea surrounding the mining industry. I do

lives and how to benefit from opportunities according to their

believe that there are erroneous concepts regarding mining

capabilities and priorities. The industry will perceive women

and this does not only occur in Mexico, but also in other

as they want to be perceived. While we can find prejudices

historical mining countries. We have all read or listened to

in the industry, our actions and behavior can help get rid of

news of a mining accident or of some other unfortunate

them, as in any other aspect of life. Nobody can control others’

event that occurred in a punctual or spontaneous manner

thoughts but it is in our power to decide who we want to be

in a mine that has been operating for many years and in a

and the treatment that we want to receive. That is what I

determined region or country. Despite having resolved the

decide to focus on.

problem and have implemented measures to avoid that this happens again, after years of listening or reading news related with this isolated event, sometimes even distort what

Grupo PEAL was founded in the early 1960s as an international

happened and the only thing that is done is magnify the event

mining service provider in Spain. It specializes in developing

or circumstance. This incites people to believe incorrect ideas

large mining projects and civil works. Its main area of expertise

about mining in general.

is contracting with large construction and mining companies

227

| VIEW FROM THE TOP

TURNKEY SOLUTIONS FOR THE MEXICAN MARKET SEBASTIÁN ROMERO Operations Manager at Walden Group

228

Q: What was the reasoning behind opening offices in

We also offer loans and payment facilities to help our

Zacatecas and what opportunities did Walden Group spot

clients. Yet due to regulatory limits that prohibit Canadian

in the Mexican market?

companies from providing loans to a certain amount, we are

A: Walden Mexico originated from the need to have a

looking for local companies to help with the financial part.

presence in Latin America. The business culture in Mexico is

We work closely with EDC, which is the main company that

completely different from that in Canada, where the company

helps us provide loans to our clients. We have also worked

is headquartered. The Latin American client wants face-to-

with Banorte and Banamex here in Mexico.

face interaction and constant support. They want a more personal relationship and not so much email and phone-call

Q: What are the main advantages of using Walden

exchange. Our future goals were also to start producing in

equipment in Mexican mines?

Mexico to lower our production costs. Although we have not

A: In terms of mining production, we are manufacturers of

started producing here yet, we plan to do so in the future.

utility equipment for development and support of other equipment. Our main goals are to reduce downtimes by

We decided to base our operations in Zacatecas because

offering low maintenance and simple machinery. This allows

of its strategic position. Although we work with Peñoles

mines to be constantly in movement. We offer equipment for

and Fresnillo, which are the biggest in the region, they are

underground operations. Our equipment is easy to fix and

not our largest client. Adapting to Zacatecas has been

the spare parts are not exclusive to our brands, making it

a challenge. Walden is not a large company and it does

more accessible to fix and maintain. We offer services along

not have the resources some other companies have. Our

with our products to make the most of the equipment. Our

strategy was to reduce unnecessary costs and offer the

mechanics are on call for any emergency that may arise and

best quality possible.

we have full-time service contracts with some companies too.

Q: How have fluctuating metals prices impacted Walden

Walden Mexico receives support from Canada. We had a

Group’s operations in Mexico?

problem with a machine that had overheated. The problem

A: We bring many of the spare parts that we sell from

was resolved by modifying the radiator and adding a larger

Canada so as to adhere to our internal policies. But with

compartment to cool the motor down. Because these

the increase in steel prices, Canada was hit hard and costs

conditions had never been seen in Canada, the client thought

increased. Nevertheless, we continue to offer competitive

there was a product malfunction when in reality it was just

pricing and our clients understand. Higher metal prices,

different conditions. This has helped us improve our services

such as gold and silver, has led to increased price quote

and products to the Latin American environments.

requests for our new and used equipment. Clients are looking for manufacturers to do all the work for them. We

Q: Are clients looking to integrate concepts such as

have seen an increase in demand, but companies continue

automatization and Industry 4.0 into their operations

to be cautious as the rise and drop of prices is often cyclical.

through machinery?

There is more optimism in the market and there are various

A: We have clients that are starting to automatize their

projects that will begin hopefully at the end of the year.

machinery, where a person is able to control everything through a computer. Most of our clients, however, prefer old-school strategies and are not looking for these types of

Walden Group is a family-owned company. With over 30

innovations. Most Latin American companies do not trust

years of experience, Walden Group has established itself as

new technology; nevertheless, innovation does have its

an industrial leader in turnkey solutions, specializing in the

benefits. The implementation of the technologies reduces

electrical, industrial and mining sectors

fatalities and operational costs.

VIEW FROM THE TOP |

COMPACT ELECTRICAL MACHINES ARE THE FUTURE JAVIER PRADOS Director General of Normet México

Q: Do you see a tendency in the industry to shift from open

In terms of technological developments, Normet recently

pit mining to underground mining?

launched a new line of machinery that runs on lithium

A: I would not necessarily characterize it as a tendency,

batteries. These machines produce zero emissions inside

but you do see underground mining growing around

the tunnels and save on fuel costs. They are designed to be

the world. What happens often is once the qualities or

compact, allowing greater mobility, but they have the same

quantities of mined minerals at open pit mines decrease,

capabilities as larger machines. We believe many companies

miners will attempt to go underground. They will study

are going to incorporate these machines in their lineups. 229

veins and estimate the tonnage available underground. There are various cases of open mines in Mexico that

Q: What is an example of a recent project you have been

ended as underground mines. Many were older mines

involved in?

and as the operator continued exploring, new minerals

A: We are in a project with Sunshine Silver Mining from the

were found. I see it as a continuation of business.

US. The company was familiar with our equipment through a

The advantage is that the infrastructure for mining is

collaboration in the US. It invested MX$131.5 million (US$6.6

already in place.

million) in an important 16-machine fleet and they have an extensive service contract with us. The service includes having

Q: What are the principal challenges related to

our technicians on site 24/7 to oversee the logistics related

underground mining?

to the machines and to train Sunshine Silver’s personnel. We

A: One of the principal elements is the sustainability

are providing additives for the concrete in the tunnels and we

of galleries. They have to guarantee safety. This is why

also performed tests with resin and injection pumps to provide

concrete metal mesh and bolts are applied to strengthen

protection against water. The special thing about this project

the walls. These all incur significant costs. Additionally,

is that it combines our three lines of business: our equipment,

underground environments can have high temperatures,

the additives for cement, and all-round service support.

high humidity and the risk of water entering. Removing water is another cost and requires specialized equipment.

Q: What is Normet’s strategy for growth in the coming year?

Lastly, there is the risk that you may not find the amount

A: The machinery we offer is not built in Mexico, but in

of minerals to justify the operational costs of your

Finland, China, India and Chile. For this reason, I view us

equipment and personnel.

here in Mexico as a service company. We intend to improve our level of service, training more personnel both in the

Q: Part of your mission is to increase digitalization in the

area of machines as well as additives. For the company as a

mining sector. How do you achieve this?

whole, the development of new technologies and products

A: Our overall goal is to increase the informatization and

will remain a priority. In that regard, our goal is to address

digitalization of operations. For example, some of our

the new challenges that our clients face. In the area of

machines are equipped with screens that provide a clear

equipment, we will focus on making them more compact

overview of performance. This information can also be

and electric. Regarding tunnel support, we will develop new

downloaded for monitoring purposes using a simple USB

concrete additives, as well as chemical products to meet

stick. This data can be very important in helping determine

specific challenges such as water risks.

whether the machine is functioning well and whether the operator is using it correctly. Machines also have systems that provide alerts when maintenance is needed. All this

Normet is an international company headquartered in Finland. It

information is vital in keeping an operation running and

offers equipment, construction chemicals and products for rock

cost-effective. We also offer antenna’s that can be placed

reinforcement in underground mining and tunneling processes.

in the galleries to measure mine conditions.

Its services include training, spare parts and maintenance

| COMPANY SPOTLIGHT

230

ASSET, TEAM, GAME CHANGING TECHNOLOGY Torex Gold (TSX: TXG) is an intermediate gold producer focused on developing a sustainable, multi-asset mining business. From inception, Torex has embraced innovation to protect the environment, improve safety, and build productive relationships with all stakeholders. The foundation of Torex has been built around the El Limรณn Guajes mine (ELG), located in Guerrero State, Mexico. The company current focus is to leverage the strong free cash from ELG to pay down longterm debt and advance value creating opportunities. The first of these opportunities is the Media Luna project, which has the potential to extend the mine life of the complex for a decade, if not more. Torex recently finished off an infill diamond drill program at Media Luna, with the aim of upgrading 25 percent of the current inferred resource to the indicated category. With final assays now arriving, The company anticipates releasing an updated resource estimate before the end of 2019. The updated resource estimate will pave the way for a feasibility study, which they anticipates could be ready to release to the market towards the end of 2020. The second value creating opportunity is the innovative Muckahi Mining System. Torex expects utilizing Muckahi could reduce underground mining costs by up to 30 percent, reduce capital expenditures related to underground by mining by up to 30 percent, and significantly speed up the time to develop an underground mine. The company also expects a Muckahi operation will be a safer mine and generate significantly less greenhouse gas emissions than a conventional operation. By the end of 2019, Torex expects to have proven up the key components of Muckahi and will look to test the full system in 2020. The company anticipates Muckahi will become a key value driver as Torex looks to grow the business in an accretive and effective manner.

231

| VIEW FROM THE TOP

SUSTAINABLY BLASTING MEXICO’S FUTURE MINES HÉCTOR MIRANDA Mexico Country Manager at Orica

Q: How do Australian companies like Orica view the Mexican

versus investing in expensive mechanical rock fragmentation

mining industry?

equipment and expending a high cost in electrical energy.

A: Mexico represents a great opportunity for all investors

232

around the world, not only in the mining sector, but also

Q: One of Orica’s specialties is electronic blasting systems.

in other industries. The country offers great opportunities

What are the company’s plans for its implementation

thanks to the size of its market and Mexico’s own ability

in Mexico?

to be the gateway to other important markets. Considering

A: This wireless technology is unique in the world and we

exclusively the mining point of view, it is true that Mexico

began using it in 2018 for pillars recovery in mineralized

has lost competitiveness in the last years; however, the

sectors of underground mines. This is the only technology

government is making decisions to reverse this situation to

that allows this recovery and helps to eliminate the exposure

return to 2015, when Mexico became the world’s fifth-ranked

of personnel in risk areas. It has been a very successful

country in terms of mining exploration.

service that we have implemented not only at Newmont Goldcorp, but also at other mining companies in Canada,

The Mexican mining market is crucial for Australian investors.

Chile and Australia. In 2019, we began testing at Fresnillo

Mexico is a country of high importance for Australian

Mine and have already recovered several previously

companies and I believe Mexico is a strategic country for

discarded mineralized pillars, which is a huge benefit to

their interests. As for Orica, we are working in different levels

mining companies.

of the government to support Mexican mining especially in everything that has to do with best practices, where Orica

Q: Mining activity is often carried out in remote locations.

has accumulated significant experience at a global level.

How does Orica ensure the safety of explosives transportation in Mexico?

Q: What added value do companies that choose your

A: Safety is one of Orica’s corporate values. It is a vision

blasting services receive?

that not only affects Orica’s activity: all companies that work

A: Orica can manage the outcome of the blast, considering

with Orica must comply with rigorous safety procedures. In

the type of rock that is going to be fragmented. We do all

the specific case of the transportation of all our products,

this through a simulation software into which we introduce

we work with a portfolio of carriers that includes advanced

different variables that may affect the process. Based

technologies for control, such as on-board cameras or GPS,

on these results, we can recommend the best product

which allows us to track these units in real time. We look for

combination, blast design and equipment to improve

the best strategic partners in the market.

efficiency, productivity and safety for our customers’ operations.

Q: Orica is expanding its presence in Mexico by acquiring companies that provide innovative solutions. What are the

Mining companies have made decisions in their initial

characteristics of companies you might be interested in?

investment in equipment based on some assumptions that

A: Orica’s strategy is based on the technological

are normally conservative. From our point of view, it is more

differentiation that we can offer to our clients. We also

profitable for mines to put more chemical energy in the mine

seek a workforce that can add value to our processes and to our customers. All our technological developments are associated with the improvement of blasting, not

Orica is the world’s largest provider of commercial explosives

only from the explosives point of view, but also in

and innovative blasting systems. It is also a leading supplier of

the technology that allows remote monitoring. The

sodium cyanide and a specialist provider of ground support

acquisition of companies is a common strategy for Orica

services in mining and tunneling

on a global basis.

INSIGHT |

HUMAN CAPITAL MAKES THE DIFFERENCE ENRIQUE GUINEA Director General of Hanka

In a traditional mining state like Sonora, local explosive

Referring to its customers as partners is important for Guinea.

manufacturers and blasting companies need an edge to come

“Our goal is to achieve a collaborative work dynamic with

out on top. Enrique Guinea, Director General of Hanka, says

our clients,” he explains. “In all the projects in which we have

human capital can be the determining factor when competing

worked, we have achieved a close collaboration with the

against global giants. “While our competitors exceed us in size

mining company.” Guinea adds that trust is the foundation

and world coverage, we level the playing field with service

for achieving this goal. “Absolute trust and loyalty cannot be

and human capital,” he says. “We have focused on training

bought; you need to build it from the ground up together with

our people to solve complex problems through practical and

your partner, enabling the team to work in synergy, symmetry

effective solutions in short time frames.”

and harmony.”

This strategy has led Hanka to add consultancy to its arsenal.

“Hanka is working with the most important open-pit mines in

Guinea explains that in other mining jurisdictions like Chile

the northwestern region,” he says. “But we always keep an eye

mining companies tell blasting providers what they want,

open for new projects. When exploration expense deductions

but in Mexico operators are much more open to advice. “In

are finally re-established on a yearly basis, exploration, the

Mexico, companies come to us to consult our experience

base for all mine operation startups, will flourish again.” While

on how to improve their processes, rather than just to buy

Guinea believes this particular fiscal imposition is excessive,

explosives,” he says. “We provide personalized attention and

he says that taxes have indeed succeeded in providing

tailor-made solutions through our specialized and service-

improvements for many mining communities.

oriented staff.” Safety is always the most important factor to Hanka’s In many cases, Hanka has solved a diverse range of

operation. “It is our working license. We strongly believe that

fragmentation problems for different mines. Through

all accidents are preventable,” Guinea says. “Fair and equitable

controlled and well-monitored blasting programs, Hanka

business is another must for all our operations. We will never

has helped save and improve both crushing and milling

compromise on our ethics and compliance standards.” As

costs, always with a focus on maintaining an efficient and

Technical Ammonium Nitrate (TAN) is a hazardous material,

environmentally-sound delivery. “We have several success

Hanka has created its own manual for the safe handling

stories where, in a short period of time, we remedied some

and management of the product, with YARA’s assistance.

operational issues using a collaborative/partnership approach,

YARA is the world’s largest manufacturer of Ammonia, the

using the mine’s technical people and blasting crews and our

fundamental raw material for TAN production. “We have a

team and expertise, to improve and manage a safer and more

TAN storage facility in Empalme, Sonora — very close to the

efficient operation,” Guinea says.

Port of Guaymas — that we transform into explosive agents and emulsions,” Guinea explains. Hanka started operations at

Hanka offers a broad variety of services that enable its

its explosive emulsion plant, located near the rural community

customers to put explosives to better use. “We saw these

of San Bartolo in the Hermosillo municipality, four years ago,

gaps in the blasting sector and focused on filling them to help

complementing its operation with its partner’s TAN plants in

our clients,” Guinea says. For example, few service providers

Sweden, Norway and Germany.

addressed the explosives permitting required by the Ministry of Defense, which soon became a generalized hurdle for mine

Despite the heavy competition, Hanka has persevered,

operators. Hanka stepped in with advice and support as an

celebrating its 35th anniversary in 2018. “It took us four years

added value to its blasting services and at no extra cost. “This

to make our first sale but we have faith in our country, trust

has become part of the solutions package that we offer all

our interdisciplinary team and our great partners. The mining

our partners,” he adds.

potential in Mexico is immense,” Guinea says.

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| VIEW FROM THE TOP

PREFAB SOLUTIONS SAVE TIME, COSTS WHILE INTRODUCING QUALITY, SAFETY ROGELIO VILLANUEVA Director General of Trabis

234

Q: What specific services does Trabis offer the

concrete around it, you gain a product that is active. The

mining industry?

steel will revert to its original position, and as a result it

A: We essentially sell engineering. Every mining operation

will compress the concrete. The internal stresses make the

has its own characteristics and the type of solution we

material more resilient to the external tensile forces that

offer varies according to the project. For example, in areas

will be applied when in service. Another advantage is that

characterized by heavy rainfall, a client may not be able to

you consume less material and have greater durability.

build infrastructure on-site. We can offer a prefabricated

Because the concrete is more compressed, cracks are

solution to support the necessary installations. Another

less likely to appear and grow. It also becomes harder

example is the need for a truck platform to offload

for oxygen to reach the steel, slowing the onslaught of

cargo into a mill. In this case, we will specify the design

corrosion.

according to the weight of the cargo. Our engineering department designs all our solutions, which are then

Q: There are two types of prestressed concrete:

prefabricated and transported to the site, where we

preâ&#x20AC;&#x2018;tensioned and post-tensioned. What are the differences?

coordinate the installation.

A: In the case of pre-tensioned concrete, the steel tendons are tensioned before the concrete is cast. In the case

Q: Why is your offer of services and products attractive

of post-tensioning, the tendons are stretched after the

for mining companies?

concrete has been cast. The tendons are in sleeves or

A: Mining operations are often located in remote areas

plastic ducts to keep them from direct contact with the

that lack infrastructure, not only for the mine itself but also

concrete. Post-tensioning is a bit more expensive because

the housing infrastructure for workers. Our prefabricated

you need separate anchorages for each tendon. However,

solutions address the complete infrastructure requirement.

it does allow the tensioning to be done on-site. If an order

Because they are prefabricated, they substantially reduce

is too big for transport to the mine site, we can take all

construction times. This helps the company save time

our tools and material to the site and do the work there.

and costs, while benefiting from higher quality and safer

Sometimes, we will do separate elements and combine

construction. We follow international standards in the

them during the installation.

design process. At our plant and at the clientâ&#x20AC;&#x2122;s site, we also follow specific security protocols that ensure safe

Q: What are your growth expectations for the next

operation.

five years? A: We are active in various sectors. We have constructed

Q: Trabis specializes in prestressed concrete. What are

many types of structures, from bridges to vertical

the benefits of this product and the process behind it?

buildings. In the area of mining, our goal is to participate

A: Prestressed concrete is built using a concept that was

in more national and regional events to showcase our

invented in France 90 years ago. The idea is to optimize the

offer. Sonora, Chihuahua and Zacatecas remain very

properties of the material you are using. Steel has a great

important states. We have not explored the possibility

tensile characteristic. Concrete can absorb significant

of joining an association, but we do see potential value

compression. By stretching steel tendons and casting

in doing so. We have also been in conversation with the Sonora government to see how we can help the mining industry grow. The mining industry can be slow to

Trabis is a leader in prefabricated, prestressed concrete

adopt new technologies; however, it has also been the

solutions for the construction, infrastructure and mining

source of much innovation. We simply need to continue

industries, with more than 35 years of experience in the

demonstrating that we can provide solutions for the

Mexican market. It was founded in Hermosillo, Sonora

challenges our clients encounter in the field.

VIEW FROM THE TOP |

SCAFFOLDING FOR SAFETY AND PRODUCTIVITY SERGIO BARTOLOMÉ Director General of Layhermex

Q: As a company that manufactures in Germany and then

company. It is highly proactive in terms of safety. The company

imports its products for distribution in Mexico, what changes

is serious and responsible, which is what we appreciate the

would you like to see in import processes?

most about our clients. It is a pleasure to work with companies

A: Import processes in Mexico are quite efficient and

that get involved and deliver on their side of the agreement

bureaucracy in Mexico is considerably less convoluted than

in a timely manner. Similarly, Fresnillo and Peñoles are other

in many South American countries. If documents are sent

companies we have worked with and achieved notable

on time, they are validated rapidly because there is a fluid

results. Like Goldcorp, they also understand that safety and

understanding between all the relevant actors. However,

productivity are inextricably related to each other. We are

there is at least one opportunity area that could be more

looking to work with more mining companies that approach

efficient: cargo scheduling. Our merchandise comes in

business like these companies do.

through Veracruz port and sometimes it takes them two or three days to determine the appropriate cargo slot. The truth

Regarding the project at Peñasquito, it was highly rewarding

is that Veracruz is at full capacity and this means companies

and we learned a number of lessons. We provided practically

have to wait in line. Overall, it is a good system in comparison

every piece of scaffolding equipment used. Working closely

with other countries. We have been able to meet our clients’

with scaffolding specialists, we offered a complete solution

expectations consistently in Mexico, and this is partly due to

for the project. Having said that, the logistics were complex,

the country’s well-developed import practices.

due to the mine’s remote location. We are known for having a remarkably close relationship with our clients, and the

Q: Why should a mining company prioritize investing in

distances our workers had to traverse made it hard to be as

scaffolding?

present as we would have liked to be. Thanks to our workers’

A: Safety. Mining is one of the most demanding industries in

commitment and singleness of purpose, we succeeded in

this respect, and scaffolding is one of the cornerstones for a

delivering in a manner worthy of a company like Layher.

good safety setup. But it is important to have a comprehensive understanding of safety. It is not an impediment to working

Q: What is your growth strategy in Mexico for the next

swiftly but an element conducive to greater productivity. It

five years?

goes without saying that mining involves much more than

A: We want to expand our physical presence throughout

just digging a hole in the ground and hauling out gold.

the country. We are a sales company but we also rent out

Operations are extremely sophisticated, involving cutting-

equipment, so it is especially important for us to be as close

edge equipment and complex processes. To build and support

to our clients as possible. We started out in the State of

many of these elements, companies need scaffolding. It is a

Mexico with a commercial office and a warehouse. Three

crucial part of a mining operation. Layher’s scaffolding can

years ago, we began operations in Nuevo Leon by opening

be put together quickly and easily. It is ergonomic and easy

commercial offices and two years ago we inaugurated a

for workers to manipulate. It is readily transferable from one

warehouse. We have initiated the same strategy in Jalisco,

area of a project to another. All these elements lead to greater

where we opened a commercial office in Guadalajara a

productivity. As an industry leader, Layher has an obligation

year ago. This is our strategy for gradually increasing our

to innovate. At the Bauma Fair in Munich, for instance, we

presence in Mexico.

unveiled a working platform that is 10 percent lighter than its previous version, while having the same loading capacity. Layher is a German company with over 70 years of experience.

Q: In what mining projects have you recently participated?

It is an leader in high-technology scaffolding. The company has

A: We worked on Peñasquito’s expansion. It was an interesting

a strong presence in Mexico, where it offers integral solutions for

project and Goldcorp reaffirmed its reputation as an excellent

assembly companies, contractors and independent professionals

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| VIEW FROM THE TOP

MINING ADVANTAGE WITH AN EDGE IN SPECIALIZED SERVICES DIEGO TORROELLA Director General of TAKRAF Mexico

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Q: Why should TAKRAF be considered elemental in every

Q: What was the main factor behind your drive for greater

mining project?

sustainability?

A: TAKRAF offers a strong combination of product-

A: There is a real drive for sustainability globally and this is

based knowledge and project execution experience that

not just limited to the mining industry. We recognize that the

is enhanced through sharing of the companyâ&#x20AC;&#x2122;s extensive

opportunity to reduce operational costs, while also investing

worldwide experiences. Clients benefit from the global

in long-term sustainability, thus saving resources, is a win-

expertise our colleagues bring to the table so that we can

win situation. When it comes to materials handling, the most

offer them the best local solution.

obvious solution is our proven ability to replace the trucks that are hauling ore by high-capacity In-Pit Crushing &

Q: What is your strategy for winning contracts to work for

Conveying (IPCC) Systems. To highlight the potential of this,

the biggest miners in Mexico?

imagine that the trucks themselves use about 60 percent of

A: Currently we are not seeing a great number of large

the energy consumed while only 40 percent is available for

greenfield investments. Miners, for some time now, have

the actual load being carried. With our conveyor systems,

been focused on further increasing the efficiency of their

90 percent of the energy employed is used for the transport

existing operations. Our technologies help with this. Our

of material. A great deal of money can be saved in energy

paste thickeners, for example, have been very successful

costs alone and we are providing an environmental benefit

and clients see the advantage of water recovery during

too, due to the reduced carbon emissions.

the mining process. Due to our specialized portfolio and expertise, we are also able to offer an integrated

However, we start even a step ahead of the actual equipment,

solution for dry stack tailings applications, from paste

as we also provide various technical studies related to mining

thickening and filtered tailings to complete conveying

and materials handling solutions. Every mining project is

and stacking systems to support the mining industryâ&#x20AC;&#x2122;s

different and because we carry out projects that range from

efforts to make the process of tailings storage safer and

the oil sands in Canada to copper projects in Chile and Peru,

more sustainable.

we can support our clients to define the optimum solutions to the specific needs and characteristics of each project.

In Mexico, we have been catering to large mining operations since the 1990s where we initially completed high-capacity

Q: What are your expectations for the Mexican market in

conveying systems. Our 2012 integration of DELKOR enabled

the next five years?

us to extend our technology offerings in the Mexican

A: We see great potential in the Mexican mining industry.

market with the inclusion of solid/liquid separation and

That is why we have increased our presence here. However,

beneficiation equipment. We see further potential through

there is some uncertainty as to when larger investments will

our recent innovative developments, such as the new TAKRAF

actually go ahead. In the meantime, we are supporting many

X-TREME Class Sizer range for overburden and ore, primary

smaller projects, which will come online in the short term.

and secondary crushing, as well as DELKOR Filter Presses

This adaptability demonstrates that we have the capability

for heavy-duty applications of concentrate and tailings

to work on both large and small projects, which we think is

dewatering.

an advantage in this landscape. Investments in the mining industry contracted for several years. While this is now changing and investments are gradually recovering, the pace

TAKRAF , a Tenova company, is an integrated solutions provider

is slow and we now have to consider the impact of various

to the global mining, bulk material handling, minerals processing,

uncertainties introduced as a result of the global geopolitical

beneficiation and air environmental industries. It offers innovative

situation. This could push regional and smaller projects in the

technological solutions and commodity knowledge

next five years and force mines to be profitable and efficient.

INSIGHT |

TAKING THE MEASURE OF A MINE ANTONIO LONGORIA CEO and Co-Founder of Skysset

Technology is continuously providing miners with

terrain,” Longoria explains. “While mining engineers

new capabilities in their operations, including tracking

usually fluently speak software language, we provide

material, says Antonio Longoria, Director General of

personalized training to ensure that our users know all

Skysset, which offers software solutions for measuring

the possibilities that our platform provides.” Zephyrus

bulk inventory. “Our tools enable our clients to efficiently capture and measure physical characteristics at their mines. In essence, our job is to integrate the physical and digital worlds.” Skysset’s software is mainly used in the mining, aggregates and manufacturing industries. The company was created in 2015 to fill the need for quantifying materials and aggregates in an industrial operation. “We answer the question, ‘How much do we have?’ in the easiest and most efficient way possible. Our software helps our clients use drones to create 3D models and

“

has a 95 percent measurement precision.

Our main innovation focus at the moment is usability. We want to make the interaction with our software and platform easier”

While the company offers an integral service, it can also

then provides digital tools with which they can easily

tailor to the client’s needs. For example, the platform and

dissect and interpret information,” he says. “It’s a

software’s usage are sold based on snapshots. Skysset

common misconception that once the drone lands you

offers different snapshot packages depending on the

are finished. Converting physical information into data in

client’s need for monitoring. “More snapshots imply

a spreadsheet can be a laborious task. We have optimized

a greater saving per unit,” he says. Regardless of the

this process so our clients can save time and money.”

number of snapshots or the time of use, the historical information remains on the platform.

The company develops its own algorithms to provide precise measurements but Longoria says the hardest

As a drone can easily capture 500 photos in one flight

part is making these user-friendly. “Our main innovation

and this information requires a good bandwidth to be

focus at the moment is usability. We want to make the

transferred, it is crucial for mines operating the drones

interaction with our software and platform easier so our

to have an optimum latency to upload the information

clients can understand, communicate and manage their

to the cloud faster. “Even our worst-case scenario of

reports with as little effort as possible,” Longoria says.

taking a couple of hours to update information due to

In short, Skysset’s software platform, called Zephyrus,

bad connectivity cannot be compared to having to bring

allows the close monitoring of the state and volumes of

a topographer to the mine to do the measurements.” The

each plant, yard and mound per material, enabling better

fact that clients can operate their own flights further

management and enhanced decision-making when it

eliminates the need to have external people visiting the

comes to the question of having enough material to

mines, cutting related costs.

continue production. As a Monterrey-born company, Skysset is focused on The company has also added tools to improve

the northern part of Mexico but its software can be used

communication between the client and the software. “We

anywhere. “Our goal is to expand to the rest of the world.

realized we needed a better user-software interaction

We started with Mexico and Texas,” Longoria says. Its

so the client can speak to the software in terms of

main clients in mining are Grupo Calidra and Ternium,

how to project the layout or adjust to the geographical

and in aggregates, CEMEX.

237

| INSIGHT

NATURAL GAS: THE FUTURE OF ENERGY IN MINING CÉSAR STACKPOLE CEO of ACERALL Energy Solutions

Ask the CEO of ACERALL Energy Solutions about the

When it comes to natural gas, miners have two options:

future of sustainable energy consumption in mining and

CNG and LNG. “The decision is mainly influenced by the

he will tell you it is natural gas. César Stackpole not only

cost of the molecule in a given territory; that is, logistics

believes that, he is betting on it. “We are the first Mexican

and transport of the supply,” Stackpole says. For example,

company to introduce engineering design and installation

northern Mexico’s has easy access to US LNG imports so

of Compressed Natural Gas (CNG) and Liquified Natural

hauling costs are lower and more competitive than those

Gas (LNG).”

of CNG in this region.

Stackpole explains that the Energy Reform revolutionized

Stackpole adds that the benefits of natural gas exceed the

the availability of natural gas and created the opportunity to

expense, especially for such an energy-intensive industry

deliver it directly to mine sites. “Now, we have the regulatory

as mining. “Natural gas can reduce energy expenses up to

avenues to haul natural gas to a mine entrance.” He adds

50 percent. But this is just a side benefit; the main benefit

that changes in regulations are still required in terms of the

is related to environmental awareness and the possibility

use of contaminant fuels. “At the moment, CNG has the

of reducing contaminant particle emissions.”

238

strictest regulations compared to other fuels, even though it is significantly less contaminating,” Stackpole says. Because

The initial investment is another aspect to consider when

regulations are more complex, it is harder to certify natural

evaluating a shift to natural gas. Stackpole says that as

gas suppliers, implying a lower risk of failure.

mining companies are usually graded AAA, financial options abound. “If miners are willing to accept a three-year ROI,

ACERALL Energy Solutions was founded in 2007 to supply

there are many financiers that can undertake the initial

steel to the industry. “We started as a strategic steel supplier

investment.”

for Goldcorp and from there migrated to a more specialized offering in control and process equipment. Our goal is to

Once the decision to shift from fossil fuels to natural gas

add value through specialized products,” Stackpole says,

has been made, the adaptation period proceeds: part of

adding that the company’s continued specialization led it to

the mining machinery will have to be modified for change

venture into the energy niche. “We provide two benefits in

from diesel to CNG or LNG. “Natural gas is a universal fuel

this area. First, enhancing project profitability and second,

that can serve all processes through a series of adaptations

doing so through eco-friendly solutions.”

to the equipment,” Stackpole says. He adds that there is a misconception that natural gas can make machines

Although natural gas is an efficient and low-cost way to

lose power. While not all motors are suited for it, if the

reduce contaminants emissions by 95 percent compared

adaptation is well-performed, Stackpole says there should

to diesel, one main barrier remains to fully permeate the

be no power loss. “Motors can either work fully on natural

mining industry: infrastructure. “The country still lacks

gas or as hybrids with diesel and natural gas working as

the gas pipelines to reach remote mines. But we see this

a bi-fuels.”

infrastructure being developed and opening the door to this revolution.” ACERALL is starting to deploy its GNC

To smooth the transition, ACERALL Energy Solutions starts

business in Mexican mining; it has already approached

all its projects by performing a feasibility study to guarantee

Goldcorp, First Majestic and Avino & Silver Gold Mines, just

that project’s viability. It also provides training on the

to name a few. Technological improvements have helped

installation and use of natural gas. “We also have the option

its cause. “Gas transport trucks are more secure, allowing

of operating along with our clients for an indefinite period

natural gas to be hauled safely for longer distances,”

or until the client feels comfortable enough operating

Stackpole says.

independently.”

VIEW FROM THE TOP |

THE POWER AND BENEFIT OF SAVING ENERGY BERNARDO SALCIDO Director General of Técnica Salgar

Q: What added value does Técnica Salgar offer its

stringent legal action if consumption increases above the

customers in the mining industry?

levels reported to CFE. All the equipment for control and

A: The most important contribution when installing

energy savings must be precise. In the mining industry,

the equipment from our portfolio is the energy savings

harmonic current filters are in great demand and this is

that are generated. Electricity costs for mines are high,

one of our areas of expertise.

accounting for 40 percent of the final cost of the product. For instance, Peñoles’ zinc mine in Torreon impacts the

Q: What is the preferred energy source for powering

international price of this commodity. If the company

mine operations?

could reduce the mine’s energy consumption by 10

A: The mining industry is traditionally powered by

percent, that would be reflected directly in the end price

conventional energy sources. Clean energy use, translated

of zinc. Técnica Salgar allows operators to produce more

to electricity consumption, generates many problems in the

using fewer kW.

grid. In fact, CFE has encountered several incidents where it had to remove wind generators because harmonic distortion

We delivered a study with the National Institute of

was very high. These elements have burned transformers,

Electricity and Clean Energies (INEEL), the National

with losses representing millions of dollars in investment.

Polytechnic Institute (IPN) and the Federal Electricity

In the solar energy area, a similar situation takes place

Commission (CFE) where it was determined that our

because DC is involved. This current has to be transformed

equipment could reduce energy costs by 8 percent.

into AC and rectifiers are needed. These electronic elements

In the electrical segment, our biggest competitors are

turn square waves into sinusoidal waves, provoking a huge

companies like Schneider Electric, Eaton and ABB.

distortion in the grid and hence, large losses.

Although Técnica Salgar is a relatively small company, we work with companies of the caliber of Grupo México and

We believe that close to 4 percent of GDP is lost due to

Peñoles. Our main added value is our flexibility because

electrical processes. At the moment, the mining industry

we offer tailored solutions to our clients.

depends on fossil fuels but other sources like hydropower do not have this impact on the grid and could be a

Q: What has been the main impact of the Energy Reform

viable option.

on your business and clients? A: The market has become highly potentialized as a result

In terms of market incentives, there has been a major

of the reform. This is a relevant topic for mines because

investment in CELs. The largest wind farms in the country

investment levels for compliance with the grid code are

are being acquired by Peñoles. For instance, the Torreon

high. The problem is that the regulatory framework is not

plant could be the biggest consumer in the country.

quite clear regarding sanctions. CFE is introducing rigid

From my perspective, clean energy is becoming a trend

controls and when a particular unit does not comply with

and its development implies a need for a specialized

them, it can be removed from the grid system. The list

department in this area, as well as maintenance services.

of criteria is very long and part of the regulation has not

This investment should be foreseen when looking for

been published yet.

cleaner options.

Regarding our operations, the reform has impacted control systems and we have modified and improved this

Técnica Salgar is a Mexican company founded in 1976 focused

area. Before the regulation was issued, CFE measured your

on the research and development of products and systems for

consumption every 15 minutes but now this measurement

the rational use of electric energy, including manufacturing,

is done every five minutes. A company can be subject to

marketing, installation and service

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| VIEW FROM THE TOP

CUSTOM UTILITY VEHICLE DESIGN AND MANUFACTURING LUIS QUINTANA Co-Director of IPEC Ingeniería

240

Q: What value does IPEC Ingeniería add to the mining

Mexican market and could not be brought from abroad

industry?

because of fuel incompatibilities. To solve this, we took

A: Our name alludes to engineering of special projects and

trucks designed and built for our market and developed

we focus our efforts in highly tailored solutions. Founded

4X4 and 6X6 conversions. The project was large, consisting

in 2011 as a family company designing and manufacturing

of 55 all-terrain vehicles in six configurations: lube trucks,

utility vehicles to support heavy machinery in mining, we now

personnel transport, fuel and water tanker, articulated crane

provide a variety of unique solutions in the form of custom

and flatbed trucks. We were also issued a contract for on-

vehicles and equipment for our customers.

field support in which for more than a year and a half, we had technicians working along the 600km-length of the

Clients like Fresnillo PLC, Agnico Eagle, Minera Frisco,

pipeline, providing maintenance to the vehicle fleet. This

Komatsu and Grupo México come to us for the type

endeavor is worth highlighting because typically pipeline

of engineering projects we can undertake and for the

construction work is as demanding as mining work.

professionalism with which we approach business. We continually search for new opportunities abroad to bring

Q: In what other way does your service portfolio reflect

exciting technology to our customers in Mexico and to

your expertise in adapting foreign technology to the

team up with top foreign companies that can contribute to

Mexican industry?

the Mexican mining supply chain. At international events,

A: Our experience with the supply of a double drum

we often meet companies that see our business model and

production hoist for a mine in Chihuahua brought us to

growth strategy in Mexico and become strongly interested

appreciate and understand the importance of hoist plants

in collaborating with us. McLellan Industries and GL Tiley &

for the underground mines. Later, we teamed up with GL

Associates are a prime example of this. Since the market

Tiley & Associates, a world-class expert in engineering and

identifies us with our highly specialized solutions, we can

consulting for hoist plants. We offered Tiley an appealing client

form partnerships that add a focused value to the Mexican

portfolio in Mexico and became its representative. Together

industry.

we offer turnkey solutions that include supply of new hoists and upgrade of existing hoists and equipment, installation,

Q: What particular project highlights your capacities?

inspection, parts, service and certification of hoists and hoist

A: It is a project we undertook in the oil and gas industry

plant infrastructure. We can support our clients in engineering

but it is completely pertinent to mining. In 2013, SAIPEM,

and supply of headframes, loading pockets, skips, cages, truck

a transnational oil and gas company, was contracted to

loading and unloading, among other solutions. We also have

build the El Encino-Topolobampo pipeline from Chihuahua

vast experience working with equipment to support large

to the Sinaloa coast across the Sierra Tarahumara. For this

mill relines hand in hand with McLellan Industries supplying

project, they needed highly specialized utility vehicles and

mill liner handlers, along with service and parts to multiple

they asked us to design and manufacture a vehicle fleet

customers in the country.

to support the construction. The project was a perfect fit for our company since the client needed a fleet of 4X4

Q: What are your goals for 2020?

and 6X6 specialized vehicles which were inexistent in the

A: We want to promote the company and consolidate it as the leader in custom vehicle solutions for the mining industry, and the trusted partner of our customers with the foreign

IPEC Ingeniería specializes in providing utility vehicles for

companies we represent for hoist plants and mill reline

specialized applications in the mining and other industries. It also

equipment. Also, we recently developed a conversion of the

collaborates on infrastructure projects and represents foreign

sturdy Ford F550 4x2 diesel truck made for the Mexican

manufacturers for highly specialized services and equipment

market, to 4x4 Mining Duty.

VIEW FROM THE TOP |

QUALITY CONTROL PROCESSES LEAD TO BENEFITS MIGUEL ROZO Regional Manager of TDM Group

Q: What is TDM’s main differentiating value compared

Q: What steps is TDM taking in Mexico to focus its

to similar companies?

business in the country on the mining industry?

A: Our main differentiating value is our experience in the

A: We are working on a scheme through which we can

installation of waterproofing membranes for the leaching

illustrate to the Mexican mining industry our extensive

process. This experience is a guarantee for our customers.

experience in other mining markets in South America,

Another differentiating aspect of TDM is its experience in

mainly in Peru and Chile, although we also have

the processes prior to mining, such as the construction

experience in Argentina and Colombia. It is about the

of access roads and drainage or the stabilization of roads

industry understanding the benefits of working with a

leading to the mine, all with financial analysis to ensure

company like TDM.

the viability of each project. Part of our work at the new airport was the construction of infrastructure so that the

TDM is a leader in the mining sector in countries such

project could move forward.

as Chile and Peru and we want to follow the same path in Mexico, where we have already started delivering

Q: What lessons learned by TDM in mining markets such

technical and economic viability proposals to companies

as Chile or Peru can be implemented in the Mexican

such as Metallorum and Grupo México. TDM is also

mining industry?

the most important geosynthetic installer group in

A: TDM Group has demonstrated extensive experience

South America.

in providing mining market solutions in terms of quality control and traceability in the installation processes. It is

Q: What internal processes is TDM adapting to the mining

possible to track who participated in the development

scenario under López Obrador and what opportunities

of any point of the projects in which we have taken part

does it see?

and when, which is key for our clients.

A: We have seen changes in recent months, but the situation is not very different from previous presidential

Quality control processes are very important for TDM.

changes. New governments tend to revise previous

It is not just about implementing processes that help

policies but I think it is a cyclical issue. Obviously, there

take care of the environment, but taking care of the

are going to be changes but I think that the economic

environment also generates benefits for companies. This

dynamics that Mexico has followed in recent years

happens, for example, with the leaching of minerals. Each

will continue.

drop of water contains traces of the extracted mineral; if the water is filtered, it contaminates, but it also means

As for the windows of opportunity, the cancellation

losses for the company, since that drop of water contains

of the new airport has allowed us to diversify our

tiny remains of the mineral.

presence in Mexico. We continue to have a presence in the infrastructure sector of the country, but we are also

I do not find obstacles in the Mexican regulatory

focusing on mining and opening possible business lines

framework, but I do believe that Mexico has to improve

in the agricultural sector. What at first was bad news has

the way in which it explains the mining industry to the

helped us to look for alternatives in the country.

population. I believe that mining companies focus too much on the macro aspects of their activity and not so much on the technical part, which they outsource. With

TDM Group is a leader in Latin America in engineering

greater involvement in the technical part, companies

solutions, supply and installation of construction products

could better explain their activity to the public. Mining

for infrastructure, mining, energy and hydrocarbon projects,

is key to the economic development of the country.

sanitation and agriculture

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| VIEW FROM THE TOP

A BREATH OF FRESH AIR FOR MEXICAN MINERS TODD ELSWICK CEO of Paul’s Fan Company

Q: Why is it important to have quality fans integrated into

product. As a company with a great amount of experience

underground mining operations?

in these products, we knew we could provide a better

A: Paul’s Fans has been in business since 1958. When we

machine and fan to increase the productivity of these

started, we were a small company that did repairs and

potential customers.

maintenance of ventilation equipment. Repair, reliability

242

and production are our core values. Our products are

Q: What does Paul’s Fan Company look for in a strategic

some of the most productive fans in the US and all major

partner to expand its presence in Mexico?

manufacturing companies in the US use our fans. In mining,

A: One of our main objectives when looking for a distributor

fans are the most important part of the operation and their

in Mexico is finding a partner that has the training, expertise

reliability is essential. Working in a mine is a dangerous

and the manpower to provide service and maintenance

task, especially since there is little fresh air and there

when required. In the US, we are very responsible, and

are many explosives being handled. Our fan is installed

if there is a failure in our machines, we usually like to

directly to provide fresh air and protect the workers from

support our customers within a one-hour period. After

the contaminants that circulate throughout the mine. It

many interviews and a good deal of research, we decided

may not be a short-term advantage, and it may not be a

AMMMEC could provide the same quality to our customers

production advantage, but it guarantees the safety of the

here. We provide AMMMEC with training related to technical

workers and promotes the quality of life of the company’s

adjustments and troubleshooting.

human capital. Q: What types of products are offered in the Mexican We have fans with their original equipment and bearings

market for underground mining operations?

that have been in operation for more than 30 years. This

A: Most of our products are available in Mexico. We have

is one of the main advantages of using Paul’s Fans. If the

many models of Main Fans, which blow air directly out

mine conditions are good, our fans can also help decrease

of the mine or directly into the mine. There are several

energy consumption.

models depending on the depth, size, site and the amount of equipment working within the mine. This determines the

Q: Why did the company decide to enter the Mexican

size of the fans and the required flows.

market and what is its relationship with AMMMEC? A: AMMMEC is our distributor in the Mexican market. I was

We also incorporate safety and emergency escapes into

first introduced to them by a trade mission sponsored by

our fans, which is not currently offered by our competitors

the state of Virginia. We have had a wonderful parallel

in Mexico. The escape feature is an elevator or basket that

relationship and we like that they have family values

is incorporated into the fan’s air stream, meaning that the

integrated into the company. We chose Mexico because

fan does not need to be altered for evacuation.

we had visited most of the underground mining operations in the country and it appeared to us that the products they

Q: What are the company’s goals for the Mexican market

were using suffered from continuous problems and were

in the midterm?

not efficient. The industry was seeking a higher quality

A: We offer 100 percent in-stock parts, which means we can fix any of our products at all times. We are trying to standardize our products in Mexico to reach this 100

Paul’s Fan Company offers a wide range of industrial

percent goal here and stock any part that a customer may

ventilation services that span from project management

need. Before entering the Mexican market, we did almost

to laser alignment. It can design, build, install, and support

three years of extensive research because we required a

ventilation systems that last for years

strong partner to help us with our customers.

VIEW FROM THE TOP |

SPECIALIZED AIR POLLUTION CONTROL CAN IMPROVE PROFITS ERIK JENSEN Business Manager P&I Division Americas for Environmental Products at AAF International

Q: What added value do AAF International’s dust control

with the highest efficiency standards of 10mg of suspended

solutions deliver to the mining sector?

particles in the air per m3.

A: All the airborne dust in a mine environment is flying money because the powder is often full of minerals; the finer the dust,

Q: What are the benefits of AAF’s RotoClone line for air

the higher the percentage of minerals present. Quite simply, it

pollution control in mine operations?

is profitable to collect it. But control is also vital because dust

A: RotoClone is part of our wet scrubbers line. These are not

can significantly harm the health of workers. Our products

very known in Latin America because the industry usually

contribute both to improving profitability and enhancing the

operates with dry processes. The RotoClone W is a very

health security of mine-site employees.

compact wet scrubber whose versatility makes it optimum for underground mine operations. It works as a blower that

In terms of Mexico’s requirements, we have run into some

captures all the dust in the environment and turns it into mud

hurdles trying to introduce new technologies to the mining

that can later be processed to obtain any minerals present. We

sector because of local reluctance. Wet scrubbers have been in

also offer the RotoClone N, which is more robust equipment

the global market for more than 80 years but Mexican miners

and a better fit for open-pit operations.

are still reluctant to adopt them due to local idiosyncrasies. This despite that all our technologies are backed by our broad

Q: What is your most popular product in the Mexican mining

experience and constantly enhanced through innovation. As

industry and what is its added value?

wet scrubbers are still not embraced by Mexican mining, we

A: FabriPulse is our most popular product line in Mexico. The

provide the industry with dry dust control processes, such as

difference between this line and other options in the market

OptiFlo cartridge filters and FabriPulse bag filters.

is the variety of bag filters that we offer, from simple polyester to chemical treatment options. FabriPulse solutions also can

Q: How are you overcoming Mexican miners’ resistance to

reduce expended energy from 15-17 percent.

embrace new technologies? A: Our approach is to help our clients understand how much

Q: What are AAF International’s growth plans in Mexico and

money they can earn by deploying our new technologies. We

how do you plan to achieve your goal?

are convinced that this is the key to breaking this resistance

A: Mining in Mexico represents around 15 percent of our

because clients need to see how their investment with lead to

country business and 60 percent for Latin America. Our main

profits. For example, the cost-benefit comparisons between

clients are Goldcorp’s Peñasquito mine and Pan American

using a bag filter, a cartridge filter or a wet scrubber are

Silver. As 2018 and 2019 were transition years in Mexico, our

related to the consumables used by each product. Cartridge

opportunities will depend on the FDI the sector attracts. In

filters have a lifespan of three to six months, while bag filters

the face of uncertainty, we are diversifying into other sectors,

are from one to two years. Wet scrubbers are the most

such as automotive and aerospace, to better shield ourselves

cost-effective and can save miners around 30 to 40 percent

against mining downcycles. We expect to keep growing at a

annually in dust control expenses given that steam is the only

10-15 percent rate per year. To achieve this goal, we will further

input needed. Additionally, as their use is subject to a mine’s

consolidate our distribution network and continue investing

water availability, their implementation is often restricted.

in technology innovation.

It is important to mention that while the dry processes, such as FabriPulse and OptiFlo, are more expensive, they are also

AAF Flanders , the world’s largest manufacturer of air filtration

more efficient for dust control. However, wet scrubbers can

solutions, operates production, warehousing and distribution

easily be modified to reach the same efficiency levels of air

facilities in 22 countries across four continents. Its global

purification. All of our dust control technologies comply

headquarters are in Louisville, Kentucky

243

Innovation laboratory at the Calidra plant in Acajete, Puebla

PROCESSING &Â TRADE

One of the biggest misconceptions about the global mining industry is that the chemicals used for ore processing have catastrophic impacts on the environment. While history has some episodes to support this claim, modern mining, through continuous innovation, has moved far away from that reality. New solutions, techniques and technologies are making mineral processing ever safer and more sustainable, decreasing the environmental risks that it entails.

This chapter gathers the top firms innovating in mineral handling and fluid control solutions. Additionally, it reviews some of the best practices used by leading commodity traders to ensure safe and secure logistics.

245

CHAPTER 12: PROCESSING & TRADE 248

VIEW FROM THE TOP: Manuel Lecona, Thermo Fisher Scientific

249

VIEW FROM THE TOP: Leif Lindholm, Metso

250

VIEW FROM THE TOP: Alejandro Espejel, FLSmidth

251

VIEW FROM THE TOP: Ralph Buchholz, BEUMER Mexico

252

VIEW FROM THE TOP: José Alberto Leal, Cribas y Productos Metálicos

254

INSIGHT: Fabio Marroni, Haver & Boecker Mexicana

255

VIEW FROM THE TOP: Miguel Guerrero, PROESMMA

256

INSIGHT: Enrique Maldonado, Grupo Calidra

257

VIEW FROM THE TOP: Alfredo Ortega, Molymex

258

VIEW FROM THE TOP: Leonardo Martínez, Cyanco

Bill Clark, Cyanco

259

VIEW FROM THE TOP: Donovan Sánchez, SGS

260

INFOGRAPHIC: Mexico, Net Mineral Exporter

261

VIEW FROM THE TOP: José Antonio Berlanga, Mercuria

262

VIEW FROM THE TOP: Claudia Márquez, Chemours Mexico

264

COMPANY SPOTLIGHT: The Element of Experience

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| VIEW FROM THE TOP

INCREASING MINE EFFICIENCY THROUGH DATA ANALYSIS MANUEL LECONA Director of Latin America Industrial Verticals for Thermo Fisher Scientific

248

Q: What factors have impacted the companyâ&#x20AC;&#x2122;s

A: We offer a software solution, called LIMS, that helps

performance this year?

miners manage their onsite lab operations. An emblematic

A: Although our 1Q19 results in Mexico were good, they

project we carried out in Chile for CODELCO fully

were not as high as our other regions around the world.

demonstrates our capabilities. CODELCO required a

This was mainly because of the new governmentâ&#x20AC;&#x2122;s slow

program that would allow for the horizontal integration of

transition, which created a challenging environment. Private

its processes. Our LIMS software facilitated the integration,

investment in key sectors such as healthcare and mining

adapting to its systems and network. This project was

helped prop up our numbers. Specifically, in the chemical

successful in integrating its clients, samples, analysis and

analysis division, the investment in the federal air quality

results. We offer a variety of solutions across the entire

networks boosted our results. For mining in particular,

mining value chain. Companies are no longer just buying

we were able to close projects with some of the most

instruments; they are investing in intelligence.

important companies within the mining industry in 1H19. Q: How does Thermo Fisher innovate across the mining Another factor that impacted our performance was that we

stages, from exploration to production?

began offering a larger array of solutions to complement

A: A great amount of data can be collected in the

existing products. We were able to sell value to our

exploration stage, and we provide miners with the tools

customers by employing a more integrated and key-

necessary to go into the mine and obtain all the information

account approach. The market has responded well to this

they need onsite. We offer portable analyzers that use

approach and we want to continue adding value to the

X-rays to obtain even more information.

industry and growing our sales this way. Other Thermo Fisher solutions can be used in the processing Q: How do you maximize the value of the services, tools

phase. Our MEP-300 is one of the most accurate analyzers

and systems you offer to your clients?

in the market. This equipment helps our customers

A: Last year we introduced a marketing tool for mining

determine the exact amount of precious minerals that are

companies called Thermo Fisher Mining Solutions Tool Kit,

being processed. These types of technologies help miners

which was an interactive app developed by our LATAM

understand the value in US dollars of the mineral they are

Marketing Specialists for the region. That marketing tool

processing in the plant. The MEP-300 is an online analyzer

was designed to explain what we can do for the mining

that is deployed in the field and which can be adapted to

industry. We can help our clients by providing solutions

the installed solutions and technology.

during the exploration and production phases, as well as through laboratories. We have solutions that ensure a

Q: What environmental solutions is Thermo Fisher offering

safe working environment for their workers and innovative

to measure the impact from Mexican mining operations?

solutions to improve lab results.

A: Among these are air quality-monitoring solutions. We are moving away from providing probes and individual

Q: What tools or technology is Thermo Fisher introducing

technologies to offering complete solutions. Our chemical

into the mining sector to help digitalize operations?

analysis solutions bundle a variety of offerings into one, for example. Our solutions for environmental monitoring help miners understand how their operations are impacting the

Thermo Fisher Scientific is a multinational developer of

surrounding area. Our air quality network, for example, can

biotechnological products. In the mining sector, the company

help our customers better understand the impact of the

is a leader in mineral processing and precision equipment for

gases within their mines, giving them better control of the

laboratories

pollution at their sites.

VIEW FROM THE TOP |

SERVICE APPROACH STRIVES TO DELIVER ‘THE BIG DIFFERENCE’ LEIF LINDHOLM Vice President Mexico of Metso

Q: Your slogan is “we make the big difference.” How

market, it takes a greater effort to keep growing it, so

and why are your solutions making the difference in the

many of our orders come from new projects. For example,

Mexican mining?

we have a big project in Panama that has significantly

A: I think we are making the difference by having many

increased our business in the region. It represents a US$6-

more service people at the mine site, providing feedback

7 billion investment. Cobre de Panama is the biggest

and supporting all mine processes. I believe we are way

project in the country, even greater than the Canal’s

ahead of the competition in this aspect. Today, the industry

expansion.

is focused on energy savings and being more efficient in operations and this is where we can provide support. The

Q: What are the main challenges, opportunities and

margins of impact that we can have on our customers’

expectations for Metso in Mexico over the next five years?

operational performance vary, depending on the type of

A: Making sure we have the right people is part of

operation. For example, we offer special equipment that

our secret for making a difference and one of our key

can increase grid efficiency by up to 30 percent. These

challenges as an organization. It is about finding people

returns gain even more relevance when considering the

with the right attitude. With the correct mindset, people

high cost of electrical energy in Mexico compared to other

can be taught and trained. To have all the knowledge and

mining jurisdictions.

the wrong attitude is of no use; thus, we care about our people, their training and giving them the tools to pursue

To stand out from our competitors, we emphasize the

their growth.

service part of our business and we have by now gained an advantage in this area. We approach any project as

There are two main issues for the mining industry,

a long-term way to gain the customer’s confidence so

energy and water consumption. We are seeing a growing

we can work together to get the accurate information

opportunity for us in the industrial waste management

that allows us to tackle and correct their bottlenecks and

sector. Also, I think that overall security is the main

issues. While these are unique for each customer, our

challenge that Mexican mining faces and without properly

extensive experience in mines around the world allows us

addressing it, the industry will face many growth

to implement best practices in every situation.

difficulties.

Q: How is Metso positioned in the Mexican mining

Regarding our expectations for our Mexican business, our

sector and what opportunities does the company see in

headquarters mandates national business growth of at

emerging markets?

least 10 percent per year. As the industry is not likely to

A: Mexico is not the biggest mining market. I would say

grow 10 percent annually, we must increase our market

the Chilean market is maybe 10 times bigger. But Mexico

share to accomplish this target. Although we do not expect

remains an important part of our global business as we

a significant change from the new federal administration,

have a big market share given the service we provide to the

the impact is more likely to be felt by our customers. We

industry. It is difficult to spell out a specific percentage for

care about knowing and understanding their worries so

our Mexican business as we have different market shares

we can solve problems more effectively.

for each product, but overall our position is very good. We have two main competitors, Outotec and FLSmidth, and many other smaller companies in each business segment.

Metso is a Finnish industrial company present in 50 countries. In mining, it focuses on improving operations through innovative

Emerging markets represent around 53 percent of all new

mineral handling solutions. Its services include expert and

orders. If you have a preponderant share in an existing

maintenance services and spare and wear parts

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| VIEW FROM THE TOP

THREEFOLD PORTFOLIO OFFERS BROAD COVERAGE ALEJANDRO ESPEJEL Country Manager Mexico of FLSmidth

250

Q: What areas of opportunity does FLSmidth recognize in

A: We see many benefits from this strategy. We have

Mexico’s mining sector and how are you developing these

over 80 offices around the world. While they used to be

into new solutions?

connected as part of the organization, each acted with its

A: We have a threefold solutions portfolio. We can sell

own resources. Now, these offices are handled regionally,

projects, standalone equipment or aftermarket services.

which implies a better and more efficient organization in

We see very intense activity in the latter as miners strive

terms of operations, expertise and functions. For example,

to make the most of their existing mines. For example, we

we have around 70 employees in Mexico that now can

contribute with retrofitting; that is, putting back idle or

leverage our much larger North American organization.

worn-down machinery in operation. We also see a great deal of demand for wear liners and composite liners. And we

Q: Where are you adding the most value to Mexican

recently launched our FerroCer Impact Wear Panel product,

mining and what are the most demanded solutions?

which is extremely wear and impact resistant.

A: We supply a broad product portfolio partly because we have concluded several acquisitions over the years

Mexican mines tend to be much smaller than those in other jurisdictions like Chile or Peru

to improve our offering. For example, we acquired Sandvik’s Mining Systems in 2018, which we are in the process of rebranding. As ore grades in global mining are diminishing, the industry needs more efficient technologies and larger equipment to maintain the same production. Every acquisition that we make has that target: to improve the productivity of the mining system as a whole while increasing sustainability.

Mexican mines tend to be much smaller than those in other

For example, we are developing a new solution with

jurisdictions like Chile or Peru, especially when measured

Newmont Mining called EcoTails. We are still finishing its

by mill throughput. This implies that assets and installations

industrial testing in Canada but when marketed, it will

are also smaller, so we must make sure that any investment

allow any mine to recover up to 95 percent of processed

our customers make is done correctly. To achieve this goal,

water. Not only is water a scarce resource, it is a critical

we invest in R&D and in state-of-the-art products. We have

resource when establishing the relationship with local

achieved up to 10 times higher durability with many of our

communities. This will become a game-changer and have

products compared to other options in the market. We have

a positive effect on sustainability and social license.

technology development centers in the US, Australia, Denmark and Germany. The center for mining is in Salt Lake City.

EcoTails will also create geo-stable tailings that do not need water, avoiding dams and the inherent risk of a

Q: FLSmidth has a new regional structure in seven mining

spill. We are already discussing its potential applications

jurisdictions. How are you creating synergy in North

in Mexico.

America with this regional block? We are also creating many new solutions related to digitalization. The Smart Raptor Cone Crusher optimizes FLSmidth is a global engineering company with almost 11,700

the operation of the mine based on the sizes of the

employees worldwide. It supplies the minerals and cement

particles it crushes. This equipment also exports data to

industries globally with engineering, machines and processing

the customer, who can monitor its performance remotely

plants as well as maintenance, support and operations services

and make a diagnosis in case of failure.

VIEW FROM THE TOP |

COMPLEX ENGINEERING FOR A STRATEGIC INDUSTRY RALPH BUCHHOLZ Director General of BEUMER Mexico

Q: Beumer Group is a global leader in intralogistics. What

enormous growth we are seeing in e-commerce, an area

steps are you taking to increase the company’s penetration

where Mexico is behind other markets by six or eight years,

in Mexico’s mining industry?

mainly because the Mexican population in general has no

A: We are well-integrated in Mexico’s mining industry and

confidence in the country’s transportation systems.

continuing to approach other market leaders to solidify our position. However, much of the sector is unaware of our full

Mexico is still a small market for us. After Germany, our

range of capabilities, so we approach companies that are

second-largest market is the US, followed by Asia, where

just beginning new projects and pitch our technology and

there has been significant population and economic growth.

engineering, illustrating why we are their best choice for collaboration. Timing is a key consideration because mining

Q: One of the characteristics of the Mexican mining sector

projects require feasibility studies before the heavy work

is its reluctance to change. How does Beumer convince

begins, which can take between six and 12 months.

companies it is the best ally for growth? A: We do this by illustrating how our changes to a

Today, engineering is much more complex. We have learned

company’s logistics improve safety, both for the operators

to manage data, especially during the exploration phase,

and the community where the mine is installed. Our

so we can evaluate the terrain and implement the most

attention to environmental sustainability is another factor.

favorable routing for our conveyor belts, which is completed

We are aware of the environmental impact of the routing

in two days using drones. Once we have evaluated the

we design, but we have the capacity to build underground

routing, we start working in the field. Technical visits to

or to construct completely covered belts that eliminate dust

exploitation areas also help boost our visibility and we

or noise emissions. In many countries, these elements are

plan to carry out roadshows, which provide a more direct

considered pollution. In Mexico, that is not yet the case, but

relationship with the customer. We also participate in many

it is already seen as a trend of the future and we can help

relevant trade fairs and exhibitions.

companies get ahead of that.

Q: What is the main added value that Beumer offers

Q: Does Beumer expect opportunity or hindrance with the

the industry?

arrival of the AMLO administration?

A: Beumer’s main added value is our approach to

A: I see the arrival of the new administration as an opportunity

engineering and the methodology we employ to ensure

for Beumer because the government is focused on improving

efficient use of time. We also integrate security components

environmental protection, which plays to Beumer’s strengths.

into conveyors that offer advantages to users, including

However, the concerning tendency we have identified in the

an extended lifespan. Digitalization is also a priority and

first months of the government is that many of its decisions

we have created a new department to focus on this area,

are not transparent, as we saw with the cancellation of the

providing another added value. Manufacturing bands may

new airport. Another concern is the lack of legal certainty for

seem like an analog process, but Beumer is fully immersed

investors on issues such as taxes. The changes proposed by

in the digital world.

the new government affect us indirectly; that is, they directly affect our clients, which then affects us.

Q: Which of your products are most attractive to the mining industry and where do you see the potential for wider growth?

BEUMER Group is an international manufacturing leader in

A: The most popular products are long distance belts,

intralogistics in the fields of conveying, palletizing, packaging,

whether tubular or underground. Logistics is a sector where

sortation and distribution technology. It offers a solution for

we expect to expand in the coming years thanks to the

almost every logistics challenge

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| VIEW FROM THE TOP

CUSTOMIZED SERVICES BASED ON EFFICIENCY JOSÉ ALBERTO LEAL Managing Director at Cribas y Productos Metálicos

Q: As a mining supplier, what are your expectations

screening solutions to our customers, we can give them

for the demand and what factors do you think will be

the exact fit for their screening applications. We plan to

impacting it the most?

continue this model that we have been using in the US and

A: Mexican mining has always been strong and regardless

Mexico for our expansion to South America. The South

of the country’s situation. The political climate we are

American market is very similar to Mexico, and we will

facing should be solved in the short term and pave

bring our expertise and service to those customers.

the way for continued growth of the Mexican mining 252

industry in the mid and long terms. Locally, it will be key

Q: After your experience in other markets, what have

to work together with mining companies, suppliers and

you learned that can help improve the service you offer

communities to ensure a win-win situation for everyone.

to your customers?

We expect an increase in our synthetics at the end of

A: We have learned that every customer is an important

2019. We have seen them grow in the past, but we will

part of our company, and each must be treated as well

look to consolidate them in the Mexican market to give

as possible. We have improved our response time. When

our customers the greatest advantage.

dealing with exports and long freight, it is key to reduce lead times, so we have started a campaign to reduce lost

Q: You have started to export your products to the US

time in all our processes. Quality has also been improved

and South America. How has the experience of venturing

due to these changes. Our customers expect the best

into other markets been and who are your main partners?

quality from us, and as we go to more demanding markets,

A: This new venture into other markets has shaped our

we always deliver quality beyond the its expectation.

company. It has made us more professional, and more efficient. We have evolved from being a regional company

Q: Due to demand, you adapted your offer to include

to a national and now an international one that is looking

polyurethane. What have been the main demands of the

to compete on the world stage. Our reach is now beyond

industry over the last year and how have you adapted

North America, and we plan to grow to the north and

your portfolio to meet these?

south of Mexico to offer the same products and services

A: Polyurethane screens have been in the market for

we offer our Mexican customers. We always like to think

quite some time. The problem before was that they

of our customers as our main partners, but we also have

were either of bad quality, or very expensive. We came

strategic partners, with which we work together to reach

in to solve that. We also discovered that some markets

further into North America and South America.

or some applications are not ready for polyurethane screens, but are in dire need of polyurethane accessories.

Q: What is your assessment of the main differences and

We have learned to offer the right product for each

similarities between these mining markets?

customer and application. We always work with our

A: We have learned something over the years, which has

customers for our innovations. They are the driving

differentiated us from our competitors: no two plants are

force behind our research. Products like synthetic

the same. They can look the same, but they will behave

(polyurethane) rails, abrasion resistance plate screens,

differently. Being a manufacturer, and offering tailor-made

impact resistant dewatering screens, and others, have come into production due to customer needs. We plan on continuing that policy.

Cribas y Productos Metálicos is a manufacturer of screen media with several locations in Mexico and Latin America. It

Q: Which certification programs has the company

was established in 1965 and consolidated in 1968. Its product

pursued and what is the added value that these can add

line has expanded and partnerships have helped them grow

to a supply chain company?

A: We are now a HARDOX Wear Parts center and partner.

that is around 5 percent of our sales. The alliances we

That means that we are part of a network of manufacturers

do keep are helping us in our growth strategy. We have

that works only with this brand to deliver the best quality

become a partnership where their name and our name

in abrasion resistance. We work together as a network

give us strength in new regions to have better coverage

to complement each other and solve problems for the

of the market.

customers in the region. Q: What changes or modifications to the Mining Law do We are the only one in the network focused exclusively on

you think would be important for Mexico to continue

screening media. It is a relationship where our feedback

developing its mining industry?

becomes a new product offering and their support

A: We believe that mining moves the country. Whether it

helps us achieve more sales and improve processes and

is precious minerals, non-metallics, and even aggregates.

applications.

It is the beginning of every process. We believe mining should be encouraged and available for local and foreign

Q: How important is R&D for Cribas and what percentage

companies. All this while working with the communities

of your annual turnover goes to this area?

where the mines are located, using international process

A: There is no fixed budget for R&D. We have a group of

standards and being planet-friendly to ensure we can do

engineers looking to improve products all the time. Not

it for many years to come.

only are they making the products better, but designing new tooling to make them faster, for them to last longer,

Q: How has Cribas performed in so far in 2019 and what

and make them less expensive to customers.

have been the main challenges it has encountered? A: 2019 has been a challenging year due to an economy

Q: What new materials or alloys are you using the most

that has been slowing down, yet it has also been a year

and why do these make a difference?

where we have consolidate alliances we had made in the

A: We are using a lot of Hardox 450 and Duroxite. These

previous years and are now creating a stage for us to

are high abrasion resistance plates that have given us

take the world head on. We are putting all our efforts into

an advantage over our competition. The Duroxite is the

continuing our companyâ&#x20AC;&#x2122;s growth. To achieve that, we

toughest material we have ever used. It will withstand

need to work hand in hand with customers and suppliers

temperatures over 800Â° with highly abrasive materials

to make it a win-win situation for everyone.

like iron ore. Q: Which are Cribas' largest clients and projects, and with Q: You have an exclusive contract with several

what new companies does it want to work with?

international suppliers for the distribution of screens.

A: Our largest clients are definitely the mining operators

How are these alliances helping your business?

in Mexico. They are and will always be our key customer.

A: We manufacture all screening media types. We have

We want to strengthen our position in North and Central

replaced our imports for locally manufactured products

America, and establish ourselves in South America. We

in most cases. There are still times where we will buy

also want to increase our market share in industrial

some products from other suppliers, but I would say

screening like recycling and agricultural applications.

253

| INSIGHT

DETAIL-DRIVEN ENGINEERING FOR LOW MAINTENANCE, DURABLE MACHINES FABIO MARRONI General Manager of Haver & Boecker Mexicana

Miners are starting to see the value in more expensive

supported by Finite Element Analysis (FEA), technically

products that last longer. In this context, low maintenance

optimizes design according to customer requirements,

and high durability are crucial aspects to consider when

while the bridge-mounted exciter drive system maximizes

choosing an equipment provider, says Fabio Marroni,

machine reliability with extended maintenance intervals,”

General Manager of Haver & Boecker. “Our goal is to

says Marroni.

develop machinery requiring the least maintenance

254

possible while lasting longer,” he says. “Our best

Haver & Boecker also manufactures its own spare parts.

measurement is our clients’ feedback.”

As mines are often in remote locations and given that any minute of downtime while waiting for a spare part is

To remain ahead of a rapidly gaining pack, innovation is

extremely costly for miners, the company leaves these

crucial for the company. “Our products are constantly

on consignment. “The client only pays for what it uses,”

improved,” says Marroni. As the company’s equipment

he says. “I think this is our key strategy as it enables us to

is mostly large steel machines, most enhancements are

ensure that the client has all the parts it needs to keep its

based on attention to detail and client feedback. “The

plant running without spending unnecessarily.”

goal is to understand where the equipment’s design can be reinforced to guarantee low maintenance and high

The company offers a premium product and is content to

durability. We invest in design innovation and in the

remain in that niche. “We do not plan to diversify to other

details,” he adds.

market niches because our brand serves high-capacity vibrating screens,” Marroni says. “Developing specialized

Haver & Boecker’s main clients in the country are mine

large mining equipment is our business. There are many

operators that demand specialized products, such as

other companies providing smaller, standard screens.”

Grupo Calidra, Grupo México, Peñoles, Fresnillo and Minera Frisco. The company also offers a variety of

This specialization has led Haver & Boecker to segment

products for steel and metallurgy plants, like Arcelor

its manufacturing. Big and robust machines are made in

Mittal and Ternium. “Our vibrating screens, for example,

Brazil, and medium-sized equipment in Canada. At the

are not prefabricated but designed for each type

current market demand, it is not yet profitable for the

of application,” Marroni says. In ore processing, the

company to manufacture in Mexico but the possibility

company’s solutions best serve the screening, washing

is open because logistics and shipping expenses can

and pelletizing of minerals.

increase the end-user’s costs between 10 and 15 percent. “Having a manufacturing facility in Mexico would be more

Taking its business offering a step beyond equipment,

profitable for our clients but it has to be done at the right

Haver & Boecker provides a simulation software for all

time because it represents a significant investment for us

kinds of mineral processing applications. The latter’s

and hence depends on demand,” Marroni explains.

intuitive graphical interface can model and calculate entire plants. NIAflow supports dry and wet crushing, screening

Marroni says that miners are waiting for market

and sorting processes, making it easier to design processes

uncertainty to blow over before ramping up investment.

and optimize profits. Its graphical interface allows the

While the company is not planning to open any new

creation of processes in a simple and intuitive way.

offices in the country, it will maintain its current operations. “Our guidance for the future is to expand our

“We offer engineered solutions for applications

operations in Mexico.” He adds that the company intends

demanding large tonnages in combination with high

to grow significantly in the next few years, expanding

reliability. The application’s specific body design,

annually by around 15-20 percent.

VIEW FROM THE TOP |

FIRST-HAND KNOWLEDGE PROVIDES ADDED EDGE MIGUEL GUERRERO CEO of PROESMMA

Q: What added value does PROESMMA bring to the mining

at a national level and are being replicated in the mining

industry in Mexico?

industry.

A: We work alongside our clients to understand their needs. We have developed a team that adds value to the technical

Q: What impact is the industry seeing as a result of the

features of the products we offer. This technical team allows

new government’s priorities?

us to understand the needs of mining operations first-hand.

A: We are facing increasing challenges for innovation,

For instance, with circuit optimization, we allow our clients

technology and knowledge transfer because many federal

to use a simulator we created to perform industry tests

programs are being canceled. These programs were

virtually, without the need to conduct them on-site. This

supposed to support innovation structures and the current

lets them know if changes need to be made in their process

situation hinders economic development. A key challenge

without any real-time delays. Every additional product or

for the sector is to help the administration recognize that

service is free of cost to the client. Any other company

mining is one of the most important industries in Mexico. The

would charge for these services but this is our added value.

country needs to foster conditions that attract investment.

We need to provide these add-ons because the industry is

We are interested in exploration activities being carried out

in a situation where companies need to save on expenses.

in Mexico to showcase business opportunities in the country so that companies see Mexico as a friendly environment for

Remaining competitive is difficult in the current landscape

doing business. We are now not only competing regionally,

given the peso’s depreciation and difficult geopolitical

but internationally and the vision of the federal government,

circumstances. The mining industry faces growing

whose job is promotion, has fallen short of business

challenges and we, as providers, can be part of the value

expectations. If federal regulations penalize the industry

dynamic that provides operational efficiency at lower costs.

with taxes and concession or exploration cancelations, it

This should be the obligation of all providers and we all

will be difficult to attract new projects. We need to ensure

need to be willing to sacrifice some profit to provide our

that new projects arrive to the country and to do this the

clients with added value.

government and private sector need to work together.

Q: How does PROESMMA implement a flexible business

Q: How is PROESMMA positioned for growth?

model for the mining industry?

A: Our main objective is to continue developing our main

A: The industry has radically changed in the last couple

product: steel balls for grinding. We are looking for new

years and we needed to become more flexible. We need

companies to engage in joint ventures, which is how we

to become more profitable but at the same time we face

have grown in the previous 10 years. Understanding the

increasing competition. If we can simultaneously provide

needs of our clients is of the utmost importance to continue

both innovation and savings with payment flexibility, our

finding innovative opportunities for our products. Despite

clients will have an extraordinary experience.

our growth and evolution, we continue to focus on our core business but we also are looking for partnerships with

This year, alongside Monterrey Technological Institute and

companies that have mining-related activities. Mining is the

Fablab Chihuahua, we developed a project for an innovative

group’s most important market.

classification model of steel balls for grinder cleaning. Previously, every grind-cleaning process disposed of all the used material. This project allows mining companies to save

PROESMMA is dedicated to manufacturing and commercializing

costs by classifying the balls being extracted from the grind

cast and forged steel balls and steel components. The Mexican

so that some may be reused for further operations rather

company provides grinding solutions in addition to simulation

than wasted. These processes are being used by CEMEX

products. It is part of Grupo Acermex11

255

| INSIGHT

LIMESTONE LEADER BANKS ON SUPPLY RELIABILITY ENRIQUE MALDONADO Regional Director for Mexico of Grupo Calidra

Lime is an essential chemical that helps to regulate mining

from mined limestone but it also has a strong presence in the

processes. Ensuring its availability is a top-flight concern

infrastructure, chemical and steelmaking industries.

for miners, and they appreciate greatly having a guaranteed

256

supply, says Enrique Maldonado, Regional Manager for

Maldonado says that the uncertainty rippling through the

Mexico of Grupo Calidra, a leader in the lime mining

mining industry is a result of the political landscape, which

industry. “Miners are focused on the certainty that they

is having an impact on potential future investment. “Our

will have the right product on time. Quality and volume are

perception about the federal administration is not good or

essential to keep the continuity of their operations,” he says.

bad, but a lot of uncertainty,” he explains. “The question is not the cost-effectiveness or profitability of the invested

The product is used to regulate pH in the lixiviation process

money but the vulnerability of the permissions to open or

to prevent sodium cyanide from becoming cyanuric acid,

expand new projects. The companies with these projects

which is extremely toxic. A constant supply of lime is vital

would become our customers.”

to guarantee continuous operations and stoppages can be expensive and dangerous, says Maldonado. “Our main

The government’s unpredictability when it comes to the

added value is our delivery service reliability,” he says.

mining industry is directly affecting companies like his,

“Guaranteeing to our clients that we can provide lime at

Maldonado adds. “We have not canceled any projects yet,

all times allows us to have a competitive advantage.” The

but we have postponed them all.” Although the company’s

company has production facilities in Sonora, Coahuila,

current projects have already paid for engineering and

Nuevo Leon, San Luis Potosí, Jalisco, the State of Mexico

allocated resources, it is waiting to see what direction

and Puebla.

the new government administration takes regarding the Mexican industrial sector.

Grupo Calidra also invests with its clients to install storage silos so they can maintain stock in case of a contingency.

One example of the current climate’s impact on the industry

“This implies having a backup volume as preventive

is a delay in Grupo Calidra’s plans to build a third kiln in

measure,” Maldonado says. For example, during winter, the

Hermosillo. “We have concluded the corresponding geological

access routes to reach client facilities often are closed due

studies and found abundant reserves of good quality

to frozen roads, making access by truck almost impossible.

limestone. We have world-class technology and engineering

Another example is blocked access resulting from protests.

for this project and we are sure that there is enough market

“We provide storage for those days when we cannot reach

for this surplus of production if the government outlines

a company,” Maldonado says. The same principle applies

clear rules but this project is on hold,” Maldonado explains.

to the possibility of a mine blockade, which is tackled by

“Although our projects and investments in Mexico are on

providing some lime on consignment.

standby; our investments in Latin America continue,” he adds.

Besides making its operations and services reliable, Grupo

Maldonado also mentions the case of its facility in San Luis

Calidra is also focusing on sustainability. “We are committed

Potosi, which has zero emissions. “The government did not

to corporate ethics and supporting social programs,”

want to renew our construction license when the plant was

Maldonado says. “We have some of the most modern lime

only in development due to political interests and a change

plants in the world, with zero emissions. Our blasts are

of party in the state,” he says. “Our operation was stopped for

completely controlled so we do not expel the rock but

three years and we are only starting to reactivate it.” he says.

only fragment it, preventing dust contamination, material

Grupo Calidra is especially concerned about environmental

damages or personal injuries.” The century-old company

permits and concessions. “Projects will continue but the

defines itself as a miner because the main raw material comes

industry needs to lobby together for certainty.”

VIEW FROM THE TOP |

CONSOLIDATING LEADERSHIP IN MOLYBDENUM PRODUCTION ALFREDO ORTEGA Director General of Molymex

Q: What is the company’s stance on growth and investment

Q: Molymex is a subsidiary of Molibdenos y Metales, a

given the national and international geopolitical environment?

Chilean company that produces 30 percent of the world’s

A: In Mexico, with the new López Obrador government, there

molybdenum. What is Mexico’s part in this?

is a deep restructuring process in the way the state relates to

A: Molybdenum is a by-product of copper, although there

business and society as a whole. Companies have to adapt to

are some primary mines, particularly in China. The world

the new way of doing things. But before we can be completely

market is about 600 million pounds, of which, about 200

confident and start making new investments, the government

million pounds is produced in China. Chile is another

has to elucidate, in a detailed way, the direction it will take.

notable producer, with approximately 23 percent of global production. In Mexico, Sonora singlehandedly produces

However, we are not discouraged. We are confident that the

around 5 percent as only Grupo México has molybdenum-

new president wants the best for Mexico. It is only a matter

producing mines. We buy molybdenum concentrate from

of waiting and being cautious until a definitive state strategy

Grupo México and by means of heat eliminate sulfur,

becomes evident. The new administration is not even a year

moisture and oils, we end up with molybdenum trioxide.

old, so the current climate of doubt is normal.

This is used in special steels, and we sell it in the US, Europe and Asia, chiefly.

Global issues are also playing a role in this regard. Policies contrary to trade, especially the tariff war between the US and

Q: What are your near-term plans regarding growth and

China, are impacting global growth and the Mexican economy.

attracting new clients?

Likewise, recent trade tensions between the US and Mexico

A: Our production is practically sold in advance. Moreover,

have affected both countries’ economies negatively. Given

molybdenum consumption is low in Mexico. Europe uses

these circumstances, Molymex has taken the appropriate

approximately 150 million pounds a year, while Mexico

measures to retain its place as a top player in Mexico’s mining

uses approximately only 8 million. Our strategy in Mexico

industry.

is to consolidate our preeminent place in the industry by fine-tuning our daily operations and innovating. The world

Q: Are there any regulatory changes you are hoping to see

has changed and new technology makes demands on our

enacted under the present administration?

operating processes. It is not necessarily about spectacular

A: First and foremost, government is a facilitating entity. That is

makeovers. A change, even if it is small, is innovative when it

its main vocation. To do that, it has to have a deep knowledge

produces positive results. I identified a few opportunity areas

of the industry. Lawmakers from Sonora have talked about

and, working hand in hand with our people, implemented

imposing new taxes on mining activities, which shows they

changes. In the process, I confirmed a common notion that is

do not quite understand mining’s importance for the state

not always given due importance, namely, that continuously

they represent. Such taxes would not only impact businesses

boosting the capacities of workers is the key to success.

directly involved in mineral extraction, they would affect other

Thus, we started an in-house business university whose main

industries, like construction, and the state’s economy as a

pillar is innovation. Through this institution, we formed an

whole. The present political and social circumstances are not

innovation team that has considerably reduced the need for

right for considering further taxation.

maintenance services in the plant.

The pressing need is to strengthen the rule of law in Mexico. Security is paramount. Mining operations take place in far-off

Molymex is a Mexican company affiliated with the Chilean

areas, often tucked away in the sierra, and the authorities’

consortium Molymet, with a presence in Mexico, China, Chile,

reach and response time is less than ideal. Improving this

Belgium and Germany, producing 35 percent of the world’s

should be a priority.

molybdenum. It has a processing plant and offices in Sonora

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| VIEW FROM THE TOP

CYANIDE INNOVATION INCREASES SAFETY, PRODUCTIVITY LEONARDO MARTÍNEZ Business Development Manager of Cyanco

BILL CLARK Vice President of Global Sales at Cyanco

Q: Why is Mexico an attractive investment for Cyanco?

to partner with an established tier-one cyanide supplier,

BC: Mexico is an attractive market because mining is a

that holds itself to the highest global standards of safety,

growing industry, with a robust and healthy sodium cyanide

innovation and sustainability in the manufacture, packaging

infrastructure already in place. There is ample cyanide

and distribution of product.

supply in Mexico, but our competitors cannot provide the

258

same level of supply chain certainty as Cyanco. Unlike the

Q: How does Cyanco guarantee environmental

rest of the industry, Cyanco has two facilities – in Texas and

responsibility?

Nevada – where we produce sodium cyanide. As such, we

LM: Cyanco works very hard to ensure our customers are

are ideally set up to serve the country without chance of

using our products responsibly and with due care and

disruption.

diligence. Our Applied Technology Services group offers equipment and services to optimize customers’ sodium

LM: We also bring added value to the numerous, intelligent

cyanide use, which helps improve process efficiency and

gold and silver producers who are looking for an

lower operating costs. At Cyanco, we have also developed

uncompromising focus on safety and better environmental

a number of proprietary technologies to help destroy and

performance from their suppliers. Cyanco is a trusted

detoxify residual cyanide to help keep miners’ operations

partner who will bring those additional benefits, which also

safe and compliant.

helps to improve the efficiency and profitability of any size of mining operation.

Furthermore, we supply our customers with packaging that is safer and more efficient. Our container shipments

Q: What can the new government do to boost Mexico’s

in Mexico use ISO tank systems, so instead of handling for

mining industry?

example 18 one-ton boxes of cyanide, customers receive

BC: The investment needed to start a new mining project

one large container. Transferring product on-site is a hands-

is significant. The amount of capital involved means that

free process that eliminates the risk of worker exposure.

investors are looking for trusted partners in the geographies

Additionally, as an extra safety precaution, we have dyed

where they land their projects. Any uncertainty or

all our cyanide red, so it is easily identifiable.

challenge has to be addressed in a forthright manner and communication has to flow freely to safeguard investments.

BC: One of the things that differentiates Cyanco from

People want certainty, especially when they are investing

almost all its competitors is that our global competition

money at this size and scale.

views their part of the deal done as soon as they sell their sodium cyanide. But we take a full view of our products:

LM: Mining brings significant benefits to all stakeholders.

from sale, delivery and use to detox and destruction. That

When managed well and sustainably, and in compliance

includes helping customers reduce their sodium cyanide

with all laws and regulations, benefits will flow to the

consumption.

local community, the state, the federal government and to those parties investing in mine development. One way for

As signatories to the International Cyanide Management

miners to ensure compliance, and operational certainty, is

Code (ICMC), we also audit every single customer before sending them a gram of cyanide. In summary, four things that uniquely characterize Cyanco are: NAFTA

Cyanco is one of the world’s largest producers of sodium

manufacturing and security of supply; value-added services

cyanide. Founded in 1988 in Nevada, the company offers

described above; our commitment to sustainability and

innovative cyanide solutions to increase safety and reduce

ICMC standards; and our local presence in Mexico. Cyanco

mine costs

takes seriously our license to operate in all communities.

VIEW FROM THE TOP |

A BUSINESS OFFERING FOR THE MINING VALUE CHAIN DONOVAN SĂ NCHEZ Mining Director at SGS

Q: Where are you adding the most value to Mexican mining?

A: We are not the only company offering on-site laboratories

A: We cover the whole value chain of the mining industry,

but we have the most experience. We have two operating in

from the beginning of exploration to the trading of the

Mexico, one in Guanajuato and the other in Guerrero. We offer

processed mineral. I believe that we are one of the few mining

our clients the possibility of having certified laboratories whose

companies offering solutions for each stage of the process.

results can be trusted. Regarding the cost-benefit choice, an

We can help with geological modeling and metallurgic

on-site laboratory is rarely cheaper but this decision is linked

research in exploration, re-engineering of projects and

to the reliability of the sample and result. We can adapt to the

increasing productivity in mine operations and land recovery

model that suits our client best. If it is more beneficial for SGS

at closing. We also offer security and health solutions.

to set up the facility and the customer operates it, we can do that. But we can also make the investment in the laboratory

But being a company with such a diversified portfolio,

and operate it as well. The latter is more common.

we must ensure that we remain competitive compared to companies that focus on one stage. We tackle this with a commitment to the constant improvement of our costbenefit offering. For example, we worked with a customer to improve its metallurgical process and increased productivity by 5 percent, which translates into a huge profit for the company. We also focus on accompanying our clients. To that end, we opened a new laboratory in Hermosillo in November 2018 to be closer to the market in Sonora and the

SGS worked with a customer to improve its metallurgical process and increased productivity by 5 percent, which translates into a huge profit for the company

northwestern region. We are also improving our operations in Guaymas by completely rehabilitating and modernizing

Q: How would you boost mineral exploration in Mexico and

our laboratory facilities. The company additionally made

what is most needed to do so?

a significant investment to consolidate our operations in

A: There is a part of the equation that the industry cannot

Manzanillo. As a global business, SGS can also add value

control: the price of metals. But exploration in Mexico has also

through its experts around the world with experience in

been significantly affected by the tax levied on exploration. I

solving multiple problems and who are at the disposal of

think this tax should disappear. To explore is to risk money, as

our clients.

nobody can know for certain that the exploration target will yield a mine. Exploration must be favored to generate new

We are certifying the company to guarantee we comply

projects that can become operational and later guarantee a

with the highest standards and we will soon have the IMO

constant tax income for the government when producing. I

certification. We also always renew our previous certifications,

think that it is simply not correct to tax companies that are

such as that conferred by SCC on our Durango laboratory. If we

already assuming the high risks of exploration and betting

increase our efficiency, we can also offer these same returns

their money. As for service providers like us, we can assume

to our clients. To achieve this, we analyze and re-engineer our

part of the risk by also investing in our process, our people

processes while also investing in new equipment. Our goal is

and the solutions that we offer.

to be better, faster and more integrated. As a consequence, we can reduce costs and shorten response times. SGS was established in 1878 and is the worldâ&#x20AC;&#x2122;s leading

Q: What are the advantages of having on-site laboratories

inspection, verification, testing and certification company.

at mines and what are the potential returns in terms of

With more than 90,000 employees, SGS operates a network of

down times, earnings and productivity?

over 2,000 offices and laboratories around the world

259

| INFOGRAPHIC

MEXICO, NET MINERAL EXPORTER CAMIMEX reported that Mexico’s mineral-metallurgic sector

argument in favor of this is that unitary transportation costs

registered a trade surplus in 2018, reaching US$5.6 billion.

of doré product is relatively low.

Exports, which amounted to US$18.23 billion, grew 3 percent compared to the previous year. Precious metals corresponded

With respect to silver, around 30 percent of Mexico’s

to 38 percent of total exports, while industrial metals added

production is obtained via doré. Part of this is exported,

up to 55 percent. The remaining 7 percent is associated to

generally accompanied by gold, which, as CAMIMEX says, is

non-metallic minerals. Moreover, a higher mineral bulk volume

favored by the abundance of refineries in the world. Even if

left the country in 2018 than in 2017: Mexico’s Ministry of

there is no specific trade category for doré, a clear tendency

Communication and Transport registered 25.77 million tons,

signals increasing silver exports from 2014 to 2018.

which translates into a yearly change of 10.9 percent. Total load transportation in Mexico’s mining industry was 4.5

Regarding zinc, the same organization pinpoints Mexico’s

percent higher in 2018 than the previous year, registering

growth as a zinc exporter on the country’s recent zinc mining

74.9 million tons.

boom, added to its lack of refining capacity. Peñasquito and Velardeña mines are key in this tendency. The Ministry of Economy says that Mexico’s zinc exports in 2018 were 9 percent higher than in 2017. New projects, such as Capela, Juanicipio, Los Gatos, San Martin and Buenavista Zinc, will keep Mexico’s net zinc concentrate exports in the black. But Mexico is also a net exporter of refined zinc, sending this product mainly to the US. As exported volumes decreased until 2016, CAMIMEX posits that internal consumption might

Mexico’s gold exports in 2018 amounted to US$6.8 billion,

have recuperated in this period. On the other hand, the

while the country imported US$1.5 billion worth of gold. As

export increase in the last two years, might be a sign of

CAMIMEX points out, about 75 percent of the national gold

a weaker national market, perhaps attributable to a less

production is obtained via doré. The rest is found in lead

dynamic steel sector, potentially as a result of US tariffs.

and zinc concentrates, and local refining capacity for these

With respect to refined copper, Mexico’s balance sheet

is insufficient. Even when it is impossible to measure doré

registered a surplus. The country exported 137,735 tons,

production precisely, the organization estimates that most

mainly to the US and China, while only importing 54,577

of Mexico’s increase in gold exports correspond to doré. An

tons, chiefly from Chile.

MINING EXPORTS AND IMPORTS 2016-2018 (US$billion)

MINING EXPORTS AND IMPORTS BY COUNTRY 2016-2018 (US$billion) 10

Exports Imports

IMPORTS

6 4

3 EXPORTS

260

Precious metals corresponded to 38 percent of total exports, while industrial metals added up to 55 percent

Gold Silver

6 4 2 0

2016

2017

Copper Aluminum

2018

Zinc Iron

2016

China South Korea

2017

Japan Brazil

2018

Colombia Canada Russia

VIEW FROM THE TOP |

TRADERS ADD VALUE BEYOND JUST SALES JOSÉ ANTONIO BERLANGA General Manager Mexico of Mercuria

Q: What opportunities do international treaties like

support provided by the trading companies they choose.

TPP and USMCA open up for commodity traders

Mercuria has a strong balance sheet to provide with a

like Mercuria?

solid financial support. This allows us to bid for many

A: Mercuria is mainly focused on the Asian market,

concentrates but we solely focus on the businesses that

which accounts for around 90 percent of our operations,

allow to make a win-to-win philosophy.

although we have done business in the US and benefited from NAFTA at that time. Rather than international

Q: Given your expertise in metals prices, where should

treaties, we believe the greater disruptor to the trading

investors be looking to bet up to 2020 and what are the

world is the US-China trade war that shifted demand,

price expectations for these metals?

supply, tariffs and prices. Chinese environmental

A: I would advise miners to invest in productive projects,

regulations have also impacted our business as the

regardless of the mineral but focusing on gold, silver and

country increasingly demands clean-sourced minerals.

copper. As for the so-called lithium boom, it is based

The Chinese market previously absorbed all types of

on EV batteries. International economies, however, will

materials, regardless of how they were obtained. But

continue to rely on fossil fuels for years to come, so I think

the country’s industrialization process has modified its

that the real boom for battery metals will take another

internal demand and it no longer accepts all materials,

year to come.

which has particularly impacted global demand for copper and zinc mainly. Our role is to guide miners in relation to the changes in Chinese regulations explaining which are the new regulations and give them solutions for their materials.

The Asian market accounts for around 90 percent of Mercuria's operations

Q: What is your message for the industry regarding the added value that traders can deliver beyond buying

Q: Mercuria’s base metals team is based in Shanghai.

and selling?

What is the specific role of local offices, such as that in

A: I will not speak for all traders but I can explain

Mexico, in the trading process?

Mercuria’s added value. The company has a central focus

A: Our main business hubs are in Geneva, Beijing,

on customer service and we offer financing at lower rates

Shanghai, Singapore, Calgary, Chicago and Houston.

than those found in the banking sector. We also share our

Mercuria has four offices related to mineral concentrates

deep knowledge of the mining market with our clients,

trading. Our headquarters are in Geneva; the South

so we add value by providing counsel and often work as

American operations are basically managed from Lima,

consultants. I think the Mexican market is becoming more

Peru; Mexico sees Central and North America and

aware of the real value of traders, given the number of

Shanghai oversees all minerals trading into domestic

companies entering the country and the consolidated

market. Local offices spot opportunities in our regions

traders already in Mexico’s mining industry.

based on our client’s needs. In mining, we are mostly focused on copper, lead, gold, silver and zinc.

To remain competitive against all these players, I think creativity is the key. We see market changes as opportunities to deliver better business. For example, the

Mercuria is one of the largest energies and commodities trading

Mexican mining market delivers between 2-3 million tons

companies in the world, with more than 1,000 employees and

per year. Our business is not about buying and selling

operating bases in over 50 countries. Founded in 2004, its

these concentrates; miners must also look to the financial

gross turnover in 2017 was US$104 billion

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| VIEW FROM THE TOP

CHEMICAL SOLUTIONS FOR A RESPONSIBLE INDUSTRY CLAUDIA MÁRQUEZ President of Chemours Mexico

Q: What characteristics position Chemours as the

cyanidation mill tailings and leach solutions. Together with

leading company in the security and safety segments?

the Deputy Ministry of Mines in Mexico, we supported the

A: The company’s philosophy does not rely on providing

development of the safety and environmental framework

a product, but rather a service to our clients. Hence, our

that will rule sodium cyanide operations at the national level.

focus is on training our people. In so doing, we achieve the

262

required level of experience to make a difference in mining

Q: How do you foresee the development of the mining

operations. Mexico is the world’s largest silver producer

industry in the coming years and how will this impact

and the eighth-largest gold producer, making it a strategic

your operations?

country in our portfolio. We take this seriously and it is

A: Mining companies establish annual budgets based

why we deliver annual trainings on concrete cases. This

on mineral price forecasts. As Chemours works under

year, we delivered our 12th emergency response training

medium and long-term supply contracts, we know many

with sodium cyanide. We invited operators and brigades

industry upturns and downturns can take place due to

from the main mines in Mexico, who are our customers and

volatility. In 2019, we saw many changes in demand given

we executed real-life simulations. The goal is for them to

the market behavior and even though gold prices have

be better prepared in case of an emergency. The safety

increased, we have not identified a relevant response

teams and doctors of our customers also participate and

on the supply side. In the rest of Latin America, many

it is a very enriching experience because they get to work

mines are trying to close 2019 with higher levels of

outside their comfort zones by operating in other mines.

production, but this is not the Mexican case as companies are still waiting to take further steps given the change in

There is a public misconception regarding mining so

administration. On the other hand, supply and demand for

we need to do more around communication. Having a

sodium cyanide will soon overlap. Looking at projections,

presence in communities is also important because it

mines are facing bigger challenges as time passes by. It is

helps us understand their concerns around safety issues.

getting more difficult to open a new mine, so companies

When handled under the right safety conditions, sodium

are deciding to continue operating in existing assets.

cyanide does not poses a threat to users. The entrant

In these cases, more cyanide is required to extract the

administration is working together with the industry

mineral. This is taking place not only in Mexico, but at a

to change the perception of mining and highlight it

global level. Nevertheless, 2019 has been an atypical year

importance and benefits to the economy and industries.

in the country and we do not expect this behavior will

Every player is focused on executing sustainable mining

change in the next two years.

operations and Chemours can add much value in this regard. We produce responsible chemistry, were founding

Q: What are Chemours top objectives for 2020?

partners of the “International Cyanide Management Code

A: Our growth in Mexico will go hand in hand with the

for the Manufacture, Transport, and Use of Cyanide in the

inauguration of our new sodium cyanide plant. It will

Production of Gold” (Cyanide Code) which is a voluntary

be located in Durango and installed capacity will be 65

industry program for gold and silver mining companies. It

thousand tons. We are the element of the experience

focuses exclusively on the safe management of cyanide and

in Mexico, we are leaders in this segment with a 55 percent share. Nevertheless, the capacity of this plant will substitute the country’s total imports. We wanted to

Chemours helps create a colorful, capable and cleaner world

have this product available as close as possible to mine

through the power of chemistry. Chemours is a global leader in

sites so this project liberates some capacity from our

titanium technologies, fluoroproducts and chemical solutions,

Memphis plant, which will allow us to enter other markets.

providing its customers with market-defining products

Even though we are very focused on the Americas, this

plant also gives us the possibility to keep betting on

is to have 50 percent of all positions globally filled

Mexico in case demand grows. Now, construction permits

with women. At Chemours, we encourage diversity and

have been approved, however, before continuing we are

opportunities for all, an important step toward equality is

working very hard with the communities near the plant

to invest in youth to make STEM roles attractive to them,

to make sure they know and understand our project, as

independent of gender. Companies always require people

well as addressing their concerns. We expect the plant to

who generate results, whether that person is a woman

become operational between 2020 and 2021. In terms of

or a man but a diverse workforce boost the innovation

employment, the facility will create 350 direct and indirect

and more productivity. Nevertheless, the number of

new jobs, and even if most of it is automated, many hands

women studying these careers is less than the number

will be required to work in the service and logistic areas.

of men. Our challenge is to invest in this talent pool by developing company policies that are attractive to women

Q: How is the company implementing gender equality

by addressing their needs. Many of the programs we are

policies in an industry traditionally dominated by men?

working with are being implemented at the secondary-

A: We have a gender equality strategy to achieve by

school level to support the deployment of STEM careers

2030. One of our Corporate Responsibility Commitments

among young girls.

Chemours has made a commitment to reach 10 goals by 2030. To formulate these goals, the company subscribed to the United Nations Global Compact, the most important sustainability and citizenship pledge in the world. The Global Compact’s principles compel Chemours to operate responsibly and in line with universal sustainability principles, take actions to improve society, participate in local initiatives and inform the public on the company’s ongoing efforts.

INSPIRED PEOPLE Safety • Improve by 75 percent the safety performance of employees, contractors, procedures and distribution. Vibrant Communities • Invest US$50 million to increase access to STEM education and improve lives with environment and safety programs. Inclusion & Diversity • 50 percent of all positions globally will be filled by women. • 20 percent of all positions in the US will be filled by employees with ethnic diversity.

EVOLVED PORTFOLIO Offerings • 50 percent or more of our revenues will be from solutions that make a specific contribution to the 2030 United Nations Sustainable Development Goals. Partners • Baseline the sustainability performance of 80 percent of our suppliers by spend and demonstrate 15 percent improvement.

SHARED PLANET Climate • Reduce greenhouse emissions by 60 percent. Waste • Reduce the company’s volume in landfills by 70 percent. Water Quality • Reduce air and water emissions of fluorated chemicals and other chemicals by 99 percent or more.

CHEMOURS CORPORATE RESPONSIBILITY COMMITMENTS

263

| COMPANY SPOTLIGHT

264

THE ELEMENT OF EXPERIENCE As the middle class grows worldwide, so does the demand for gold and silver. Meeting this growing demand requires operational excellence from start to finish and a firm commitment to safety from production to delivery at the mine. Processing ore for obtaining precious metals involves an complex leaching process in which nature and chemical components combine. Leaching requires substantial quantities of sodium cyanide but supplying this chemical to miners is as intricate as using it to process ore. Solid experience and a commitment to the highest standards are paramount. With more than 60 years specializing in the mining industry, Chemours has amassed a deep knowledge of what miners need. The company has continuously invested in research, technology, safety and training solutions, resulting in innovations in packaging, transportation, delivery and safe handling of sodium cyanide. For Chemours, reduced costs and improved production go hand in hand with systematic safety. The technology at its plants is cutting-edge, guaranteeing reliable supply, and its steadfast logistics systems ensure a hazard-free delivery. The company is experienced in working closely with its customers to assist them in the implementation of unloading, mixing and storage facilities. Also, it can carry out water tests and first load analysis, while additionally providing regular monitoring and facilities inspections. Furthermore, it trains its customers in emergency response in the management of sodium cyanide. Part of this training involves assistance in planning and conducting periodic safety drills and offering community support through training on antidotes against sodium cyanide in local hospitals and clinics. The company has more than 30 years working in Mexico, reinforcing its ongoing commitment to safety by having as a priority the protection of its employees, the communities where it operates and the environment. It is committed to advancing the packaging of safer products and to providing the best transportation, to exceed the expectations of its customers and to boost the strength of the Mexican industry. With more than 60 years of experience, Chemours is an innovative company that generates value for its customers and the industry at large. A reliable partner known for continuous supply at a competitive cost and for the highest safety standards, Chemours was founding partner of the International Cyanide Management Code, a framework that provides best-practice standards that should be integrated into the value chain. Together with the Deputy Ministry of Mines, it supported the development of the safety and environmental framework that will rule sodium cyanide operations in Mexico.

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Gold Resource Corporation fine “Double Eagle” .999 Gold Rounds

FINANCE & INVESTMENT

In an industry reliant on volatile metal prices, the establishment of strong financial structures is crucial. The mining cycleâ&#x20AC;&#x2122;s upturns and downturns have taught operators and explorers ways to shield themselves against slumps and develop projects attractive to investors. But according to Deloitte, Total Shareholder Returns in mining have been in steady decline since 2011. If the industry wants to arouse financial appetite, value creation practices and strategies to increase ROI must be a central focus.

This chapter provides an overview of the Mexican mining industryâ&#x20AC;&#x2122;s financial health, analyzing the performance of capital access in the country and its investment competitivity compared to other mining jurisdictions. It also addresses the most pressing financial challenges that the sector is facing and their possible solutions.

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CHAPTER 13: FINANCE & INVESTMENT 270

ANALYSIS: Alternative Solutions for Capitalizing on the Upturn

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VIEW FROM THE TOP: Alfredo Tijerina, FIFOMI

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VIEW FROM THE TOP: José Oriol Bosch, Grupo BMV

273

VIEW FROM THE TOP: Javier Reyes, Accendo Banco

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VIEW FROM THE TOP: Rob Peterman, Toronto Stock Exchange and TSX Venture Exchange

Loui Anastasopoulos, Toronto Stock Exchange and TSX Venture Exchange

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VIEW FROM THE TOP: Jorge Rave, Export Development Canada (EDC)

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INSIGHT: David Jones, Minaurum Gold

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VIEW FROM THE TOP: William O’Hara, Haywood Securities

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VIEW FROM THE TOP: Enrique Margalef, Vander Capital Partners

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VIEW FROM THE TOP: Jorge Ruiz, Baker Mckenzie

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| ANALYSIS

ALTERNATIVE SOLUTIONS FOR CAPITALIZING ON THE UPTURN As the next industry upturn picks up pace, it is fundamental that explorers and operators regain investors’ confidence. To finance steeply capital-intensive projects, miners can trade publicly, obtain traditional loans from banks and turn to production-based or private equity solutions In an industry mostly dependent on volatile metal prices,

from FIFOMI can be challenging and time-consuming, says

strong financial structures are vital. The mining cycle’s upturns

Carlos Silva, CEO of Carrizal Silver Mining. “When we finally

and downturns have taught operators and explorers how

got the money, we no longer required it. The upside was that

to shield themselves against slumps and continue whetting

FIFOMI prepared us to comply with the highest financing

investor appetite. This has been especially important during

requirements. If a company can meet these standards, then

the last seven years, a period of contraction that followed the

it will be easier for it to succeed in stock exchanges.”

commodities super-cycle of the early 21 century. As signs st

270

of recovery begin to make their appearance, it is imperative

But companies, juniors in particular, often have to rely on

that the industry regains the faith of investors. The process is

their own guile to find financing, as resources tend to be

already on its way, although advancing slowly. “The industry

scarce and highly sought-after. Production-based financing,

has had to make a concerted effort to prove to investors

whereby companies secure cash by selling rights to receive

that it is becoming more optimized and productive, given

future production from their mines, has become a common

that it has lost access to many of the pools of capital it used

feature of the mining industry. For example, Aura Minerals has

to have,” says Loui Anastasopoulos, President of Capital

a three-year offtake agreement with IXM to buy concentrate

formation at TSXV.

from the Aranzazu mine. IXM’s funding has allowed Aura to restart the operation and reduce risk simultaneously.

Operators in Mexico have a wide variety of financing solutions

Additionally, mining companies frequently turn to royalty

to turn to. Among these, the Mexican Stock Exchange (BMV)

agreements for financing. As Alan Monk and David Edwards

offers visibility and a broad access to financing options as

of Kenny & Bray LLP, explain, royalties are common in the

potential benefits for listing. Nevertheless, this alternative

mineral exploration business. They typically arise when an

is not fully exploited by miners with operations in Mexico.

owner of mineral claims sells or options them to another

José Oriol Bosch, Director General of BMV, provides an

party, while retaining a royalty if production ever occurs

explanation for the relative scarcity of mining companies

on those claims. Minera Alamos is an example in Mexico

that are listed. First, Bosch says, “to be listed on the stock

of a company that is employing a royalty agreement to

market implies a certain level of transparency and not all

develop its assets. As the company has stated, it has made

companies are willing to implement the required protocols.”

an agreement with Osisko Gold Royalties that will allow

Furthermore, listing requires companies to have a corporate

Minera Alamos to take its Santana and La Fortuna projects

governance structure in place: many family-owned Mexican

to commercial operations in the short term.

companies are reticent about having independent parties overseeing management. Finally, there are operational costs

Also noteworthy was Industrias Peñoles’ debt refinancing

involved in producing the compliance and audit reports that

strategy. In September 2019, the company issued a debt

going public entails. These three factors amount to perceived

bond for US$1.1 billion, spurred by positive interest rate

costs that keep mining companies away from the BMV.

conditions. The resulting resources will be destined to liquidate US$800 million long-term debt that was expiring

In addition to BMV, companies in the Mexican mining industry

in the next four years. Peñoles was thus able to raise US$1.1

can turn to FIFOMI for financing. A unique institution in Latin

billion in 3Q19.

America, this state-owned development bank is designed to promote and modernize mining in Mexico through financial

As metal prices continue to rise and the industry seeks to

loans and other types of support. FIFOMI is regulated by

capitalize on the coming upturn, a combination of emerging

the same standards as commercial banks, but as Alfredo

and established sources of financing is often required. Be it

Tijerina, the institution’s Director General says, “it offers

public or private equity, debt refinancing on international

unique specialization and a deep knowledge of the industry.”

markets, production-based financing or even crypto and

FIFOMI partners with commercial banks, like Accendo Banco,

crowdfunding solutions, mining companies have an array

to fund small mining projects, prioritizing those with a social

of options to bring extremely capital-intensive projects

and environmental component. However, accessing credit

to fruition.

VIEW FROM THE TOP |

FINANCING A NATIONWIDE MINING CULTURE ALFREDO TIJERINA Director General of FIFOMI

Q: What are FIFOMI’s top success stories in the last year

10 exploration projects are actually successful. Another of

and what factors impact your activities?

our differentiators are the interest rates we offer, which are

A: There are three success stories that have been

lower than those of commercial banking.

emblematic for FIFOMI. The first is related to a ceramic floor coatings manufacturer that received a MX$116 million

Q: How does the Mexican mining industry compare to

loan in 2015 to build a new plant. The second success story

that of other Latin American countries and what role does

is a cement manufacturer that received a MX$192 million

insecurity play in that?

loan in 2017. The third was a company involved in the

A: No other country in Latin America has an institution

industrialization, transformation and commercialization of

similar to FIFOMI. All projects are financed through

calcium carbonate. This company received two loans from

traditional commercial banking, by listing on stock

FIFOMI totaling MX$130 million. FIFOMI strives to reactivate

exchanges or other non-traditional methods. The

the economy through these loans while generating new

Colombian government has approached us because

jobs in the market.

they want to implement a model similar to ours. In Mexico, certain areas are complicated from a security

Both internal and external factors impact our activity in

point of view. However, in areas where mining projects

Mexico. Regarding internal factors, we need to increase the

are established, insecurity and crime rates decrease.

number of direct projects and credit lines for projects that

One of the government’s goals is to generate economic

take place in mining communities. Our goal is to support

activity in those areas to eliminate violence and insecurity

small and medium projects, although we are including

through the creation of employment and wealth. Mining

projects that we call micro, whose lines of credit must range

is key in this effort, which FIFOMI supports.

between MX$70 million and MX$80 million. Q: A good way to attract financing is to participate in Q: FIFOMI is regulated by the same criteria and regulations

the stock market. Why is there so much reluctance in the

as commercial banking. What added value does FIFOMI

Mexican mining industry to participate in the stock market?

provide to mining companies?

A: Financing is a big concern for the industry. There are

A: Our added value is our specialization and deep

several factors as to why companies are reluctant to list.

knowledge of the industry. FIFOMI finances projects along

One is that the majority of Mexican SMEs that participate

the mining value chain and in some projects, we partner

in the mining industry are family-owned businesses that

with commercial banks and other development banks.

do not necessarily meet the requirements established

These banks partner with us because of our knowledge

by stock markets. It also requires setting up a corporate

of the sector and because both commercial banks and

government and to carry out periodical audits, which

development banks rely on FIFOMI’s opinions. Our

many companies are reluctant to do. In addition, stock

knowledge provides certainty for our allies.

markets require reserves certifications and many Mexican companies do not have them. However, the Mexican

Our partners include Accendo Bank, Bancomext, Nafin,

Geological Survey is already working on the creation of

Bansefi and mineral traders. All of them are interested

an international certification to this end.

in helping us finance micro and small mining projects, especially those that have an important social impact in the community. Exploration is risky for a bank like FIFOMI.

Fideicomiso de Fomento Minero (FIFOMI) is a state-owned

When it comes to exploration projects, we participate once

development bank designed to promote and modernize the

we have approval from the Mexican Geological Survey,

mining industry in Mexico, and in particular SMEs, through

given that the most optimistic scenario is that only one of

financial loans and other forms of support

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ACCESS TO INVESTORS JUST ONE ADVANTAGE OF AÂ STOCK MARKET LISTING JOSĂ&#x2030; ORIOL BOSCH Director General of Grupo BMV

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Q: What advantages would mining companies reap from a

Q: What other benefits do independent stakeholders bring?

stock market listing?

A: The counterweight of independent stakeholders can help

A: The mining industry has been a very important sector for

define a long-term strategy for the company. In some cases, a

the Mexican economy for centuries. Its performance often

family member of the director of a company is not necessarily

correlates with the state of the economy as a whole. This

the right person to steer it in the future. The other parties

is not necessarily reflected in listings in the stock market.

can help find the suitable person for the short and long term.

It is an interesting sector to invest in with a representation

Within the corporate government model, there is a committee

that is still very low. The advantages of listing on the stock

of auditing, and committees for social practices. These parties

market are not necessarily particular to the mining industry,

can help define other areas that are increasingly essential for

but apply to all industries. It is a place where you can gain

companies, such as climate interest, care for the environment

visibility and broad access to financing options. The amount

and diversity. Today, investors are no longer looking just

of access to potential investors is greater than what you get

to maximize their profits but to have a positive impact on

as a private company.

society too.

Q: Given these advantages, why are there so few mining

Q: What are you doing to promote awareness about the stock

companies listed?

exchange and the opportunities it provides?

A: To be listed on the stock market requires a certain level

A: In the US, more than half the adult population invests

of transparency. This has a lot of advantages. If you ask for

directly in the stock exchange. In Mexico, this is less than 1

financing and you provide your financial status, with the

percent. Raising awareness about the stock exchange will

oversight of an auditor and regulator, investors will have

hopefully lead to more participants. To this end, we contribute

more confidence to invest in you. If the investment comes

in several ways. A few years ago, we started a finance school

in capital, the sum will be higher. If it is in debt, the rates

in collaboration with different universities, government bodies

will be lower. Transparency implies a certain amount of

and businesses. In March, we opened a museum of the stock

rectitude. I am not saying private companies necessarily lack

exchange. We are constantly promoting our organization

this. However, without the requirements for transparency

around the country.

there can be bad practices. There are many family-owned companies in Mexico that do not like the idea of other

Q: How can the stock exchange be made more attractive for

independent parties telling them what they should do. In

companies and investors?

addition, there are operational costs involved in producing

A: One thing that needs to increase is the liquidity of a

compliance reports and audit reports. Generally, this cost is

large portion of the listed companies. Currently, the first 40

overestimated. On the other side, the benefits of doing this

companies of the 150 listed on the exchange are responsible

are underestimated. Having access to a series of potential

for 80 percent of the traded volume. When a company has

investors, but also clients and other businesses, can lead to

little liquidity, it is less likely to see positive price action. This

many interesting deals. In many ways, it is a guarantee for

vicious cycle has to be broken. We need to develop more

your survival because many private family businesses often

investors, and a greater retail base of companies. Another

do not survive the second or third generation.

factor is that economic growth has been an average of around 2 percent in the last 30 years. Other emerging markets such as India and China have seen significantly higher growth. Greater

Grupo BMV is made up of companies that together offer

growth correlates to more opportunities for businesses. In the

comprehensive services to facilitate the operation and post-

US, the tech sector has seen a great deal of growth, which is

negotiation of the securities and derivatives market in Mexico,

not represented here in Mexico. To develop more investors,

supported by a modern technological infrastructure

we need more medium-sized companies.

VIEW FROM THE TOP |

FINANCING MEXICO’S DEVELOPMENT, PRODUCTION STAGES JAVIER REYES Chairman of Accendo Banco

Q: What areas of opportunity exist within Mexico’s mining

do not finance exploration, we do finance development

industry and how can its competitiveness be boosted?

and production projects. We minimize the risks by focusing

A: For our new president, developing the mining industry

on the technical merits of the project, including the team

is a priority. He wants the industry to grow at 6 percent

that is developing the project, and rigorous due diligence

annually. He believes that sustainable mining is the right

throughout the entire project, both technical and non-

option to bring economic development to the very

technical. We also collaborate with FIFOMFI to finance

marginalized and poor regions of the country where several

mining projects. The models that have been successful so

mining opportunities are located. Being more competitive

far are co-lending for project finance opportunities, plant

with the mining taxes as well as letting mining companies

expansions and working capital loans for publicly traded

immediately amortize exploration costs would help boost

mining companies.

the industry’s competitiveness. Mexico has one of the highest mining taxes in the world.

Q: What would be the ideal financing environment for the Mexican mining industry and how can Mexico achieve

Q: What is the business appeal of financing the mining

such an environment?

industry? Why do other financial institutions choose not to

A: The ideal would be that the Mexican equity markets,

service this industry?

or stock exchanges, would finance the risky dollars

A: We have financed this industry for more than 15 years and

needed to drill and develop projects until they get to

we have developed a unique expertise, positioning us as the

the stage where they can be funded by private banks and

No. 1 mining bank in Mexico. We have a very talented and

FIFOMI. The Canadian Stock exchanges finances early

diversified mining team with the skills needed to structure all

stage projects and this is the most important reason

types of financing. Other institutions choose not to service

why Canadian publicly traded companies dominate the

the industry due to the lack of expertise and the teams to

Mexican mining sector. To achieve such an environment,

serve this sector, particularly here in Mexico. We also note

we need deep Mexican capital markets with risk appetite

that other financial institutions require much larger ticket

for the natural resources sector. This will take many years

sizes to consider a transaction, such as greater than US$50

to develop if we were to start now.

million, reducing the number of opportunities for them. In contrast, we will look at smaller transactions, which is

Q: Which among these services do you expect to grow

appealing to many of the Mexican mining companies.

most rapidly in the short term? What does this say about Mexico’s mining industry?

It is very appealing to finance the precious metals mining

A: Project finance opportunities to build new or expand

industry since it is a counter-cyclical sector, and it brings

operating mines. What this says is that there are no other

diversification to our overall loan portfolio. Now that the

financial institutions, except ourselves, willing to take

world and Mexican economy are slowing down and possibly

this risk. Mexico is one of the wealthiest natural resource

heading into a recession, the default rate of our non-mining

countries in the world and it is sad there are no financial

portfolio will go up, so mining financing will compensate

institutions willing to serve this industry, particularly at

these potential losses.

the smaller end of the market.

Q: In an optimistic scenario, only 10 percent of exploration projects are actually successful. How does Accendo Banco

Accendo Banco’s mission is to be a digital bank that promotes

minimize the high risks involved in financing mining projects?

the growth of medium-sized companies, by offering foreign

A: We do not finance exploration stage companies, as

exchange, fiduciary and credit services, backed by a reliable

exploration needs to be financed with equity. Although we

and transparent management team

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TORONTO EXCHANGES REMAIN ALLIES OF MINING JUNIORS IN MEXICO ROB PETERMAN Vice President of Global Business Development at the Toronto Stock Exchange and TSX Venture Exchange

LOUI ANASTASOPOULOS President of Capital Formation at the Toronto Stock Exchange and TSX Venture Exchange

Q: What are the main financing trends impacting the mining

diversifying in terms of the jurisdictions where we reach

industry and how is the TMX Group responding to these?

out to attract listings.

RP: I think the mining industry has some work to do in terms

274

of regaining the faith of investors. It has been a challenging

Q: What value does the TSX and TSXV offer to miners,

period for the industry and I think one of the major trends

particularly compared to other exchanges?

is a great deal of activity on TSX Venture Exchange (TSXV).

LA: Toronto is known for its strength in resources because

This indicates many exploration-level listings, which is

the community understands mining companies in Canada.

essentially a return of risk capital. We have seen over 40

Whether a banker, lawyer or a retail investor, the ecosystem

mining companies go public in the last year. But I think we

is conducive to supporting mining. There is no problem

are seeing challenges in the larger financing deals for the

accessing capital because the community understands the

mining sector. The biggest hurdle is returning trust to the

dynamics and the risk involved. There is a strong part of our

sector and for the sector to prove how it will grow and

retail ecosystem that is very specific to Canada, whereby

return capital to shareholders.

it is common for people to hold personal trading accounts and make investments in securities. We are known as a

LA: I think it is fair to say that companies have been able to

pre-eminent global mining exchange with over 50 percent

find financing, albeit in smaller amounts and on the TSXV

of the worldâ&#x20AC;&#x2122;s mining companies listed with us. Close to

side. I agree that there must be a return of confidence to

40 percent of all equity capital raised in mining globally

the sector but I believe it is already coming back, although

happens on our markets. The virtues of our exchanges and

slowly. Last year we saw it ebb and flow and, although it

unique two-tiered ecosystem are evident to those looking

feels like a quiet period right now, we have yet to see how

to enter the space and raise capital.

the market will settle. RP: National Instrument (NI) 43-101 is a Canadian mineral I think the industry has had to make a concerted effort

resource classification and it allows companies to get the

to prove to investors that it is becoming more optimized

best possible valuation for their business. We allow investors

and productive given that it lost access to many of the

to compare one mining company to others through this

pools of capital it used to have. Having re-examined their

instrument, and this allows companies to get the best

business plans, some have pivoted and some have stayed

possible valuation for their assets, both in the ground and

the course. But getting that confidence back takes time

in production.

and as commodity prices bounce back, we will also see confidence returning.

LA: The differentiator with NI 43-101 is that it allows companies to market a property based on inferred

Q: Given the global geopolitical volatility, what steps can

resources. That is somewhat unique to our market and

be taken to mitigate losses?

helps drive valuations in mining. If you can get the best

LA: We have been living through a downcycle in the last

valuation for your property, that makes it the natural place

seven years. After the commodities supercycle that lasted

to raise capital.

12-13 years, we have had to pivot as any other business would. In cycles like this, we need to pay more attention

Q: What strategies can miners implement to ensure success

to other sectors. Although we are still fully dedicated to

on the TSX and TSXV?

resources and energy, we have looked a lot at technology

RP: I think the management team is always important. With

and innovation. Much of what we do is global, so many

constraints on capital, I think investors are looking for the

of our opportunities are taking place outside Canada.

best possible management teams developing projects

We are not only diversifying industries but we are also

efficiently. There are many other factors to consider,

Use of lime in the iron and steel process, San Luis Potosi

including the size, the mineral, the connectivity and the

continuing to work on our relationships with new and

infrastructure, but I think investors are much more likely to

existing customers. I think increasing pools of capital is

back projects that have credible management teams with

probably the single most important thing we can do as an

a successful track record.

exchange to remain relevant. I believe the strength we have in the mining space will carry us for a while.

There are over 900 mining companies listed on TSXV so it is achievable for companies. Having said that, there are

Q: What lessons can the BMV learn from the TSX to attract

two requirements for listing on TSX or TSXV that may be

more mining companies?

unique. The first is the company must have a current NI 43-

LA: If you look at the five or six mining companies listed

101 report but there are many people who can help prepare

on the local exchange here, they have a very large, US$50-

those. The other requirement to go public is having audited

100 billion market cap. We have US$30-40 billion-dollar

financials.

market cap companies too but our strength lies in small to midcap companies. We are almost chasing a different

Q: How do you see mining financing evolving over the

type of company and it is the uniqueness of Canada that

next few years and how do you plan to remain relevant

allows us to do business with companies as small as US$3

as an exchange?

million in market cap up to US$40 billion. That does not

RP: The investor base around mining is aging so we are

exist outside Canada.

focusing on trying to attract new investors to the market. There are two examples of how we are addressing this.

Q: Why did the TSXV choose to partner with the Santiago

First, we are spending a great deal of time in Europe trying

Stock Exchange Venture (SEV)?

to target investors there in partnership with Canadian

RP: I think the genesis of the SEV was that it was looking

banks and other institutions. Second, the SEV initiative is

closely at the Chilean economy, a huge proportion of

an example of testing a model that provides access to a

which is based on mining and there were few public mining

whole new set of investors to invest in these companies

companies. Having looked at the TSXV model for funding, it

and participate in the mining sector.

deferred to TSXV at the securities level. This means that if a company wants to go public on the SEV, it is reviewed by the

LA: My hope and expectation is that we see much

TSXV staff and then it can start trading on both exchanges

more mining financing taking place. We are expecting a

at the same time. While it may not be natural for someone in

resurgence in the sector as commodity prices have come

Chile to go to TSXV to buy stock, they can now buy in their

back and, as the market recovers, we expect to see more

own market, in their own currency and still have access to

financing, both through traditional and new methods. We

the benefits brought by TSXV. This shows a very long-term

anticipate the pickup will continue and perhaps recover to

commitment by the government to build this platform.

levels seen in 2007. In terms of us staying relevant, we need to make sure our value proposition still stands and we are offering what companies are looking for, which is access to

TMX Group facilitates listings on TSX and TSXV. It is ranked

capital. This means we need to continue ensuring our rules

ninth in the world, with market capitalization of US$2.3 trillion

are relevant, that we are not over-burdening companies

as of September 2018. Fifty-nine percent of global mining

with over-governance, ensuring access to capital and

financing was done through the TSX and TSXV in 2017

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First Majestic's HIG Mill, Santa Elena mine, Sonora

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MORE OPPORTUNITIES FOR CANADA ON THE MEXICAN HORIZON JORGE RAVE Chief Representative of Export Development Canada (EDC)

Q: What is the investment environment like in Mexico and

A: We assess risk for investors in other countries through

how will the ratification of USMCA impact business?

our Commercial Country Ceiling (CCC), which is an

A: Export Development Canada (EDC) is in the unique position

internal rating that measures the sovereign probability of

to open multiple markets for Canadian companies and there

default and includes political risks. Something that greatly

are many products crossing the Mexican, Canadian and US

impacted the country’s rating was the cancelation of the

borders. From an EDC point of view, we are happy to see that

NAICM. But since the government was able to respect the

Mexico ratified the trade agreement and is taking advantage

financial agreements it had with investors and companies

of the opportunities that could ensue for both Canadian and

when it canceled the airport, the perception of the country

Mexican companies. Mexico is one of the most important

is slightly more positive. We are looking at a market

markets for EDC and relationships that we already hold in

that has a great deal of potential and we are optimistic;

the country will only be strengthened by the ratification of

nevertheless, we remain cautious. We are monitoring how

this agreement. The negotiations of new trade agreements

the government manages social and environmental issues

have opened up possibilities to explore other markets and

and will continue to do, applying high standards.

we want to leverage our Canadian Direct Investment Abroad (CDIA) strategy to that end. In 2018, EDC supported more

Q: What does EDC look for in companies to provide them

than CAD$16 billion (US$12.03 billion) in CDIA, a 12 percent

with financial support to expand their business into Mexico?

increase from 2017, to help Canadian companies gain access

A: In the case of the mining sector, EDC is still optimistic but

to new customers and supply chains around the world. Of

prudent and we have been paying close attention to any

this, more than a quarter of a billion was facilitated in Mexico.

potential changes in the business environment of the country that may affect our risk appetite. Whenever we consider

Q: What are the main challenges Canadian mining companies

providing financial support under our Connections Financing

are encountering in the Mexican market?

program to any foreign company, the first thing we evaluate is

A: Like any other international venture, Canadian companies

the extent to which our support can bring added benefits to

and exporters must enter any new market with eyes wide

Canadian exporters. We want to ensure that foreign companies

open. In Mexico, two main challenges remain: security

will have the ability and interest in working with Canadian

and corruption. On the security side, companies need to

companies and leverage our knowledge of international

understand that the dynamics are considerably different

supply chains and our understanding of Canadian capabilities.

here than they are in Canada. In general, security costs,

Second, EDC is a self-sustained financial organization and our

in terms of the companies’ premises and personnel, will

loans are not grants or subsidies but commercial loans. This is

be higher and will require a deeper level of due diligence.

what in 2018 allowed us to pay a dividend of CAD$969 million

Regarding corruption, historically it’s been one of the

(US$729 million) to the Government of Canada. It shows

top challenges for businesses. But on a more positive

that we are committed to bringing benefits back to Canada.

note, there have been marked improvements since the

Finally, since CSR is directly linked to sustainable financial

inception of NAFTA, and they’re expected to continue as

performance over the long term, EDC focuses its efforts to

the USMCA comes into effect. Regardless, our advice to

make sure prospective and existing clients are leaders in

companies will always highlight the importance of being

sustainable and responsible business practices.

vigilant—as they should be when brokering deals anywhere, including Canada because no jurisdiction is immune to this business threat.

Export Development Canada is Canada’s export credit agency

and

state-owned

corporation

owned

Q: How does EDC assess risk within the Mexican market for

the Government of Canada. It supports and develops trade

Canadian companies wanting to invest?

between Canada and other countries

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| INSIGHT

STRATEGIC DANCE KEEPS INVESTORS IN THE BLACK DAVID JONES Director of Minaurum Gold

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Minaurum Gold’s strategy for increasing shareholder returns

a key factor because many exploration companies are eager

is like a dance whose moves are all about keeping investors

to sell at the first discovery, which is not necessarily the most

in the black, says Director David Jones, adding that the right

profitable option. “We always consider whether it is best for

financial vehicle can provide added value for backers. “All

our shareholders to not sell a project too early,” Jones says.

the money we have recently received comes from investors

“If we have the confidence that we can increase the value of

that are in the black on their share warrants; that is, they

a project on our own, we will invest in taking it to the pre-

are showing a profit on what they initially paid,” he explains.

production stage.” He compares this to having a piece of land:

“We have done well; share prices have gone up to US$0.60

you can either sell it to someone to build a house on it or

from US$0.25.”

build the house yourself first and then sell it at a higher price.

“

If we have the confidence that we can increase the value of a project on our own, we will invest in taking it to the pre-production stage”

Minaurum is betting on the potential of its Alamos project in Sonora to build the house itself. The company started an intense drilling program at the property in 2018 with Bylsa Drilling. “The drilling intercept we had in 2018 was about 8m of 1.8kg of silver,” Jones says. “That kind of intercept is extremely rare, especially in an area that has not been drilled before.” While a tasty intercept can be a cause for celebration, Jones says it is a double-edged sword. “The problem with such great results is that the expectations for the project grow exponentially,” Jones says. “In the finance world, this means

The company’s strategic choreography has helped it attract

that stocks will go up and up until they collapse if we do

70 percent of its European investment on a warrant basis.

not keep up with expectations.” To maintain its momentum,

“We are very happy with our European investors because they

Minaurum relies on its team of successful geologists whose

tend to think for the long term, implying a stronger financial

careers have been marked by the discoveries they have

backup for the company,” Jones says. Much of Minaurum’s

made. The team includes Jones and Peter Megaw, who help

recent funding comes from exercising of warrants listed on

the company resist market pressure to keep drilling the

the TSX Venture Exchange. According to Jones, these offer

same target at Alamos. “Big companies hate that we do this

an advantage to investors because they have the option to

because if we go to the same vein and find better results, our

acquire shares at a warrant price that is well below current

shareholders will pressure us to sell the property to a major

market value. Its financial strategy is intricately linked to

player for less money than it would be worth if fully explored.

its approach to finding deposits, which is where the dance

But those of us with deep experience on the exploration side

takes a subtle turn. Rather than describe its focus as purely

can say: 'wait a minute, we have not tested it all.'”

exploration, Minaurum considers itself an incubator for mineral discoveries. “The practical difference between both is that we

Minaurum is buying itself the time it needs to discover the

are not interested in being merely explorers; we plan to find

real value of Alamos by not letting expectations get ahead

and discover new mines. It is a subtle distinction that relates to

of it. “Instead of building expectations on one target, we

how we spend our money and set our goals,” Jones explains.

will keep drilling the property to multiply our chances of success with findings at other veins,” Jones says. “From

When setting goals, the first premise for the company is to

our point of view, it is better to get the money we get from

explore without getting ahead of investor expectations. This

people who believe in us now in order to make this project

allows Minaurum to determine the real value of a given project,

as big as we can, as fast as we can.”

VIEW FROM THE TOP |

DIVERSIFICATION FOR OUTSIZED RETURNS, ATTRACTING CAPITAL WILLIAM O’HARA Managing Director and Head of Institutional Equity Sales at Haywood Securities

Q: Haywood Securities has enjoyed substantial growth

much bigger resource target by heap-leaching material that

since 2015. What was the main driver behind this success?

everyone thought should be milled and crushed.

A: Haywood Securities is the dominant investment firm in the energy and mining sectors in Canada. During the tough

Q: How would you rate the country’s attractiveness for

years in the mining sector, many of our assets declined.

exploration investment?

In the last couple of years, the company underwent a

A: There are probably two main areas of concern from the

diversification process into other emerging sectors, such as

investing side. The first is security. Torex Gold was a high-

blockchain and cannabis, which resulted in some outsized

profile target working in places like Guerrero, although many

returns. For instance, there have been inflows related to

of these issues have been mitigated to some degree. Second,

the Canadian cannabis sector because American investors

after the elections, there remains some uncertainty regarding

were unable to sell cannabis equities via US brokers and

the new administration’s approach to managing potential

as a result, were required to open accounts at Haywood

tax changes. Many industry stakeholders are waiting to see

Securities. The company has played a key role in attracting

how this issue unfolds. If there is a positive landscape in the

capital because we are one of the leading brokers in this

coming months, I think more institutional investors will come

segment. Additionally, as mining equities have recovered, the

and look for opportunities in Mexico. Globally, junior mining

overall assets under our management have also improved.

is challenging for institutional money. Removing uncertainty

Within the mining sector, we focus on junior companies

will make it easier to make investment decisions.

where people are the most important factor. Having strong management is critical because it relates to having fresh

Q: What is Haywood Securities doing differently to stay

ideas like looking for new discoveries on the exploration side.

ahead of its competitors? A: Technical due diligence is key within our operations. The

Q: What projects in your portfolio best illustrate the

company addresses this issue at a higher level than our peers.

company’s vision?

For instance, our research team is very prepared because

A: Minera Alamos is a good example of a company that

it is composed of professionals with a strong academic

we work closely with. Last year, the company signed an

background. In addition, the close relationships we build with

agreement with Corex Gold to develop the Santana project

our clients are crucial. Our coordination with the sales desk,

located in Sinaloa. Historically, that area has only been

investment banking, research and trading institutions help us

explored for near-surface oxide caps for heap leaching

get to know every aspect of their activities as well as their

down to 50m. In partnership with Osisko Gold Royalties,

main focus. During tough financial times, this becomes a great

another great geologist was put in place to complement

advantage because we are the company that fights to raise

the great team that Minera Alamos already had. They looked

those extra dollars when nobody else can do it. Additionally,

to the sulfides below the oxide and realized there was a

as our peers go after bigger companies, they cannot deliver

permeable material, opening the possibility to execute a

the focus required in a difficult market. Raising money and

leaching process. By throwing sulfide materials on the

offering proper advice to smaller companies by customizing

leach pad, the recovery rate results were very similar to

our services is what is allowing Haywood Securities to grow

those performed with the oxide material. This was a game-

in the right direction and help our clients succeed.

changing strategy because drilling activities stopped while the company was still hitting gold as a transition into sulfide material. Now the company is drilling deeper and looking

Haywood Securities is a 100 percent employee-owned

at the sulfides to heap leach, too. Minera Alamos just raised

investment dealer with more than 275 employees. It is a

another CA$5 million and it will start drilling aggressively

member of the Toronto Stock Exchange, the TSX Venture

to move faster toward production while working with a

Exchange and the Montreal Exchange (MEX), among others

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| VIEW FROM THE TOP

FINANCING MEXICO’S MINING FUTURE ENRIQUE MARGALEF Partner at Vander Capital Partners

Q: How can private and public players work together to

investing because asset prices in mining were low. But we are

create better conditions for the mining industry?

not mining experts. Our partners are the experts. We foster

A: Synergy between the government and companies can be

synergies. This is how we operate in other industries.

nurtured if key industry players are able to articulate all the

280

benefits mining offers for Mexico. Often, leading government

Q: Last year you mentioned that Vander’s strategy is to keep

officials are not as informed as they could be in this respect.

working with Telson through Tahuehueto and Campo Morado

Since the two PAN administrations, which fostered significant

mines. Has the strategy changed?

expansion periods in the industry, there have been many

A: The strategy remains the same. Campo Morado has been

changes, not all favorable.

producing for the last year and a half. It had been halted for two years, and we bought it with 10 more years of production

During these two governments, Mexico became Latin

capacity. Our thesis that it was good to buy mines with proven

America’s top investor in exploration, which is the basis for

resources, ready for production, was confirmed. Tahuehueto

the industry’s future. Today, we are at a low point regarding

is moving forward: construction is 70 percent completed and

exploration. This is a consequence, first, of the 7.5 percent tax

our goal is to start production this year. Both projects are

established during the Peña Nieto administration. Although

healthy and developing well. However, we have had difficulties

mining is a risky industry, this risk is offset by returns of around

raising funds to grow Telson.

20 percent per year. But if this future profit is heavily taxed, then exploration becomes less appealing. President López

Globally, the political situation is difficult. The trade war

Obrador’s administration is talking about further taxation

between China and the US has been disadvantageous for

and public consultations as requisites for concessions. Even

us. When we began with Campo Morado, our monthly free

though these requisites have yet to be enacted by law, they

cash flow was about US$900,000. Zinc prices were pretty

generate uncertainty. The mines that are already producing

stable, but now they have dropped 30 percent, impacting

will keep doing so until the project is completed, even if

our profits. Investors are put off by these figures, but to

taxes are increased. However, exploration may become less

protect ourselves from political and economic cycles, we

attractive, which is a shame because the mining industry is

have reduced operating costs, and we want to diversify our

uniquely positioned to generate wealth for communities that

portfolio to ensure our long-term success.

are located in remote areas. Q: In Mexico, smaller mining companies tend not be listed. Q: Vander’s model has been based on joint ventures. What

What progress has been made to change this?

are the main characteristics of this model?

A: We have not had much success. Even though BIVA’s rules

A: We are minority investors and we become part of the

are more welcoming than those of the BMV, which requires

board or the management team. We see our investments as

three years of positive cash flows, we have been unable to

people-focused, more than industry-focused. Joint ventures

awaken the industry’s interest. BIVA’s executives have offered

gain strength depending on the main partner we associate

us introductions to AFORES, investment funds and private

with. When we invested in Telson Mining Corporation, we

investors but unfortunately, these players are not really

studied the industry and decided it was a good moment for

interested in mining companies, mainly due to insufficient knowledge about the industry. Another alternative we have been working on is to list on the SIC (Sistema Internacional de

Vander Capital Partners is a private investment management firm

Cotizaciones). Mexican investors could then buy and increase

that operates in different sectors. In mining, the firm invests in

the trading volume in our company, Telson, even if it is not

companies listed on the TSX with assets in Mexico, in exploration

listed in Mexico. However, we are on the TSX Venture, not the

projects and in general partnership investments

TSX; therefore, we are not authorized to be on the SIC.

VIEW FROM THE TOP |

THE REGULATORY FRAMEWORK AS A BENCHMARK FOR GROWTH JORGE RUIZ Partner of Mining at Baker Mckenzie

Q: What windows of opportunity could be opened in

example, the US is an important decentralized country

the Mexican mining industry after a modification of the

both politically and fiscally, which in turn leads to very

regulatory framework?

healthy competition between states.

A: The mining industry is not only governed by the Mining Law but by various legal statutes and regulations that also

Q: Should Mexico adapt the regulatory framework of the

govern and influence its activity, such as environmental, civil

mining industry to that of its competitors in the region,

or agrarian laws. The changes proposed by the government

such as Peru, Colombia, Brazil, Argentina or Chile?

are related to the possibility of canceling concessions or

A: If the regulatory frameworks of these countries are analyzed

mineral rights. These modifications are still far from being

in depth, we will realize that Mexico does not need to adapt

approved. We do not believe that there will be a regulatory

its regulatory framework. In fact, most provinces in Argentina

change soon. Should this change happen, it should not

prohibit open pit mining or the use of cyanide. In Brazil, for

affect existing concessions. The Mexican Mining Law and

example, the regulatory framework is simpler but then its tax

regulatory framework generally works well and adequately

system is much more complicated. Perhaps Colombia and

protects investors.

Peru have a more evolved regulatory framework than that in Mexico but their mining activity is not larger than Mexicoâ&#x20AC;&#x2122;s.

A large part of the mining activity takes place on ejidos or community lands, which sometimes stop the

Q: The government has declared that the mining

development of the industry itself. Although solutions

concessions will be maintained; however, it has stated

to this dilemma are complex, one solution may be for

that the popular consultations will have greater

agrarian authorities to simplify and speed up bureaucratic

importance in the final decision of new concessions. How

processes. In Mexico there are different types of property

feasible is the application of these changes?

regimes: ejidos and communal, public (federal, state or

A: The Mexican Constitution states that the subsoil belongs

municipal) and private lands. The current regulatory

to the nation and that it is granted for exploitation. Can

framework is very clear and has evolved over time to

some new concessions be revoked based on environmental

facilitate investment in the sector. The creation of a single

or social issues? Possibly. However, that decision, like popular

window would be a good solution to solve this problem,

consultations, would discourage FDI in the country.

as long as SEDATU participated in its development. As for the old concessions, the Constitution prevents Q: The Mexican government has shown its interest in

their revocation, since in Mexico there is a concept of

modifying the Mining Fund, whose distribution would

non-retroactivity. The land ownership concept of many

become a federal responsibility. What advantages

of the indigenous peoples is completely different from

and disadvantages does Baker McKenzie see in this

that in the West, but this situation is well understood by

hypothetical change?

many of the foreign companies that operate in Mexico.

A: In an ideal scenario, the resources of the Mining Fund

This is the case of Canadian companies that have had

should be distributed by local authorities, but it is true

similar experiences in other territories and even in their

that in some communities there have been cases of

own country.

corruption related to the use of the mining fund. The most convenient thing would be for communities to enjoy the mining fund directly, although with the presence of a

Baker McKenzie is an international law firm that has been

superior body that would be able to supervise where the

operating in Mexico for over 50 years in the main economic

money raised by the mining fund goes. I also believe that

sectors. The firm has offices in Mexico City, Monterrey,

the centralization of power has never been positive; for

Guadalajara, Juarez City and Tijuana

281

INDUSTRY OUTLOOK

In the first year of an administration, expectations for the next five years are still being shaped. Political transition, a new USMCA deal, global economic slowdown and geopolitical uncertainty are some of the main factors impacting Mexican mining the most. Also, transitioning into the mine of the future implies embracing the power of digitalization and embracing a cultural shift. Cross-functional collaboration, seeking out best practices from other industries, strengthening teams and achieving greater diversity and inclusion are some of the trends that drive this transformation.

This chapter reflects on these expectations from the perspective of its key players and decision-makers: it acknowledges Mexican miningâ&#x20AC;&#x2122;s main improvements and envisions how the future of the sector is likely to look.

283

CHAPTER 14: INDUSTRY OUTLOOK 286

EXPERT OPINION: Mario Hernández, KPMG

287

VIEW FROM THE TOP: Phillip Hopwood, Deloitte

288

VIEW FROM THE TOP: John-Mark Staude, Riverside Resources

289

VIEW FROM THE TOP: Agustín Enciso, COZCYT

290

INSIGHT: José Raúl Guerrero, Korn Ferry

291

INSIGHT: Victoria Moreno, Viarmosa International

292

VIEW FROM THE TOP: Lisanne Raderschall, OECD

Chris McDonald, OECD

294

VIEW FROM THE TOP: Francisco Paris, EITI

295

VIEW FROM THE TOP: Norberto Zavala, INMSO

296

VIEW FROM THE TOP: José Luis Alonso, LDM

297

VIEW FROM THE TOP: Luis Terán, Connect Logistics

285

| EXPERT OPINION

MAIN CHALLENGES AND OPPORTUNITIES FACING THE MINING INDUSTRY MARIO HERNÁNDEZ Head of the Tax Mining Practice at KPMG in Mexico

The Mexican mining industry has remained a generator

In the national context, the challenges faced by mining

of foreign exchange and employment in recent years,

companies will be seen particularly in the following areas:

as Mexico has significant mining potential. This makes it attractive for foreign investment, an important part of which has come from Canada. Therefore, it is important to review what are the main challenges and opportunities that the industry faces and will face in the coming years.

• Legal certainty in the use of the concessions granted to them, without this being affected by environmental issues or issues of consultations on the rights of indigenous peoples or communities. • Certainty regarding the tax regime in Mexico, will

The country remains in a stage of exploration and incipient 286

exploitation; there are still several areas or regions that

apparently not have significant modifications during the current six-year period. Nevertheless, it will in some way inhibit foreign investment by establishing

have potential and have not been exploited. This definitely

the mining rights regime, especially the special mining

represents an opportunity for companies that are in the

rights regime. Although it was established in 2014, it has

exploration and exploitation stages. This industry will face certain challenges that it will have to manage in order to ensure that mining operations in Mexico are efficient and that there is sufficient security and legal and fiscal certainty. In this context, uncertainty about the course of the world economy may represent an opportunity for precious metals, such as gold and silver, which usually see their best

not been reviewed to determine whether the applicable tax on it is consistent with what other mining countries have established, taking into consideration the world trends on the payment of this type of rights. • Another challenge facing mining companies is the Mexican government’s restriction on the payment of its value added tax (VAT) balance refunds. This generates financing problems, since the working capital of the mining companies, especially when they are in stages

values in times of economic uncertainty; however, this also

of exploration and infrastructure development, is scarce,

represents a challenge for other minerals or metals used in

and the withholding of VAT by the authority, or the

construction and infrastructure, as their values or the level of their consumption may decrease as the economies of the countries that use them begin to slow down economically.

delay in the payment of the corresponding returns, causes them to seek sources of financing, which, as mentioned above, are currently scarce or onerous. An additional challenge that the mining companies will

Another important factor is the global trend to bring closer

face is closely linked to the development of technology,

scrutiny to international financing structures, which, over the

especially in terms of updating or digitalizing processes,

years, have been implemented to finance mining projects.

which tends to reduce the use of personnel. Companies

With the worldwide trend to review structures that may be

must carry out an adequate mix of process updating and

generating double nontaxation issues, mining companies

personnel use, especially if they are committed to the

may be affected in terms of corporate taxes that are paid

communities in which they work. This should be done

to the various countries where the funding organizations

despite the risk of generating controversies with them or

reside, which may lead to higher interest rates.

even with the unions that group mining employees. The mining industry, like others in the country, is not immune

Mining companies have also faced a scarcity of financing

to the challenges faced nationally and internationally, but,

for exploration, not only in Mexico. With the level of metal

unlike others, it cannot go to another jurisdiction, since the

prices in the market and failed projects of past years, access

deposits are located in the country. For this reason, it is

to financing for new developments has been affected.

convenient that, as far as possible, the Mexican government

This causes companies to look for alternative sources of

grants legal and fiscal certainty to the participants of the

financing, which in many cases, increase the levels of return

sector, and that, also as far as possible, the fiscal system

to be obtained by new projects.

becomes more efficient in favor of all.

VIEW FROM THE TOP |

VOLATILITY IS THE NEW STABILITY PHILLIP HOPWOOD Global Mining and Metals Leader at Deloitte

Q: What is Deloitte’s outlook for the mining industry and

years. I do not know what demand for the metal will look

what trends will most impact the sector?

like going forward because I do not think that anybody

A: Every industry trend report tries to figure out what is

really knows. We are in the middle of the exponential curve

going on in the mining sector. Mining is an unusual industry

described by Moore’s Law.

because it is truly global as it deals with international supply chains. We strive to understand the market’s

When considering the demand for minerals, their

drivers to make better-informed investment decisions

provenance has also become more important. As a

in the business economy in which we operate. There

consumer, I want to know where my copper, nickel, cobalt,

is a positive outlook for now as commodity prices are

lithium and all other metals come from. They have to come

coming back. Gold prices are looking good. People are

from legal sources and be ethically-sourced. Nobody

optimistic about copper. Silver has been a little off but

wants to be buying commodities from countries with

there is optimism about this metal because it has the right

human right violations.

industrial applications. Going back to the strategy conversation, it is about making Investment and equity are the main topics in the industry

choices regarding the specific commodity but also from

because companies need money to develop assets. In the

which countries. Because companies look at the same

old days, the industry would go to banks to develop or

reports, they all go to the same safe jurisdictions to look

conduct a share raising by issuing stocks to get funding.

for the same commodities. By doing that, the industry is

Today, it is harder to do that. Banks are not lending to

ignoring locations with great potential. If the industry wants

the mining sector as much as they used to. The financing

to be successful, it has to broaden their thinking regarding

landscape has changed in terms of where to get money

which mining jurisdictions they will work in. For me, this

for projects. Royalties, streaming agreements and private

means that Mexico needs to be on the mining agenda.

equity are ever more relevant. When it comes to knowing how and where to invest in Q: What strategies can miners deploy to succeed in a

such a volatile industry, we really need to look at the real

dynamic mining environment marked by volatility, talent

supply and demand scenario. For example, silver, whose

shortages and a tainted reputation?

best mines are in Mexico, has consistently underperformed

A: In the complex financial scenario in which miners

in the last five years, dropping to US$15 per ounce from

operate, success comes down to strategy. Which

US$45 in this period. The demand is good, as this metal

commodities companies operate is a key component to

has many industrial applications, it mainly comes from

consider. We see that miners are betting on copper due

safe jurisdictions and as we have built silver mines for so

to the world’s need to develop infrastructure and electric

long, its supply has started to dry up. These factors build

vehicles. The brown metal has manifold applications but

a case for higher silver prices but we could all grow old

these will change with time. For example, electric vehicles

before this happens because, in spite of the accuracy of

are driving demand now but that may not be the case

supply and demand laws, nobody can really predict prices.

going forward as the millennials of the future may not

Volatility is the new stability.

necessarily want to have a car. In this context, copper is also favored by the demand for charging stations for electric vehicles. The electric grid of cities will have to be

Deloitte consists of dedicated professionals in a global firm

redeveloped to comply with higher electric demand, again

who collaborate to provide audit and assurance, consulting,

boosting copper. When it comes to the expectations for

financial advisory, risk advisory, tax and related services to

lithium, the story of its boom has been around for over 10

select clients

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| VIEW FROM THE TOP

A FRAMEWORK FOR INDUSTRY GROWTH JOHN-MARK STAUDE President, CEO and Director of Riverside Resources

288

Q: What are the main changes that you foresee for the

places in the index due to the negative perception of the

mining industry with the change in administration?

country among international investors. I would recommend

A: In 2018, there was an environment of confusion among

managing this perception to show stability and better

industry stakeholders but this is common with most

development conditions. The administration could identify

governmental changes. President López Obrador is trying

both which states have mining potential and which

to approach many interested parties and include them in

communities are willing to support this activity. In Mexico,

the discussion about the country. Mexico needs to attract

the mining industry is not a big deal at a country level, but in

capital and a stable and consistent message would calm

terms of regions, it does have an important impact. Instead

the market and help the mining industry as well as most of

of executing mining activities all over the country, focus on

the Mexican economy. The first concern from the mining

the regions where this industry could flourish.

side is related to unions. There is a real concern about how this issue is evolving. Second is the Mining Law regarding

Q: How does supporting mining activity in the country

investment and finance. The current government has a

translate into benefits for communities?

chance to bring back mining investment if it takes action and

A: The first advantage will be infrastructure. I went to the

aligns with experts in the industry. From my perspective,

Mulatos area in Sonora when it was a small town with a

the regulations are being discussed and decisions are so far

strong drug-trafficking situation and very difficult road

not yet supportive for rapidly attracting capital or creating

access. The infrastructure that came along with Alamos

jobs but this could definitely improve.

Gold’s operations transformed the region in positive ways. The second advantage that mining puts on the table is

Q: What are your recommendations for designing a

education. Apart from the jobs that are offered, schools

framework that ensures the industry’s growth?

are available for workers and their children. If you want

A: The framework should provide incentives and allow the

to improve prosperity in a country, it should be through

government to immediately liberate land to attract new

investment and education. The third advantage is the

investment and allow for consolidation of projects so they

resulting economic growth that keeps people in the region.

can actually move forward or be tested and relinquished.

In many countries, when people do not have access to job

The current situation is not a win-win, it is stuck and this

opportunities in the countryside, they have to move to cities.

does not help Mexico. Second, we consider the consultation

By creating this infrastructure in remote areas, the pressure

important but executing this process should be a part of

that large metropolitan cities face could be diminished.

what corporations do with the involved communities, instead of it being a government mandate. Whenever the

Q: How can mining companies work with the government

government participates, the process slows down and

to make this happen?

investment is reduced. In a really competitive world, the

A: This action should be localized where mineral companies

most favorable option is that which attracts capital.

have their resources. In these specific locations, mines could be really helpful in designing the future of the region. These

Looking at the 2018 Annual Survey of Mining Companies

resources and the related infrastructure support community

from the Fraser Institute, Mexico has dropped many

development. The operating companies could really benefit from having a stable investment: changing the way taxes are levied confuses and slows investment. Mexico has been

Riverside is a well-funded, value-driven exploration company

the world’s leading producer of silver for 500 years but

advancing a strong portfolio of gold, silver and copper

right now the big discoveries are in other jurisdictions

properties in Baja California, Mexico. It has more than seven

and the money is starting to flow to those regions away

years of experience in the mining industry

from Mexico.

VIEW FROM THE TOP |

TOP TALENT FOR ZACATECAS’ ECONOMIC FUTURE AGUSTÍN ENCISO Director of COZCYT

Q: How is COZCYT advancing Zacatecas’s mining industry?

We cleaned it up and implemented an environmental recovery

A: Our mission is to further science and technology in

plan that included rehabilitating an old tailings dam. The vision

Zacatecas, a state that counts mining as one of its top

was to make it possible for academic research centers and

economic activities. We have a mining tradition that spans five

private sector development centers to work hand-in-hand.

centuries and are one of the most important silver producers

We also included educational institutions whose main goal is

globally. Historically, however, this industry has not produced

training students. Quantum is right next to a campus of IPN,

a corresponding impact on the region’s development. Once

and it has developed a program with the state’s mining cluster

a project was mined out it simply disappeared. COZCYT has

based on study and internships. This collaboration between

intervened to make sure mining produces development and

researchers, educators and companies is known as a triple-

well-being. We are working to generate technology and a

helix model, and we have expanded it into a quintuple-helix

world-class talent pool in the state. Particular mining projects

model, incorporating the environment and the community.

may come and go, but the talent they create will be useful in

Quantum is a magnet for talent, and where there is talent

new projects in many industries besides mining.

there are investments.

To this end, we have undertaken several studies regarding the

Q: What companies in the mining sector have R&D centers

future of mining in Zacatecas, emphasizing innovation and

at Quantum?

labor. Working closely with mining companies, scholars and

A: The first agreement we made was with Frisco. It

other segments of society, we have published a book that

brought together the myriad of labs and research centers

analyzes the future of mining in the state up to 2025. This

it had around Mexico and unified them here. Thanks to

book starts with expectations for the global metals market,

Jaime Lomelí and Carlos Slim’s support, we succeeded in

considers Mexico’s and Zacatecas’ place in the international

creating the Center for Research in Mining and Metallurgy

mining industry and finally, zooms into each particular

at Quantum. This center is in full operation, housing around

project in Zacatecas to evaluate present and future human

60 researchers. Lasec is another company innovating

resource needs.

at Quantum. It specializes in networks and computing equipment for mining. It has a system known as Smart

Often, universities believe that since there are many mines

Flow that controls the circulation of workers, vehicles

in the state, they should be training mining engineers. But

and processes throughout a mine. Lasec partnered with

modern mines are comprehensive projects that need all

a German company, Becker, and is now Lasec-Becker.

kinds of engineers. The production chain is also important.

Moreover, we have Fresnillo’s Servimolina, focused on

It is common to have foreign providers for specialized and

mining construction, and currently doing research on rock

technical matters, but there is enough talent in Mexico that

shoring. Grupo Terra has its center for capacitation in

just needs to be promoted and incentivized. We foster

explosives for mining here, along with Maya Producciones’

Mexican providers through a fund for stimulating innovation.

center for audiovisual simulations of mining processes.

We devise programs for the Mexican industry to become a

Finally, the Zacatecas Mining Cluster center for compatible

quality mining provider.

mining is here. Its goal is to further research in water use, environmentally sound practices and community relations.

Q: How does Quantum City of Knowledge fit into COZCYT’s mission? A: We decided we needed a physical space where

The Zacatecan Council of Science, Technology and Innovation

collaboration and conversation could flourish. This is crucial

(COZCYT) is a decentralized public organization of the state of

for COZCYT’s mission. We consequently located an area close

Zacatecas. Its main objective is to promote and coordinate the

to the city, so that all participants could come and go easily.

planning and development of science, technology and innovation

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| INSIGHT

FINDING, ASSESSING AND PLACING THE RIGHT TALENT JOSÉ RAÚL GUERRERO President of Mexico and Central of Korn Ferry

While Mexico has more engineers graduating annually

talent store with an added value in advising the industry in

than Germany, it still does not have enough professionals

all the particularities of human capital management,” he says.

for the mining industry. “Young talent usually chooses to

“Our methodology starts with analyzing the industry from

work in industries that seem more appealing,” says José

a global perspective and the talent competition it has from

Raúl Guerrero, President Mexico, Central America and the

other sectors.”

Caribbean of Korn Ferry. “The challenge is to make mining

290

more attractive, which I believe can be accomplished

In attracting the best talent, Korn Ferry is a believer in the

through better communication.”

usefulness of a data-driven approach. “We have significantly

“

Many technical positions are as important or even more crucial than executive ones, but few companies consider strategies for retaining those people”

invested in Big Data analysis. Our talent assessments allow identifying customized profiles for each client’s needs,” he explains. Korn Ferry’s assessments are a key tool for building a company’s human resources, allowing to timely identify any red flags in talent management. “We perform a deep involvement in our client’s processes and day-to-day operations. This gives us a meaningful idea of their needs.” Guerrero adds that the mining industry used to be in constant search for technical skills and overlooked social competencies. “But in the latest processes that we have carried in Mexico, we have found a higher demand for soft skills such as leadership and international exposure,” he says.

The global talent pool has grown in recent years. According

Once the right talent is found, assessed and placed, the

to the World Bank, the total workforce grew from 2.3 billion

challenge is keeping it. But mining companies often focus

people in 1990 to 3.4 billion in 2017. But many countries are

on retention plans for executive positions and overlook the

still experiencing scarcity. To assess the Mexican mining

retention of other key roles within the organization. “Many

situation, Korn Ferry carried a survey on mining salaries, with

technical positions are as important or even more crucial than

the participation of 43 mines and 29 business groups. Findings

executive ones, but few companies consider strategies for

suggest that other industries, like oil and gas and automotive,

retaining those people,” he says. “Specialized talent is like gold

require similar talent and are attracting mining workers.

dust and it should be taken care of and compensated to avoid losing it.” Korn Ferry identifies who those people are within

According to Guerrero, security, safety and environmental

an organization and how to keep them in-house.

issues are some of the factors making mining jobs uninviting to millennials. “The reality is that new generations usually do

The company’s forecast for the global mining industry is

not consider mining,” he says. “The key is to focus on an early

that it will keep growing and demanding talent. “Mining’s

engagement at university-level with the people that will be

challenge will remain to attract the right talent to mines,

targeted for recruitment in the future.” Since new generations

which is no easy task, especially in countries with

are much more conscious about quality of life, he also believes

security issues,” he warns. As for Mexico, he says that

companies should highlight the best practices of mining

while miners are wary about the political transition, the

companies in terms of human capital and retention. Korn Ferry

industry wants to keep a positive outlook. “While possible

specializes in talent attraction, selection and retention, but also

changes to the mining law are still uncertain, we do know

in helping companies design competitive, modern, creative

that the industry is going to be a focal point for the new

and attractive compensation strategies. “We are a one-stop

administration,” he adds.

INSIGHT |

INNOVATE TO ENTICE A NEW GENERATION INTO THE WORKFORCE VICTORIA MORENO Founder and Executive Partner of Viarmosa International

Widening the talent pool for the mining industry is all

and they will recommend you.” The company has partners

about making it sexier to a new workforce, says Victoria

located in Vancouver, Miami, Durango and Toronto. “We

Moreno, Founder and Executive Partner at Viarmosa

support Canadian companies working all across North

International, which specializes in finding the right talent

America. It is due to our partnership with them that we

to fill senior positions for Canadian companies in Mexico.

expanded to the US as well,” she adds.

“New generations have an old-fashioned idea of mining but if we could give them the opportunity to visit modern mines

All these companies have different projects and hence,

and experience some of the industry’s training programs,

different talent needs. Moreno says that personalized

we could change their minds,” she says.

service is the element that really adds value when trying to match the right talent to a client’s needs. “It is very

Enticing young professionals into mining requires a different

important for me to go and meet with my clients personally

approach, Moreno adds. “One of the major commitments

to understand their demands and the targets that they have

of the industry is to introduce innovations to become more

for the talent they seek to hire.”

appealing to new generations.” For example, regarding the exploration phase of mining, data analysis innovations are

For example, Moreno explains that while some client looks

ever more abundant. “These are booming in the industry

to move people to areas where they can be close to their

because they make it easier to find better resources and

families in order to keep them together, others prefer to

require more specialized people,” she explains.

have its people living close to the mine to build a sense of community. “Every client and each company’s culture

Innovations in mining are not limited to the operational area;

are totally different, so we work directly with them to

these have also permeated the management of its human

have a close connection that will enable us to better meet

capital. “Paper CVs are gone. Talent and job platforms have

their needs.”

really shifted the ways in which the industry can find the best people from all over the world,” Moreno says. “If you

Regarding the cost-benefit relation the company can offer,

are interested in starting a career in the industry, go ahead

price flexibility is atop its competitivity strategy. “We can

and open a LinkedIn account and start connecting with as

work with payment flexibility as what matters the most

many people as you can.”

to us is to create a relationship with them,” Moreno says. Its business contracts are simple: the client comes to the

But while LinkedIn has been particularly useful for Viarmosa

company with a talent need and Viarmosa International

International in finding the right talent, the company

submits a contingency contract that establishes that

employs what it sees as a much more effective tool.

Viarmosa will present the best three candidates to the

“Networking is the key. Mining is a really small industry,

client and charge it 18-20 percent of the yearly salary of

so everything about its talent will come to us through

the person eventually hired.

networking,” she says. “Hence, reputation is crucial. Mining peers will identify who is a good or bad professional.”

To avoid this, Viarmosa International relies on talent mapping as a tool for designing high-performance teams that can

Viarmosa International itself has a proven reputation in

stay together. The latter considers language proficiency,

the Mexican mining industry, which is invaluable, says

job requirements and personality traits. “Personality is key.

Moreno. “We have worked with Agnico Eagle, Endeavour

We must make sure to create teams whose personalities

Silver, Leagold, First Majestic, Pan American Silver and

can work in harmony and even become a family eventually.

Aura Minerals, just to name a few. When you have a good

Career goals are also a top flag when evaluating if a given

reputation, your clients will talk about you and your success

individual is right for a given job,” Moreno says.

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| VIEW FROM THE TOP

ENHANCING REGIONAL DEVELOPMENT

LISANNE RADERSCHALL Policy Analyst of OECD Mining and Regions Project

CHRIS MCDONALD Project Coordinator and Senior Policy Analyst of OECD Mining and Regions Project

Q: What opportunity areas in current mining practices

LR: So far, we have conducted two case studies. The first case

gave rise to the OECD’s Mining Regions and Cities

study of North Karelia focuses on policy recommendations

Project (MRCP)?

to mobilize assets after mine closures and to address the

LR: The mining of minerals and metals, extraction of coal,

development challenges related to economic diversification,

oil and gas and downstream production affect virtually all

wellbeing and entrepreneurship. The second case study is

OECD member countries. Regions with a specialization

currently under way and covers the regions Västerbotten

in mining and extractive industries are engines of growth

and Norrbotten, in Sweden.

for many OECD countries. For example, across a sample

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of 11 OECD member countries there are 83 regions with a

Q: The case studies are used to build a body of evidence

specialization in mining and resources, which represents

and common pool of knowledge that support the

45% of the regions in these countries.

development of a global toolbox of recommendations. Yet, you are still looking for partners and support to develop

The OECD has established a project – OECD Mining

statistical analysis. Why is this important?

Regions and Cities – to identify leading practices

CM: To develop the global platform we hold yearly

and recommendations to implement better regional

conferences of OECD Mining Regions and Cities. Up to now,

development policies for these regions. The initiative

we have had three conferences: Antofagasta, Chile in 2017;

has three objectives. First, develop a global toolbox with

Darwin, Australia in 2018; and Skellefteå, Sweden, in 2019.

recommendations and evidence to benchmark and inform

The meeting in Sweden was attended by 170 people from

regional development in a mining and extractive context

across 25 countries and allowed for knowledge-exchange

for the mining industry, for national and subnational

and discussion around two main themes: first, how mining

governments, and NGOs to cooperate on addressing shared

regions can harness opportunities from the sustainable

challenges. Second, produce a series of case studies that

energy transition and ensure environmental sustainability

deliver regional-specific recommendations and support for

for current and future generations; second, how mining

regions and cities to implement better regional development

can be a driver of improved regional wellbeing and how

policies. Third, develop a global platform for mining regions

mining regions can link different measures to enhance

and cities through events and peer reviews that enable

attractiveness.

knowledge sharing, advocacy and dialogue between the public and private sectors and local communities on better

The next conference will take place in Karratha, Australia, in

policies to enhance regional productivity and wellbeing.

June 2020, and will focus on productivity, jobs and economic diversification for regions with mining and extractive

Q: What actors are collaborating to bring MRCP to fruition?

industries. The conferences help to mobilize a community

CM: Our work brings together representatives from mining

and develop stakeholder and political support and provides

regions and cities around the world as well as national

opportunities for knowledge-sharing.

policymakers, private sector representatives, academics and indigenous people who work on the nexus of regional

Q: Mining tends to have localized costs, while its benefits

development and mining. It is important for us to create an

are often not directly experienced in its immediate location.

inclusive dialogue that allows for an exchange on different

What strategies can be implemented to mitigate costs and

perspectives and help find solutions in a collaborative way.

maximize benefits at a local level? LR: Our work largely focuses on three priority themes that

Q: What progress have you made in each MRCP goal and

we think are important when trying to enhance regional

why will these goals result in social benefits for societies

development opportunities in the mining and extractives

involved in mining?

context: productivity, jobs and economic diversification;

quality of life and wellbeing and subnational governance

the renewable energy transition for these regions. Further,

and fiscal arrangements. Within each of these sub-themes a

we have contributed to SDG10 - Reduced Inequalities by

range of polices are needed to maximize benefits at the local

strengthening the voice and influence of marginalized

level. Policies that can be effective at moving toward the

groups, in particular indigenous peoples, by involving them

higher value-added activities include strengthening linkages

in discussions on mineral development in our meetings as

between research and educational facilities with the private

well as the case studies we undertake.

sector, providing information, training and technical support for local firms to deliver services to mining and extractive

Q: The Mining Fund may be reformed during the current

operations and working with local mining services firms to

legislative period. What are the best practices that Mexico

expand markets outside the region and into related sectors.

can incorporate so as to guarantee an effective sharedvalue system?

Q: What issues in mining are best addressed by means

CM: The OECD has undertaken two Territorial Reviews

of region and city-based policies, as opposed to nation-

(Colombia in 2014 and Peru in 2016) that have focused

level policies?

questions related to local and regional distribution of

LR: Responding to the challenges and opportunities

mining royalties. Each jurisdiction is different but there

faced by mining regions raises important questions of

are some key lessons: having a mechanism to stabilize

effective governance. Regional governance arrangements

and help balance the cyclical nature of revenues; ensuring

that enable stakeholders to develop a clear vision and

equalization mechanisms to balance expenditures between

priorities for development, include different local interests

producing and nonproducing regions; creating incentives

in decision-making, and integrate policies and investments

for larger scale investments and leveraging other sources

at the optimal scale are needed. The OECD has developed

of funding; ensuring local municipalities and regions have

the Principles on Effective Public Investment across

the capabilities to invest effectively and having mechanisms

Levels of Government to help governments assess the

in place to support long-term planning and multiyear

strengths and weaknesses of their public investment

investment strategies.

capacity using a whole-of government approach and set the priorities for improvement to achieve more efficient

Q: What policies can Mexico put into effect to generate

public investments.

sustainable development through its mining industry? CM: It is hard to make recommendations without having

Q: How can cities, regions and states work together to

conducted work in the country. In our process of developing

produce policies that result in the best mining practices?

recommendations, gaining an in-depth understanding

CM: Through our work, it has become clear to us that while

of local conditions and policy frameworks plays an

mining regions might be very distant from each other

important role. To do that, we usually gather data through

(some might even be situated on different continents)

questionnaires and undertake fact-finding missions in the

they often face the same challenges. Our initiative, and

respective countries. Overall, however, it is important for

especially the yearly meetings, are an opportunity for

policymakers to be aware of the fact that mining regions

them to come together to learn from each other. It allows

and cities face specific challenges and opportunities that are

them to find common solutions to common problems. For

best addressed through place-based policies.

instance, it might be the case that a city or region in Chile has already found a solution to a problem that has not yet

LR: The strength of the place-based approach lies in the

been addressed in Australia. By setting up regular exchange

fact that regions have different drivers of growth depending

between regions, we facilitate exchange on leading practices

on their development level, their institutional arrangements,

around the world.

resource endowment, and population size and density. Regional approaches can enable the right policy mix to

Q: What is the role of mining regions and cities in furthering

unlock endogenous growth potential by identifying and

the UN’s Sustainable Development Goals (SDGs)?

developing new economic activities that build upon and

LR: There are many linkages between mining and the

combine existing strengths. This is something that could be

SDGs, ranging from furthering environmental sustainability

considered in Mexican policymaking for mining regions and

to reducing inequalities and generating decent work and

cities as well.

economic growth. The work that we do incorporates these and seeks to contribute to them. Here are a few examples. At the last conference we discussed how

The

regions with mining and extractive industries as well as

Development (OECD) is an intergovernmental economic

the mining industry can contributing to SDG13 - Climate

organization with 36 member countries. It was founded in 1961

Action and what opportunities and challenges arise from

to stimulate economic progress and world trade

Organisation

for

Economic

Cooperation

and

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STANDARDS HELP PROJECTS BECOME ENGINES OF DEVELOPMENT FRANCISCO PARIS Regional Director for Latin America and the Caribbean at EITI

294

Q: How do EITI’s standards help in the development of the

in Mexico when the Energy Reform was established. In

mining industry?

this context, it was very important that the government

A: EITI’s principles were agreed 15 years ago and the main

knew every detail around licensing. CNH did a good job in

purpose is to ensure that projects in the extractive industry

executing these processes with transparency; hence, we

act as engines for development. This discussion started

identify that Mexico is committed to beneficial ownership.

when the Millennium Development Goals (MDGs) were

This process has to be similar with contracts. These need

established. Most countries acknowledged that revenues

to be public because that is the only way analysts and the

from these projects were being misused due to a surge in

public in general can check if taxes have been collected

corruption and mismanagement of resources. Transparency

properly or even the conditions under which these contracts

is EITI’s core activity. For this to work, you need a good

were awarded. Our work to expand our foothold in different

legal framework that acts as the bridging point between

countries is constant. In fact, during 3Q19, Ecuador joined

investors and the owners of the resource. You also need

the initiative and we are in ongoing negotiations with the

good monitoring, revenue collection and its correct

government of Brazil.

distribution. This monitoring needs to be present throughout the value chain. The three main actors we work with are

Q: What are you doing in Mexico to ensure its participation

the government, industry and society. Government has the

in the initiative?

commitment power, as it can ask companies to disclose

A: Mexico started to manifest its interest in participating

information. When a country commits to working with

with EITI around 2014, when the Energy Reform was

EITI, it is also committing to using the best international

established. This event also coincided with the spark of

standards, but at the same time it has to work hand in hand

the country’s open government policies. Mexico became

with the industry, civil society, parliaments, activists, think

a candidate country in 2018. This means the country was

tanks and universities.

undergoing our validation process and internal follow-up mechanisms started to take place. By the end of 2018, the

Q: What is EITI’s strategy to promote the implementation

country issued an assessment report and we are expecting

of these standards at the corporate and national levels?

another one by 4Q19. In addition, some information on

A: To date, we have 52 members and these countries are

the Ministry of Finance website needs to be updated. This

very committed to the cause. We work under a validation

ministry has produced many studies and notes in regard to

scheme, where every three years our team reviews and

environmental and social issues around awarded projects.

ensures that the requirements are being met, as well

The groundwork is done. Given the governmental transition,

as executing a disclosure and impact check. With new

our work slowed in 2019 but we are looking to re-engage

members, we are constantly working on disclosure of

with the administration.

information. Two examples of this are beneficial ownership and the concept of transparency. Beneficial ownership

EITI already has a great deal of experience with

was identified in 2016 and it is needed to allow society to

governmental transitions through our 52 member countries.

monitor which company has been awarded projects from

Some countries require a greater amount of time to adapt,

any auction process. At some point, we had this discussion

but since we established this conversation when AMLO’s administration took office, we are pleased to note that the Mexican case is going through a normal transition. Even

The Extractive Industries Transparency Initiative (EITI)

though we understand there are many priorities on the table

promotes the open and accountable management of oil, gas

and this administration has taken a radical approach toward

and mineral resources. EITI Standard requires the disclosure of

the Energy Reform, we are looking forward to working with

information along the extractive industry value chain

the authorities to ensure EITI adds value to the country.

VIEW FROM THE TOP |

SUCCESS IN THE COMPREHENSIVE SERVICES NICHE NORBERTO ZAVALA Director General of INMSO

Q: What is the main value INMSO adds to the mining industry?

Q: What is your current strategy for consolidation in the

A: We specialize in rock support and installation of automated

Mexican market?

cement plants. Also, we offer anchoring services for civil works

A: I have a great deal of experience in mining and have learned

within mines. But these services can be found elsewhere in

that what clients appreciate the most is financial certainty. We

the market. What differentiates INMSO is safety, quality and

provide this. We pay our taxes correctly and all our workers

social responsibility. On this last point, we are known for

are registered with IMSS. As we work with the best in the

our strong social commitment. We have been awarded the

industry, such as Fresnillo, Peñoles, Leagold and Frisco, our

distinction of SCR. For instance, we have value brigades in

own standards have to be on par with them. They all have two

our communities, doing educational work that emphasizes

attributes in common: high standards of efficiency and social

the importance of work and family. We also participate in

responsibility. Moreover, we are strengthening our capacity to

developing infrastructure, such as roads or lighting. In fact,

provide a comprehensive service. The mining industry looks

next year, we will launch a foundation to formalize these

for contractors that can offer many services in one, so as to

efforts and make them more effective. Finally, I would like

simplify processes. On this point, we are integrating hauling

to stress the fact that we have a board of directors, which

and rock support.

gives us strength and credibility. Our mission is to provide an integral service to the mining industry.

Furthermore, we are building alliances with top-of-theline providers. We have some ongoing alliances and

Q: What programs to develop your workers’ capacities are

are formalizing others with companies such as Epiroc,

you implementing?

Normet, SANY, Komatsu, BASF and GCC. We are looking

A: We have a technical school to advance this goal. There is a

for a commercial alliance, where we can represent a brand

lack of human capital in Mexico’s industry and it is a priority

and together provide a service to the client. We have had

to remedy this. The objective is to develop a strong base of

providers that sell us the equipment but do not follow up

operators in three years. We will take them from technical

with service training. We need our workers to be able to

school to being certified technicians in our company. These

service the equipment we sell, and thus we form alliances

efforts to develop an adequate work force are key to our

that guarantee this know-how. Maintenance is fundamental in

strategy. We are not just sellers. We are service providers

mining. If there is no capacity for proper maintenance, brands

and therefore need the best technicians. Keeping employee

do not consolidate in the market. Our alliance with these

turnaround as low as possible is crucial. We have many

companies is aligned with this need; We do not just buy the

programs that ensure our personnel are heavily involved in

equipment. We form comprehensive alliances.

the company. For instance, we identify a small number of workers who have demonstrated technical and leadership

This strategy of building partnerships with the best

excellence. We capacitate them beyond their immediate

providers and making sure that we have all the necessary

areas of expertise. We train them to train others. They are

knowledge to service and repair their equipment is crucial.

then ready to go to the mining units to certify the personnel

It allows us to work closely with clients and learn their

we already have there. Every four months afterward, they

needs. We also train our client’s personnel in the use of

will revisit the mines and update workers. In parallel, we have

the equipment we sell.

a group of recent graduates accompany these leaders and learn from them. It is a two-year project. Certainly, we seek to be above the industry’s average in terms of pay. But we also

INMSO is a contractor specializing in the mining industry.

offer other benefits, like sending out little presents to families

It provides hydraulic cement plants for rock support and

on Mother’s Day or publishing a magazine that features our

diverse services for mine development, such as ramp

workers’ accomplishments.

construction

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| VIEW FROM THE TOP

PLASTIC APPLICATIONS SEAL SUCCESS JOSĂ&#x2030; LUIS ALONSO Director General of LDM

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Q: How important is the mining industry for LDM?

A: We work with the Swiss manufacturer Leister, which is

A: The mining sector accounts for approximately 20

specialized in equipment for technology to weld plastics.

percent of our income. The principal products we sell

The advantage of working with European companies is that

in this area are geosynthetic membranes, tubes, plates,

they meet strict national and European norms. Many of

grids, and equipment for the manipulation of plastic. The

these norms are focused on prevention. In Mexico, American

geosynthetic membranes have different applications. One

norms are often applied, which are not as strict. In reality,

is the protection of soil around aquifers. When mining uses

this means that to meet American norms, the company

chemical solutions such as acids, they need to be stopped

welds a trial product first, and then measures it. To meet

from passing into the subsoil as mandated by regulation.

European norms, that company needs equipment which measures speed, temperature and pressure during welding.

In mining, there is widespread use of double seals, or double barriers. This technology is made up of a plastic barrier and

This is then used to test welding of a section of membrane.

a second consisting of powder. This powder is entrapped

Only if it holds, it is approved for trial application in the

between two textiles. When a liquid reaches it, the powder

field. Leister produces the machines necessary for this

expands and stops the liquid from continuing into the

process. It can provide an accurate report for each line of

subsoil. This is a specialty we offer. We also offer geogrids

welding, and if there is an error in the process the machine

to stop displacement of terrain, and control mats to counter

will turn off immediately. This is safer and provides a better

soil erosion. In addition, we offer plastic plating for the

product. Leister is now a leader in Mexico and the rest of

exterior protection of trucks. Plastic is highly resilient, which

Latin America. Ten years ago, however, this was not the

makes it suitable for this purpose.

case. We believe that we have changed the market and brought it closer to the European standard.

Q: LDM is a supplier of the German manufacturer Naue. What advantages does Naue offer?

Q: What are your plans for Mexico, and further expansion

A: Naue is a prestigious brand that is very well-known in the

in Latin America?

area of geosynthetics for protection purposes. It invented

A: In Mexico, our plan is to continue increasing our share of

the concept of a powder solution being entrapped between

the market. There is a great deal of competition in pricing.

two textiles and it held the patent for this for a long time.

We intend to grow closer to our clients, and integrate

The companyâ&#x20AC;&#x2122;s advantage is its wide range of products:

our solutions and brands so that we can offer integral

geomembranes, geotextiles, geosynthetics, geogrids, mats

packages.

for drainage and erosion, amongst others. Competing producers tend to only focus on one of these areas. Having

We will pursue the same strategy in the rest of Latin

such extensive engineering experience and installations

America. We are already present in Colombia and Panama.

gives the company the upper hand in the industry.

This year we will arrive in Chile and Peru. These countries have different styles of mining, particularly due to higher

Q: What other strategic alliances do you rely on and what

altitudes and a distinct climate. Chile is also different

advantages do they provide?

because it has a long mining history, with an established presence of many mining-related companies. As for Argentina and Bolivia, there is a higher specification

LDM is a supplier for different manufacturers in the area of plastics

required to meet the demands for protecting subsoil.

and equipment for the modification of plastic. In the mining

Particularly in the area of lithium mining, our products

industry, it offers products such as geosynthetics, geogrids and

have a lot of potential there. We can also sell to other

geomats with the purpose of protecting the environment

sectors which use our products.

VIEW FROM THE TOP |

HEAVY BUREAUCRACY REMAINS A BARRIER TO FAST, EFFICIENT TRANSPORT LUIS TERĂ N Director at Connect Logistics

Q: What is your principal operation and how do you stand

in which we operate, the majority of movements are urgent.

out from your competitors?

You must, therefore, always be ready for a new client order.

A: We are a logistics company that works with transport

Another factor is the ability to bulk cargo in one transport.

operators to transport freight. You can see us as a freight

You want to put several clientsâ&#x20AC;&#x2122; cargo orders in the same

forwarder. Our goal is to adapt our services as much

transport operation to lessen the number of transports, and

as we can to the requirements of the client. We do not

thus save costs and time. We can do these things. That

limit ourselves to one particular region and can organize

distinguishes us from our competitors, and allows us to

transport over very large distances, subcontracting

meet the demands of every mine in Mexico.

transport agencies along the way. We also organize the transfer of goods from one transport medium to another.

Q: What improvements would you recommend for port

We manage import procedures, working with customs

authorities in Mexico?

agencies at borders and at seaports. We have agents at all

A: Our clients run tight time schedules, so a speedier

ports and border terminals in Mexico. Our role is to act as

offloading and clearance of containers is certainly desired.

the brain behind the transport operation.

Ports are often limited by their capacity. Then there is the level of bureaucracy. The payment of import taxes

To ensure the best solutions, we analyze routes and

complicates things and reduces the amount of time we have

circumstances. Some of our clients, for instance, require

to meet our deadline. This does not necessarily concern the

the transport of dangerous materials. To ensure operators

port, but all the different heads through which companies

function at their best, we organize annual training courses

have to go for approval. It would help if these authorities

for our transporters and logistical partners where we impart

had greater knowledge of the companies that ship goods

all the experience, we have gained over the last nine years.

through their ports.

Q: What measures do you take to mitigate security risks?

Q: Have recent tensions regarding the US-Mexico border

A: You cannot mitigate these risks completely because

affected your business?

they are not in the hands of a single person or company.

A: It has not affected us directly, but there are some

You have to act to prevent such situations and put in

impacts. Clients have become a bit more reluctant in their

place the appropriate measures. First, you must have a

investments. The USMCA negotiations have created a

complete overview of where the cargo will be every day,

lack of clarity in what is going to happen. Any blocks at

at every hour. In communication with your partners and

the border have not slowed us down. The greater impact

client, you can then coordinate when a cargo is going

comes from the new regulations for operators in the US,

to arrive in a particular area. Of course, there are areas

such as a mandatory rest for truck drivers after an eight-

that are more difficult and dangerous than others so you

hour shift. The regulations vary per US state. The result is

should try to provide advice to your clients regarding

that transport that previously took three days may now

transport circumstances. Lastly, you monitor the

take between four and five days. These types of regulations

transport along the way using GPS and look out for signs

may also be introduced in Mexico, but so far it remains

of potential danger by maintaining continuous contact

unregulated.

with operators. Q: Connect Logistics is known for detecting opportunities in

Connect Logistics is a global logistics company that designs

the logistical chain. What are the most important elements?

and coordinates logistical routes for the multi-modal transport

A: One of the most important factors is to have units

of cargo. It is present in North America, Europe and Asia. It also

available at the moment they are needed. In the industries

organizes customs procedures

297

| ACRONYMS Association of Mining Engineers,

Joint Venture

Metallurgists and Geologists of Mexico

LBMA

London Bullion Market Association

BIVA

Institutional Stock Exchange

LNG

Liquified Natural Gas

BMV

Mexican Stock Exchange

M&A

Mergers and Acquisitions

CAMIMEX

Mining Chamber of Mexico

NAFTA

North America Free Trade Agreement

CANCHAM

Canadian Chamber of Commerce in

OECD

Organisation for Economic Co-operation

AIMMGM

Mexico

and Development

CFE

Federal Electricity Commission

PEA

Preliminary Economic Assessment

CIMAT

Mathematics Research Center

PROFEPA

Federal Attorney's Office for

CNG

Compressed Natural Gas

CRIRSCO

Committee for Mineral Reserves

PTU

Employee Profit Sharing

International Reporting Standards

ROI

Return of Investment

CSR

Corporate Social Responsibility

SEDATU

Ministry of Territorial Development

EPCM

Engineering, Procurement, Construction

SEMARNAT

Ministry of the Environment and Natural

Environmental Protection

Management

Resources

EVIS

Social Impact Assesment

SGM

Mexican Geological Survey

FDI

Foreign Direct Investment

SOP

Sulphate of Potash

FIFOMI

Mining Development Trust Fund

t/d

Tons per day

ICMC

International Cyanide Management Code

t/y

Tons per year

ICSG

International Copper Study Group

TSX

Toronto Stock Exchange

IFT

Federal Institute of Telecommunications

TSXV

Toronto Venture Exchange

IIoT

Industrial Internet of Things

UNAM

National Autonomous University of

ILO

International Labour Organization

INEGI

National Institute of Statistics and

Mexico USMCA

United States, Mexico, Canada Agreement

Geography IoT

Internet of Things

| ADVERTISING INDEX Opening Spread

Fresnillo plc

118

DBR Abogados

7 Ministry of Economy of Zacatecas

122

VHG Abogados

12 National Union of Mining, Metallurgical, Iron and

128 SKF

Steel Workers of the Mexican Republic

136-137 Detector Exploraciones

Mexico Business Events

154 SGS

ALN Abogados

164

Elastómeros Taza

Torex Gold Resources

168

Delta Solutions

60-61 Brinks

172

SNMM Frente

176 Dräger

Major Drilling

70 Cyanco

186 ERM

76 Halyard

200 Globexplore

80 Chemours

220 MBC

Maza Drilling

224 Resemin

Carrizal Mining

226-227 Grupo PEAL

Kootenay Silver

246 Mercuria

100

Mettler Toledo

253

Cribas y Productos Metálicos

106

Telson Mining Corporation

268

Strand Hanson

115

Azure Minerals

284 Emerson

INDEX #-G | 3Point Science 143

CONACYT 15, 17

AAF International 243

Confederation of Mexican Workers 20

ABB 239, 300

Connect Logistics 297

Accendo Banco 271, 273

Cortech 213

Agnico Eagle 9, 57, 76, 138, 139, 165, 194, 205, 217, 240, 291

COZCYT 17, 289

AIMMGM 14, 298

Cribas 252, 253

Alamos Gold 9, 43, 56, 57, 71, 138, 194, 211, 288

Cyanco 258

Alio Gold 56, 57

Datamine 15, 142, 175

Almaden Minerals 72, 85

DBR Abogados 31, 41

ALN Abogados 31, 39

Delta Solutions 146

Americas Gold & Silver Corp 82, 85, 102, 175

Detector Exploraciones 136, 137

Ankla 148

Dia Bras 43, 125

AOS 188, 195

DICISA 159

Argonaut Gold 54, 56, 57, 62, 69, 205

Dräger 177

Astralloy Steel Products 160

Dyna Resource 57

Aura Minerals 54, 73, 85, 111, 210, 291

Eaton 239

Avino Silver & Gold Mines 96

EC Legal Rubio Villegas 43

Azure Minerals 114, 115, 117

ECODRILL 210

Bacis 57

Elastómeros Taza 165

Baker Mckenzie 281

Embassy of Canada 35, 277

Banamex 228

Emerson 157

Banorte 228

Endeavour Silver 82, 85, 90, 111, 177, 291

Barsele Minerals 193

Energold Drilling 208

BASF 295

Epiroc 168, 223, 295

Belcarra Group 193

ERM 188

Belden 145

Evrim Resources 204, 206

Beumer 251

Excellon Resources 82, 103, 206

Boart Long Year 213

Export Development Canada 228, 277

Boytec 216

Extractive Industries Transparency Initiative 294

Bray 163

Fablab Chihuahua 255

CAMIMEX 9, 10, 13, 16, 21, 34, 55, 93, 108, 109, 112, 113, 174,

FedEx 168

260, 270, 298

FIFOMI 76, 94, 271, 273, 298

CANCHAM 34, 298

Firma Holdings 57

Candelaria Mining 9, 57, 76

First Majestic Silver Corp. 9, 10, 15, 23, 56, 57, 85, 88-89, 165,

Capstone Mining 111, 123, 165, 210

193, 196, 238, 291

Carrizal Mining 94, 95

FLSmidth 249, 250

Caterpillar 225

Ford 20, 240

CEMEX 237, 255

Fortuna 57

CFE 239, 298

Fresnillo plc 9, 10, 56, 57, 65, 83, 84, 85, 86, 87, 108, 126

Chesapeake Gold 57, 108

Frisco 10, 43, 57, 110, 111, 165, 178, 210, 240, 254, 289, 295

Chevez, Ruiz, Zamarripa 45

Fuerza Eólica del Istmo 131

Christensen 213

FullSpectrum Leadership 196

CIMMGM 46, 47

G4 Forage Drilling 211

CISCO 130

Ganfeng 20

CLUSMIN 7, 17

Garlock 161

Cobre del Mayo 108, 110, 111

GCC 295

CODELCO 248

Generac Ottomotores 158

Coeur Mining 10, 57, 82, 84, 85, 101, 174, 188, 192, 193, 204,

Geobrugg 176

206, 270

Geologix Exploration 57

Compañía Minera Cuzcatlán 100, 188

GEOSITE 135

| INDEX G-R Geotech Limited 193

MADAI 197

Guerrero Mining Cluster 7, 25

MAG Silver 85, 87, 108, 193, 202, 203

GL Tiley & Associates 240

Major Drilling 207

GMSI 183

Marlin Gold 57

GoGold 56

MarMar Holding 56

Golden Ridge Resources 204

Martin Engineering 151, 160

Goldgroup 56

Maya Producciones 289

Gold Resource Corporation 57, 63, 266

Maza Drilling 206

Great Panther Mining Ltd 57, 68

McEwen Mining 57

Grupo BMV 272

McLellan Industries 240

Grupo Calidra 237, 254, 256

Metallorum 241

Grupo GAP 188, 194

Metso 249

Grupo IPS 181

Mettler Toledo 167

Grupo México 9, 10, 20, 31, 85, 108, 109, 110, 111, 140, 145, 165,

Mexus Gold 56

168, 169, 177, 222, 239, 240, 241, 254, 257

Minaurum Gold 278

Grupo PEAL 226-227

Minera Alamos 54, 57, 69, 279

Grupo Terra 174, 178, 270, 289

Minerales Terán 209

Guerrero Mining Cluster 25, 209

Minera Mahakala 24, 222

Gustavson Associates 46

Mining Valbest 164

Halyard 138-139

Ministry of Economy 7, 11, 15, 16, 24, 34, 35, 158, 260, 300

Hanka 233

Minister of Economic Development of Durango 23

Harvest Gold Corporation 204

Ministry of Economy of Sinaloa 24

Haver & Boecker 254

Minister of Economy of Sonora 20

Haynes & Boone 37

Ministry of Economy of Zacatecas 7, 15

Haywood Securities 279

Molymex 257

Herrenknecht 147

Monterrey Technological Institute 255

Hogan Lovells 36

Motorola 146

IIPSA 140

Newmont Goldcorp Mexico 67

IMDEX 141

New Tigers Consulting 205

Industrias Peñoles 9, 10, 23, 31, 57, 84, 85, 103, 107, 108, 110,

Nomada Industries 179

111, 112-113, 114, 137, 140, 142, 143, 145, 150, 151, 165, 168, 169,

Normet 229, 295

175, 177, 179, 182, 188, 222, 228, 235, 239, 254, 295

OECD 195, 292-293, 298

INEEL 239

Orex Minerals 193

Intercore 213

Orica 232

Invecture Group 57

Orla Mining 57

IPEC Ingeniería 240

Oruss 175, 182

IPN 17, 24, 239, 289

Pan American Silver 10, 23, 57, 84, 85, 97, 142, 177, 193,

Kal Tire 166

243, 291

Komatsu 169, 240, 295

Paul's Fan Company 242

Kootenay Silver 82, 97, 99

PBE Group 147

Korn Ferry 290

Penn State University 151

Landdrill 212

Phoenix Plastics 197

Lasec 150, 174, 270, 289

Premier Gold Mines 56

Latin American Zinc 43

Primero Mining 57

Layher 235

PROESMMA 255

LDM 296

Puerto Carguero 169

Leagold 9, 57, 85, 142, 211, 291, 295

PwC 31, 32

Legalmex 48

RB Abogados 30, 42

Lucid Motors 20

Resemin México 224

MacLean 148

Riverside Resources 288

INDEX S-W | Rochester Resources 57

Rose Petroleum 57

Telson 57, 108, 111, 119, 121, 280

RYASA 160

Ternium 237, 254

Sandvik 213, 250

Tesla 20

Santamarina y Steta 44

Thermo Fisher 248

Schneider Electric 149, 150, 239

Timken 156, 157

Seequent 143

TMX Group 274-275

Senate of the Republic 7, 13

Torex Gold Resources 9, 25, 53, 54, 55, 57, 58-59, 85, 111,

SGM 222

194, 231, 301

SGS 259

Trabis 234

Sierra Metals 85, 110, 111, 118, 125

TSX 68, 94, 231, 269, 274, 275, 278, 279, 280

SKF 131, 133, 157

TSXV 274, 275

Skysset 237

United Minerals 43

Smart Condition 144

University of Guanajuato 151

SNMM 30, 49

UPS 168

Sonora Mining Cluster 21

Vander Capital 280

Sonoro Metals 205

Veolia 188, 192

SPM 217

VHG Servicios Legales 30, 33

Starcore International 57

Viarmosa International 291

TDM 241

Walden Group 228

SPOTLIGHTS | 18-19

MINISTRY OF ECONOMY OF ZACATECAS: Zacatecas: a Tradition in Mining

64-65

FRESNILLO PLC: Larger Projects Translate into Major Benefits

92-93

FRESNILLO PLC: Efficiency, Innovation to Increase Silver Production

98-99

KOOTENAY SILVER: Old Silver Mine Sees Revival

116-117

AZURE MINERALS: A Small-Scale, High-Grade Mining Operations

120-121

TELSON MINING: Enduring, Sustainable Value for Shareholders, Employees and Communities

132-133 SKF: Rotating Equipment Performance 230-231 TOREX GOLD: Asset, Team, Game Changing Technology 264-265 CHEMOURS: The Element of Experience

| PHOTO CREDITS 4

Gold Resource Corp

93 Fresnillo

Ministry of Economy

Carrizal Silver Mining

Avino Silver and Gold Mines

Napoleon Gómez Urrutia

Kootenay Silver

14 MBP

Kootenay Silver

State of Zacatecas

Kootenay Silver

16 MBP

100

Compañía Minera Cuzcatlán

17 CLUSMIN

101

Coeur Mining

State of Zacatecas

102

Americas Gold and Silver Corp

State of Sonora

103

Excellon Resources

Sonora Mining Cluster

104 MBP

Gold Resource Corp

112 MBP

State of Durango

114

Azure Minerals

State of Sinaloa

116

Azure Minerals

Guerrero Mining Cluster

117

Azure Minerals

26 Calidra

118

Sierra Metals

119

Telson Mining

32 PwC

120

Telson Mining

121

Telson Mining

Gold Resource Corp VHG Servicios Legales

34 CANCHAM

122 MBP

Embassy of Canada

123

Capstone Mining

Hogan Lovells

124

Compañía Minera Cuzcatlán

Haynes & Boones

125

Dia Bras

38 Cereceres

126 Calidra

39 ALN

130 CISCO

Gold Resource Corp

131 SKF

DBR Abogados

132 SKF

42 MBP

133 SKF

EC Legal RV

134 Siemens

Santamarina y Steta

135 GEOSITE

Chevez Ruiz Zamarripa

136 MBP

Gustavson Associates

138 Halyard

47 CIMMGM

139 Halyard

48 Legalmex

140 IIPSA

SNNMM Frente

144 IMDEX

Gold Resource Corp

142 MBP

Torex Gold

143 Seequent

Argonaut Gold

144

Gold Resource Corp

145 Belden

MBP / Smart Condition

64 Fresnillo

146

65 Fresnillo

147 MBP

Newmont Goldcorp

148

Great Panther Mining

149 Schneider

Minera Alamos

150 Lasec

Alamos Gold

151

Almaden Minerals

152 Calidra

Aura Minerals

156 Timken

Candelaria Mining

157 Emerson

Orla Mining

158

Delta Solutions Ankla / MacLean Engineering

Martin Engineering

Generac Ottomotores

86 Fresnillo

159 MBP

First Majestic

160

First Majestic

161 Garlock

Endeavour Silver Corp

162 Dynapro

RYASA / Astralloy

PHOTO CREDITS | 163 Bray

233 Hanka

164

Mining Valbest

234 Trabis

165

Elastómeros Taza

235 Layhermex

166

Kal Tire

236 Takrf

167 MBP

237 Skysset

168 MBP

238 MBP

169

239 MBP

Puerto Carguero

170 Orica

240 IPEC

176 Geobrugg

241 TDM

177 Draeger

242

Paul's Fan Company

178 MBP

243

AAF International

179 MBP

244 Calidra

180

248 MBP

Compañía Minera Cuzcatlán

181 MBP

249 Metso

182 Oruss

250

183 GMSI

251 Beumer

184 Calidra

252 Cribas

189 MBP

254

190 ERM

255 PROESMMA

192 MBP

256 Calidra

193

Belcarra Group

257 Molymex

194

Grupo GAP

258 MBP

FL Smidth

Haver and Boecker

195 AOS

259 SGS

196

261 Mercuria

Full Spectrum Leadership

197 MADAI

262 Chemours

198

Azure Minerals

264 Chemours

202

Mag Silver

265 Chemours

203

Gold Resource Corp

266

204

EVRIM Resources

271 FIFOMI

205

Sonoro Metals

272

Grupo BMV

206

Maza Drilling

273

Accendo Banco

207

Major Drilling

274 TSX

208

Energold Drilling

275 Calidra

209

Minerales Terán

276 Calidra

Gold Resource Corp

210 Ecodrill

277 EDC

211

278

G4 Drilling

Minaurum Gold

212 Landdrill

279 Haywood

213 Intercore

280 MBP

214 GlobeXplore

281

Baker Mckenzie

215 GlobeXplore

282

Gold Resource Corp

216 MBP

286 KPMG

217

287 Deloitte

MBP / Calidra

218 Calidra

288

222

289 COZCYT

Minera Mahakala

Riverside Resources

223 Epiroc

290

224 MBP

291 Viarmosa

226

292 OECD

Grupo Peal

Korn Ferry

228 MBP

294 EITI

229 MBP

295 INMSO

230

Torex Gold

296 MBP

231

Torex Gold

297 MBP

232 Orica

| CREDITS JOURNALIST & INDUSTRY ANALYST: Alejandro Ehrenberg JOURNALIST & INDUSTRY ANALYST: Verónica Yepes SENIOR WRITER: Daniel González SENIOR EDITORIAL MANAGER: Sara Warden SENIOR EDITORIAL MANAGER: Brenda Salas SENIOR EDITOR: Mario Di Simine PUBLICATION COORDINATOR: Isabel Adame JUNIOR PUBLICATION COORDINATOR: Samantha Bonomo COMMERCIAL MANAGER: Cagla Polat COMMERCIAL MANAGER: Bruna Brandao COMMERCIAL DIRECTOR: Jack Miller JUNIOR GRAPHIC DESIGNER: Tania Aguiñiga JUNIOR GRAPHIC DESIGNER: Marcela Muñoz SENIOR GRAPHIC DESIGNER: Ailette Córdova SENIOR GRAPHIC DESIGNER: Mónica López DESIGN DIRECTOR: Marcos González WEB DEVELOPMENT: Omar Sánchez COLLABORATOR: Mirjam Schipper COLLABORATOR: Andrea Villar COLLABORATOR: Estefania Villavicencio COLLABORATOR: Claudia Guzmán CIRCULATION MANAGER: Constanza Blanco DIRECTOR GENERAL: Jeroen Posma

| PRINTED BY Litoprocess S.A. de C.V. Av. San Francisco Cuautlalpan 102a, San Francisco Cuautlalpan, 53569, Naucalpan de Juárez, State of Mexico

â&#x20AC;&#x153;We want to look forward and find solutions, creating alliances and consolidating wills and mindsets: our sole objective is to boost the mining industry for the benefit of the countryâ&#x20AC;? Francisco Quiroga, Undersecretary of Mining at the Ministry of Economy

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Mexico Mining Review 2020

Articles inside

MECHANIZATION THE KEY TO BOOSTING PRODUCTION

A NEW SILVER GIANT IS BORN

INDUSTRY 4.0 TO TRANSFORM MINING OPERATIONS

Mexico Mining Review 2020

INNOVATIVE SYSTEM HAS GAME-CHANGING POTENTIAL

Mexico Mining Review 2020

WEAVING THE ECONOMIC AND SOCIAL FABRIC OF ZACATECAS

LOCAL TALENT FOR SILVER EXCELLENCE

LEVELING THE FIELD FOR GENDER PARITY

LONG-TERM POLICIES TO PROMOTE INVESTMENT NEEDED