Mexico Mining Report 2009

According to the National Statistics Institute (Inegi), Mexico's mining production fell 23% in March 2009 compared to the same period in 2008. Silver production fell by 55% year-on-year (y-o-y) to 99,214kg, while gold was also severely impacted with output collapsing by 64% y-o-y to 1,635kg. However, slumping production was not just the result of wider economic factors. A strike at a silver/lead refinery owned by Industrias Pe??oles halted production at the facility from the beginning of February 2009 to mid-April. Meanwhile, Mexican copper production fell 28% in March to 20,371 tonnes, while lead production dropped 67% to 2,453 tonnes. Iron production followed suit falling 21% to 542,944 tonnes and coal recorded a 6.2% decline to 762,219 tonnes. Zinc was the only bright spot, with output actually increasing by 4.6% to 33,342 tonnes. In total, mining output in Q109 fell 12%.

There is not expected to be a quick recovery in capex in the mining sector. Mexico's Mining Chamber believes that total investment may fall 30% to US$10.5bn by 2012. In 2008, the chamber was confident that the country would attract at least US$15bn in the same period. However, Mexico's problems are not just limited to the current low metals prices, which are forcing companies to slash production. The labour environment is also a serious concern. Since 2006, disputes with workers have cost mining companies US$3bn in Mexico. Indeed, it was only in April 2009 that Grupo Mexico received court approval to fire the workers at its Cananea copper mine and re-open the facility. Strikes have crippled production for the past 20 months. As a result of industrial action, in 2007 Grupo Mexico transferred US$2bn in investment away from Mexico and into Peru. On a positive note the mining association is not expecting production to be damaged by any further strike action this year.

In May 2009, Canadian miner GoldCorp announced that its US$1.6bn Pe??asquito project in Mexico is almost 80% complete. Presently the mine's crusher is operating, with the next stage being the completion of the grinding mill. Production is expected to begin in Q409 and the mine should produce around 400,000 ounces (oz) of gold and 31mn oz of silver per annum for the 19 year life-cycle of the project. In addition, the mine will also produce 97,000 tonnes of lead and 189,000 tonnes of zinc. When operational, Pe??asquito will the largest open-pit mine in Mexico.

Industry Forecast BMI envisages that the mining industry will remain a small, but stable, part of Mexico's economy in 2009-2013. However, prices slumped dramatically in H208, as the global economy spiralled into deep recession. In Mexico this has forced many mining companies to scale back production, and investment in the industry is expected to remain depressed until at least 2012. Since 2006, disputes with workers have cost mining companies US$3bn in Mexico. The value of output should increase from around US$10.7bn in 2008 to around US$15.1bn in 2013. However, 2009 will be a difficult year with the industry suffering a 20% contraction in value terms. 2010 should see a marginal recovery but it will not be until 2011 that the industry witnesses double-digit growth again.