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Mexico Mining Report Q3 2012

Mexico Mining Report Q3 2012

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Price	$1,175.00
Publisher	Business Monitor International
Date of Report	Jun 12, 2012

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Quick Overview

We expect Mexico's mining sector to experience steady growth in the coming years as mining companies
are attracted to large precious and base metals resources. We forecast the value of Mexico's mining sector
to grow from US$13.7bn in 2011 to US$15.7bn by 2016. We expect the bulk of this growth to come from
precious metals mining as the world's largest silver producer continues to attract investment. The country
will benefit from a stable business environment and favourable mining regulations, despite some
uncertainty surrounding the upcoming presidential election. Mexico's Chamber of Mines (Camimex)
estimates total mining investment in 2012 to come in around US$5.0bn.
Increases In Metal Production Ahead
While Mexico's mining sector will remain a relative laggard compared to Latin American peers such as
Brazil, Chile and Peru, we expect exploration expenditures will reveal new deposits that will support the
sector's long-term growth. Mexico's mining output will be driven primarily by precious metals such as
silver and gold. However, we note the potential for large increases in lead and zinc as well as copper
output over the forecast period as mine investment begins to diversify away from precious metals.
Mexico's vast silver resources will allow it to remain the world leader in mined silver production over our
forecast period. As key silver mining companies develop and expand mines, we forecast silver production
growth of 5.0% in 2012, with total output reaching 207moz by 2016. Silver miner Fresnillo will remain a
sector leader, accounting for roughly one quarter of Mexican production. Junior companies will also seek
to develop small- to medium-sized silver mines as elevated prices and large silver resources attract
attention from precious metals miners.
As precious metals miners uncover new silver deposits, we expect increasing attention will be focused on
the discovery of promising gold mines as well. Though Mexico is not a major global gold producer, we
believe the favourable business environment and existing silver mining presence could encourage strong
growth in gold production in the coming years. Major global miners such as Goldcorp are already well
established in the country and could be a key player in acquiring junior resource companies that are able
to uncover economically attractive gold deposits. That said, the gold sector remains in the early stages of
development, which could weigh on output growth going forward.
Copper production in Mexico will continue to be driven by the Buenavista del Cobre mine operated by
Grupo Mexico. The mine, which reopened in 2011 following a three-year strike is the country's largest.
We expect junior and mid-tier miners will also seek to develop copper projects as market prices remain
elevated by historical standards. Projects such as Stockport Exploration's La Morena mine remain in the
early stages but could attract interest from larger mining investors if the deposit is proved to be of
sufficient size. That said, the lack of existing, large deposits suggests that growth in actual copper output
will be modest over our forecast period, especially compared to other large copper mining countries such
as Chile and Peru.
We caution that there remain risks to our metals production forecasts. Mexico's growth potential is
restricted by continued violence in the country, relating to the drug trade, as well as relatively high levels
of corruption and a fairly inflexible labour market. Political uncertainty surrounding the upcoming
presidential election could keep investors on the sidelines until the new administration's policies become
clear. While we do not expect a new government to enact unfavourable mining sector policies, growing
political risks in key mining countries such as Peru and Argentina, may give some miners pause before
entering the market.
Key Players
Mexico's mining sector will remain fairly well split between domestic mining companies and foreign
firms. The country's largest mining company is Grupo México, which owns the Buenavista del Cobre
copper mine and also operates large copper mining operations in Peru and the US. Other key Mexican
mining companies include Industrias Penoles, Fresnillo and numerous junior companies. Foreign mining
firms include senior gold miner Goldcorp, which operates two of the largest gold mines in Mexico.

Table of Contents

Executive Summary ......................................................................................................................................... 5
SWOT Analysis ................................................................................................................................................ 7
Mexico Mining Industry SWOT .............................................................................................................................................................................. 7
Global Mining Outlook .................................................................................................................................... 8
Table: Recent Tax Increases ................................................................................................................................................................................ 10
Table: Largest Coal Projects ............................................................................................................................................................................... 12
Table: Major Frontier Mining Projects ............................................................................................................................................................... 13
Americas Mining Sector Outlook ................................................................................................................. 14
Table: Key Central America And Caribbean Mining Projects ............................................................................................................................. 16
Industry Trend Analysis ................................................................................................................................ 19
Table: Mexico’s Mining Industry Value & Production Forecasts ........................................................................................................................ 21
Industry Forecasts ......................................................................................................................................... 22
Gold: Emerging Gold Miner In The Americas .......................................................................................................................................................... 22
Table: Mexico’s Gold Production ........................................................................................................................................................................ 23
Copper: Few Large Projects But Exploration Continues .......................................................................................................................................... 24
Table: Mexico – Selected Copper Mines .............................................................................................................................................................. 25
Table: Mexico’s Copper Production .................................................................................................................................................................... 26
Silver: New Projects To Maintain Strong Sector Growth .......................................................................................................................................... 26
Table: Mexico’s Silver Projects ........................................................................................................................................................................... 27
Table: Mexico Silver Production ......................................................................................................................................................................... 28
Regulatory Structure ..................................................................................................................................... 29
Stable Regulation To Favour Mining ........................................................................................................................................................................ 29
Table: Mexico – Silver Projects ........................................................................................................................................................................... 29
Americas Business Environment Ratings .................................................................................................. 31
Table: Americas Mining Business Environment Risk/Reward Ratings ................................................................................................................. 32
Competitive Landscape ................................................................................................................................ 35
Silver Miners Lead But Sector On Track For Growth ............................................................................................................................................... 35
Table: Mexico – Competitive Landscape ............................................................................................................................................................. 35
Company Profiles .......................................................................................................................................... 37
Industrias Peñoles ................................................................................................................................................................................................ 37
Financial Data ..................................................................................................................................................................................................... 38
Table: Industrias Peñoles Financial Data ........................................................................................................................................................... 38
Grupo México ...................................................................................................................................................................................................... 40
Financial Data ..................................................................................................................................................................................................... 41
Table: Grupo Mexico – Financial Data ............................................................................................................................................................... 41
Commodity Strategy ...................................................................................................................................... 44
Copper ................................................................................................................................................................................................................. 44
Aluminium ............................................................................................................................................................................................................ 45
Lead ..................................................................................................................................................................................................................... 45
Nickel ................................................................................................................................................................................................................... 46
Tin ........................................................................................................................................................................................................................ 47
Zinc ...................................................................................................................................................................................................................... 48
Gold ..................................................................................................................................................................................................................... 48
Business Environment Ratings Methodology ............................................................................................ 50
Table: Mining Business Environment Indicators ................................................................................................................................................. 51
Table: Weighting Of Components ........................................................................................................................................................................ 52