Mining in Mexico: Part 2
In 2010, Mexico overtook Peru in silver production, reaching the world’s top position, with 128.6 million ounces produced. Mexico currently ranks 12th in gold production, and many think the country has a strong possibility of ranking among the top five within the next few years.
In terms of foreign investors, Canada has emerged as the number one source of capital, providing approximately 75% of foreign investment in the Mexican mining sector - the majority of which is targeted towards gold and silver exploration and development.
Today, there are over 200 Canadian mining companies active in Mexico managing more than 500 projects. Most of these companies are active in the exploration phase of mining but Canadian companies are now connected to nearly 50 producing mines. Geographical proximity, the North American Trade Agreement and the TSX Exchange are fundamental components of the Canadian-Mexican mining equation.
One person who crossed the Mexican border well before "the rush" was Dr. Peter Megaw. Peter Megaw is a consulting geologist and President of IMDEX/Cascabel, one of the largest geological consulting groups operating in Mexico. Dr. Megaw has been involved in Mexico, in various geological capacities, for 34 years and is well-known in the Mexican mining industry.
Dr. Megaw is a specialist in Carbonate Replacement Deposits (CRDs) and Epithermal Silver-Gold Vein Deposits and, along with his team, is credited with the significant discoveries at Juanicipio-Fresnillo in Zacatecas; Platosa in Durango; and Cinco de Mayo-Pozo Seco in Chihuahua.
Dr. Megaw is on the board of MAG Silver (Stock Profile - TSX:MAG), Minaurum Gold (Stock Profile - TSXV:MGG) and Candente Gold (Stock Profile - TSX:CDG). Peter also serves as Adviser to Revolution Resources (Stock Profile - TSX:RV), Aurcana (Stock Profile - TSXV:AUN) and Starcore International Mines (Stock Profile - TSXV:SAM).
During a telephone interview, when asked about the success of the Mexican mining industry Dr. Megaw was quick to point that Mexico has some of the best geology in the world, particularly for silver. Of the 14 or 15 billion plus known deposits of silver in the world 8 of these "elephants" are in Mexico.
"Elephant" deposits in Mexico are not limited to silver. The most recent major discovery was in 1997 by Teck (Stock Profile - TSX:TCK.B) and Western Silver as a joint blind discovery. Western Silver, bought by Glamis, was in turn acquired for $8.6 billion by Goldcorp (Stock Profile - TSX:G & NYSE:GG). The San Nicolas property, which is located in Zacatecas State, Mexico, is a massive sulphide deposit containing copper, zinc, gold and silver. Teck holds a net 79% majority interest in the property.
Has the last "elephant" been discovered in Mexico? Peter Megaw doesn't think so. The best predictor of future success is the past and with 500 years of successful mining history under its belt Mexico is "still the place to be".
"There are many greenfield exploration opportunities in Mexico which should result in district scale discoveries. The mining business in Mexico stalled in 1961 when the government passed a law requiring 'Mexicanization' (51% minimum Mexican ownership) of many assets including mining by 1976. At that time the Mexican peso began a series of catastrophic devaluations making it possible to hold large tracts of land with no incentive to actually explore. So for 30 years, until the laws were changed in 1992, the industry lay semi-dormant with annual country-wide exploration at just $50 million per year," points out Megaw.
Today, billions are being spent annually and mining technologies are being deployed all over the country in areas that have never been explored. Megaw notes, "In 1992 the majors returned to Mexico and in 1994 there was a flood of juniors operating there. But that boom died in 1997 when Bre-X hit the markets. Things didn't pick-up again until 2003, so for 40 years the exploration activities in Mexico were very much limited to outcrop-based studies."
What should investors be looking for? Megaw thinks that people are often mistakenly focused on size and metal equivalence, particularly when it comes to silver. "Historically there have been very few successful open pit silver mines. Silver almost never occurs by itself and in many situations cyanidation doesn't work very well for silver yielding 50-60% recovery rates."
For silver, his specialty, Megaw says look to high-grade vein systems yielding at least 300 to 350 grams per tonne that can be mined in high volumes underground. In Megaw's eyes "grade is king" and will allow any mining company to adjust to declining prices or increasing operating costs. Last year alone, operating costs in Mexico have been estimated to have risen by between 15-20%.
High-grade discoveries are out there. Megaw points to Excellon Resources (Stock Profile - TSX:EXN). In 1997 the company discovered the Platosa mine in Durango, Mexico which boasts some of the highest grades of silver ever discovered averaging 909 grams per tonne (27 ounces per tonne). He also notes that over 800 million ounces of high-grade silver has been found in a previously overlooked part of the famous Fresnillo District.
For the related articles:
Mining in Mexico - Part 1 - CLICK HERE.
Mexico - 3 Mining Stocks to Watch - CLICK HERE.