Mexico's New Government Signals Continuity and Risks for the Mining Sector

Mexico's recent presidential election, which saw Claudia Sheinbaum secure a landslide victory as the country's first female president, has raised questions about the future of the mining sector. As a former climate scientist and close ally of outgoing President Andrés Manuel López Obrador, Sheinbaum's approach to the mining policies of Latin America's second-largest economy is of keen interest to investors and industry stakeholders.

Sheinbaum's Stance on Mining

The industry has faced significant challenges under the López Obrador administration as Mexico's mining industry went under reform with legal challenges and an uncertain future. Now as President-elect Claudia Sheinbaum prepares to take office, Mexico's mining sector is cautiously optimistic about potential shifts in policy under the new government. The established political position significantly increases the likelihood of Sheinbaum's ability to implement her policy agenda, including the proposed ban on open pit mining. José Enrique Sevilla-Macip, a senior country risk analyst at S&P Global Market Intelligence, notes:

"Morena party is highly likely going to be able to garner enough votes to obtain it on a case-by-case basis." "It is likely that she [Sheinbaum] would first try to brand a more favorable policy towards investment and thus defer the discussion and approval of the ban at least until 2025," Sevilla-Macip said. "A possible exception is lithium mining, as she pledged during the campaign to develop that sector"

Prior to the election, the leading candidates including Sheinbaum were examined on their mining and environmental policies on how Mexico's Pivotal Election Could Boost Prospects for Silver Miners, All Eyes for Mining Policy Shifts. Sheinbaum during her campaign has pledged to halt open-pit mining concessions altogether and ban fracking, yet she also plans to continue supporting state oil and to invest over $13 billion in clean energy projects which shows a mixed approach and some uncertainty about her ultimate impact on mining.

Sheinbaum's administration is expected to keep a tight grip on mining permits. President-elect Sheinbaum's campaign promises and background suggest a complex approach to mining:

1. Continuity with López Obrador's Policies: Sheinbaum has pledged to maintain consistency with her predecessor's policies, including the evaluation of existing mining concessions and emphasis on community consent.‍
2. Focus on Critical Minerals: She has advocated for increasing the extraction of critical minerals like lithium and copper to support electric vehicle production. As global demand for these materials grows, driven by the clean energy transition, Mexico's rich mineral resources could play a crucial role in international supply chains.
3. Environmental Considerations: As a climate scientist, Sheinbaum is expected to prioritize strict environmental standards for mining operations.
4. Data-Driven Approach: Experts suggest that Sheinbaum's inclination towards data-driven decision-making could lead to a reassessment of some mining policies.

Cabinet Appointments Signal Economic Stability

Sheinbaum's cabinet appointments, particularly in key economic roles, suggest a degree of continuity with the current administration's policies:

• Marcelo Ebrard, a former foreign minister, has been named economy secretary. His experience in international negotiations and trade matters could prove beneficial for the mining sector, which relies heavily on foreign investment and exports.

• The appointment of Alicia Bárcena as environment minister could signal increased attention to sustainability in the mining sector. Bárcena's background in environmental issues may lead to stricter regulations or enforcement of existing environmental standards for mining operations. This could present both challenges and opportunities for mining companies, potentially driving innovation in sustainable and environmentally friendly practices and technologies

• Rogelio Ramírez de la O will remain as finance minister, providing stability in fiscal policy and economic management.

These appointments have been viewed positively by markets, with the peso strengthening slightly following the announcement.

Silver: Gaining Momentum Despite Challenges

The global trend towards nearshoring presents a significant opportunity for Mexico's mining sector. As companies seek to diversify supply chains away from Asia and closer to North American markets, demand for Mexican minerals could increase.

John Ciampaglia, the CEO of Sprott Asset Management, had shed light on several crucial factors that are currently shaping and driving the silver market dynamics. The growing global emphasis on renewable energy sources, particularly solar power, has emerged as a significant catalyst for silver demand. Silver's essential role in the manufacturing of photovoltaic cells positions it at the forefront of the clean energy revolution. As nations worldwide intensify their investments in sustainable energy infrastructure, the demand for silver in the solar industry aligns with global efforts to transition towards cleaner energy sources and reduce carbon emissions.

Simultaneously, silver is gaining traction in the investment sphere, with notable interest emerging from markets such as India. In these regions, silver is increasingly viewed as a viable store of value and a more accessible alternative to gold, especially as gold prices continue to climb. This shift in investor sentiment is contributing to a diversification of precious metal portfolios and broadening the appeal of silver as an investment asset.

The growing global demand for lithium, driven by the electric vehicle and renewable energy storage markets, could also present opportunities for investors in this niche of the Mexican mining sector. However, it remains to be seen how any lithium mining initiatives would be structured and whether they would be exempt from potential open pit mining restrictions.

Additionally, Mexico hosts significant reserves of zinc, lead, and molybdenum. Much of this mineral wealth is currently extracted through open pit mining methods, underscoring the potential disruption that a ban could cause to the country's mining output.

Industry Reactions and Expectations

The incoming administration inherits a significant budget deficit, which could limit its ability to invest in infrastructure or provide incentives for mining development. Mining leaders have urged Sheinbaum to adopt a more supportive stance towards the sector:

1. Calls for Support: Heads of mining associations AIMMGM and CAMIMEX have emphasized the industry's importance for national development and called for greater government support.
2. Modernization Needs: Industry experts highlight the need for modernization and upgrades in Mexico's aging mines to improve productivity and efficiency.
3. Regulatory Clarity: Companies are seeking clearer rules and a stable legal framework to encourage investment in the sector.

Exploration Strategies for the Clean Energy Metal of the Future

The silver market has experienced an upward price trend in recent years, driven by growing recognition of the metal's critical role in clean energy technologies. Achieving ambitious targets for solar energy, hydrogen fuel cells, and electric vehicles hinges on maintaining a steady supply of silver driving companies to focus on Exploration Strategies for the Clean Energy Metal of the Future. Reyna Silver and Outcrop Silver and Gold (along with Silver North Resources in the panel interview) expects general continuity in mining policy, possibly with some positive reforms related to international investment benefitting Mexican projects under Claudia Sheinbaum's administration.

More companies to watch out for are producing precious metals from operations in Mexico such as Azure Minerals, Vizsla Silver, Impact Silver, GoGold Resources, and Agnico Eagle Mines (which is one of world's Major Gold Producers : 2018-2023) as primary silver mines become scarcer globally, growing projects could become increasingly valuable to investors seeking exposure to the silver market.

‍Sierra Madre Gold and Silver and Santacruz Mining also expresses positivity about the new president, expecting her to be cautious and inclined to protect foreign investment. Santacruz has recently restructured its debt, allowing it to build its treasury and invest in organic growth initiatives particularly in industrial applications as Solar Boom Drives Record Demand.

This Surging Industrial Demand and Constrained Supply Set Stage for Silver Bull Market highlights the significant deficit in the silver market, with demand projected to reach 1.2 billion ounces against a supply of just 800 million ounces. Under Claudia Sheinbaum's administration, the outlook for mining in Mexico is cautiously optimistic. Silver Tiger's CEO Glenn Jessome, with over two decades of experience in Mexico, expects the new administration to be favorable for mining, with permits potentially being issued more readily.

Balancing Environmental and Economic Reforms

While it's still early in the transition process, initial signals from Mexico's incoming administration suggest a balance between continuity in economic policy and potential reforms. Significant uncertainties remain. The continuation of López Obrador's policies, including restrictions on new open-pit mines and the nationalization of lithium resources, could limit growth in the sector. The legal challenges to recent mining law reforms also create an uncertain regulatory environment that may deter investment.

For investors, the key will be identifying companies that can navigate this complex landscape. Those with strong environmental practices, good community relations, and projects aligned with the government's focus on critical minerals may be best positioned to succeed.

"As long as it's clear what the rules of the game are, what the legal framework is, I think Mexico has enormous potential for investment in renewable energy." - Diego Rivera Rivota, researcher at Columbia University's Center on Global Energy Policy

Conclusion

The coming months will be crucial as Sheinbaum's administration clarifies its mining policies. Sheinbaum's background as a climate scientist and her commitment to environmental protection suggest that strict environmental standards for mining operations will likely continue. However, her emphasis on data-driven decision-making could lead to a more balanced approach that considers both environmental concerns and the economic importance of the mining sector.

Potential Upside:

• Increased focus on critical minerals could benefit companies with lithium and copper projects.
• Possible reassessment of mining policies may lead to a more balanced approach.
• Mexico's mineral wealth and established mining infrastructure remain attractive.

Risks:

• Continued uncertainty around mining regulations and concessions.
• Potential for stricter environmental standards and community consent requirements.
• Heightened regulatory risk for mining operations in Mexico, particularly open pit mines

Given the uncertainties surrounding the future of open pit mining in Mexico, investors should consider the following strategies:

1. Geographic Diversification: Reduce overexposure to Mexican mining assets by diversifying investments across multiple mining jurisdictions.
2. Commodity Diversification: Spread investments across various minerals to mitigate the impact of potential production declines in specific commodities like silver.
3. Operational Diversification: Focus on mining companies with a mix of open pit and underground operations, both within Mexico and globally.
4. Stay Informed: Closely monitor policy developments in Mexico and their potential impact on specific mining operations and companies.
5. Evaluate Company Adaptability: Assess the ability of mining companies to transition from open pit to underground operations if necessary.

As the new administration takes office and begins to implement its policy agenda, investors should remain vigilant and adaptable. While the challenges facing the Mexican mining sector are significant, the country's mineral wealth and established mining industry continue to offer long-term potential for those who can successfully navigate the changing landscape.