International Business : Silver Lining : Mining Is a Bright Spot for Mexico’s Economy


Silver production at the centuries-old Real del Monte y Pachuca mine here will climb 25% this year because of bigger profits and recently relaxed mining laws, its owners say.

For the same reasons, a Swiss-Mexican joint venture called Tecno-Omya that produces calcium carbonate in San Juan del Rio says it will double capacity of its plant, whose products add color and form to paper and plastic.

And in San Luis Potosi, Grupo Mexico’s zinc mine is running at full steam to produce its annual 100,000 tons, half of which is exported to U.S. manufacturers for galvanizing steel. “We can’t go any higher. We’re producing at full capacity,” mine manager Arturo Bermea said.

The three companies reflect a Mexican mining boom that is gathering momentum thanks to a huge inflow of domestic and foreign investment--attracted partly by a lax regulatory climate--and to the peso’s devaluation over the last year, which has boosted profits.

The stock market took notice in 1995, driving up Mexican mining stocks by an average of more than 100%. Direct investment in mining jumped more than 50% to $1 billion.


Mining profits are up because most mineral prices are quoted in dollars, while the bulk of Mexican mining costs--labor, water and power--are half as much as a year ago in dollar terms because they are paid in pesos.

The devaluation has made almost every mineral mined in Mexico more cost-competitive on world markets. And it has helped at home as well: Tecno-Omya’s calcium carbonates, for example, are gaining market share because paper and plastic manufacturers can no longer afford to import.

“It’s not a question of demand for us. We can sell all the silver we produce on the same day. Our volume depends on whether it’s profitable, and the devaluation has had a good impact,” said Alfredo Cabrera, general director of Real del Monte y Pachuca, which is owned by Grupo Acerero del Norte.

Those profits and other advantages are luring U.S. and other foreign mining firms, among them Hecla Mining Co. of Idaho, which is mining gold in Sonora state, according to Pay Dirt, a Bisbee, Ariz.-based mining magazine, and Inland Steel Co. of Chicago, which recently signed a joint iron-ore mining venture with a Mexican steel manufacturer.

Though the currency devaluation has dramatically boosted profits, a mining revival dates to 1992, when Mexico passed laws that enabled foreigners to own majority stakes in mines for the first time in half a century. The laws also expanded the scope and terms of the concessions of mineral rights granted to miners by the government.

Since then, more than 200 foreign firms have made investments in Mexican mining. Most are U.S. and Canadian companies looking to escape environmental restrictions and government red tape in their home countries, said Michael Rieber, professor of mineral economics at the University of Arizona.

“There were always foreign mining companies standing outside Mexico with their tongues hanging out, but it’s only been very recently that mining laws were changed to let the foreigners in,” Rieber said.

Not surprisingly, Mexican environmentalists are unhappy about some of the projects. The prime objects of their concern are two Mexican-Japanese ventures in Baja California, said Homero Aridjis, founder of the influential Group of 100 in Mexico City.

One, a salt mining venture operating 250 miles south of Tijuana on the Pacific Coast, is proposing an expansion that environmentalists say would endanger the gray whales that use nearby lagoons to reproduce.

The other is a top-secret gold mining operation near San Felipe on the Sea of Cortez that environmentalists believe released cyanide into the ocean, killing 350 dolphins last January. The government, however, blamed the deaths on drug traffickers’ use of ocean dyes to direct illegal shipments.

The use of cyanide compounds in gold mining in Sonora has also raised objections from environmentalists.

But in today’s difficult economic climate in Mexico, the environment is not at the top of the government’s agenda. And increasing production at the Pachuca silver mine and others across the country is providing Mexico with one of its few sources of growth in revenue, foreign trade and investment.

Mexican mining output overall grew an estimated 10% in dollar terms over the first 10 months of 1995 from the previous year, while the Mexican economy overall was shrinking by 7%.

As long as prices don’t fall dramatically, analysts say Mexican mining output will continue to rise over the rest of the decade as domestic and foreign mining firms reap the benefits of the big investments pouring into the industry since 1992.

Private mining investment in 1996 will total $1.08 billion, up more than 50% from last year and more than quadruple the average annual investment during the 1980s, said Moises Kolteniuk, general mining coordinator for the federal secretary of commerce and industrial development.

“There are some strong investment plans to make plants more efficient, make new discoveries and maintain the high levels of production,” said Jorge Sanchez, analyst with Vector Casa de Bolsa, an investment firm in Mexico City.

The government hopes that mining investment and development will accelerate as it releases results from its first nationwide geological survey, begun last year and scheduled to be completed by 2000.

The results, which will be shared with mining concerns, should uncover new mineral deposits, Kolteniuk said, particularly in areas such as the Yucatan Peninsula, which has never undergone a thorough survey.

The Real del Monte y Pachuca mine, founded by Spanish conquistadors in 1528, has seen bonanzas come and go, usually fueled by the discovery of a new vein of silver in the seemingly inexhaustible Monte de Hidalgo, now perforated with 2,000 miles of tunnels.

And the bonanzas have been many. The mountain looming over this arid and windy city of 240,000 has supplied 6% of all the silver the world has produced, dug out from ever-deepening tunnels that have made the mine resemble a colossal honeycomb. Miners are now digging 2,000 feet below the summit.

The best prospects for its future lie in deep-down areas flooded by underground springs. Until now, the cost of pumping out the water to make mining possible was prohibitive. But with the peso devaluation boosting profits, general director Cabrera says, the company now will invest $5 million in the necessary hydraulic pumps.

Production will climb despite the fact that employment has dropped to 1,000 from 1,400 a year ago. At a cost of $3.5 million, the mine’s owners bought out the contracts of its labor unions and rehired two-thirds of the workers on a new incentive-driven contract.

The mine, first worked by the Aztecs, produced about 85 tons of silver last year, worth about $15 million. That’s down from a 1931 peak of 1,200 tons. But production will rise to nearly 110 tons this year.

Among the Mexican minerals whose output grew most in tonnage last year were gold, up 39%; copper, up 9%; lead, up 13%; and manganese, which gives steel its strength, up 50%. Production of barite, which is used in oil drilling, jumped 70%.


Mining Boom

Spurred by the peso devaluation, increased investment and liberalized laws, Mexico’s mining output and exports surged last year.


1995*: $5.6 billion

selected mineral production

In thousands of tons:


1995: 16.2

1994: 11.6


1995: 2,091.8

1994: 1,896.3


1995: 117.8

1994: 78.8


1995: 279.6

1994: 257.2


1995: 153.6

1994: 136.4


Note: Specific mineral produciton figures are for the first 10 months of each year.

Source: Mexico’s secretary of commerce and industrial development