Uncategorized
Share this news article...
Share on LinkedIn
Linkedin
Share on Facebook
Facebook
Tweet about this on Twitter
Twitter
Email this to someone
email

Gwen Preston – “Mexican Questions”

 

 

 

 

 

Mexico’s new president, Manual Lopez Obrador (AMLO), hasn’t taken office yet but his administration is already making waves.

First he mothballed the under-construction new airport for Mexico City, a massive infrastructure project that many of the country’s biggest companies were working on. Next he proposed a bill to change how banks can charge clients, to target the fee gouging that is rampant in Mexico. Immediately, Mexican banks collectively lost billions in market value.

I’m writing about AMLO because his party is also taking aim at the mining sector. A new bill before the senate would make significant changes to Mexico’s mining laws, including allowing the Energy Secretary to declare certain areas off limits for social or environmental reasons and requiring consent from indigenous communities before mining concessions are granted on their lands.

Indigenous consent is supposed to be required already, as the Mexican government signed an International Labor Organization agreement 30 years ago committing to consulting indigenous populations on projects that could impact them. But in reality Mexico has only applied that 5 requirement to energy projects…and even with those the government has turned a blind eye to companies exerting extreme pressure on local populations to agree.

AMLO’s government has also suggested repeatedly that it might hike mining taxes. In September the incoming Minister of Economy, Graciela Marquez Colin, said “mining companies should pay an extraction levy, which would be used to mitigate the sector’s externalities.” It is true that Mexico’s mining taxes are below average, with taxation income amounting to 0.2% of GDP. That’s half the average across Latin America, even though Mexico generates 20% of the region’s mining exports. A better capture of the importance of mining to Mexico: mining represents 2.5% of GDP and employs over 2 million people and the country received more than US$1 billion in mining foreign direct investment in 2017.

So how significant are these potential changes? So far it’s hard to know. AMLO takes office on December 1st. One of AMLO’s key economic advisors, when asked about the proposal, noted that it needs to be discussed. Another senator from the same party has spoken out against the changes. He called on his colleague to “think one, two, three times about what this would bring up because it will impact the country’s economic activity as well as Mexican and foreign investments.” He is lobbying other senators to reject the proposal, saying the government should not be “changing laws just for the sake of it.”

The market is already punishing miners with significant Mexican exposure – Fresnillo (LN: FRES), for instance, lost 18% in two days on the news while Penoles (MX: PE&OLES) fell 15%. The reaction suggests that the changes are a done deal – but they are far from it.

Rather, the proposal has to be presented, debated, accepted or rejected, adapted, debated again, and so on. Since there is opposition even within the ruling party, the proposal will almost certainly be modified (diluted down) from its current state.

So are Mexican miners oversold? Probably – but this is not a buying opportunity. It will take time for this to all play out; during that time the only certainty will be uncertainty and the market never bets optimistically when faced with uncertainty. In addition, since mining is so important to Mexico the issue will grab lots of attention the entire time. That means news headlines will probably cause volatility in Mexican mining stocks for some time.

At the end of the day I bet permitting will slow for explorers and miners in Mexico as consultation requirements strengthen. And taxes could well increase, though probably not dramatically and an increase would bring taxation levels up to regional averages.

The changes will probably not be particularly significant for Mexican operators, which means they are oversold, but the timeline and headlines from here mean I don’t see this as an opportunity.

Posted December 4, 2018

Share this news article...
Share on LinkedIn
Linkedin
Share on Facebook
Facebook
Tweet about this on Twitter
Twitter
Email this to someone
email

MORE or "UNCATEGORIZED"


Bonterra intersects 7.9 g/t Au over 12.1 metres at Moroy

Bonterra Resources Inc. (TSX-V: BTR) (OTCQX: BONXF) (FSE: 9BR1)&n... READ MORE

February 21, 2019

Wallbridge Intersects 12.70 g/t gold over 2.71 metres within Newly Discovered Broad Gold Mineralization 300 metres Southwest of the Fenelon Deposit

Wallbridge Mining Company Limited (TSX:WM) (FWB: WC7)is ple... READ MORE

February 21, 2019

Atlantic Gold Announces Final Results from Resource Extension Programs at Fifteen Mile Stream & Cochrane Hill Gold Deposits

Atlantic Gold Corporation (TSX-V: AGB) is pleased to provide fina... READ MORE

February 21, 2019

Northern Vertex Financing Oversubscribed at US$2.6 Million From US$2 Million, Closes Initial Tranche of US$2 Million

Northern Vertex Mining Corp. (TSX-V: NEE)(OTC Nasdaq Intl.:... READ MORE

February 21, 2019

Continental Gold Discovers a Third Broad Mineralized Zone at Buriticá With High-Grade Gold Drill Results Including 5.50 Metres @ 202.56 Grams per Tonne Gold Equivalent

Continental Gold Inc. (TSX:CNL) (OTCQX:CGOOF) is pleased to annou... READ MORE

February 21, 2019

Copyright 2019 The Prospector News - Site design by Spyderbaby Productions