Mexico has long been considered one of the best places to invest in mining in Latin America and indeed the world. A thriving junior scene throughout the recent metal price boom cycle and many new mines have propelled mining to an ever more relevant place in the nation's economy. Despite emerging challenges - some of them long-standing issues that have simply come into sharper focus now that metal prices are down - the nation retains the top spot regionally for exploration spending and is growing its production of all major metals.

Economic reforms in the late 1980s and 1990s opened Mexico's economy to foreign trade and investment and allowed for 100% foreign ownership of mining assets, laying the groundwork for the flood of dollars, mining and otherwise, that has followed. While the reforms have been criticized as having failed to deliver the overall economic growth they promised, they certainly led to solid growth in the mining industry, with many new discoveries resulting from the boom in exploration spending and production rising rapidly.

Mexican national GDP has grown at a slower rate than the global or Latin American averages in most of the last 15 years. While the mining sector has seen an erratic rate of growth, sector GDP (including metallic and nonmetallic mining activity, excluding related services, oil and gas) was 74% greater in 2013 than in 2003, versus a 30% increase for national GDP, according to figures from Inegi.

While mining contributed just 4% of the total GDP in 2013, only two other sectors (manufacturing and financial services) contribute more in the way of FDI, figures from the economy ministry show. Mining FDI in Mexico summed US$22.015 billion in 2000-14.

"It's a country that has been supporting the mining industry for a long time and it's very easy to do business there. Mining is ingrained as one of the sectors of the economy," says Trevor Turnbull, director, gold and precious metals at Scotia Capital.

Twenty-some years later after the reforms, the fruits are clearly visible. Mexico has been host to a good part of new discoveries over the last two decades, particularly in gold and silver, and since 2000 production has grown immensely: gold by 274%, silver by 71%, copper by 32%, lead by 20% and zinc by 17%, Inegi data show.

The growth has been led by major firms such as Fresnillo, Industrias Peñoles, Goldcorp and Coeur Mining, but supported by the billions of dollars spent on exploration, much of it by foreign junior companies fueled by risk capital obtained on foreign stock exchanges. A number of junior companies in Mexico have succeeded at becoming significant producers themselves.

Goldcorp's Peñasquito mine during construction in 2011. Credit: Goldcorp

Turning Tables

Investment has peaked. The year 2012 saw Mexico's highest ever mining sector investment at US$8.043 billion and spending was nearly half that by 2014. Challenges facing the industry include the drastic fall in metal prices since 2012, particularly for gold and silver, a new royalty system and greater prominence of security risks.

While large companies like Fresnillo and Grupo México march ahead with massive expansion programs, overall mining investment is forecast to drop again this year as these challenges remain, particularly the weak metal prices. And while Mexico will remain solid investment destination, it will continue to lose ground to competitors on exploration spending, a worrying trend for the future production growth pipeline.

Figure: Mexican National and Mining Industry GDP

Figure: Mexican Mining Sector Investment

Figure: Mexico's Mining FDI Inflows


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