Mexico and Canada
Analysis

Fall in Mexico's mining FDI on track to exceed the 15% projected by chamber

Bnamericas Published: Wednesday, November 11, 2019

Foreign direct investment (FDI) in Mexico’s mining sector plummeted 55.9% year-on-year in the first nine months, according to preliminary official data. 

If the trend continues, FDI in mining will drop this year by more than that forecast by the chamber of mines (Camimex).

FDI in the sector in January to September US$1.53bn, down from US$3.47bn in the same period 2021, the economy ministry said in a report.

Earlier this month, Camimex told BNamericas that this year it expects the figure to fall 15% from US$4.8bn in 2021, and to come in at around US$4bn in 2023.

Although the decline so far in 2022 is mainly explained by the unusually high base of comparison, factors such as high inflation caused by the Russia-Ukraine conflict, the global economic slowdown and uncertainty about government policies have also influenced the decline.

“What happens is that 2021 was practically a record. It was a surprising increase. The amount for last year of nearly US$5bn was well above the average that it [the mining sector] generally receives,” James Salazar, deputy director of analysis at CI Banco, told BNamericas.

The analyst said last year FDI in mining benefited above all from high metals prices and some investment projects that were pending review ended up being carried out.

“Many of them were anticipating any possible changes in the rules and contracts under the present administration,” said Salazar.

Higher costs and inflation also affected the financial results of some of the largest mining and metals companies in the country, such as Equinox Gold and Ternium, in the third quarter amid falling prices of metals such as gold, silver, copper and steel.

Reyna Silver's exploration VP Ariel Navarro said among the reasons for the lower FDI this year is the fall in global stock markets; the slowdown in the economy due to the COVID-19 pandemic that disrupted operations of many small and medium-sized businesses; and the uncertainty caused by the announcement of the nationalization of lithium after reforming the mining law this year.

“The fall in world stock markets, including Canada, where most of the mining companies that operate in Mexico are located… caused many companies to withdraw their projects due to the low cash flow from their development,” Navarro told BNamericas.

He added that “inevitably, the announcement of the nationalization of lithium caused an environment of uncertainty in mining companies, mainly in exploration companies.”

“This meant that the current government does not support mining like past governments, but, above all, that we could begin to have a panorama like that of Argentina or Venezuela in previous years, where deposits could not be explored in those countries by foreign companies, and foreign currency could not be obtained from operations,” added Navarro.

“Last year mineral prices were very high, and that’s not necessarily the case now, and there is all this uncertainty surrounding the current administration,” added CI Banco’s Salazar.

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