What does 2014 hold for Mexico's biggest miners?

While Mexico remains a popular jurisdiction for Canada and US-based mining companies, three Mexican miners - Grupo México (BMV: GMEXICOB), Industrias Peñoles (BMV: PE&OLES) and Minera Frisco (BMV: MFRISCO) - have a significant share of production.

GMex's Southern Copper (NYSE: SCCO) subsidiary is the country's biggest producer of the red metal, while Peñoles remains the world's largest silver producer and a top two gold producer in Mexico.

The smallest of the three, Frisco, has the most impressive growth prospects for the year ahead, with its Concheño mine due to come on stream, and the company is already one of Mexico's biggest gold and silver producers.

BNamericas spoke to Fernando Bolaños, analyst at financial company Monex, for his views on prospects for the three companies in 2014.

BNamericas: How do you see the prospects for the major Mexican miners - Grupo México, Minera Frisco and Industrias Peñoles - for 2014?

Bolaños: In general we see a challenging year ahead for the large mining companies. Copper is very important for GMex and gold and silver are essential to Peñoles and Frisco. In 2013 copper [prices] fell by 8.5%, or relatively moderately compared to the 28.3% fall in the gold price and 35.8% for silver. Prices will be fundamental in 2014.

There are some experts who expect some recovery in prices, while others see prices stabilizing close to where they are currently and others that see further falls. Our vision is that the prices are stabilizing.

We think gold will average US$1,220/oz in 2014, with silver at US$20.80/oz and copper US$3.17/lb.

BNamericas: Do you see the companies growing in terms of sales, profits and production in 2014?

Bolaños: We think the company that's going to present the greatest increases in volumes will be Frisco. This is because the company is bringing its Concheño mine, which will be one of its biggest operations, into production. We estimate that in 2014 the company will achieve a 34.1% increase in sales, while Ebitda will increase 43.5%.

During the year we're expecting an increase in production of gold of 105%, while for silver we see an increase of 69.2%. We have a buy recommendation for Frisco stock at a target price of 30 pesos.

At Grupo México, we expect sales to grow by 3.5% in the year and a 1.3% fall in Ebitda. The difference between GMex and Peñoles on the one hand and Frisco on the other is that the latter is working on very large expansion projects that are going to be completed during the year and will be in a period of ramp-up, whereas GMex and Peñoles are not going to complete their projects, and so their increases in production are lower.

We have a sell recommendation for GMex, at a target price of 42 pesos.

For Peñoles, we estimate a fall in sales of 12.1% this year and an 8.4% fall in Ebitda. We have a sell recommendation for the stock and a target price of 355 pesos for this year.

What could affect Peñoles, along with Frisco, are gold and silver prices. Any fall in prices will further reduce sales and Ebitda.

With respect to volumes we're expecting moderate growth of 3% for gold and 4% for silver, but bear in mind these figures are partial as the company has still not reported its full year results.

The increases also follow significant falls in volumes. For 2013 we expect a fall of 7% in gold production and 32.3% in silver. Given these falls we recommend caution in respect to the company because of very low growth and continuing very strong volatility in terms of its products.

BNamericas: Which of the three is the most attractive to investors?

Bolaños: It's a bit difficult to answer at the current time. In terms of growth, Frisco looks very attractive, but it depends a lot on gold and silver, which have been very volatile and performed very badly.

If the metals were to show the same levels of volatility in 2014 as last year it would be a risky bet.  Despite very good growth in volumes, if prices were to decline by about 30% as they did last year it's going to have an effect.

GMex has various competitive advantages. Its principal product is copper, which only fell by about 8.5% last year, not as much as other metals. It also has a pretty good financial solidity, and diversification in its business, in terms of geography and its other two divisions, railways and infrastructure, which is different from Frisco and Peñoles, which are 100% miners.

Between GMex and Frisco it would be necessary to determine the profile of the investor, because GMex is a little more stable, and a little bit stronger financially than Frisco, but the latter is performing very well. This is where the comparison is a bit difficult.