Sunday, November 7, 2010

How to play the Mexican mining boom?

Mexico is a major producer of silver, base metals and gold. A country with a rich mining history that spans almost 500 years. In the last 500 years, Mexico’s silver industry has provided almost one-third of the world’s silver. Historically, the country has been the world’s largest silver producer, year after year; however, in 2009 Peru produced more silver than Mexico. Mexico’s historic production records exceed 10 billion oz. of silver; current annual production is around 100 million oz. per year.

The current government of Mexico passed energy reform measures in 2008 and fiscal reforms in 2009. The administration continues to faces several economic challenges, including improving the public education system, upgrading infrastructure, modernizing labor laws, and fostering private investment in the energy sector. President Felipe Calderon has stated that his top economic priorities remain reducing poverty and creating jobs.

Relative political and financial stability, legal security for investors and its location next to one of the world’s top importers of resources are all positive factors impacting Mexico’s mining industry today. These factors are, however, countered somewhat by the highly unionized nature of Mexican mining and metallurgical workers, a lack of potable water, corruption and possible socio-economic issues generated by low wages and under employment as potential impediments to the continued prosperity of the mining industry.

Some mining firms have shuttered a handful of exploration projects in remote areas in Mexico as the industry grapples with threats from drug cartels and rising security costs, Mexico’s mining chamber said last month. Cartels are threatening mining operations not just in the violent corridor along the U.S.-Mexico border but in isolated, mountainous regions in other parts of Mexico, where traffickers grow marijuana and heroin poppies, the chamber said.

Executives belonging to Mexico's National Mining Chamber have reported cases of drug traffickers extorting, kidnapping, attacking and selling drugs to their workers.

Despite these concerns Mexico stays a top destination for investment in Latin America. Spending on new projects is on the rise and the industry sees investment at over $13 billion from this year through 2012.

Historically, and presently, the majority of silver has been discovered at the Mexican Silver Belt, called La Faja de Plata. This belt, which extends for approximately 800 kilometres along the Sierra Madre Occidental Mountains, is easily the world’s most productive silver district. Silver is found in this region in a combination of epithermal vein and carbonate replacement deposits with production grades ranging from 5 to 30 oz/T silver. Co-products gold, copper, zinc and lead are also extracted for the region. The majority of miners in the region extract the resources through underground tunnel.

The main mining provinces in Mexico are Sonora, Coahuila, Zacatecas, Chihuahua, Baja California Sur, San Luis Potosí, Durango and Guanajuato.

This year the stock prices of a lot of miners exploded, but some of them lagged behind while the prospects are good. One of them is IMPACT Silver Corp (TSX:IPT, PINK:ISVLF).

IMPACT Silver Corp. is a silver producer with an extensive portfolio of advanced silver projects in Mexico. The company currently produces silver from multiple mines and a 500 tonnes per day processing plant at the Royal Mines of Zacualpan. With mining operations having been profitable from the first day of production and continuing to be profitable even at lower metal prices, IMPACT has distinguished itself as a respected precious metals producer.

IMPACT plans to grow into a premier producer of silver through internal growth and now controls over 623 km2 in the Zacualpan Districts realizing its goal of consolidation in the surround areas. The Company owns the 272km2 Royal Mines of Zacualpan Silver District, the 200km2 Mamatla District and the Zacatecas Silver Project as well as the most recent 150 km2 Southeast Mineral Concessions to its project portfolio through additional external acquisitions.

Last year, the company announced its first 43-101 resource definition in the Mamatla Silver District, outlining the combined Capire and Aurora 1 Measured and Indicated Mineral Resources estimates at 7.2 million ounces silver, 94.3 million pounds zinc and 38.8 million pounds lead This mineral estimate only covers %0.1 (0.2 sq km) of the 200 sq km Mamatla Silver District (see November 17th 2009 news release or go to Mamatla District under the Projects tab for more information). An updated NI 43-101 Mineral Resource Estimate is currently being prepared.

The Mamatla VMS district represents an opportunity that upon successful completion of the proposed exploration and development programs would propel IMPACT to become a multi-million ounce silver producer.

Despite a lot of good news this year the stock hasn’t moved. Clearly off the radar and ready for a nice run up.

Another company that is worthy looking at is Goldgroup Mining Inc. (TSX:GGA, PINK:GGAZF). Its vision is building a premier gold producer in Mexico. The company’s goal is to build +200,000 oz Au per year production within three years through organic growth.

Goldgroup's ownership of the Cerro Colorado mine and its earnable interests in its advanced stage projects represents an estimated mineral resource (NI 43-101 compliant) totaling approximately 1 million oz Au* plus the potential to considerably increase these estimated resources from its portfolio of highly prospective properties. The Cerro Colorado Mine in Sonora has projected 25,000 ounces of unhedged gold for this year.

The last company I think has considerable value and is still priced relatively low compared to their peers, is a turnaround play called Genco Resources (TSX:GGC, PINK:GGCRF). This company had some major problems in the past but with a new management, a NI 43-101 technical report and a feasibility study, Genco can have investors attention again. Especially after the merger offer from Silvermex Resources at the end of September. The combined company will possess a fully operational mine and a substantial silver reserve and resource base. The transaction will provide shareholders with an experienced, production-focused, management team with a successful record of enhancing shareholder value. The combined company will be well capitalized with over $6 million in cash.

More information can be found in the following corporate presentations.
Impact Silver Corp.
Goldgroup Mining
Genco Resources

I think China and Commodities (Metals) are the investment cases for the coming years

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