MINING IN MEXICO — The mining industry in Mexico and its

The current era has been characterized by the emergence of new nations with a specific set of needs and urgent demands, summarized in the recent call for a new international economic order. One of the main goals now is to get a fairer income distribution and an improved standard of living on a worldwide basis.

In such a situation, each large unit of production must make a positive contribution to the dynamics of overall social and economic development and, as a consequence, the role of the company (private and state-owned) has to go beyond the traditional objective of maximizing company profits. The Mexico mining industry has actively participated in the country’s economic development since colonial times. Output of minerals such as silver, gold and fluorite places the country among the world’s leaders. About 2% of the world mineral output is produced in Mexico.

The following chart indicates the participation of the mining industry in the gross national product (GNP) in selected years:

Mining Production

Year as a % of GNP*

1970 1.3%

1980 1.1%

1992 1.4%

1993 1.4%

1994 1.3% (estimated)

(* Source: Bank of Mexico)

It is also important to show the growth of the mining industry in Mexico in recent years compared to GNP growth:

Year Mining Growth*

1984 3.6% 2.2%

1985 2.6% -0.1%

1986 -3.8% -4.1%

1987 1.9% 5.3%

1988 1.2% 0.4%

1989 3.3% -0.6%

1990 4.4% 2.8%

1991 3.6% 0.8%

1992 2.8% 1.8%

In the early 1980s, the mining production in Mexico was shared by large private companies (55%), state-owned companies (30%) and small enterprises (14%). After the privatization process, all the production is now coming from large private corporations and small enterprises.

The most important mining companies in Mexico are listed on the Mexican Stock Exchange: Grupo Industrial Minera Mexico, Penoles and Frisco. Total annual sales in 1993 of these companies were US$1.6 billion. The total participation of the mining companies in the Mexican Stock Exchange capitalization value is 1%.

With the inclusion of mining in NAFTA, foreign U.S. and Canadian companies are totally free to invest in Mexico in the exploration process; however, during the exploitation phase, foreign companies must have a local partner. In addition to the sector’s contribution to the economy, some social and labor issues grew out of the Mexican mining industry. The Cananca mine strike in Sonora state, at the beginning of the 20th century, might be considered as one of the first fires which finally led to the explosive Mexican Revolution. In 1970, workers in the mining industry were incorporated into the social security system; previously, mining companies provided all medical and social benefits to their employees.

It is estimated that the Mexican mining industry employs about 65,000 workers. The principal problems and challenges facing the country’s mining industry in the near future include:

* the business cycle and excessive volatility of prices, which make planning difficult

* rapidly rising capital and financing costs

* decreasing availability of finance for mining projects

* new foreign competition (or joint ventures).

Historically, the main source of capital for the large mining companies has been the funds generated internally. In the future, a significant part will have to come from commercial sources, at high interest rates, with internal cash flow continuing to play an important role.

— Eduardo M. Jnregui Morales is a senior consultant with Brockman & Schuh, Mexico City. Brockman & Schuh is affiliated with Canadian-based actuarial and benefits consulting firm A. Foster Higgins.