Mexico’s mining sector is bracing for the government to start charging royalties on production, a development that should not prevent that country from attracting new investment, said Canaccord Genuity in a report this week.
In spite of its well-documented problems with the illegal drug trade, Mexico has emerged as the top investment jurisdiction for silver during the past decade.
Having recently surpassed Peru as the world’s largest silver-producing nation, Mexico has seen its share of silver production increase from 88.8 million ounces of silver in 2002 to 152.8 million ounces in 2011, according to the 2012 World Silver Survey.
Canada, by comparison, produced 19.1 million ounces last year, while the United States produced 36 million ounces. Peru ranked second among silver producing countries with 109.8 million ounces and China was third with 103.9 million ounces.
In its latest Junior Mining Weekly, Canaccord Genuity analyst Nicholas Campbell said Mexico has had a stable, attractive fiscal regime and now has a business-friendly government – the PRI Party – in power.
“While we believe that we are likely to see an imposition of a royalty, and a likely bump up in income tax over the next few years, we believe that Mexico is likely to continue to attract significant new investment in the country,’’ he said.
A report in the Latin American Herald Tribune said the Mexican government has previously called for payments of between 1.5% and 5% of production, and the consensus in Mexico is that eventually some type of royalty will be imposed, according to Banamex, the Mexican subsidiary of Citigroup.
While no royalty exists now, officials from the Mexican Mining Chamber are currently discussing the issue with the Mexican government, said the Latin American Herald Tribune report.
Campbell said violence related to the country’s drug-traffic conflict is a notable risk. “However, we believe the underlying business fundamentals remain positive overall, and we therefore believe that junior silver equities with assets in Mexico should continue to be involved in the consolidation of the silver space and attract new investors.
Junior companies with significant assets in Mexico include.
MAG Silver Corp. (TSX: T.MAG, Stock Forum) has the Juanicipio gold-lead-zinc project (44%) in Zacatecas and Cinco de Mayo molybdenum and gold project (100%) in Chihuahua. Trading at $9.40 this week, MAG has a market cap of $523.3 million, based on 55.6 million shares outstanding. The 52-week range is $11.46 and $6.17.
Silvercrest Mines Inc. (TSX: V.SVL, Stock Forum) has the Santa Elena mine (100%) north of Hermosillo, Sonora, and La Joya property (100%) southeast of Durango. Trading at $1.80 this week, SilverCrest has a market cap of $161.5 million, based on 89.7 million shares outstanding. The 52-week range is $3.17 and $1.07.
Fortuna Silver Mines Inc. (TSX: T.FVI, Stock Forum) has the San Jose Mine (100%) gold-silver mine in Oaxaca. Trading at $3.59 this week, Fortuna has a market cap of $449.7 million, based on 125.3 million shares outstanding. The 52-week range is $7.58 and $3.03.
Golden Minerals Co. (TSX: T.AUM, Stock Forum) has the Velardena mine/project (100%) in Zacatecas, Mexico. Trading at $4.11 this week, Golden has a market cap of $155.8 million, based on 38 million shares outstanding. The 52-week range is $17.19 and $3.34.
Santacruz Silver Mining Ltd. (TSX: V.SCZ, Stock Forum) has the Rosario project (100%) in San Luis, Potosi, San Felipe project (option for 100%) in Sonora, and Gavilanes project (100%) in Durango. Trading at 90 cents this week, Santacruz has a market cap of $61 million, based on 67.8 million shares outstanding. The 52-week range is $1.12 and 35 cents.
Endeavour Silver Corp. (TSX: T.EDR, Stock Forum) (NYSE: EXK, Stock Forum) has the Guanacevi mine (100%) in Durango, and Bolanitons mine (100%) in Guanajuato State and El Cubo mine (100%) in Guanajuato State. Trading at $7.92 this week, Endeavour has a market cap of $697.3 million, based on 88 million shares outstanding. The 52-week range is $13.10 and $7.34.
Scorpio Mining Corp. (TSX: T.SPM, Stock Forum) has the Nuestra Senora zinc-copper-lead-silver mine (100%) in Sinaloa State. Trading at 58 cents, Scorpio has a market cap of $114.8 million, based on 197.9 million shares outstanding. The 52-week range is $2.43 and 48 cents.
Great Panther Silver Ltd. (TSX: T.GPR, Stock Forum), Guanajuato silver-gold mine (100%) in Guanajuato State and Topia silver-lead-zinc mine (100%) in Durango. Trading at $1.66, Great Panther has a market cap of $228.4 million, based on 137.6 million shares outstanding. The 52-week range is $3.78 and $1.53.
Aurcana Corp. (TSX: T.AUN, Stock Forum) has the La Negra silver-zinc-copper-lead mine (100%) in southwest Texas and Shafter silver project (100%), also in Southwest Texas. Trading at 93 cents this week, Aurcana has a market cap of $419.8 million, based on 451.4 million shares outstanding. The 52-week range is $1.15 and 55 cents.
Orko Silver Corp. (TSX: V.OK, Stock Forum) has the La Preciosa silver project (100%) near Durango.Trading at $1.14 this week, Orko has a market cap of $150.7 million, based on 132.2 million shares outstanding. The 52-week range is $3.06 and $1.02.