Industry Trend Analysis - Mexico Election To Pose Limited Risks To Positive Mining Outlook - MAR 2018

BMI View: With leftist candidate AMLO leading the polls ahead of Mexico's July 2018 presidential elections, we highlight minimal downside risks to an otherwise strong outlook for the country's mining industry.

Nearing the end of the primary season, leftist-populist candidate Andres Manuel Lopez Obrador (AMLO) remains the frontrunner in Mexico's presidential race, benefitting from anti-establishment sentiment, rising security concerns and corruption scandals ( see 'Corruption & Security Focus Of Presidential Platforms', February 21). AMLO's policy goals would represent a major shift in view from the current administration and have stoked investor fears that AMLO would disrupt Mexico's trade relationships and recently liberalized energy sector. While broad-based foreign investment concern could weigh on mining investment in the near-term following an AMLO victory, we see limited downside risks to the industry as some aspects of his agenda would benefit the sector. For instance, the focus on improving security, increasing infrastructure spending and expanding broadband internet coverage to remote areas would be a boon to the operating environment for miners.

The dominance of domestic miners in Mexico's mining industry will also reduce the impact of uncertainty surrounding the upcoming elections on the country's mineral production growth outlook. Fresnillo, for instance, will continue to ramp up spending over the coming years to support projects including the San Julian silver mine expansion and near-term growth projects at the Fresnillo and Herradura mines. Additionally, Grupo Mexico will spend USD413mn on the expansion at the Buenavista zinc-copper mine, which will double the firm's zinc production by 2020. Grupo Mexico is also developing the USD159mn Pilares copper project, which will produce 35kt of copper annually with operations beginning in 2019.

Short-Term Political Risk Weighing On Profile
Mexico - Mining Risk/Reward Index
Scores out of 100, higher score = more competitive market. Source: BMI Mining Risk/Reward Index

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