Mining in Mexico: What assets could be up for grabs in 2021?

Analysts are forecasting a strong year of mining M&A in 2021.

Against this backdrop, BNamericas presents its pick of Mexican mining assets most likely to change hands during the year.

SUPPORTIVE BACKDROP

A number of factors are expected to support M&A activity in 2021.

These include ongoing pressure in the industry to replace reserves that have been mined, Bank of America analyst Michael Jalonen was quoted as saying by investment news website Investorplace.

Global gold reserves have been falling since 2012, while production has remained stable.

Majors are also in the process of selling off non-core assets, mainly to mid-tier players, BMO Capital Markets’ Colin Hamilton told BNamericas in November.

The easing of COVID-19 restrictions on movement could also see a surge in deals crossing the line in 2021, with the pandemic making it harder for companies to travel to mine sites to conduct due diligence.

Transactions worth a combined US$2.58bn involving Latin American mining assets were advanced in 2020, a drop from the US$14bn the previous year, which saw the US$10bn Newmont-Goldcorp merger.

MEXICAN MINING M&A TARGETS

1. Torex Gold

Torex – whose El Limón-Guajes (ELG) mine in Guerrero state is one of Mexico’s biggest gold producers – has been highlighted by Bank of America as a potential takeover target.

As well as ELG, the company has the US$496mn Media Luna project on the same property.

Torex CEO Jody Kuzenko has said value accretive M&A is a priority for the company.

2. Sierra Metals

Sierra has begun exploring strategic alternatives including a possible sale of the company or some of its assets.

These include the Bolívar primary copper and Cusi primary silver mines in Mexico, as well as the Yauricocha primary zinc asset in Peru.

Sierra has expansion plans in place at each of its operations which could help attract a buyer.

3. Agnico Eagle Mines

Agnico Eagle is focusing efforts on growth opportunities in its Northern assets, which include mines and projects in Canada and Finland, as extending the mine life of its Mexican mines continues to prove challenging, the company told the Scotiabank 23^rd Annual Mining Conference in December.

While the Santa Gertrudis project is promising, Agnico has halted exploration at the El Barqueño project in Mexico, which could be a priority to sell as it failed to meet the company’s investment criteria.

Agnico Eagle also has the Pinos Altos, Crestón Mascota and La India mines in Mexico, which could be ripe for sale if the right offer is made – but the company’s financial muscle mean it will not be pressured into any deal.

4. First Majestic Silver: Suspended mines

First Majestic has suspended its Del Toro, La Parrilla, San Martín and La Guitarra mines as it focuses on three core assets: San Dimas, Santa Elena and La Encantada. 

While the company is advancing plans to evaluate a restart at La Guitarra, it remains to be seen whether it will do the same at the other halted assets, or whether a sale could be under consideration.

5. McEwen Mining: Fénix project

McEwen previously outlined plans to sell its Fénix project, which aims to extend the life of its El Gallo gold mine and combine it with resources from the El Gallo 2 silver project.

Proceeds from any sale would be split between advancing its other projects and paying down debt, McEwen said in 2019.

But with higher gold and silver prices bolstering cash flows, it is unclear whether a sale is still under consideration or if McEwen will push ahead with construction.

The company reported results of a feasibility study in December, which showed a 9.5-year mine life operation producing 26,000oz/y gold equivalent in phase 1 and 4.2Moz/y silver equivalent in phase 2, starting in the seventh year, offering a post-tax IRR of 28% at US$1,500/oz gold and US$17/oz silver prices.

6. Americas Gold and Silver: Cosalá mine

Americas Gold and Silver’s Cosalá primary silver asset – which includes the San Rafael mine – has been suspended for a year due to a dispute with Mexico’s mining union, SNTMMSSRM.

The SNTMMSSRM won a vote on union representation last year, but the company said the recount was affected by threats and irregularities, and has stated it does not plan to invest the required capital to restart operations.

A sale of the asset could be the least bad option for Americas.

7. SilverCrest Metals

SilverCrest has long been seen as an attractive takeover target as it pushes ahead at Las Chispas, Mexico’s highest-return silver project.

A feasibility study is due in late January.

The company would make a great addition to a mid-tier miner, Scotiabank analyst Trevor Turnbull told BNamericas in June.

8. Orla Mining

Orla is another attractive takeover target.

The company is advancing its Camino Rojo project, where an updated feasibility study reported on January 11 outlined production of 980,000oz gold and 6.2Moz silver over a 10.4-year mine life, with initial capex of US$134mn.

Post-tax IRR is put at 62% at US$1,600/oz gold prices.

Orla also has growth options from a larger sulfide deposit at Camino Rojo and the Cerro Quema asset in Panama.