Canadian investment in Mexico likely to increase

A research study conducted by management consulting firm A.T. Kearney finds that there is strong potential for increased investment by foreign mining companies in Mexico.

The study, sponsored by the Mexican Investment Board (MIB), found that investment by Canadian mining companies is likely to increase. Mexicos improved economic climate, long-term political stability and liberalized regulatory environment make the mining industry in Mexico highly attractive for foreign investment, the study says.

Our study concluded that Mexicos extensive resource base was the most important incentive for investment in Mexico, followed by the cost efficiency and quality of our labor pool, our proximity to the U.S. market and relaxed regulatory environment, says MIBs Aliza Chelminsky.

According to Kearney, for mining companies, foreign investment decisions are dictated by mainly the location of reserves of mineral resources. One of the key potential comparative advantages for U.S. and Canadian companies considering investment in Mexicos mining industry is the abundance of rich mineral resources, of which only a small portion has been explored and mined. Also, Mexicos recent privatization of formerly state-owned mines as well as the prospect of a free-trade agreement among the U.S., Canada and Mexico provide foreign companies with the opportunity of sharing resources throughout North America.

The Canadian mineral industry has been a major factor in Canadas economic development. Canadian mining companies are the predominant sector investing abroad. Major Canadian mining companies currently operating in Mexico include Noranda (TSE), Placer Dome (TSE), Rio Algom (TSE) and Falconbridge. Noted MIBs Alejandro Beauchot, Mexico is one the principal world suppliers of important minerals and metals such as silver, zinc, copper and iron ore. With the relaxed regulatory environment, companies now have the opportunity to integrate Mexico into North American operations and strategy. Part of the Kearney study was an analysis of manufacturing costs for a number of mines. The study concluded that for one particular mine, labor costs are 40% less than in the U.S. and materials costs (explosives, drill bits, flotation chemicals and other consumables) are, in total, estimated to be similar in costs, so that overall manufacturing costs are 17% lower in Mexico. Among the mining industry executives interviewed in the Kearney study, there was recognition of the opportunity Mexicos mining industry offers for foreign companies. According to one U.S. executive quoted in the survey, the recent trend of privatization in Mexico has opened the door for foreign companies. Another noted that raw materials, natural gas, iron ore and labor costs are all lower in Mexico than in the U.S.

The Kearney study was composed of a broad range of interviews with senior executives from 15 industry sectors in the U.S., Canada, Japan and Europe. Generally, the study revealed that companies from a variety of industry sectors see the need to increase their global competitiveness, with Mexico viewed as a key to achieving that result.

The MIB is a joint endeavor between the Mexican government and that nations financial institutions. Its main mission is to promote and facilitate foreign investment in Mexico.