Mexico’s domestic silver sales falter

Perched proudly in the southwestern Sierra Madre mountains, the town of Taxco is an enduring example of the important role silver mining plays in Mexico’s economy.

In fact, this colonial village of spires and white-washed, red-roofed houses thrives on tourists with an eye for silver. Every day, dozens of outsiders venture up and down the narrow, cobblestone streets to shop at the myriad of jewelry and souvenir shops for which the town is famous.

As far back as the 16th century, ornaments and jewelry have been worked here in silver and combinations of metals (copper, brass and silver), with matte or polished finishes. Many feature semi-precious stones, mosaics, sea shells and fine woods.

As it happens, however, fewer and fewer people are buying the articles. Which explains why, when The Northern Miner visited the town recently, most of the shops’ proprietors were wearing long faces. They complained that while foreign tourists continue to buy at a relatively steady rate, sales to Mexican tourists have dropped considerably. As a result, several shops have closed while others have been forced to diversify by selling clothes, food and other items in constant demand.

Domestic sales of gold and silver dropped by about 70% last year, according to the National Jewelry Export Import Association. And Mexico’s precious metal mining industry is operating at only 30% of its capacity. Bright spot

Virtually all that’s keeping the industry afloat is an increase in precious metals exports. Prices in international markets for gold and silver have skyrocketed over the past year. As a result, Mexican exports of these metals grew to $300 million (US) in 1987 compared with $275 million in 1983. Of this, silver accounted for more than half.

While the U.S. imports most of Mexico’s gold and silver, other major customers include Canada, Japan and West Germany.

Silver has always been the most profitable of Mexico’s precious metals. In terms of value, it accounts for more than 25% of the country’s entire mining output and half of its mining exports. In fact, Mexico remains the world’s largest producer of the metal, and experts say remaining reserves, if mined at current production levels, will last at least 85 more years.

Researchers with the securities firm Shearson Lehman Hutton of London estimate Mexico will produce 77 million oz of refined silver in 1988, which is up from the 73 million oz produced in 1987. The closest rival is Peru, which is expected to produce about 66 million oz in 1988. (Canada, by comparison, is expected to produce about 40 million oz.)

Most of Mexico’s silver comes from the Real de Angeles open pit mine (in which Placer Dome has a 34% interest) in the centre of the country. Its annual production rate is 400 tons (or about 13 million oz). Other rich deposits are found in the Taxco area, where there are also veins of gold, lead, mercury and zinc. Spaniards’ obsession

The country’s early development was largely due to the Spaniards’ obsession with silver. The Spaniards began to work various mines, shortly after the Conquest, in what are today the states of Hidalgo, San Luis Potosi, Zacatecas, Guanajuato and Guerro (in which Taxco is situated). Taxco became famous for its mines from then onwards and its veins were worked throughout colonial times.

National production increased steadily up to and including the early 1900s at which time Mexico was cranking out one-third of the world’s silver. But by the 1940s, high taxes combined with state control of the silver industry caused foreign firms to pull out. This triggered a steady period of low production which has only begun to improve in recent years.

Experts say Mexico’s current anti-inflationary policy of accelerating privatization of state-owned industries will lure more investors into the silver mining sector. But it is uncertain whether the government will allow foreign companies a piece of the silver pie. Government policies have traditionally favored Mexican participation in the mining sector.

The silversmiths of Taxco know all too well the implications of state control of mining. According to law, all silver sales must be transacted by the Bank of Mexico. Silversmiths thus have to buy their silver bars from the bank rather than buy them directly from local producers.