Mexico’s new rules draw flood of activity

Interest in Mexico’s mineral potential is being stimulated by recent changes to the country’s mining and tax regulations which have streamlined the process of granting mining rights and permitted 100% foreign ownership for up to 12 years and reduced the top marginal tax rate to 35% from 60%. Allowing full foreign ownership has been a particular incentive for increased investment. In the past, foreign companies could only own 49% of a mining operation and rules about repatriation of funds were viewed as less than favorable.

“They’ve turned it around now,” said Jon Collins, manager of international exploration for Cominco Resources International (TSE).

Foreign companies can now directly own 51% and set up a trust to hold the remaining 51% interest, the shares of which must be divested by selling them to a Mexican company (or on the Mexican stock exchange) after 12 years.

But the 12-year clock only starts ticking after production begins. An exploration licence is valid for three years and is renewable for three. That allows companies to effectively control 100% of a mineral property for 18 years.

Collins said the changes are being given a favorable response in light of the restrictive policies of the past. And he said the changes included measures to dramatically increase the annual cost of holding ground in Mexico, which has freed up properties that had been sitting for years without any work done on them.

“Mexico has always been attractive geologically and we are already seeing an increase in activity,” Collins said. “The kind of thing we notice is a lot more geologists and exploration people in the hotels of Hermosillo and in other mining centres than we’ve ever seen historically.”

Since the changes were announced last year, Collins said a number of American drill contractors have set up shop to do business in Mexico. In the past getting drilling done was not easy, he added.

Cominco Resources owns 49% of the Maria copper project which was recently placed into production by a Mexican partner under the old rules. Some 41,430 tons grading about 12% copper were mined in 1990, and a new mill was built. It is expected to begin operating at 500 tons per day next month. The company also has a sizable land package around the Maria mine near Cananea in northwestern Mexico.

Cominco Resources is also looking to have a joint venture partner for a package of Mexican gold properties scattered throughout the country, many at the drill-stage. Most are epithermal vein-type gold prospects, although some contain bulk tonnage targets.

Besides being a relatively inexpensive place to work, Mexico is considered under-explored. During the last 10 years, the amount spent on total non-mine-unit exploration is estimated to be only in the order of US$20-30 million per year. Of this amount, about half was spent on precious metal exploration.

Of all metals, Mexico is most often associated with silver. The country has produced about one-third the total world production to date and is still the world’s largest producer. Some historic mining camps are seeing renewed activity, among them the Pachuca Real del Monte district near Mexico City which, during the past 450 years, has produced about 1.5 billion oz. silver and about 8 million oz. gold.

Today, however, much of the exploration effort for precious metals is directed at less traditional targets, particularly in areas considered to have potential for disseminated, bulk minable gold. For example, geologists familiar with the Nevada’s Carlin Trend are noting that Basin and Range characteristics extend through southern Arizona and into northwest Mexico.

Carl Kuehn of IMDEX, a Tucson-based consulting-exploration company with a Mexican subsidiary, said the Sonoran gold belt is considered prospective for structurally controlled gold deposits similar to Mesquite, Carlin-type deposits, and stockwork mineralization in volcanic rocks.

“But there are a lot of other types of deposits to look for in Mexico,” he said. “It’s a target-rich environment.”

Kuehn said a huge porphyry copper province that goes down into Mexico from Arizona is attracting considerable interest, as are carbonate-hosted replacement (silver-base metals) deposits.

So far, it appears that Canadian and American companies are leading the way in Mexico’s new exploration boom. Japanese firms are beginning to be noticed on the industrial minerals side, Kuehn said, but only a few Australian companies have shown interest.

Phelps Dodge (NYSE), the largest domestic copper producer in the U.S., is looking south into Mexico from its base of operations in Arizona and New Mexico. The company is exploring primarily in northern Mexico for copper, other base metals and gold deposits.

And two Canadian-based companies, Chutine Resources (VSE) and American Barrick Resources (TSE), have formed a joint venture to explore the Amelia properties in Sonora. The joint venture was formed to combine Chutine’s operating experience in Mexico with American Barrick’s considerable experience in sedimentary-hosted gold deposits.

Chutine is also looking to build a US$22-million open pit copper mine in Sonora based on minable reserves estimated at 10.2 million tons grading 0.91% copper per ton. The company plans a heap leach operation which would extract the copper from solution by solvent extraction, with final production of cathode copper by electrowinning.

Placer Dome (TSE) has an indirect interest in the Mulatos project, about 100 miles east of Hermosillo. This low-grade (about 0.03 oz. gold) deposit is described by Placer Dome as being a porphyry-type gold project at the prefeasibility stage, with a reserve in the order of a million ounces and with considerable potential to increase that reserve.

“We have a great deal of interest in Mexico, and it is one of our priority countries,” said Eliseo Gonzalez-Urien, Placer Dome’s vice-president of exploration. Placer Dome recently opened up an exploration office in Sonora.

Gerle Gold (VSE), a junior in which Placer Dome has a minority interest, is also looking at exploration opportunities through its newly formed Mexican subsidiary. And Northern Crown Mines (VSE) recently announced it is negotiating to acquire a number of properties identified by the company’s geologists.

Silver Standard Resources (VSE), a junior related to Teck (TSE), is continuing work on the La Choya property in northern Mexico, 25 miles south of the Arizona border. The company said the property contains a reserve of 2.1 million tons of 0.044 oz. gold within 150 ft. of surface, with “excellent potential for doubling or tripling this reserve.”

A 12,000-ft., 100-hole drilling program is slated for the property this spring. Silver Standard has an option to acquire 100% of the Mexican company which has title to the property through a 49% direct interest and the establishment of a trust that would hold the remaining interest.

William Meyer, president of Teck Explorations, said Teck is currently doing property evaluations in Mexico because of the positive changes to the country’s mining regulations.