Mexico is the world’s largest silver mining producer, contributing to nearly a quarter of global silver production. This dominance in silver mining traces back to the era of Spanish conquistadors, showcasing a rich historical legacy. Nowadays, prominent mining corporations dominate the landscape in pursuit of Mexico’s abundant silver deposits.
Silver mining stocks in Mexico are catching the attention as the increased demand for silver has led silver prices to soar. An uncertain economic backdrop, global geopolitical tensions, and the energy transition all push silver prices higher. Gold prices have already hit historical highs and expectations are that silver will be quick to follow.
Yet, amidst these promising market dynamics, one wonders if Mexican silver miners will reap the rewards. Investing in the Mexican silver mining stocks is not without risks. This article provides valuable insights to navigate the complexities of the industry.
Mexico’s Rich Legacy in Silver Mining
Mexico’s rich history of silver mining dates back to a time before the Spanish conquistadors set foot in the Americas. The indigenous peoples of Mesoamerica, such as the Mayans and Aztecs, used silver for economic and religious purposes. The valuable metal held a significant status within their society.
Although small-scale silver mining in Mexico had already existed before the arrival of the Spaniards in 1519, the industry only truly flourished after the discovery of large silver deposits in Zacatecas in 1546. As a part of New Spain, Mexico was responsible for one-third of global silver production at the time.
The ‘silver fever’ laid the groundwork for a thriving mining culture that continues to shape Mexico today. As the world’s largest producer of silver, Mexico is constantly discovering new silver deposits and building new mines.
In 2023, Mexico solidified its position as the foremost global powerhouse in silver mining with an impressive output of 6,400 metric tons. This output almost eclipsed the combined output of the second and third-ranked nations, China and Peru, which produced 3,400 and 3,100 metric tons respectively.
Mexico’s leading position in global silver production is supported by its unique geological attributes, advanced exploration techniques, and evolving trade policies. These factors collectively contribute to Mexico’s prominence as a key player in the global silver mining industry.
Geography as the Base to Mexico’s Silver Supremacy
Mexico is located on the silver-enriched North American crust, making it highly prone to geological phenomena that lead to the formation of silver deposits. The subduction of the Cocos plate beneath the North American plate has caused partial melting of both plates, resulting in the formation of one of the world’s longest volcanic belts.
Mexico’s most important silver-producing regions are Zacatecas, Chihuahua, Durango, and Sonora. Zacatecas stands out as the leading silver-producing state, with municipalities like Fresnillo and Mazapil playing key roles in the country’s silver industry. Zacatecas responsible for 46,5% of total
Chihuahua, Durango, and Sonora also contribute significantly to Mexico’s overall silver output, with various municipalities hosting important mining operations.
What is the Allure of Investing in Silver?
Before diving deeper into the specifics of the Mexican mining industry, let’s reflect on the properties that make silver an attractive investment. Silver investing has caught the attention due to its dual appeal as a tangible asset for investment purposes and its wide-ranging importance for industrial purposes.
Like gold, many consider silver a great investment to preserve wealth. Throughout history, people have considered precious metals a store of value during times of economic uncertainty. Silver is a hedge against inflation and helps preserve wealth and purchasing power as fiat currencies lose value over time.
Silver provides portfolio diversification benefits as it has different price dynamics than other asset classes like stocks and bonds. Its lower correlation to the broader market enables investors to optimize the risk-adjusted returns of their portfolio.
Due to its exceptional conductivity, silver has numerous industrial utilizations. It plays a crucial role in the current energy transition for renewable energy.
Silver Market Dynamics Signal Higher Prices
According to the Silver Institute, the global silver market has experienced a deficit for the third year in a row in 2023. It is expected that these deficits will continue in the near future, leading to an increase in silver prices. Several factors related to supply and demand suggest that there is a strong case for a significant price rally in the near term.
Inflation has increased production costs in energy and labor, reducing the operating margins for miners. Especially costly new mine discoveries have diminished leading to lower silver supply.
As supply is getting increasingly more constrained, demand for silver is increasing. The metal is in high demand for the transition to renewable energies and electrification of the economy. Silver serves as an important component in electronics, solar panels, batteries, and automotive parts.
Gold-to-silver Ratio is Relatively High
Although silver supply and demand dynamics seem to indicate that prices should increase. Silver prices have yet to experience a similar rally as gold prices which reached all-time highs.
The gold-to-silver ratio is an indicator of the relative value of the price of silver. This ratio represents the amount of silver one can buy with a single ounce of gold. A higher ratio suggests that silver is undervalued compared to gold, while a lower ratio indicates the opposite.
The 30-year average for the gold/silver ratio stands at 67:1. Current levels exceeding 84:1 are considered relatively high. Even though this might indicate an opportune time to invest in silver relative to gold, the ratio is still far from its peak in 2020 when it reached over 110:1 levels.
The current macroeconomic backdrop and geopolitical tensions create a lot of uncertainties that investors want to hedge by holding precious metals. In China, the deteriorating economy has led to a surge in gold demand pushing prices higher.
Expectations that silver prices will follow the same trajectory are yet to materialize. Silver is considered a high beta version of gold, meaning that the price movements of silver are more volatile and sensitive to market conditions.
The historical high of silver was at 49,51, thus leaving sufficient room for the upside. In this current environment, it seems more a question of when than if silver prices will start to rally.
An explosive movement in the price of silver is yet to materialize as above-ground silver inventories prevent physical tightness in the near term. A further draw-down in stockpiles will eventually fuel a price rally.
Investing in Silver Mining Stocks Instead of Physical Silver?
Although the market conditions indicate a bullish trend in the price of silver, it does not necessarily mean that investing in Mexican silver mining stocks is a good investment. There are many more factors to consider before investing in the silver mining companies.
Firstly, one should understand that the majority of silver mined comes as a byproduct of mining activities for copper or gold. Thus, the main focus of these mining businesses is the extraction of other metals rather than silver. Pure-play silver mines are few and hard to come by.
Moreover, investing in a mining company rather than an asset comes with risks specific to the business. As with any other company, a lot of the success of a mining company depends on good management to run the company efficiently.
Investing in mining stocks can be risky as miners go bust all of the time. Then again, investing in the industry can also be very profitable in current market conditions. Doing thorough due diligence helps to increase the probability of a profitable investment.
Mexico’s Diverse Silver Mining Landscape
Mexico is the largest silver producer in the world and has a diverse silver mining landscape. According to GlobalData, a leading data and analytics company in the mining industry, there are currently around 743 active silver mines globally, of which approximately 20% are in Mexico. Mexico has the highest number of silver mines and deposits in the world.
The largest undeveloped silver deposit in the world is located in the state of Chihuahua. The project is known as the Cordero project and is owned by Discovery Silver. Expectations are that Cordero can become one of the top three silver mines in the world once it begins production.
Mexico is home to the largest silver mine in the world measured by total reserves, expected at 869.52 million ounces (Moz). The Peñasquito mine is located in prime silver mining state, Zacatecas, and is fully owned by mining giant Newmont.
Top Silver Mining Companies in Mexico
The huge potential for silver mining resulted in many domestic and international companies operating within the country. Canadian companies own 74% of mining concessions in Mexico. Furthermore, there are also several huge Mexican mining companies such as Grupo Mexico, Industrias Peñoles, and Fresnillo.
The following list mentions large-cap companies operating in Mexico but with a listing on the New York Stock Exchange (NYSE). Selection criteria have mostly focused on the market cap and liquidity of the shares. For these reasons, junior miners have been excluded.
Newmont Corporation (NYSE: NEM)
Newmont is the largest gold mining company in the world, with operations spanning multiple continents. The Canadian mining company operates the Peñasquito mine, an open pit mine in Zacatecas. Peñasquito ranks as the world’s fifth-largest silver mine and the second-biggest in Mexico. Besides gold and silver, the company also produces copper, zinc, and lead. Newmont is an industry leader and is the only gold producer listed on the S&P 500 Index.
Pan American Silver Corp. (NYSE: PAAS, TSX: PAAS)
Pan American Silver is another huge Canadian mining company operating in Mexico. It has silver mining activities in Zacatecas where the company owns the La Colorado mine. This underground mine produces silver, lead, and zinc.
Hecla Mining Company (NYSE: HL)
Hecla Mining is the largest primary silver producer in the United States. With over 130 years in business, it is the oldest NYSE-listed precious metals mining company in North America. Hecla operates the San Sebastian project in the Mexican state of Durango, north of Zacatecas. Located in the middle of the prolific Mexican Silver Belt, Hecla Mining produces some of the highest-grade silver.
Coeur Mining, Inc. (NYSE: CDE)
Coeur Mining is a mining company based in the US. It operates the Palmajero complex, consisting of three underground mines, located in the state of Chihuahua. As of 2023, the Palmajero complex accounted for 64% of Coeur’s silver production and 32% of Coeur’s gold production.
First Majestic Silver Corp. (NYSE: AG)
First Majestic Silver is another prominent Canadian silver mining company operating in Mexico. It has three operating mines (San Dimas, Santa Elena, and La Encantada) and several exploration projects. First Majestic Silver operates gold/silver mines and silver mines, making it a rare mining company with more of a focus on silver.
Endeavour Silver Corp. (NYSE: EXK)
Endeavour Silver is a mid-tier silver US-based mining company operating the Guanaceví and Bolañitos mines. It mines gold and silver, but business operations mostly focused on silver. The company’s track record of exploration success and production growth positions it well for future opportunities in the silver market.
Risks Investing in Mexican Silver Miners
Besides the operational risk of the business, investing in the Mexican mining sector also comes with political risks which can quickly change legislation. In 2023, stringent mining laws were enacted, particularly impacting junior miners. These laws entail stricter regulations on environmental and social permits, accompanied by severe penalties for non-compliance.
The introduction of a royalty system requires mining companies to pay a percentage of their revenues to the government. This diminishes profitability and discourages further investment in mining operations in Mexico.
Restrictions on foreign investment in Mexico’s mining sector may reduce the supply of silver from Mexican mines. The new law mandates 51% Mexican ownership, potentially deterring foreign investment crucial for mining development, thus limiting sector growth and silver supply.
Under the current presidency of Andrés Manuel López Obrador (AMLO), the Mexican government turned to a soft nationalization of the lithium mining market. The risk persists that other mining industries will also experience nationalization.
What Lies Ahead for Mexican Silver Miners?
So far, this article has given background information on Mexico’s silver mining landscape and current market conditions. However, what lies ahead? Early indicators might provide some clues of what is to come.
The price of silver has gradually been rising with periods of increased volatility. Investor exuberance combined with silver’s supply/demand dynamics will drive up silver prices.
Silver mining stocks in Mexico have yet to catch the attention of most investors. Majors will be the first to move the trend higher followed by juniors and explorations. The market’s reaction to Newmont beating Q1 profit estimates (rallying over 10%) may indicate early success.
Even at this nascent stage, any entity with “silver” in its name is indiscriminately purchased as silver prices rise, regardless of its actual silver production capabilities. This indicates that investor excitement may blur their judgment.
