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Under-mining the market?

28 November 2018

From his aerie in the Andes, the Inka keeps his eagle-eye on Latin American mining, and is quick to swoop down on those nervous investor news letters that panic before they should.

The new panorama for mining in Mexico is not wholesale militancy against the industry and the driving away of companies or new investment. What it is, however, are new deals that will see more of the cash generated go to its workforce. Or else. Therefore, what this means to investments in the country is that the sharp selling we saw last week is almost certainly overdone. However, I don’t think the nerves are going to abate in a matter of hours or days and none of the affected stocks are my idea of a rebound quickflip-trade. We may get more selling in the days ahead, but above all I doubt we’re going to get enough money sloshing back in to push price back in the very-near-term. On the other hand, we may eventually see the companies that weren’t hit hard last week as the bigger losers. As an example (and it’s probably unfair just to pick on one), Fortuna Silver at San Jose in Oaxaca has fought hard to keep its mine non-unionized or keep the union influence over its operations to a minimum. With the new strength of Napito and worker emancipation on the menu, they are an example (I repeat, there are others) of a smaller company that could see its operating costs rise meaningfully in dollar terms as workers demand a better remuneration package.

The bottom line is that I am less worried about the future of mining in Mexico than the panic sellers of last week. I’m also highly suspicious of the lack of depth shown by sell side analysts on the subject, especially those in the larger firms (Morgan Stanley and Citi are two of the large entities that helped spread the unalloyed fear last week) who should have the depth of knowledge to advise their clients better. However, I am not a knee-jerk buyer of the beaten-down stocks because a) the fear-mongering could go on for a while and b) even though the worst of the law project is unlikely to make it into law there is plenty of evidence to show that the Napito-driven (“Napito” is Napoleón Gómez Urrutia, the president of the independent miner’s union, who returned from exile in Canada after his election to the Senate from the new ruling party, MORENA) mining scene in Mexico is going to see changes, first and foremost in better pay deals for workers. That means higher costs for the companies. And a final point; aside from the passive exposure via Sandstorm (SAND) ( which is something I am happy to take, the IKN Weekly ‘Stocks to Follow’ list has had no Mexico exposure for quite some time. That is not a coincidence, but in 2019 that may change once the new rules are established.

The entire report here;


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