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Reginald W. Ogden

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The Ultimate Gold Stock Trader

By Reginald W. Ogden      Printer Friendly Version
Nov 18 2008 11:19AM

“Geologists and engineers armed with sophisticated equipment and millions of investor dollars are flocking to Mexico which has become a haven for mining companies since the passage of NAFTA in 1994.�

- Elizabeth Malkin, NY Times, July 2008-11-07

“To find a gold mine, first find a silver mine.�

- 18th century conquistador/ mining adage in New Spain.

There are three major types of mining law regimes in Latin America:

  1. Administrative
  2. Adjudicative
  3. Contractual

The most successful and productive mining regimes in Latin America fall into the first category.

In Mexico, as well as in Peru and Brazil, mining rights are established and extinguished by administrative proceedings. Administrative regimes respond much easier to policy changes, require fewer legal professionals and are easier to reform. In all three countries, mining policy has proven to be stable and relatively straightforward for mining companies to comply with.

There are several reasons for this in Mexico:

  1. A mining friendly federal government support especially for foreign investment in mining. Foreign companies are now allowed to own 100% of an exploration and operating mining property, which is rare in the developing world.

  2. Under the policy of the federal government, the exploitation of mining resources has priority over most other uses of land. As most mines are found in mountains or desert regions, mining is seen as a means to develop many of the countries’ poorest regions.

  3. To encourage mining, Chile and Peru had to introduce stabilization agreements. Mexico, as a member of NAFTA, did not need to.

Many of these changes occurred in the 1990’s and culminated in the restructuring of the mining law in 2005, which effectively led to the deregulation of the sector, and in the process, embodied mineral rights as part of the national patrimony into the Mexican Constitution. Exemptions still exist for hydrocarbons, radioactive materials and salt. The law as it is today allows for 100% ownership of equity in exploration, development and production of minerals. This level of freedom and openness to foreign investment and deregulation is missing from other sectors of the Mexican ecomony.

Most of the current gold and silver properties in Mexico are still influenced by history more than geological potential. The Fraser Institute ranks Mexico as the top of countries for geological exploration potential. Even today, over two thirds of the country has yet to be explored and exploited on a modern systematic geological basis.

The Spanish conquistadors and miners were so much in awe of the mineral and precious metal potential of Mexico, they referred to it as New Spain.

Even today most of the mining projects have been worked at different times in an informal ad hoc manner at different times over 300 – 400 years, by local miners with little geological or engineering knowledge.

Despite this scenario, Mexico and Peru are still the largest silver producers in the world but mostly from primary sources.

The sixteenth century Mexican discoveries led directly to a doubling of total world resources of silver and gold. The silver/gold deposits tended to be mostly of Tertiary Age such as the bedrock deposits of silver/gold vein systems of the Veta Madre at Guanajuato discovered as early as 1548.  It is still one of the most prolific silver producing regions of the world. At its peak in the 18th century it was responsible for one third of the world’s silver production. Even today one third of the silver currently in existence has been mined in Mexico.

The smaller countries of Central America and Caribbean, as Columbus discovered all enjoy favourable mineral geological potential similar to Mexico. Unfortunately their industrial and legal framework is for the most part outdated, ambiguous and difficult to enforce. To encourage mineral exploration they need to focus on removing obstacles to foreign investment as well as to simplify, clarify and expedite procedures for the acquisition and development of mining properties through to production.

Even today the majority of gold production in Mexico is obtained from mines where gold was derived as a co-product or by-product of silver, copper, lead of zinc.

Until recently, Mexico has been known for its large number of gold and silver operations rather than for the operation of world class mines. This is on the verge of change as reforms in government policy and mining regulation enacted over the past ten years are beginning to bear fruit.

Goldcorp’s Pensaquito deposit in Zacatecos State is both Goldcorp’s largest project as well as Mexico’s largest precious metals project.

Kevin McArthur, President of Goldcorp has described the property as being “one third gold, one third silver and one third zinc�.

Goldcorp management expects it to become the largest and lowest cost precious metals mine in North America. With 75% of Goldcorp’s assets in NAFTA, McArthur is able to say “we are in a safe place, finding more ore at depth�, making it one of the few major mining companies able to increase reserves mostly due to Mexico.  Promising early results at the nearby Noche Bueno property indicates the potential for the Pensaquito District, which already has indicated reserves of 13 million ounces of gold.

Canplats, 50 kilometres south of Pensaquito, has been rated one of the best precious metals discoveries of 2007. Its Camino Rojo polymetallic project, has been drilled to 700 metres hitting gold and silver mineralization, and has been compared to Pensaquito with lower silver and lead but with relatively high gold assays.

Fresnillo ranks as the first Mexican listing on the London Stock Market, and currently ranks as the world’s largest silver producer. It is unique among precious metals stocks in so far as it is incredibly profitable, in its annual production of 34 million ounces of silver and 280,000 ounces of gold.

Similar geology to Fresnillo led Don McInnis, president of Mag Silver to explore the Juancipio project to make a high gold/silver discovery despite the lack of any outcrop. The discovery hole of 630 gms. of silver and 11.4 gms. of gold over 2.0 metres led to further high grade exploration results. In the words of Don McInnis, “other guys talk in hundreds of grams of silver, we talk in kilos�.

The Sierra Madre trend of Mexico is responsible for the production to date of half a billion ounces of silver and fifteen million ounces of gold. Production of gold/silver ore by major mining companies is of recent post 2001 origin with at least 6 producing mines in operation with another two being developed to production and two more in early feasibility.

Recent drilling by Kootenay Gold at its Promontorio project has indicated the potential for a large scale porphyry style system with similarities to major deposits within the region. To date, mineralization to a depth of over 400 metres has been outlined on this silver dominant gold/silver polymetallic deposit. A large and widely disseminated porphyry across a 1.6 kilometre IP anomaly exists within a 90,000 hectare staked area, of which a mere 10% of the known structure of the known gold/silver/lead zinc has been explored. Good metrage on the known deposit combined with widely dispersed step out holes has led the company to joint venture several of its other prospective properties in order to concentrate on Mexico.

Helix Ventures on its Las Minitas/ La Cabriza silver/gold/base metal property previously mined by the Spanish with limited but extremely high grade is being readied for bulk sampling to substantiate the tonnage from high grade samples of silver/gold. The area has recorded over 250 years of underground exploration on 120 different vein structures that show large and persistent strike lengths up to 2 kilometres and known dip lengths of over 50 metres. The project is close to Goldcorp’s Luismina mine, which is currently going through a major expansion program.\

Numerous Canadian juniors, independent and majors are exploring gold/silver projects throughout the major mining regions of Mexico. These include Nayarit Gold, Gammon Gold, Fortuna silver, Kimber, Esperanza Silver, Endeavour and Metallica.

Canadian companies have taken advantage of the changes in Mexican mining regulation and policy to explore for major gold/silver deposits instead of merely reopening ancient small high-grade deposits originally mined by the Spanish. With an estimated two thirds of this geological prospective area of Mexico yet to undergo extensive regional and modern systematic exploration, the potential of the country to develop numerous world class, highly profitable gold/silver deposits is extensive.

No longer do we have to regard the phrase “a profitable silver mine� as an oxymoron.

Reginald W. Ogden



This article is solely the work of the author for the private information of readers. Although the author is a registered investment advisor at Canaccord Capital Corporation ("Canaccord Capital"), this is not an official publication of Canaccord Capital and the author is not a Canaccord Capital analyst. The views (including any recommendations) expressed in this article are those of the author alone, and are not necessarily those of Canaccord Capital.

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