Wednesday, December 6, 2023

Senate’s mining proposal costs two firms 32 billion pesos in three days

Two major mining firms have seen almost 32 billion pesos (US $1.6 billion) wiped off their market value over the past three days following the presentation of a bill in the Senate that could affect their operations.

Shares in Grupo México, the country’s largest mining company, were down 4.71% yesterday while those in Industrias Peñoles, Mexico’s second biggest mining firm, lost 3.49%.

The companies’ cumulative losses over the three days were in the double digits – 11.61% for Grupo México, 14.83% for Peñoles – and their respective share prices, 38.86 pesos and 226.4 pesos, were at their lowest point since the start of 2016.

The slide began Tuesday after Angélica García, a senator with president-elect López Obrador’s Morena party, presented a bill that would require mining companies to obtain the consent of indigenous communities in order to be granted concessions.

The Secretariat of the Economy (SE) and the Mexican Geological Service would both have to consult with indigenous communities under the proposed amendments to the federal Mining Law.

The SE would also have authority to declare certain areas unviable for mining activities and to cancel concessions and permits that have already been granted if they had a negative social impact.

Mining experts said the legislative proposals posed a risk to both Grupo México and Industrias Peñoles, whose stocks were downgraded to underweight by investment bank Morgan Stanley.

“We believe Mexican mining equities will decouple from fundamentals for the foreseeable future given the heightened uncertainty around the regulatory framework for mining operations in the country,” it said in a note to clients.

Fernando Bolaños, an analyst at the financial group Monex, said Morena’s proposal lacks detail because it is unclear how negative social impact will be determined and what process would be followed to cancel a concession.

Peñoles referred to its losses this week in a statement, saying it “considers that this is a market movement in response to some announcements of legal initiatives that generate uncertainty, particularly the proposed amendments to the mining law, whose effect cannot be assessed due to lack of clarity.”

Earlier this month, another Morena party proposal to curb bank charges sent bank stocks plummeting and caused the Mexican Stock Exchange’s benchmark IPC index to suffer its biggest single-day decline since August 2011.

López Obrador’s decision to cancel the new Mexico City airport project has also generated concern among investors and been cited as a factor in the deterioration of the outlook for the Mexican economy in 2019.

Source: El Financiero (sp), Expansión (sp) 

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