Dispatch from Mexico: Part 1, August 2025

Our Dear Leader has been in Mexico for two weeks and although he had never been to Mexico before and was keen to visit, this is a full-on business trip visiting the mine sites of four gold and silver producing Juniors.  

VSA continues to be very bullish on both gold and silver and so a visit to what could be termed the "home of silver" did seem very timely.  Our two-part ‘Dispatches from Mexico’ will give a flavour of the trip and once back, Andrew will be hosting management interviews online to showcase virtual site visits for all of the companies.  

Mexico’s silver story has a long history with the ancient indigenous Mixtec and Zapotec cultures valuing silver for its beauty and ritualistic uses. Districts like Taxco and Zacatecas were well known before the Spanish conquests but it was the Conquistadors that commercialised the industry and by the late 1500s, silver was Mexico’s dominant export (about 70% of all exports).  By 1803, Mexican mines produced nearly 70% of the Americas’ silver.  

Early giants such as La Valenciana at Guanajuato (operating from the 1550s) helped finance the Spanish Empire, with the trade reshaping global commerce. Via the Manila Galleon route between Acapulco and Manila, Spanish ships swapped New World silver for Asian goods, making silver the de facto world currency. 

Mexican Independence in 1821 brought political instability; roughly 50 governments in 50 years, making development of the industry difficult. Under Porfirio Díaz (1876–1911), British, American, and French capital expanded mining and oil, but profits were largely repatriated meaning many locals missed out on the benefits (reminding our Dear Leader of Cornwall). The 1910–20 Revolution and subsequent nationalisation sought to rebalance control, yet corruption and, later, cartel violence continued to hinder broad-based growth.  

For modern miners, this history underscores the necessity of a strong social licence to operate. Companies must maintain trust with federal, state, and municipal authorities and, crucially, with local communities; often organized as ejidos; communal landholding structures with deep pre-Hispanic roots. Where ejidos exist, formal access and surface-rights agreements are essential. In practice, what is now called ESG has long been part of operating in Mexico; commitments to education, healthcare, water, and agricultural support are common components of ejido agreements. Done well, these partnerships provide stability for operators and tangible benefits for host communities, helping avoid a repeat of past extractive patterns.   

Central banks, reviewing the risk associated with holding US dollars, have returned to gold as a key part of their holdings and buying has driven the gold price to a series of record highs. The gold/silver ratio hit 100 recently which it has only done on a few occasions and typically precedes a catch up by silver: where gold goes, silver follows with powerful, volatile performance.  

Bull Markets	Gold	Silver
1976-1980	717%	1,063%
1985-1987	75%	97%
2001-2008	289%	383%
2008-2011	164%	446%
2020-April 2021	22%	118%
2022-?	108%	107%

Although the ‘poor man’s gold trade’ has become less important as fractionalisation, equities and ETFs have all made getting gold exposure cheaper and easier, silver’s lag has historically been due to investor buying as gold became “too expensive”, and the silver market is still vulnerable to squeezes. The silver market is about a tenth the size of gold meaning that small inflows can have an outsized impact on price. The demand structure has changed, reinventing itself in the last few decades while supply is concentrated and inelastic. Over half of demand now comes from industry and has evolved with this useful metal no longer used in photography but now used in solar panels, its fastest growing use. On the supply side, half of silver production comes from three countries (Mexico, China and Peru) and after Chinese quotas in graphite, rare earths, antimony and tungsten…could silver be next? It has in fact just been added as a critical mineral by the US Interior Department.

Only a third of ore is primary silver and many miners producing it as by-product have forward sold the metal to get financing in the form of streams and royalties. Few are therefore incentivised to optimise production even when silver prices move higher.  

Strong start to 2025 for Andrew's four companies but the silver juniors are on the verge of a major breakout 

VSA remains bullish on most commodity prices as it believes that the ‘New World’ after Bretton Woods, as we have discussed before, is very much about major countries securing their own supply of commodities. We can see the possibility of gold reaching US$5,000/oz in the next few years and so if the gold/silver ratio went to just 70 then the silver price could go from around $38/oz to over US$70/oz.

Over the last fifteen years, the return on silver miners is best forgotten, however, what really has been forgotten is how they perform in a bull market and the purpose of Andrew’s trip has been to find out more about the exciting juniors at play. In more recent bull markets, there have been exceptional performers: between 2001 and 2008, Pan American Silver (PAAS US), now a US$11bn market cap company, grew production from 7mnoz Ag to 20mnoz Ag on the tailwinds of rising prices while Endeavour Silver’s (EDR CN) share price increased 4866% with production in 2008 of 2.3mnoz Ag (today it is around 8mnoz AgEq). Fresnillo (FRES LN) is the world's largest producer of silver from ore (primary silver) and Mexico's second-largest gold miner. Formerly a wholly owned operating division of Industrias Peñoles, a minority stake in the company was spun off on the London Stock Exchange on 14 May 2008, with a secondary listing on the Mexican Stock Exchange on the same day at 555p. FRES was an exceptional performer between 2008-2011 rising 287%. 

It feels like the market conditions have changed and are ripe for a new wave of growth companies to join these established producers and Andrew’s first stop was Avino Silver (ASM CN) in Durango. 

Avino has a long and fascinating history dating back 500 years and it was even briefly listed on the London Stock Exchange between 1898 and 1903. When it listed it was valued at £1mn which today would be worth about £150mn, so with the company valued at US$550m today, that’s about 5%pa return. The mine has a quasi-family-owned feel due to it now being run by David Wolfin who is the son of Louis Wolfin who took control in 1967 to revitalise. Today it is TSX-listed and the Wolfin family are still major shareholders alongside a mixture of Canadian, US and European shareholders. 

When Louis Wolfin took the mine on it was open pit but in 2001, the mine went underground and still centred on the prolific Avino vein. After such a long production period, they are now down to level 19 and in 2024, the company produced 2.6mnoz AgEq and is targeting 2.5-2.8mnoz AgEq in 2025. Andrew toured level 9 and not that he is a geologist but the impression he got was that the deeper they go the higher the grade (just like Cornwall), with the 10% annual increase in 2024 production was largely due to higher grades. Despite this long track record, the company has always been a single asset producer but that is quickly changing with stronger earnings performance and rising prices giving the confidence and capital to drive a growth strategy. Avino had US$37m cash on the balance sheet at the end of June and is debt free. While strong cashflow is expected, the company has just announced that some of this has been used (US$22m in staged payments) to buy back a royalty at the company’s new project, La Preciosa, which is only 19km away. This should enhance margins particularly on future discoveries given the structure of the royalty. Development at La Preciosa has been progressing with all the permits in place, and Andrew was one of the first visitors to go down the ramp to where initial blasting will take place, hopefully by October, with the ore then to be trucked to the Avino mill for processing. There is also an oxide tailings project for further growth.  The mill produces a concentrate which looks like black sand, which is how it is sold and is shipped in containers to China for smelting. This keeps the process plant simple but is also a useful form of security this and how most of the Mexican miners operate as there is no interest in trying to steal! 

Entrance to La Preciosa and underground at the Avino Mine 

Revenue in 2024 was a record US$66.1m, up 51% YoY, largely due to higher prices, with net income of US$8.1m. The growth strategy should take the company from its current production level where it has been for some years, to over 8mnozpa AgEq of which 2mnoz is Avino, 4mnoz from La Preciosa and the rest from the oxides. 60-70% of metal production will be silver keeping the company’s status as one of the world’s few primary silver producers.  

Andrew left Durango on the 6am flight (yes he was up at 4.30am and advises he isn't drinking too many tequilas) to then jump into a helicopter to fly to Luca Mining’s Campo Morado out over Mexico City which gave Andrew a great appreciation of just how large and densely populated it is with about 25mn people, which is over 20% of the Mexican population. 

Andrew then spent a full day looking over the project at Campo Morado owned by Luca Mining (LUCA CN). The project is a VMS style deposit so is polymetallic producing zinc, lead, copper, gold and silver. When the team took it on it was very much a zinc mine (Mexico’s fifth largest) and it has been a key pillar of the strategy to enhance the precious metal contribution. Rising prices have also helped and mean that silver and gold are of growing importance and about 50% of revenue with a target of 80-100koz AuEq in 2025. The management team (including Chairman Peter Damouni, a VSA alumni) has come together only recently and has taken a mine with quite a few issues at both a corporate operational level and very quickly turned it around to be debt free (very soon!! But it was over US$25m a year ago) and with good free cash flow (US$30-40m this year) which has translated into very strong share price performance (228% YTD). The turnaround has probably been priced in so what is next..!  

Underground at Campo Morado and Surface Exploration Drilling Underway 

The process plant is large with total capacity of about 2,400tpd across crushing, milling and floatation although current production rates are not yet that high. Aside from potentially significant improvements to recoveries from flowsheet changes (met testwork is going to evaluate the options) there is capability for expansion and exploration has started on the wider 12,000ha licence area which could justify further milling capacity beyond the current 2,400tpd. The currently mined deposit is within a vast hillside and there is potential to extend downdip but are also at least 10 drill ready targets of which five look to have similarly large geophysical footprints to the initial ore body.  

Inside the mill at Campo Morado 

Although there wasn’t time on this trip, the company also has a second project, Tahuehueto, nine hours north of Durango and the company is also quite openly looking at M&A opportunities in Mexico (Luca is probably both predator and prey) as they believe there is so much potential and their team has the confidence and track record to turn other assets around. The debate of course is should they put their cash generation back into further exploration or M&A? 

The shareholder base has a very small institutional percentage so far, but the share price has been helped by the inclusion of the company into the Global X Copper miners ETF and there is talk of it possibly being included in others. It feels as though as we see fewer and fewer mining specialists funds that can invest as they are being replaced by ETF funds which have very different criteria for choosing stocks in which to invest.  

Watch this space for Part Two with Guanajuato Silver and Sierra Madre Gold & Silver coming soon…