Dispatch from Mexico: Part 2, August 2025

Our Dear Leader does have a packed trip visiting four mining companies in just two weeks and getting around Mexico can take time; long drives can be standard when helicopters aren’t available! It was, therefore, only fair that he had a weekend break in Zihuatanejo which although in the same province as Luca’s Campo Morado, is almost impossible to get to direct and so he drove the eight hours back to Mexico City

before flying to the west coast. He also found it useful to be back at sea level as Mexico City is at about 7,500ft and many of the mines he is visiting are at the same height or even higher.

On this trip Andrew is doing six Aeroméxico flights and despite hearing rumours of chaos he has been pleasantly surprised. The airline serves over 90 destinations, has Delta as a major shareholder and is part of the Sky Team alliance (Air France/KLM/Delta). Andrew has always been interested in the travel industry; in his earlier career did many major deals in the sector, and whilst on his Mexican travels had often been up at 4am working on VSA’s £14.1mn fundraise for Aurrigo International (AURR LN).

Aurrigo is a corporate client of VSA that specialises in autonomous airside vehicles especially baggage trolleys and cargo trolleys and the view is that all airports will go EV/Autonomous in time and so the TAM (total addressable market) is just vast. Aurrigo is a genuine world leader and so the opportunity is exceptionally large.

When Andrew has not been on a plane, much of his conversations with company management during site visits have focused on the political environment and sentiment towards mining in Mexico. Under the previous administration of Andrés Manuel López Obrador (AMLO), relations with the mining sector were strained. AMLO was generally regarded as unsupportive of mining, often creating uncertainty through rhetoric and policy moves. This led to a more adversarial climate, including several high-profile arbitration cases such as First Majestic’s tax dispute, Americas Gold and Silver’s arbitration over its San Rafael mine which was blockaded by unions with little government intervention, and Bacanora’s arbitration via its Chinese owners Ganfeng after the Mexican Government attempted to nationalise it. Interestingly, mining arbitration stocks are another area of VSA’s specialisms.

The new Mexican President, Claudia Sheinbaum, the country’s 66th president and first female head of state, has signalled a more pragmatic stance on mining. While there is a widespread belief that Mexico has ‘banned’ open-pit mining, this is not technically the case as the law did not pass through both congressional chambers under AMLO. Rather, no new open-pit permits have been issued. Companies now believe that, under the right circumstances, Sheinbaum’s government may be more willing to grant permits given the substantial economic benefits mining brings in terms of investment, employment, and fiscal revenues.

If even one open-pit permit is awarded, it would mark a significant policy shift and could lead to a broader re-rating of Mexican mining equities, particularly companies with projects stalled under the previous administration. In fact, the recent acquisition by Torex Resources of Prime Mining for US$327m is probably a bet on the new administration granting an open pit licence. VSA did initiate coverage on Prime in May 2020 at C$0.90/sh. before it ran up to C$5/sh. in 2021.

Some of the management team left Prime to build Sierra Madre Gold and Silver (SM CN), the smallest and most recent producer of the four on this trip, and after a relatively quick turnaround in Mexico City this was Andrew’s next visit. The good news for him was that it was a short two-and-a-half-hour drive to the mine site and on proper roads. The underground mines are located in a scenic forest area and have been mined since the 16th century like so many in Mexico. Most recently it was a First Majestic mine which Sierra Madre bought in 2023 with Greg Liller (Executive Chairman & COO) and Luis Saenz (Director of Exploration and Development) returning to the mine they ran in the 1990s with Genco to take it out of care and maintenance. It has been a successful restart and since declaring commercial production in January 2025, the company has had two consecutive quarters of net profit.

Andrew went underground in two different zones (La Guitarra and Coloso) about 30 minutes’ drive apart along a track in the forest. Although both mines exploit epithermal veins they have quite different characteristics. We’re not sure how much Andrew really understood the differences, but he says he does understand a good vein when he sees one!

Ollie O’Donnell who has also visited recently tells

us Coloso was the focus of First Majestic’s tenure as owner operator as the resource grades are on average 1.7 times higher in silver (221g/t) and 1.2 times higher in gold (1.6g/t) compared to the Guitarra veins. However, First Majestic typically achieved lower recoveries than SM is currently achieving at La Guitarra (about 76-79%) and so the aim is to blend the ore, with the coming months being a chance to optimise that ratio for the trade-off between grade and recovery. The initial aim is 120tpd out of the current 500tpd capacity and raising that to 30% once at 1,000tpd. 

The plant is approximately  30 years old and a simple flow sheet but it was in good shape when SM acquired it and why it only needed about $5m funding to get it back into production. There is room for expansion and optimisation which is the goal, first to 640tpd and then to 1,000tpd at the back end of 2027. This will be funded by the company’s recent C$19.5m raise.

Andrew also visited the lab on site where they smelt small samples to analyse the mix of silver and gold. The lab helps with underground sampling, dilution control and mine planning as development progresses and will also help the exploration programme of the Eastern District with a 20,000m drilling programme, now possible because of the raise.

The Eastern District, within SM’s roughly 23,000ha licence area, has a number of historic mines and has long been a drilling target for past operators. The modest historic drilling has confirmed at least six deposits that have been worked up into historical resource estimates. Management estimates that this drilling covers just 15% of the 59km of veins mapped to date. Grades from historic production and drilling demonstrate exceptional grades albeit with small resource footprints. The average silver grades range between 250g/t Ag to over 600g/t Ag whilst the gold credit is between 3-4g/t for some systems, meaning that on an equivalent basis 800-1,000g/t AgEq is possible. Success here would give Sierra Madre the chance to expand far beyond the current 1,000tpd target which VSA thinks will mean about 1.1mnoz of silver and 10koz gold production (please click here for the full forecasts on our research portal).

Andrew stayed on site and the view from the camp when he woke up helped explain the geology of Sierra Madre and mining in Mexico and why it is so prevalent.

As can be seen in the photo, there is a volcano nearby that accounts for the basalt flows which cover the northern part of the licence and have made exploration here more difficult. Where the epithermal veins have been exposed at La Guitarra, Mina Agua and Rincon have been the focus of historic mining and exploration activity. Much of the geology in Mexico is due to volcanic activity and epithermal veins sit alongside VMS deposits; Tizapa a gold, lead, zinc, copper mine is just 15km from La Guitarra. In fact, there is an active volcano (Popocatepetl) about 45 miles south of Mexico City but there has been no major eruption since 1994!

Andrew’s final site visit was to Guanajuato and so it was back on another Aero Mexico flight for him to visit Guanajuato Silver (GSVR CN).He says it felt very much as though he had come full circle and was ending where it all started as Guanajuato has so much history and was one of the first mining areas in Mexico. Guanajuato is a beautiful, extraordinary city and although

today has a population of half a million people it was originally just a collection of mines.

Today four of Guanajuato Silver’s underground mines surround the city with one of its process plants situated in the city at Cata while the second plant, El Cubo is located just outside. The Guanajuato production now accounts for 65% of the company's total output.

The city also has an extraordinary network of 23 tunnels running underneath it, originally built to help alleviate flooding but they now form the main road system and total nine kilometres in length. The oldest was built in 1883 and the newest in 1969 and the longest is 4.2km. Andrew also noticed there are no traffic lights in the city but instead all drivers are simply polite and take it in turns to cross (he’s not sure this would work anywhere else!)Guanajuato Silver, known as G-Silver, has not had an easy run with the various different projects acquired through M&A over the last few years. Each of the mines and process plants has required a turnaround which has been complicated to coordinate across multiple mines and process plants. Of the four companies Andrew has visited, it has seen the weakest share price performance (still up 43% YTD) but Andrew feels therein lies a potential opportunity. Firstly, a new manager Carlos Silva has been brought in who has great experience in these situations and although it takes time to make changes, they are happening, and production can increase further in 2026. Interim results showed early positive signs; while revenue increased only 3.8%, COGS was down 19% YoY enabling mine operating income to increase to US$8.2m. This shows it wasn't just higher gold and silver prices! Although not yet positive on a net basis, the company is moving in the right direction with the net loss narrowing from US$10.1m last year to US$4.5m.

The company raised C$18m recently which can be used to improve performance at the process plants and potentially significant increase production and revenue and at a higher margin. The company has also recently discovered new high grade zones at Valenciana and San Ignacio so further spending on geological work to enhance the mine plans will also likely benefit output.Longer term there are other opportunities that exist for G-Silver as the area surrounding Guanajuato has consolidation potential that might enable further optimisation of the ore going into the El Cubo and Cata mills.G-Silver also owns the Topia mine in Durango state which although an outlier is producing quite profitably on a standalone basis, and the geological potential is very large and with more drilling could become much more valuable.After four site visits and going underground at all of them, Andrew now has a good grasp of Mexican underground mining! He also feels that there is still much to come from gold and silver mining in Mexico and that this is a good space in which to be invested. It is a shame that only Fresnillo is listed in London as that lacks the operational gearing and also chance of a takeover.

In Part 1, Andrew talked about how Pan American Silver started a multi-year bull run having produced 7mnoz in 2001 growing to an US$11bn company today. All the companies Andrew visited on this trip are aiming to use their current production platform to build a mid-tier company and maybe even a major after that so he will be interviewing each of the management teams on his return and publishing the videos to give the VSA audience virtual site visits.

Andrew did return to Mexico City for the weekend before returning home and sent us this picture…

…we think this is how he feels after completing such a marathon trip around Mexico (in fact on his last day it was the Mexico City marathon, but he didn’t complete).

Finally, VSA is pleased to announce it will be moving into its new permanent office space in the next few weeks at 42 New Broad Street, London EC2 and we look forward to welcoming our clients and friends there!