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The small, rugged Mexican mining town of Zacualpan would have been a good place to recruit radicals. Ten years ago, the economy was weak and jobs were incredibly hard to come by. Desperate to make enough money to feed their families, the local adult work force here became easy prey for large ranchers looking for cheap labour, or rebel leaders recruiting soldiers.
These days, however, Vancouver-based Canadian junior mining company Impact Silver Corp. is employing hundreds of locals to operate its lucrative silver mine. And CEO Fred Davidson says the partnership is good for the locals in Mexico, as well as earning accolades from shareholders back home. “The people here are making money and now they’re sending their kids to school,” Davidson says. “That’s not someone who is going to become radicalized. So, are we a disruption here? Yes, but I would say it’s a good kind of disruption.”
Davidson has been running mining operations in emerging market economies for 35 years. He’s aware of the criticisms that are often levelled at international mining companies when they enter low-income regions, exploit the workers, siphon off the minerals and disappear as soon as the money runs out.
But Davidson says Canadian junior miners have done a lot to dispel that belief, and he believes his company’s operations in Zacualpan are a good example. “The only strategy that works is to come in and get the community on board by working with the people,” he says, noting the company also has exploration properties in the Dominican Republic. “Usually the ones opposing this are the upper elite – because it means the vast majority of workers will now have money in their pockets.”
One of the greatest hurdles Impact Silver has encountered in working with local citizens is adherence to Canadian mine safety standards, Davidson says. “When we bought this mine the guy showing us around was wearing sandals and ball cap, with a flashlight in his pocket—and this was when we were underground,” he recalls. “We did impose our culture on them, but it was our culture of mining safety, and that meant working to impose our standards of environmental protection and safety, while still respecting how people live and work.”
There are challenges to running a company whose entire operations are in a distant country. To deal with such hurdles, Davidson’s first priority was to operate as a Mexican company, for the most part. The language of operations is Spanish and all its senior mine management team is Mexican, with some Canadians who work on the geological and financial reporting side of the business.
Zacualpan is about 100 km southwest of Mexico City. Impact Silver’s operations, which employ 250 people, include three producing mines there. The firm plans to have two more running in the region by the end of the year.
According to Davidson, Canadian miners operating in emerging market countries must maintain high safety and environmental standards. It’s integral to the industry’s international reputation, he says. “We set safety standards and expect them to follow these standards,” Davidson says. “Sometimes it’s as innocuous as wearing a seatbelt when you’re driving the big trucks, but that’s the rule. It’s part of Canada’s corporate culture and I’m proud of it. Being Canadian opens doors for us down there—people in government know we are going to act responsibly.”
That’s not the only reason. Davidson says his shareholders demand it. “It affects the bottom line,” he points out. “They understand that minimizing the environmental impact and maximizing the social impact is something we have to do—not just because it creates jobs and adds value to the local community. They recognize that in the long term, if you don’t do that you won’t have profits.”
Impact Silver has the financials to prove it. The company is notable among Canadian junior miners in that it’s been consistently profitable. Current cash reserves are at $28 million, with three producing mines and two additional mines scheduled to begin production in the next eight months. (None will be financed.) “Unfortunately, junior mining companies need to be exciting, so they’ll produce silver even if it’s not at a profit in order to produce growth,” Davidson says. “We won’t produce an ounce of silver unless it makes money.”
That hasn’t always been easy. Davidson acknowledges that his company operates in an industry that is financed by investors who want to see constant proof of the investment upside. “We face a continual problem in that respect,” he explains. “Unfortunately we live in a financial environment where people look at quarterly results—but our program is five to 10 years. Some people understand that vision, others don’t, and those who don’t aren’t a good fit for us.”