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Country Risk Assessment for Resource Investors: Mexico

by Lobo Tiggre
Monday, December 02, 02:26pm, UTC, 2019

The drug war is heating up in Mexico. Narco gun battles and massacres of women and children are making headlines. Mexican President Andrés Manuel López Obrador (AMLO) released the son of convicted drug kingpin El Chapo rather than go to open war with his cartel. President Trump says he’ll designate the drug cartels as terrorist organizations, which could result in military intervention.

My heart goes out to my family, friends, and all Mexicans who are already affected and may yet get caught in the crossfire.

Sad to say, but it’s looking like my Colombian friends were right when they said Mexico was headed down the path of terror and guerrilla warfare that made such a tragic mess of Colombia for decades. When they first said this to me some years ago, I answered that the battles in Mexico were largely between government forces and the narcos, as well as between the narcos themselves. The violence hadn’t become predatory on the general population. That now seems to be changing.

I don’t see the Mexican government winning its war against the drug cartels.

I also don’t see it allowing the US military to step in to wage war on Mexican soil.

The only way out I see, frankly, is for the US to lead the world in ending the drug war through legalization—and that’s not gonna happen anytime soon either.

Personally, I do think ending the drug war would be for the best. Even if I thought that drugs were so bad it would be better to ban them, I’d have to face the fact that the drug war is having the same results that Prohibition did in the 1920s: war and corruption.

I’m sure that decriminalizing drugs would result in many tragedies for those vulnerable to addiction. But it would bring these commodities out of the black-market economy. Prices would tank, and that would put the drug cartels out of business. Their law-abiding successors would have no need to wage war.

Whether you agree with me or not doesn’t really matter right now because as I said, there’s no chance of this happening anytime soon. What does matter is that the drug war in Mexico will only get worse, as will the corruption, and the body count—for years to come.

¡Que gran lastima!

But does this mean that investors should dump companies with operations in Mexico?

I don’t think so, certainly not as a blanket policy.

For one thing, northwest Mexico has been an active war zone for years. Smart companies that operate in the area already hire security contractors and take the matter very seriously. There have been incidents affecting Mexican miners and explorers over the years, but they usually aren’t violent, and insurance covers the losses.

Back in the bad old days of the Cendero Luminoso guerillas in Peru, Newmont built its own private army to protect its Yanacocha gold mine. This shows that if a project is big and rich enough, it can cover the added cost of greater security. The same should hold true anywhere in the world, including Mexico.

There’s also a plus for Mexico plays in that when AMLO was elected, his rhetoric made it seem like he might come down hard on mining, foreign investment, and business in the country in general. It now seems that he’s more pragmatic than his words suggested. At least we know that saving the planet from mining is not a top priority for him, and some companies have received mining permits from his administration.

That said, I’ve got to tell you that I’d think twice—or maybe three times—before going to visit a Mexican project near the areas where the war is raging hottest.

Bottom line: I’m not planning to blacklist all companies with operations in Mexico.

But I will ratchet up my due diligence on Mexico plays… and if I’m not willing to visit a project, then I probably won’t invest in the company working on it.

That’s my take,

 

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