Wednesday 18 January 2012

Ugly Canadians? The strange culture of First Majestic

There is widespread concern that the Canadian mining company First Majestic will destroy an area in northern Mexico that is sacred to the Wixárika (Huichol) Indians.

In fact, late last year over 150 internationally known writers and artists made a direct plea to Mexican President Felipe Calderon, urging him to cancel mining concessions that have been awarded to the Vancouver-headquartered company.

The concessions cover almost 16,000 acres (6,300 hectares) in the state of San Luis Potosi, and include the Cerro Quemado, a mountain where the Wixárika believe the sun was born. The Wixárika maintain a tradition that has been largely untouched over the centuries: they make an annual pilgrimage from the western states of Nayarit, Jalisco, Durango and Zacatecas to the Wirikuta reserve near the Mexican town of Real de Catorce.

The Wirikuta reserve is part of UNESCO's World Network of Natural Sacred Sites. As well, about 800 kilometres (500 miles) of the pilgrim route to the reserve is being considered for addition to the list of UNESCO World Heritage Sites. The area is recognized for its biodiversity, having numerous plant and animal species that live only in the region.

The response on the part of the mining company to the concerns expressed by the Wixárika and others is interesting: it reveals a lot about modern corporate culture, and why the Wixárika are right to be suspicious of the company’s motives.

Control the message

As with most public relations campaigns, it is important not to identify any concerned groups by name. Even better, one should actually claim to be on the side of these un-named, yet aggrieved, parties.

As such, First Majestic can say they are “proud to be partners in supporting and encouraging the preservation of indigenous customs where we operate, as an important historical legacy for Mexico, as well as to respect environmental laws for the care of the ecosystems.”

Partners? The company does not name the “indigenous customs” they wish to preserve, nor do they identify the Wixárika as partners. This is because, of course, the Wixárika are not their partners. In fact, the Wixárika and their allies have been conducting a rigorous campaign against First Majestic.
This is not a silver mine

The Wixárika have sent a plea to President Calderon that makes several points very clear: they represent a united voice of the Wixárika People (specifically, over 500 community ceremonial centers and family ranches); and mining concessions are disallowed under the 2008 pact of Hauxa Manaká. They also make legal claims under the Mexican Constitution and Convention 169 of the International Labor Organization.

In the letter, the Wixárika note that First Majestic and some members of the federal government have offered a trade off, in which one of the sacred places, the Cerro Quemado o Raunaxi, would be spared in order to allow mining elsewhere in the Sierra de Catorce. However, the Wixárika clearly want the entire 144,000 acres of the protected region to remain untouched.

None of this information is referenced by First Majestic in its communiqués or on its website. In fact, in true corporate double-speak, First Majestic can make the following bizarre statement about the La Luz Silver Project in the Real de Catorce:

“First Majestic is very positive about the future of this mine and believes it will become an important mine for the region and for the company. No current plans exist, however, due to the historic nature of this region, our plans will be designed to maintain and improve the area.”

How can a mining company have a positive view about the future of a mine, yet not mine it due to “historic” concerns? One assumes that, as time moves on, a site actually becomes less historic – otherwise it would have no future. I had no idea a mining company could engage in such mind-bending ruminations on the nature of time, but I guess they get up to all kinds of shenanigans in business school these days.

And, in fact, if you click through to the web page specific to La Luz, the answer is clearly a fourfold plan under the rubric of a “Socially Responsible Company” for “respecting the historical and environmental heritage of the communities and areas where we operate in Mexico and specially (sic) in the case of the La Luz”. The plan is as follows: build a mining museum; conduct more exploration; embark on an underground mine; create some jobs.

Which is to say, First Majestic can do many things, but its primary purpose is to mine silver in Mexico. It is not in the country to protect the environment, embrace the culture, or reflect on the region’s historical richness. And it is not there to compromise on this prime directive.

If you question this thesis, please, read on.

It’s all about the money

On January 12, 2012, First Majestic reported record silver production for 2011.  Silver equivalent production from its Mexican mines rose eight percent, and resulted in the company raising its 2012 production outlook. The company’s stock rose on the good news.

And how much silver does First Majestic mine? Production for 2011 increased to a record 7.56 million equivalent ounces of silver from the 7.02 million ounces it mined for the same period the year before. And the increase is accelerating: total production in the fourth quarter of 2011 jumped by 17% to 2.1 million silver equivalent ounces.

First Majestic’s chief executive officer, Keith Neumeyer, said: "The year 2011 marks the eighth year in a row that First Majestic has achieved record production of silver."

More tellingly, Neumeyer also said, “As the fastest growing and purest silver producer in the world, management's focus and top priority remains to continually deliver shareholder value.” (emphasis mine).

You do not deliver shareholder value by not mining your concessions. And if you fail to deliver to your shareholders, you may not be around for very long. Which brings us to another interesting question: why is Mr. Neumeyer in the silver mining business? Let’s be very clear, he is not in this business to make a decent living and lend a helping hand – he is in the business to get stinking rich.

How rich? Mr. Neumeyer’s total calculated compensation for 2010 was C$1,410,649 (US$1,392,000). He also had C$6,779,300 (US$6,690,000) in stock options. Ramon Davila, the company’s chief operating officer and director, made C$1,240,309 (US$1,224,000) in 2010. Mr. Davila is also sitting on C$7,679,050 (US$7,578,000) in stock options. Other executives and board members collectively represent millions of dollars in compensation and stock options.
 Keith Neumeyer - giving Canadians a bad name?

Stock options are an important motivational concept in publicly traded companies, as they tie incentives to shareholder value and company profitability. Options have a “strike price”, and usually have limited time frames before they expire. The rationale is to motivate executives to get the stock price as a high above the strike price as possible, and then to sell the stock on the open market before they expire. If the strike price is, for example, $15, and you get the stock to $20, you make $5 per share. And if you have a million options, and sell the lot of them, you then make a cool $5 million.

Consequently, stock options attract executives who are motivated by ensuring the highest level of personal compensation via a well-performing stock. This is the point: this is why Mr. Neumeyer gets up and goes to work every day.

Expansion is a must

First Majestic is in expansion mode, and has the means to do it – the market capitalization is now at C$1.9 billion (US$1.75 billion). The company plans to increase its underground development budget to $32 million in 2012 up from $30 million last year. Total metres of underground development are slated at 41,921 metres. The company currently has 19 drill rigs in operation and is expected to have 27 drill rigs operating by March 2012.

It is also riding a wave of demand for precious metals, driven in large part by expansion in China. As prices rise, First Majestic will be highly motivated to mine out as much silver as possible. Former, uneconomical mines and methods suddenly make economic sense.

Which requires First Majestic to ramp-up its public relations gibberish. It says, for example, that:

“Within the NGO community we find a full spectrum of opinions and responses to the mining industry, from the radical 'anti-mining under any condition' type organizations to those who see a potential for partnership and co-operative co-development.”

Notice that the option is co-operation and co-development. There is no room to “not mine”, as that is against the raison d’être of the company. Further, First Majestic says that it is on the winning side of history:

“The tide is steadily shifting toward the latter as more and more corporations establish clear ethical standards and reach out to the NGOs and the communities where they have direct impact.”

The irony of the contradiction is lost on the mining executives and their communications hirelings: there has been very little reaching out to the Wixárika People, making a mockery of the so-called ethical standards.

As well, First Majestic can state that data from the Secretaria de Economia show that in 2009 a total of 279 mining companies with direct foreign investment were working on 718 projects. Of these, 209 had their central offices in Canada. However, not all of these are as controversial as the Sierra de Catorce concessions – they aren’t all getting hit by the “'anti-mining under any condition' type organizations.”

There is a certain desperation in some of First Majestic’s claims. It crows that in Mexico 69 mining operations have been certified as 'Clean Industries' (Industria Limpia), with 24 more up for certification. It says also that in the past six years the mining sector has planted 10 million trees. That makes it the “leading sector” after the Mexican Armed Forces and the lumber industry, hardly players within Mexican society worthy of emulation.

Disingenuity in extremis

But if you want real proof of how weak First Majestic’s credibility is, we’ll let them do it in their own words. You can check out some fawning business reporting here.

And have a look at this insipid promotional video, in which Mr. Neumeyer says he looks forward to continuing First Majestic’s “aggressive growth” in the coming years. As well, in this audio interview from October 2011, Neumeyer says that the La Luz mine is under permit review, and that he hopes to have permits approved in a year and silver production up and running by 2014-2015. At that time, he hopes to double production from 8 million ounces to 16 million ounces.

He makes clear that larger mines are better as they “create stability in our pricing structure”. And, most tellingly, at the four minute point he says that the political risk to a mining company is much higher in the United States and Canada than in Mexico.

Why? He says, “What I mean by political risk is all the things the politicians have control over – permitting, taxes, these types of things”. He clearly states that there is more public pressure on mines in Canada and the United States to increase taxation. “I think Mexico is the best jurisdiction in the world to be active in.”

In Mexico, says Neumeyer, once you decide you want a mine, you “can have it up and running in twelve months”. Sometimes, he says, you can land an environmental permit in under six months. In Canada and the United States it is ten years “assuming you get the Indians on side”. He then laments the degree of government oversight and public hearings.

Finally, we’ll close with some condescending and rather trite comments from First Majestic’s web site with regard to the nature of the Mexican people:

“The Mexican people are exceedingly warm and hospitable. Unlike North America, the Mexican culture is characterized for being very 'touchy-feely', similar to parts of Europe. Mexicans grow up with a group orientation and are primarily family and group directed.”

There is a funny typo, too, on the web site, where First Majestic says that it welcomes “the impute and partnership with NGOs who are interested in improving the standards within the communities we are active in.” To confuse “input” with “impute” might suggest they realize they have a real battle on their hands.

In fact, Neumeyer may be surprised to find that “group oriented” cultures are also more capable of resistance, unlike the depoliticized, individualistic populations north of the Rio Grande.

Twitter: @TimothyEWilson
Email: lapoliticaeslapolitica [at] gmail [dot] com

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