In April of this year, Mexico’s Economics Committee in the Chamber of Deputies approved a proposed new 5% mining royalty tax. Over the weekend, the Executive Branch of the Mexican federal government presented its 2014 Tax Reform proposal which included new mining specific federal royalties. These included a Special Mining Royalty which is a 7.5% royalty on operating profits (EBIT) and an Extraordinary Mining Royalty which is a 0.5% royalty for precious metals producers which is based on revenues. This will have a negative effect on mining companies (especially precious metals producers) given that it is 50% higher than what was supposed to be a quick discussion and approval by the Senate of the already approved 5% royalty.
This issue between what the PRI party (current Mexican President Enrique Pena Nieto’s party) approved in April via the Chamber of Deputies and what the other factions within the government are pushing for will be debated over the next few months. Whatever the outcome, the decision is expected to be made by the end of October and would take effect January 1, 2014. Companies with 100%-exposure to Mexico will be the hardest hit, however, overall negative impacts are expected to be relatively low given the royalty is said to be tax deductible and is generally viewed as fair.
Some precious metals producers with high exposures to Mexico include: Timmins Gold (TMM:TSX) and Primero (P:TSX) which are completely exposed to Mexico and Fortuna Silver (FVI:TSX) which is primarily exposed there.
Mexican report here (in Spanish): http://www.diputados.gob.mx/PEF2014/ingresos/05_led.pdf