The Mexican Government Wants More Mining Royalties

Carlos Slim - Mexican telecom billionaire has been investing heavily in resource development in Mexico

Carlos Slim – Mexican telecom billionaire has been investing heavily in resource development in Mexico

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.

Mexican President Nieto (BBC)

Mexican President Nieto (BBC)

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

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About Travis McPherson

Mr. McPherson joined CEO.CA in 2013 from a public gold mining company and prior to that Haywood Securites. He has a strong analytical background and wide range of natural resource transaction experience in merchant banking and equity sales. He is a CFA Level 2 Candidate and a finance graduate from the Sauder School of Business at the University of British Columbia. Travis can be reached at travis.g.mcpherson@gmail.com