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Mexico has become Latin America’s most expensive country for mining investments, as the country is rolling out its energy reforms approved last year, which increases taxes from 5% to 7.5%, charged as a percentage of profits.
Gold and silver miners are the ones that will hurt the most, as they now have to pay an additional 0.5%, taking their total royalty up to 8.0%. As a consequence, Diario Once reports (in Spanish) the cost of mining and exploring for gold and silver in the country has increased 13% and 20%, respectively, over the past year.
Companies are also facing other unfavourable changes, such as the loss of the tax-deductible status of exploration expenses, together with a new green fuel tax and a tax on dividends applied across the Mexican corporate sector.
Landowners’ threats
Taxes are not the only problem companies face in Mexico. There are also ongoing conflicts with the ejidos, or rural landowner groups, that now have greater rights over theirs lands as a result of both a century-old land reform and the current overhaul of the country’s energy sector’s fine print.
As Reuters reports, the ejidos are often poor but they can be quite influential —machete-wielding property-owners forced the government cancel plans for a new Mexico City airport in 2002.
Canadian gold giant Goldcorp (TSX:G), (NYSE:GG) had to suspend operations at its Los Filos gold mine in April for about month, as it was unable to negotiate the renewal of an occupancy agreement with the Carrizalillo ejido.
The future doesn’t look promising, analysts agree. On top of the current challenges, there are also Mexican politicians pushing for a ruling to force mining firms to actively work on their concessions or face license recalls. They say it is needed because it would increase per-hectare fees for concessions left inactive for two years or more.
Mexico’s mining industry employs about 334,000 directly, with 2 million people employed indirectly, making the sector the country’s fourth largest industry in dollar income, behind cars, oil and electronics.
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