Mexico’s proposed higher mining royalties could block nearly $7bn in investments
The Mexican government proposed raising mining royalties under the argument that metal prices have risen in recent years.
Goldcorp (TSX:G, NYSE:GG) and Grupo Mexico, two of the largest miners operating in Mexico, are warning they may need to take billions of dollars in planned investments to other markets if proposed new taxes on resource companies are approved.
Both companies expressed last week that President Enrique Peña Nieto’s plans to reap more income tax from the mining sector’s higher earners, through a proposed 7.5% tax on resource companies, and as much as 8% for gold, silver and platinum, would likely forced them to rethink their future in Mexico.
Delivering its Q3 results Monday, Grupo Mexico, whose 80% owned Southern Copper (NYSE: SCCO) is the country’s No. 1 biggest copper producer, warned investor that if the senate approves the new taxes, the company “would be forced to redirect” close to $5.4 billion of planned investment to other countries including Canada, the U.S., Chile and Peru.
And last week, Canadian Goldcorp also said that if Mexico approves its proposed royalties on mining companies, it will likely have to readdress investments in the country, especially if it can’t get the returns it wants.
Meanwhile, Mexican miners would see their total duties jump up to 57% if the levies are approved, according to the country’s president of the country’s mining chamber Camimex, Sergio Almazán.
In an interview with local paper Milenio (in Spanish), he also said the chamber estimates that total investment in the sector would fall over 50%, from the currently projected $30 billion to less than $12 billion in the next five years.
About 334,000 people work in Mexico’s mining sector, and more than 2 million are indirectly employed by it, which makes it the country’s fourth largest industry in dollar income, only behind cars, oil and electronics.
If approved by the senate, the new mining tax will be implemented as early as January 2014.
Image: Everett Collection/Shutterstock.com
10 Comments
Pesobill
Oh you promise to leave Mexico ? Oh you will be so missed (sic*)
Adios greedy Cana-Duh company !!
Take your exploitation to another third world company …
exploreMexico
Typical response from someone that does not understand the industry. Good luck coming up with the $80 billion in projected exploration expenditures over the next 5 years with local Mexican investors.
cabronbastante
Ah, Mexico. Where do you think the new taxes will go? Do you really love your politicians so much that you want to enrich them at your own expense? They have such an excellent record of employing tax monies for your collective benefit. What are the benefits you are currently enjoying with the 30% tax that the miners already pay? Do you really think that another 7.5% is going to change all that? All it is going to do is put a lot of hard-working Mexican miners, and their families, out of work. How about if you donate 37.5% of your income to national progress? Of course, you know better than that.
Sven
You’re right. I wonder if the Mexican gov is freaking out about their loss of oil revenues?
German
Most countries pay mining taxes. I bet you they won’t leave. The problem is that the money will go to the richest people of Mexico not to the population
Matt
@pesobill, you do realize that most of taxes will come from Mexicans themselves and just disappear into the abyss.?
Taxed
It is interesting how many countries do not look at history and what has happened when other jurisdictions have suddenly raised taxes. British Columbia in 1974, Papua New Guinea in the early 90’s and most recently Mongolia in 2006. In each case it caused a halt in exploration and development of resources and exit of investors in the mining sector. Mongolia went from a respectable 35th out of 76 jurisdictions where companies would prefer to invest, based on the respected Fraser Institute ‘Survey of Mining Companies’ in 2004-2005, to 10th from the bottom in 2005-2006, when the disastrous ‘Windfall Profits Tax’ was introduced. Mongolia has been hanging around that bottom even though the number of jurisdictions being surveyed has increased to over 90.
It is a shame that all those local Nationals employed in the mining sector will suffer as happened in these other jurisdictions, through the lack of governments considering the potential negative outcomes of such changes. It will be great for Canada when the investments head back north.
Rod
No one should be surprised that gold and other metals are down, and the stock market is up, even with a clear view of the incredibly horrible economic condition of major world economies, if one considers that the combination of the largest banks, various government and international agencies and wealthy individuals (backed by trading entities, lawyers and individual Senators and Representatives) collectively have determined ways to exert pressures on various financial instruments to create millions, tens of millions and hundreds of millions of dollars in gains for themselves. When these same players have determined that they have soaked up enough capital for themselves under current conditions, they will turn the table around and increase gold, depress the market and make the same gains in the opposite direction. The only thing that 99% of the people can do is to hold on and see where the next round of manipulation of markets will take them. How can anyone not understand this?
speedybure
Hopefully, the largest mining companies would collude and direct investment elsewhere and reduce the miners at current ops to the absolute bear minimum just to throw it back it Nieto;s face. On the other hand there could be a negotiation between the current 4% royalty tax (which was set to increase to 5% in 2014 anyway) to say 6% or so. We shall see. I think many are misinterpreting the royalty tax as a completely new thing, whereas its been around for a while at 4%. Thankfully those in the private industry are far smarter than everyone in the public sector, so I would suspect should this new royalty tax pass, companies should have some flexibility to expense some capital costs and capitalized exploration costs, thereby making the income statement appear as companies are making next to no money or even losing money, while also generating positive operating/free cash flow.
Harvard
Just change nature of company to , let’s say, a car dealership. Then not subject to tax.