Mining News

Mining Policy Matters

Posted by Alana Wilson on 10/31/2013 11:32:01 AM

By Dr. Kenneth P. Green

According to an article on Mining.com, mining companies in Mexico are threatening to move their investment capital to other jurisdictions if Mexico advances with a plan to impose a 7.5% tax on resource companies:

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.

The article by Cecilia Jamasmie quotes Sergio Alamazan, president of Mexico’s mining chamber Camimex, who observes that the new tax would lead total duties on mining to rise to 57%, and predicted that investment in the mining sector would decline by 50% in the next five years.

This would not be a surprising outcome, as the annual Fraser Institute mining survey has long demonstrated the sensitivity of mining companies to changes in tax regimes. In the most recent survey, Mexico ranked reasonably well with regard to whether or not its tax regime offered posed a serious deterrent to investment. Mexico ranked 21st out of 96 jurisdictions on the survey question asking whether or not the country’s tax regime served as an encouragement to investment. Only 21% of respondents thought Mexico’s tax regime posed only a mild deterrent to investment, 3% of respondents in the survey felt it was a strong deterrent, and 1% responded that the tax regime in Mexico would deter them from investing.

Mining is an important economic activity in Mexico, and much of that activity stems from Canadian investment. A 2012 report by Deloitte on the Mining Industry in Mexico points out that mining contributed 8% of Mexico’s GDP, and that much of that relates to Canada: Canada represents 75% of foreign direct investment in Mexico’s mining sector, and 73% of the foreign mining companies active in Mexico are Canadian. It will be interesting to see how Mexico fares in forthcoming editions of the Fraser mining survey, which is now in process for 2014.

(If you are a senior executive at a mining company and are interested in completing the survey, please contact Alana Wilson)




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