Mining News

Guatemala Increases Mining Royalties to All-Time High

Posted by Cheryl Rutledge on 12/30/2014 2:47:44 PM

By Sean Taggart and Kenneth P. Green

The 2015 Guatemalan budget was released in September with dramatic changes to mining royalties. President Otto Perez Molina approved a tax increase from 1% to 10% on the incomes of all transnational miners operating in the region, the first change to this tax regime in over 20 years.

Mr. Molina believes the bill amendments recommended by congress are necessary to restore balance to the budget. Although he added that his government will not expropriate stakes in foreign companies, many investors are still feeling threatened and are planning legal action in defense.

Carson Noel, President of a junior Canadian mining company, Firestone Ventures (TSX-V: FV), is in Guatemala this week to participate in talks with different advisors, and says he is part of a growing body intending to legally challenge the 2015 budget. In a statement released to investors, the company said that the outcome is unfortunate and will have a serious impact on existing and new foreign investment in Guatemala.

The Vancouver-based Tahoe Resources (TSX: THO) also expressed disappointment with the news and has been “actively engaged in discussions with the Guatemalan government, business interests and community leaders about the ramifications of the proposed legislation.” Tahoe’s Escobal silver mine, which analysts predict to be one of the largest deposits of the precious metal, is expected to now suffer a significant cut in profit margins at a time when the industry is already struggling.

It is possible that this new mining landscape will discourage many mining companies from continuing current projects, leading to mass job losses in the impoverished nation.

In the 2013 Fraser Institute mining survey, Guatemala finished in the bottom 20, with one company executive citing the “change of government” as a deterrent to further investment. Now with this executive’s concerns materialized in legislative changes, Guatemala’s ranking may be predicted to fall even further.

The national Chamber of Commerce also joined the conversation, urging the president to amend the approved budget and have it sent back to congress. They believe without correct controls, transparency and financial discipline, the 2015 budget could lead to massive generation of debt among poor populations.

In recent times the mining industry has come under attack by activists amid reports of environmental destruction. There have been a number of local community protests against mining and Mario Orellana, president of the Extractive Industries Union, believes Molina has leveraged this unrest to his own political means. Orellana said the decision to increase royalties does not consider the full consequences and could force complete closures of some operations along with extensive job losses.

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