| MEXICO CITY, Sept 10
MEXICO CITY, Sept 10 Mining companies have
threatened to cut investment in Mexico after the government
proposed a 7.5 percent mining royalty, arguing that lower metal
prices, rising running costs and higher taxes reduce the
country's investment allure.
The royalty proposal was part of President Enrique Pena
Nieto's plan to bolster Mexico's feeble tax haul, a reform which
focuses on reaping more income tax from higher earners, closing
corporate loopholes and widening the tax base.
In April, Mexico's lower house of Congress approved a new
percent royalty to redistribute miners' profits to the states
and municipalities where they mine. The bill was originally due
for a Senate vote in coming months.
However, lawmakers later decided to fold it into Pena
Nieto's fiscal reform, which has upped the stakes, proposing a
royalty of 7.5 percent of earnings before interest, taxes,
depreciation and amortization (EBITDA). It would rise to as much
as 8 percent for gold, silver and platinum miners.
Mining firms were already unhappy about the planned 5
percent royalty payment, and grumbling has increased following
the proposal of a higher levy by the centrist government.
John-Mark Staude, chief executive of Canadian mining firm
Riverside Resources Inc, said he has taken 45 percent of
his local operations out of Mexico since discussions about a
royalty scheme began about two years ago, and threatened to take
half of what he has left if the higher levy is approved.
"I know I'm moving: we've moved into Canada; we're still in
Mexico, but we've moved into the United States," Staude said.
"I'm not saying it's a death knell. But at this time, the
investors are not willing to carry that risk."
Keith Neumeyer, CEO of Canadian silver miner First Majestic
, also criticized the plan. "If the law is passed as the
government is presently proposing, it will majorly impact
investment in Mexico," he told Reuters.
Camimex, Mexico's mining chamber, which argued against the
first royalty scheme, said it was still analyzing the proposal.
The government says Mexico, the world's biggest silver
producer, has been too generous to mining firms for too long.
"This mechanism will not affect investment decisions and is
much more favorable than those adopted in other countries where
they simply tax revenues," the government said in its proposal.
Unlike regional peers Brazil and Peru, which have already
imposed mining royalty schemes in addition to charging mining
companies an aggregate tax levy on profits of more than 34
percent, Mexico only charges miners income tax of 30 percent.
Mining is the fourth-largest industry behind carmaking,
electronics and the oil sector, accounting for nearly 5 percent
of gross domestic product in Latin America's No. 2 economy.
Mining companies invested more than $21 billion into
exploration projects around the world last year, and Mexico saw
about 6 percent of that, according to data from SNL Metals
Economics Group, just below the United States.
Alongside the higher royalty, the Mexican government wants
to charge a quarterly fee to mining companies sitting on mines
that have not operated for more than two years.
Half the money made by the tax would be pumped into a social
fund for the villages and towns where mining take places. But it
is not clear how much money the government hopes to reap.
Mining executives say the timing of the proposal is awkward,
given the recent drop in metals prices. Spot gold prices,
for example, which had enjoyed a decade-long bull run, have
fallen 20 percent since this time last year.
"We're going to try and lobby lawmakers to tell them that
the timing, the scale, the mechanism and the methodology behind
this (Mexican) scheme, will only endanger, not boost, the public
purse," said Armando Ortega, Canadian miner New Gold Inc's
vice president for Latin America.
"If the low price cycle keeps falling ... many companies are
going to suspend operations," he added.
While active mines are less likely to be affected,
investment in exploration, which relies on high-risk seed money,
could take a serious hit, said Staude at Riverside Resources.
"There's already been a massive decrease in investment and
if the mining laws are against it, there will not be a backflow
of investment for exploration back into Mexico," he said.