It is an undisputed fact that Mexico holds a coveted position in the global mining industry even if the sector has been lagging behind for some years. The image of Mexico as an attractive destination remains fixed in the minds of miners, since the country has a strong infrastructure backbone supporting the industry, solid supply chains, and skilled human capital at its disposal. A shadow has crept on this idyllic portrayal with the arrival of the Fiscal Reform and royalties. Executives across the sector have clamored against these implemented changes related to taxation, namely the 7.5% royalty on what is essentially EBITDA, the 0.5% on the sales of gold, silver, and platinum, and the doubling of the rates for the so-called inactive concessions.
As a result, some projects will be slipping down companies’ priorities list and some miners may even contemplate leaving the country. Alberto Vázquez, Partner at VSG Abogados y Consultores, delves even further into the impact of these fiscal changes, “So far, uncertainty over the tax has caused some companies to halt their investments. Additionally, global metal prices have been dropping, making it very difficult for mining companies to raise money to develop exploration projects.” This same sentiment is echoed by Rodrigo Sánchez-Mejorada Velasco, Partner at Sánchez-Mejorada Velasco y Ribé, “This Fiscal Reform came at a very bad time, since it coincided with the downturn of metal prices and the Canadian financial crunch. What hurt the industry was not the tax as such but the time in which it was implemented.”
The numbers of tax collection and distribution are in. According to the Mining Chamber of Mexico (CAMIMEX), Mexico reported a tax collection of MX$38.3 billion in comparison to the MX$29.1 billion reported in 2013. These precious resources will be allocated to the states with mining activity, of which 26% will be channeled to Sonora, 19% to Zacatecas, 12% to Chihuahua, and 9% to Coahuila. While the true impact of the Fiscal Reform and its related royalties is to be defined and the dust is yet to settle, key variables must be discussed, among which is investment, the tax burden, and production levels. Firstly, at the end of last year, investments of MX$6.4 billion were recorded in comparison to the mx$8.100 billion recorded the previous year. During 2014 the tax burden for mining companies increased 31% compared to 2013, reports CAMIMEX. In its annual count, this same entity stressed that the value of the mining-metallurgic production stood at MX$196 million in 2014, equivalent to a decline of 2% compared with the previous year. Where does Mexico stand today? For the Fraser Institute of Canada, Mexico was replaced by Peru as the second most attractive place for mining investments in Latin America and the market that has taken the lead is Chile.