Mining companies balk at Mexico’s proposed royalty plan – by Gabriel Stargardter (Reuters U.S. – September 10, 2013)

MEXICO CITY – (Reuters) – 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.

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