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Canadian mining company to launch NAFTA challenge vs Mexico over taxation rate

The Primero San Dimas gold-silver mine in Durango.

A Toronto-based mining company is set to launch a North American Free Trade Agreement (NAFTA) Chapter 11 investor-state dispute settlement (ISDS) challenge against Mexico.

According to Primero Mining Corp., the company had reached an agreement in 2012 with the Servicio de Administracion Tributario (the Mexican tax authority) on their San Dimas gold-silver mine, which is situated in the state of Durango. The company contends that a recent legal claim from that tax authority seeks to change that agreement. Primero claims this is discrimination against them as a foreign investor. Primero Mining Corp. CEO Ernest Mast, says, “The tax authorities are essentially trying to repeal the agreement they gave us in 2012.”

The Globe and Mail reports, “The ruling received in 2012 covered only the five years between 2010 and 2014, but Mr. Mast said the implication was that the Mexican tax authorities would continue to view the situation in the same way in the future.”

In February 2013, BNAmericas reported, “A positive tax ruling received by Primero Mining last year will make a ‘huge difference’ to the company’s San Dimas gold-silver mine, [says] Macquarie Capital Markets analyst Shawn Campbell. Under a silver purchase agreement inherited from San Dimas’ former owners Goldcorp, Primero received about US$4/oz silver produced at the mine from Vancouver-based Silver Wheaton but had been paying taxes on [the higher] spot [or market] prices of silver. But October’s ruling means the company now pays taxes based on its realized prices of the metal of about US$4/oz rather than spot prices.”

The Globe and Mail notes, “Mr. Mast said. Primero made further investments in Mexico based on that assumption [of the lower tax rate], he said.”

The newspaper also highlights, “[While] the case is now proceeding through the Mexican tax court system, … Primero has also decided to pursue the matter under NAFTA. …Mr. Mast said the timing of the NAFTA challenge, just before the North American leaders’ summit, is not entirely coincidental. ‘The ‘three amigos’ summit is definitely an opportunity to put more spotlight on this case.'”

The so-called “Three Amigos” summit will bring together Canadian prime minister Justin Trudeau, Mexican president Enrique Peña Nieto, and US president Barack Obama on June 29 in Ottawa. Toronto Star business columnist David Olive recently commented, “Ottawa is gearing up for a rare opportunity to legitimize, in the minds of mostly U.S. doubters, the growing benefits of collaboration among Mexico, Canada and the U.S. …It would suffice for Trudeau to emphatically detail the benefits North Americans have already reaped from NAFTA’s creation of a powerhouse regional economy of truly integrated continental industries, including autos, cattle and lumber.”

In their media release announcing it had issued a Notice of Intent, the company said, “Primero has proven itself to be a responsible corporate citizen”.

On their website, the company notes, “The San Dimas mine consists of five ore zones or blocks: Central, Sinaloa Graben, Tayoltita, and Arana Hanging Wall, and San Antonio West, contained within a 22,500 hectares contiguous property. San Dimas uses long-hole stoping and mechanized cut-and-fill underground mining methods, with all mined production processed at the Tayoltita mill. After milling, cyanidation, precipitation, and smelting the doré bars [a semi-pure alloy of gold and silver, usually created at the site of a mine] are poured and transported to refineries in Mexico and the United States.”

They also note, “Water for mining operations is obtained from on-site wells and from the Piaxtla River” and that “tailings are pumped by a single stage pumping station to the tailings impoundment area located in a box canyon east of the mill site”.

In February, the company reported a fifth consecutive year of increased production that drove their revenue to a record $291.3 million in 2015.

There is no indication at this point of the dollar figure associated with their NAFTA claim against Mexico.