Since September, when the Mexican government proposed that miners operating in the country be taxed 7.5 percent — with that amount rising to 8 percent for companies extracting precious metals — Mexico has been a hot topic in the silver space.
The primary concern, of course, has been what impact the tax will have on companies producing the metal in the country; however, also rising to the fore have been questions regarding how it will affect exploration efforts.
While initially dissatisfaction from both production and exploration companies was rife, Mineweb’s Kip Keen reported that at the November Mexican Roundup conference, most attendees displayed “a strong vein of pragmatism,” with many acknowledging that the tax is part of a worldwide trend. Further, “[t]here was no talk of a deathblow to Mexico exploration or production.”
Similar sentiment was expressed this past weekend at a Vancouver Resource Investment Conference presentation led by GoldSeek.com and SilverSeek.com President Peter Spina and featuring commentary from Bradford Cooke, CEO of Endeavour Silver (TSX:EDR,NYSE:EXK), N. Eric Fier, president, COO and director of SilverCrest Mines (TSXV:SVL,NYSEMKT:SVLC), and Arturo Prestamo, president and CEO of Santacruz Silver Mining (TSXV:SCZ).
Cooke, for example, kicked off the talk by saying that though the new tax has leveled the playing field, he’s been working in Mexico for 10 years and believes it remains one of the most appealing areas to do business. Similarly, Fier commented that Mexico is full of great exploration opportunities, noting that SilverCrest has no plans to pull out. He also pointed out that the country has good infrastructure and a good workforce, along with competitive fuel and reagent prices. “I always come back to Mexico,” he said.
That’s not to say the three executives don’t hope the tax will be lowered. Prestamo emphasized that while Mexico is still a competitive and manageable environment to operate in, he hopes the government will opt to reduce the tax.
Thus far, the jury seems to be out on whether or not that will happen. Prestamo said it’s too early to tell, and Cooke noted that although he, on behalf of nearly two dozen companies, sent a letter to the Mexican government to explain the ramifications of the tax and make the case for it to be reduced, thus far he hasn’t received much of a response.
While that may sound disheartening, it doesn’t sound like it’s too big of a thorn in Cooke’s side. In fact, he said that as a result of today’s market conditions, Endeavour will be looking to do deals in the near future — Mexico is the priority, but the company is evaluating opportunities in Chile, Peru and Brazil as well. On a similar note, Fier commented that SilverCrest is looking to pick up projects inexpensively.
In terms of Mexico’s future, Cooke and Fier agreed that the country’s situation is similar to that of Nevada 34 years ago. In explanation, Cooke said that just as was once the case for Nevada, Mexico is underexplored and has prolific mineral potential; when he arrived there in 2003, hardly anything had been done, meaning that famous 450-year-old mining districts were essentially untouched. Expanding on that idea, Fier said investors can expect to see the country mature in the coming decades.
Mexico and its mining tax will undoubtedly continue to pop in and out of the news, but for now the message seems clear: at least three successful silver producers in the country are not fazed by the ban, and investors should not be either.
Securities Disclosure: I, Charlotte McLeod, hold no direct investment interest in any company mentioned in this article.