Mexican tax demand prompts NAFTA challenge by mining firm ahead of 3 Amigos summit

Primero Mining Corp., which owns the San Dimas gold-silver mine in Durango, Mexico, says the Mexican government is trying to improperly collect more silver taxes from the Canadian-based company.

Dispute stems from tax rates on silver from Primero Mining's San Dimas mine

Mexico's President Enrique Pena Nieto and U.S. President Barack Obama will join Prime Minister Justin Trudeau for the Three Amigos summit in Ottawa at the end of June. (Susan Walsh/Associated Press)

A Canadian mining company's NAFTA challenge against Mexico could throw a wrench into the "Three Amigos" summit on June 29, when the leaders of Canada, the United States and Mexico will gather in Ottawa.  

Primero Mining Corp., which owns the San Dimas gold-silver mine in Durango, Mexico, has launched the challenge against the Mexican government saying the Mexican tax authorities are trying to improperly collect more taxes from the company.

Ernest Mast, president and CEO of Primero, said that would cost the company nearly $100 million US.

Mexico's decision to tax Primero Mining Corp.'s silver sales at a higher rate affects 'the fiscal stability of Canadian investment in Mexico,' says Ernest Mast, the company's president and CEO. (CBC News)

"Our company would be under significant financial stress if that occurred and we'd have to re-evaluate our investment in Mexico," Mast told CBC News.

The dispute is about how the company is taxed on the sale of silver. 

In 2012, a Mexican court ruled Primero should be taxed based on what's known as the "realized price" of its silver, which is a little over $4 US an ounce.

The realized value is much lower than the market price for silver,  which is currently above $16 US per ounce. 

Primero had argued it should be taxed at the lower rate as it is contractually obliged to sell a large portion of its silver to another company, Vancouver-based Silver Wheaton Corp., at the lower realized price. 

But in February, Mexico's tax authority announced it was retroactively overturning that 2012 agreement.

On Thursday, Primero announced it had issued a notice of intent seeking international arbitration on that decision, which it says violates Mexico's commitments under NAFTA.    

"This is a very serious issue because you're talking about the fiscal stability of Canadian investment in Mexico, which is at risk here," Mast said. 

Mast said he hopes the matter is cleared up before the three world leaders meet in June, but wants more assistance from the Canadian government to resolve the issue.   


Hannah Thibedeau

Parliament Hill

Hannah Thibedeau is a veteran political reporter having covered the Hill for more than 15 years, both behind the scenes and in front of the camera. She covers politics for CBC TV, CBC Radio and CBC Politics online.