MEXICO CITY A
new mining tax could hurt the profitability of Mexican steel
companies and miners, and could curb mining investment,
steelmakers in the country told AMM sister publication
The Mexican senate
recently approved a 7.5-percent tax on miners earnings as
part of a wider package of tax reforms (
amm.com, Nov. 7). The tax will become effective
Jan. 1, 2014.
Mexico can expect a
drop in mining investment as it becomes "more attractive for an
investor to carry out their mining investments outside Mexico,"
a spokesman for ArcelorMittal Mexico SA de CV said.
The Mexican mining
royalty exceeds the taxes charged in other Latin American
countries such as Peru and Chile, ArcelorMittal noted.
Peru has a 1- to
3-percent mining royalty on companies gross sales, while
Chilean miners pay a royalty of up to 5 percent on operating
margins, according to data released by Mexican mining chamber
Miners operating in
Mexico currently pay only a charge that is largely based on the
area of their mining concessions. There is no payment on the
revenue or the profit generated from mining operations.
The new tax will be
based on earnings before interest, taxes, depreciation and
expects the new taxes to cause a "negative impact" on the
Mexican steel industry and mining companies, it will "support
reforms to develop a favorable impact on the development and
economy," the spokesman said. "We expect to see good
distribution of these resources in order to create programs
that boost the growth of the domestic market, and help create
mechanisms to get these resources into local communities where
mining operations are established."
Although the new taxes
are "logical" and "appropriate," there will be an effect on
profitability and business, Francisco Orduña, a
spokesman for Mexicos biggest integrated steelmaker,
Altos Hornos de Mexico SA de CV (Ahmsa), said.
But Ahmsa believes
that "there are some positive aspects, such as the distribution
of the royalty, to the Mexican states," he noted. "Previously,
revenues from mining activity were incorporated into federal
funds, and the states and municipalities did not receive any
With these new
measures, the national government will take 20 percent of all
money raised by the tax.
Of the remaining 80
percent, 62.5 percent will benefit the local communities where
mining operations are established and 37.5 percent will be
earmarked for other states with mining activities.
But Ahmsa, which had
invested about $1.5 billion in its Fénix expansion
project, doesnt expect the new mining tax to affect
investments as much as feared by some miners and mining
To the level "of
scaring away investments out of the country, no. But obviously
each company should review its own situation and adjust their
plans and projects to the new reality," Orduña said.
Neither Ahmsa nor
ArcelorMittal Mexico would say how the new tax would affect
their bottom lines.
The impact of
Mexicos new mining tax on Ternium SAs margins will
be "limited," as it is not a big producer or exporter of iron
ore and it consumes all of the steelmaking raw material it
produces, chief financial officer Pablo Brizzio told analysts
in a conference call Nov. 6.
A version of this
article was first published in AMM sister publication Steel