First Majestic Silver (NYSE:AG) (TSX:FR) has initiated an arbitration process against Mexico under the North American Free Trade Agreement (NAFTA) over a dispute involving how the silver producer is taxed in the country.
The Canadian miner said the notice
served the Mexican government kicks off a 90-day process for the López Obrador
administration to enter into negotiations with the company.
First Majestic argues the tax
authority has “exhibited a total disregard for the applicable provisions
of three separate double taxation treaties”. It also said the agency had “unlawfully
opted to ignore” an advanced pricing agreement, governing the tax on silver
sales between 2010-2014 by the miner’s subsidiary Primero Empresa Minera.
The Vancouver-based miner said efforts
to resolve the dispute had been met with “intimidation tactics”. Attempts
to challenge such line of action in Mexico’s legal system, in turn, had been thwarted
by the coronavirus pandemic as most courts are unavailable for hearings,
it said.
First Majestic’s three producing
mines and several project are all located in Mexico, the world’s top silver
producer. This means the company’s business is dependent on its operations in
the country.
In the red
The response of governments
worldwide to the covid-19 pandemic since mid-March has led to disrupted
mining activities across the globe.
First Majestic hasn’t been immune
to the effects of lockdowns across Mexico, which has confirmed 40,186 cases as
of Thursday morning.
The miner posted a first-quarter loss of $32.4 million, or 15 cents a share, compared to a profit in the same period last year.
“As the COVID-19 pandemic sparked higher than normal volatility in the metals market near the end of the quarter, we temporarily suspended our silver and gold sales as paper prices dropped significantly below true physical prices,” President and CEO, Keith Neumeyer, said on Thursday. “These inventoried ounces have been carried over into the second quarter and will be sold as prices improve.”
The company’s shares have dropped 38% since the beginning of the year as silver production has been the biggest victim of covid-19. Nearly 66% of the world’s annual output still on hold, but the situation is expected to change beginning next week.
First Majestic’s stock was down 1.7%
to $7.65 in pre-market in New York. In Canada shares closed at C$10.79 on
Wednesday, leaving the company with a market capitalization of C$2.26 billion
(about $1.6bn).
Mexico’s government said on
Wednesday that 269 coronavirus-free towns will reopen on Monday, as part of a
gradual nationwide return to a “new normal”.
The phased reopening was announced
a day after the nation’s social security institute reported 555,247 jobs lost
in April, the largest monthly drop in history.