Mexico's tax agency is holding over $360 million in tax rebates owed to six Canadian miners, including $230 million to Goldcorp Inc, according to sources and official documents seen by Reuters, escalating the situation into a showdown between the Mexican government and Canadian mining firms operating there.
In a string of meetings, Canadian officials have pressed Mexico to fix the problem, which hamstrings mining companies' ability to invest in operations and is particularly difficult for smaller, cash-strapped miners and explorers, people familiar with the matter said.
Vancouver-based Goldcorp declined to comment on its outstanding refund, which represents 142 percent of its 2016 net profit and 6 percent of its full-year revenue.
Goldcorp, the world's No. 3 gold miner by market value, is owed the largest amount, according to documents seen by Reuters, followed by Torex Gold Resources, a small, Toronto-based miner which began commercial production at its Mexico mine last year and is waiting on a refund of some $66.5 million.
"It's damaging the ability to reinvest the dollars in assets that actually pay real tax," said Torex chief executive Fred Stanford, who is working with Mexican authorities to resolve Torex's 2015 submissions, but declined to comment on the refund amount.
While several companies said that refund delays began to grow longer two or three years ago, exact amounts of withheld refunds have not been previously reported.
Osvaldo Santin, head of Mexico's Tax Administration Service, acknowledged the problem in an interview last month with Reuters, saying the agency had seen a spike in value-added tax, or VAT, refund requests.
"Given this atypical phenomenon, we are carrying out more in-depth assessments," he said. Working with the miners, the agency is aiming for a quick resolution to prevent it becoming an operations problem, Santin added.
INVESTMENT APPETITE SOURS
Mining companies' appetite for investing in Mexico has soured in the face of the withheld rebates as well as ongoing security threats and high royalties, said Rob McEwen, CEO of McEwen Mining.
"You take a number of these factors and when a miner doesn't have control over them, it increases the risk," he said. Toronto-based McEwen, which saw its Mexican mine robbed at gunpoint of 7,000 ounces of gold in 2015, said it had a $6.2 million refund outstanding as of March 31.
Nearly 70 percent of foreign-owned mining companies operating in Mexico are based in Canada, according to Global Affairs Canada, the country's combined foreign and trade ministry. The value of Canadian mining assets in Mexico totaled C$19.4 billion ($14.4 billion) in 2015, second only to U.S. assets worth an estimated C$24.8 billion.
The tax row comes as foreign direct investment (FDI) in Latin America's second-largest economy has cooled while U.S. President Donald Trump pressures American business to grow at home. FDI in Mexico slumped 26 percent in the first quarter from the same period a year ago to $7.9 billion.
'CAN'T ADD A 16-PERCENT COST'
Unlike sales tax, which only applies to a final purchase, Mexico's 16-percent VAT is levied every time value is added during the production of goods or when they are sold.
Mining companies, which export much of their production and spend heavily on machinery and equipment, typically generate large VAT returns.
Mexico's VAT refunds officially take 40 days to be processed, and by law, can take months if there is an audit. In practice, however, the process can take much longer, particularly if litigation is involved.
Endeavour Silver Corp is owed $15.6 million - including $6 million to $7 million from purchases with seven suppliers under audit - money that Chief Financial Officer Dan Dickson said is being withheld to coax Endeavour to pressure the suppliers into paying more income tax.
"It's not my job to make sure they are paying their income tax," he said. "We can't add a 16-percent cost to our company. That makes our mines unprofitable."
Sources and documents also show Alamos Gold is owed about $26 million and Agnico Eagle Mines nearly $18 million. The Toronto-based companies were not immediately available for comment.
Frustrated miners complained to Canada's Minister of Natural Resources, Jim Carr, during a trade mission earlier this year. Carr raised the matter with Mexico's Secretary of the Economy, who committed to look into the matter, two sources said.
The extended wait times for VAT refunds are forcing the hand of some small miners, said one executive, who asked not to be named.
"I've heard, more recently, of an increase in intermediary third parties actually buying VAT receivables (at a discount), so companies can get the cash up front," he said. "Miners are just increasingly desperate to get their refunds."
