First Majestic Silver shifting away from Mexico

First Majestic Silver is targeting further diversification out of Mexico after acquiring the Jerritt Canyon mine in Nevada, CEO Keith Neumeyer confirmed, days after the launch of arbitration proceedings against the Mexican government.

The company announced plans to acquire the Nevada gold mine from Sprott Mining for around US$470mn on Friday, marking a significant shift for First Majestic.

Through its 17-year history, the company has focused heavily on Mexico, with its three operating mines and Ermitaño project, along with four suspended mines, all located in the country.

But relations with the Mexican government soured last year following a dispute with tax authority SAT relating to past taxes at its San Dimas gold-silver mine.

First Majestic began arbitration proceedings on March 2, saying Mexican authorities had refused to negotiate.

Jerritt Canyon could be the first in a string of acquisitions outside Mexico, Neumeyer told a conference call to discuss the deal – and the company will also be looking to sell non-core assets in the country.

“What the next acquisition looks like [after Jerritt Canyon] would be the biggest question,” Neumeyer said.

“I think our portfolio will change over time,” the CEO added.

“If you went out 2-3 years you would probably see a lot of our non-core assets, which are currently not in production, likely sold or partnered with other groups, and you would probably see more diversification internationally outside of Mexico.”

First Majestic’s suspended Mexican mines are La Parrilla, San Martín, Del Toro and La Guitarra.

Operations were halted in 2018-20 due to weak profitability, along with security concerns at San Martín.

GROWING RISKS

First Majestic’s decision to submit a request for arbitration to the World Bank’s International Centre for Settlement of Investment Disputes (ICSID) is an unusual step and a sign of rising political risks faced by mining companies in the country, Control Risks analyst Inés Echeagaray told BNamericas in a interview last week.

The case relates to a payment of around US$260mn being sought by the government from First Majestic, comprising US$75mn in taxes plus penalties, interest and denied inter-company interest expenses, the company said earlier in March.

“Usually, the government reaches an agreement with companies, so this is the first time we’ve seen things go to arbitration in years, so it will be interesting to see what happens there,” she added.

President Andrés López Obrador’s (AMLO) apparent hard-line approach to the dispute – publicly accusing Canadian mining firms of failing to pay their taxes – suggests tax rises for the industry may be coming.

“This whole thing with [First Majestic], it’s a good bellwether to gauge that AMLO will likely propose an increase in tax rates for mining in the coming years,” Echeagaray said.

Mexican mining chamber Camimex has warned that uncertainty over AMLO’s policy plans is putting a dampener on investment in the sector.

Mining CEOs have also criticized AMLO’s freeze on new mineral concessions as a key area of concern.

Plans to nationalize the emerging lithium mining industry have also caused industry jitters, along with proposals to overhaul concession fees.

NEVADA PULL

Against the backdrop of increasing risks, a string of mining companies with operations in Mexico have already began looking overseas for growth opportunities – with the US a key destination.

Nevada was named the most attractive jurisdiction globally in last month’s Fraser Institute Annual Survey of Mining Companies 2020.

Mexico placed 42^nd out of 77 jurisdictions, a fall of four places from the previous year, below key Latin American rivals Chile, Brazil and Mexico.

The survey’s policy perceptions index – ranking industry views on mining policies and regulations – placed Mexico 61^st, a fall of 10 places.