First Majestic Initiates Arbitration Against Mexico

First Majestic Silver has taken steps to serve Mexico with a notice of intent to submit a claim under the provisions of Chapter 11 of NAFTA. As noted on First Majestic’s website, “the service of this notice initiates a 90-day process for the government of Mexico to enter into good faith and amicable negotiations with the company to resolve the current dispute between the company and the government of Mexico.”

First Majestic declared that Mexico’s tax authority (SAT) “has exhibited a total disregard for the applicable provisions of three separate double taxation treaties that it has entered into with Canada, Barbados and Luxembourg, which are relevant to First Majestic and its subsidiaries.” The company went on to say that, “in addition to being contrary to various provisions of the Constitution and Mexican court decisions, SAT’s actions contravene international law principles. These actions are neither fair nor equitable, are discriminatory against the company as a foreign investor and amount to a denial of justice under international law.”

The dispute in question centers on the way SAT taxes First Majestic, which owns three silver producing mines in the country. As described by the company, SAT has unlawfully opted to ignore the legal existence of an advance pricing agreement, ruling the tax on silver sales between 2010 and 2014 of First Majestic’s Mexican subsidiary, Primero Empresa Minera.

First Majestic points out that “SAT has repeatedly and unilaterally chosen to reject requests for dispute resolution procedures, known as mutual agreement procedures, contained within those three treaties, designed for addressing differences in interpretation and application of those treaties.” The company quotes its legal advisors, who characterize SAT’s actions as “unprecedented not only for Mexico but internationally.” Having exhausted all domestic means for solving the issue, First Majestic decided to initiate the abovementioned process for taking the case to international arbitration.

The dispute with Mexico finds First Majestic in a difficult position. The company reported a 1Q20 loss of US$32.4 million, compared to the profit in the same period last year. The company’s CEO, Keith Neumeyer, declared that “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. These inventoried ounces have been carried over into the second quarter and will be sold as prices improve.”

Disruptive events linked to the COVID-19 outbreak have rattled silver miners around the world. As reported by Mining.com, nearly 66 percent of the world’s annual output is still on hold. However, the situation is expected to change beginning next week, as Mexican health authorities have greenlighted the restart of mining activities in the country.