Mining in Mexico Faces Reforms

Mexico's mining sector has grown rapidly over the past decade primarily due to two factors: a very favorable regulatory environment and high silver and gold prices. But the mining sector's tax structure is in need of modernization, and the Mexican government is now considering a reform that would introduce a 5 percent royalty on pre-tax profit generated from mining activities.
 
This royalty will not necessarily undermine the attractiveness of Mexico's mining sector — royalties are industry standard and Mexico's main silver and gold mines operate at large profit margins. But if it is coupled with a decline in precious metals prices, future projects with high production costs could be put on hold. This proposed royalty will have only a nominal effect on central government revenues, but it will help diversify fiscal revenues away from state-owned energy firm Petroleos de Mexico, or PEMEX, and will bolster state and municipal revenues in some of Mexico's most violent and socio-economically disadvantaged regions: the northwest and north-central states of Sonora, Chihuahua, Durango and Zacatecas.