First Majestic Silver Corp. [FR-TSX; AG-NYSE; FMV-FSE] on Friday September 25 released an update related to an ongoing tax dispute with the Mexican tax authority, known as Servicio de Administracion Tributaria (SAT) in connection with a 2012 advance pricing agreement granted to Primero Empresa Mineral S.A. de C.V. (PEM), a subsidiary of the company.
In 2019, as part of the ongoing annual audits of the PEM tax returns, the SAT issued reassessments for the 2010 to 2012 tax years in the total amount of $214.1 million, including interest, inflation and penalties in violation of the terms of the advance pricing agreements (APA) (the reassessments).
The key items relate to the view that PEM should pay taxes based on the market price of silver.
As previously announced in May, 2020, the company served the Mexican government with a notice of intent to submit a claim under the provisions of Chapter 11 of the North American Free Trade Agreement. The service of this notice initiated a 90-day process for the Mexican government to enter into good faith and amicable negotiations with the company to resolve the dispute.
On August 11, 2020, the 90-day process deadline expired without any resolution to the tax dispute.
The company said it has been informed by its Mexican legal advisors that PEM will be served with a decision made on September 23, 2020, by the Federal Court of Administrative Matters, nullifying the APA or streaming deal granted to PEM and directing the tax authority to re-examine the evidence and basis for the issuance of the APA.
The Federal Court decision is appealable, First Majestic said in a press release.
First Majestic said its legal advisors take the view that the Federal Court’s decision was not arrived at following regular procedures, was undertaken hastily, and did not provide the opportunity for the presentation of evidence from PEM.
“In addition, the decision is inconsistent with previous legal precedents and violates the Federal Mexican Constitution,” First Majestic said. “The company continues to assess all of its legal options, both domestic and international, including under the North American Free Trade Agreement, and will make additional updates, when necessary, on its legal plan of action.”
First Majestic is a Mexico-focused mining company. It owns and operates the San Dimas silver-gold mine, the Santa Elena silver-gold mine and the Le Encantada silver mine. Production from these mines is expected to be in the region of 11.0-11.7 million silver ounces or 21.4 million to 22.9 million silver equivalent ounces in 2020.
Under a streaming agreement, Wheaton Precious Metals Corp. [WPM-TSX, NYSE] is entitled to receive 25% of the gold equivalent production from San Dimas.
The company recently said it was raising $78 million from a bought deal financing consisting of 5 million shares priced at $15.60 per share.
The sole investor in the offering is Canadian billionaire and businessman Eric Sprott, who bought the shares through an Ontario numbered company he controls. The investment will result in Sprott holding approximately 2.3% of First Majestic’s issued and outstanding shares.
On Friday, First Majestic shares eased 6.5% or 89 cents to $12.79 on volume of 1.35 million. The shares are currently trading in a 52-week range of $19.41 and $5.30.