Endeavour sees Mexican government adjusting mining taxes

By
Tuesday, March 11, 2014

Canada's Endeavour Silver (TSX: EDR, NYSE: EXK) is optimistic that the Mexican government will adjust legislation to soften the blow of the newly implemented 7.5% tax on the mining industry.

The new mining taxes were introduced at the start of the year as part of wide ranging fiscal reforms.

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"In the last six months we have been working with the industry trying to get a voice with the Mexican government with regard to the tax reform," CFO Dan Dickson said on a conference call to discuss the company's 2013 earnings.

Endeavour's optimism stems from comments made by Mexico's economy minister, Ildefonso Guajardo Villarreal, at the PDAC 2014 conference held in Toronto on March 2-5.

"The secretary of the economy was talking about the impact of that 7.5% tax to miners and possibly adjusting the legislation with regards to how we are able to deduct various costs," Dickson said.

LOVE-HATE RELATIONSHIP

The mining industry in Mexico has been "in a little bit of a love-hate relationship with the government in the last year because of the imposition of the tax," CEO Brad Cooke said on the call.

"The love part is that we really like working in Mexico and it is still one of the top jurisdictions for mining," he said.

However, "the magnitude of the taxes and the way they were implemented was quite a rude wake-up call for our industry," Cooke said. "Mexico did shoot itself in the foot to a certain extent and impaired the attractiveness of Mexico for new mining investment."

Endeavour has already put in place tax management strategies to reduce the impact of the new taxes. The higher cost of operations for the company due to the tax, based on 2014 guidance and at today's prices, is estimated at about US$3mn, according to the CEO.

CHANGE IN TONE

Cooke said that while the Mexican government is not expected to climb down from the 7.5% tax, the comments made by Guajardo at the PDAC marked "a very tangible change in the government tone since last year."

The government is "in the process of writing the detailed wording... that has to be submitted by mid-April," Cooke said.

"It was very encouraging. We are rolling up our sleeves... and meeting with government representatives to show them how we think they can change maybe the wording to soften the blow and encourage new investments," the CEO said.

2014 FOCUS

In 2014, Endeavour will focus on "squeezing costs" even further to expand margins, and reserve replacement and resource expansion.

The company has a capital budget of US$43.9mn and an exploration budget of US$10.7mn.

Endeavour operates the Guanaceví mine in Durango state, and the Bolañitos and El Cubo mines in Guanajuato state. It is also working to advance various exploration projects, with a focus on San Sebastián in Jalisco state.