Mexican tax demand prompts NAFTA challenge by mining firm ahead of 3 Amigos summit

A Canadian mining company's NAFTA challenge against Mexico could throw a wrench into the "Three Amigos" summit on June 29, when the leaders of Canada, the United States and Mexico will gather in Ottawa.

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Primero Mining Corp., which owns the San Dimas gold-silver mine in Durango, Mexico, has launched the challenge against the Mexican government saying the Mexican tax authorities are trying to improperly collect more taxes from the company.

Ernest Mast, president and CEO of Primero,saidthat would cost the company nearly $100 million US.

"Our company would be under significant financial stress if that occurred and we'd have to re-evaluate our investment in Mexico," Mast told CBC News.

The dispute is about howthe company is taxed on the sale of silver.

In 2012, aMexican court ruled Primero should be taxed based on what's known as the "realized price"of its silver, which is a little over $4 USan ounce.

The realized value is much lower than the market price for silver, which is currently above$16 USper ounce.

Primero had argued it should be taxed at the lower rate as it is contractually obliged tosell a large portion of its silver to another company, Vancouver-based Silver Wheaton Corp., at the lower realized price.

But in February, Mexico's tax authority announced it was retroactively overturning that 2012 agreement.

On Thursday, Primero announced it hadissued a notice of intent seeking international arbitration on that decision, which it says violates Mexico's commitments under NAFTA.

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"This is a very serious issue because you're talking about the fiscal stability of Canadian investment in Mexico, which is at risk here," Mast said.

Mast said he hopes the matter is cleared up before the three world leaders meet in June, but wants more assistance from the Canadiangovernment to resolve the issue.