Primero Mining Corp. (P) jumped the most in more than two years after the Mexican government said it would tax silver sold from the Canadian company’s San Dimas mine at a lower rate.
The company rose 36 percent to C$7.20 at the close in Toronto, the most since June 9, 2010.
The government approved taxing sales based on the price agreed to under the terms of a contract with Canada’s Silver Wheaton Corp. (SLW), and not the prevailing market price, Primero said in a statement today. The ruling applies to 2010 through 2014.
Primero will sell silver at an average of $9.41 an ounce in 2012, Tamara Brown, a spokeswoman for the Vancouver-based company, said in an e-mail today. Silver for delivery in December was at $34.63 an ounce at 11:07 a.m. in Chicago.
“The ruling was unexpected,” Craig West, a Toronto-based analyst at GMP Securities Ltd., said in an interview. “This is a lot more fair. They were being taxed on revenue they were not getting.”
West said the company was effectively being taxed at a rate of 70 percent to 80 percent, whereas now the rate will drop to 30 percent. He raised his rating on the shares to buy from hold.
Under the purchase agreement, each year Silver Wheaton buys the first 3.5 million ounces of silver from San Dimas plus half of any extra output at $4.08 an ounce. The price will rise 1 percent annually through Aug. 6, 2014. After that date, Silver Wheaton will get the first 6 million ounces and 50 percent of any excess at $4.20 an ounce with a 1 percent increase each year.
Silver Wheaton pays mining companies upfront for a discount on future output.
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