TORONTO (miningweekly.com) – The TSX-listed stock of Canadian precious metals producer Primero Mining fell almost 30% on Thursday after it announced that its Mexico-focused subsidiary had received an unprecedented legal claim from Mexican tax authorities seeking to nullify a 2012 advance pricing agreement (APA), which confirmed the company's basis for paying taxes on realised silver prices for the years 2010 to 2014.

Primero stated that, despite the APA representing the Servicio de Administración Tributaria’s (SAT’s) agreement to accept that basis of taxation for those years, the 200-page legal claim did not identify any different basis for paying taxes.

From August 6, 2014, to the end of the mine life, San Dimas operated under the obligation to sell the first six-million ounces of payable silver produced a year, plus 50% of any excess, at $4.20/oz (plus 1% inflation) to metals streamer Silver Wheaton.

Primero had in October 2012 received a positive ruling from the SAT on its APA filing, made in October 2011, and the ruling confirmed that the company appropriately recorded revenue and taxes from sales under the silver purchase agreement with Silver Wheaton at realised prices, rather than spot prices, effective from August 6, 2010.

Primero believed this legal claim was without merit and vowed to vigorously defend the validity of its APA. The company's San Dimas mine, in Mexico, and Black Fox mine, in Ontario, continued operations as normal.

Primero advised that its subsidiary, Primero Empresa Minera, and it legal counsel were in the process of completing a detailed review of the legal claim. The company's advisers maintained that seeking to nullify an APA undermined the function of an APA, which was to assure a taxpayer of certainty.

The Mexican Supreme Court of Justice recently concluded that where a tax ruling was challenged by the tax authorities through a legal claim, there could be no retroactive consequences or payments levied against a taxpayer that obtained the ruling in good faith, within applicable legal principles.

Primero stressed that it, and its Mexican legal and financial advisers, continued to believe that the company had filed its tax returns, and paid all applicable taxes, in compliance with Mexican tax laws.

Primero’s TSX-listed stock fell as low as C$2.59 a share on Thursday. The legal claim prompted Desjardins Capital Markets to downgrade its rating to ‘hold’ from ‘buy’ and to lower its share target price from C$5.50 each to C$4 apiece, mainly as a result of the increased tax risk on San Dimas, and because of lower valuation metrics.