TORONTO (miningweekly.com) – Primary silver producer Primero Mining has issued a notice of intent to submit a claim of international arbitration against the Mexican government under provisions of the North American Free Trade Agreement (Nafta), it said on Thursday.

The dispute was rooted in Mexican tax authorities in February 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 explained that it was forced to resort to using international arbitration proceedings to ensure that Mexico's commitments under Nafta were upheld.

“The actions of the SAT [Servicio de Administracion Tributaria] have been neither fair nor equitable. The company believes that the SAT's actions are discriminatory against Primero as a foreign investor. As a consequence, Primero believes the government of Mexico has failed to uphold the core values of Nafta, including its obligation to protect Primero's foreign investment under Nafta Chapter 11, and therefore the company is entitled to full compensation,” it said in a statement.

Despite the APA representing the SAT’s agreement to accept that basis of taxation for those years, a 200-page legal claim filed by the SAT in February did not identify any different basis for paying taxes.

From August 6, 2014, to the end of the mine life, the company’s San Dimas mine 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 the 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. The company also held a 100% interest in the Cerro del Gallo gold/silver/copper development project, located in Guanajuato, Mexico.