Papers Relating to the Foreign Relations of the United States, With the Address of the President to Congress December 7, 1915
File No. 812.512/902.
Mr. Parker, representing American interests in Mexico, to the Secretary of State.
Sir: I have the honor to transmit herewith a translation of a memorandum on the mining-tax decree dated at Vera Cruz, March [Page 948] 1, 1915. This translation was handed to me by one of the American members of the International Association and he informed me at the time that a resolution had been approved by the International Association to the effect that this memorandum should be transmitted to the representatives of the various governments whose nationals are members of the association, with the request that it be brought to the attention of the respective governments.
I have [etc.]
Memorandum on the decree dated at Vera Cruz, March 1, 1915, referring to new taxes on the mining industry.
The Decree mentioned consists of two parts: 1. taxes on mining property; 2. taxes on mining output.
1. Tax on Mining Property. Since the promulgation of the decree in question, another decree has been published making a reduction, but only for the taxes during the period July 1915 to March 1916, on which latter date the full rates provided for in decree of March 1, 1915, go into effect. It is therefore unnecessary to take notice of the temporary reduction for the short period mentioned. In accordance with the decree the mining taxes are fixed as follows:
| Mexican gold. | |
| 10 pertenencias at $12 | $120 |
| 10 pertenencias at $15 | 150 |
| From 20 to 50 pertenencias at $18 | 540 |
| From 50 to 100 pertenencias at $24 | 1,200 |
| Total for the first 100 pertenencias | $2,010 |
| Each additional pertenencia | 24 |
Taking the ratio of the value of Mexican gold with that of government bills at 7 to 1, these taxes signify an increase of thirty times the tax previously paid.
The graduation made in the tariff seems to indicate that the idea of the authorities was as follows:
First. To favor the small property as compared with the large.
Second. To avoid the accumulation of a large number of pertenencias in the hands of a single person without the property being worked.
Is it possible to apply to the mining industry these principles, which have been considered as an agrarian problem?
Agriculture makes it possible for the isolated laborer to produce what he needs in a limited portion of ground, enables the State to furnish to entire districts irrigation improvements and to subdivide among individuals lands thus made usable. Mining conditions are with very few exceptions diametrically different. Land apparently propitious for mining gives no assurance that it will render returns, and when it does furnish them, almost always after heavy expense, the greater part contains ores of so low a grade that large extensions of land are needed to furnish a sufficient quantity of ores to justify a treatment plant. Enormous capital is required for the work of exploration and exploitation and for the treatment of the plant; and, even then, only the economies obtained by carrying on the business on a large scale guarantee a profitable return. Proof of this is found in the cases of many mines which, work ores of from 300 to 500 grams of silver per ton, or of 10 to 20 grams of gold per ton—ores which have no commercial value whatever unless the same enterprise works them and treats them in amounts of 500 tons or more per day.
The districts of Pachuca, Guanajuato, El Oro and Zacatecas are composed almost entirely of this kind of mines. The same thing happens with almost all lead, copper and iron mines, whose ores are without value unless they are produced [Page 949] in large amounts and are tributary to or near some smelter. The expense of exploration is so high that the risk is seldom justified in small properties; for to do so would be to convert mining into a lottery rather than an industry, by limiting it to a search for bonanza ores. These bonanzas are very rare indeed and very uncertain, and an established industry can never be founded on them.
The second point as an apparent basis for the decree is the avoiding of an accumulation of many pertenencias in the hands of one person without the properties being worked. In order to appreciate clearly this point it is necessary to recall the manner in which mining enterprises are formed. In the great majority of cases the pioneers have no capital but are familiar with the districts wherein they devote their time, their labor and a little money to a provisional investigation of the ground and the denouncement of what appears to them as hopeful. These people generally look for capitalists to form companies for carrying on the exploration. For the reasons mentioned above, it is useless to look for capital for properties of a small area. These first companies are generally exploration companies with limited capital, which proceed in a modest way to carry on investigations. Years often pass with greater or less sacrifices until one of the following steps is taken:
- 1.
- In the majority of cases the mines are abandoned.
- 2.
- A reorganization is attempted by means of the sale of the properties to companies with large capital.
- 3.
- In a minimum of cases the first company obtains such results that it can continue to work the property.
The exploration companies first of all need a considerable number of pertenencias in order to carry on their investigations in different places so as to obtain the greatest chance of success. As a typical case, mention may be made of the many companies which explore from 100 to 200 pertenencias at an expense of approximately 4,000 pesos Mexicon currency per month. For such a company the new decree would signify a tax expense of 4,400 pesos Mexican Gold (at 7 to 1 equals 30,000 pesos of legal tender paper), or more or less 60 per cent increase on the exploration expense.
The result is evident; that this class of companies cannot exist in the future and the system of original denouncements cannot be practiced, especially in view of the fact that Article 9 of the decree in question provides for a tax of. 10 pesos Mexican gold per pertenencia for the issuance of the titles.
The tax is so high that only producing companies with heavy profits can pay it; but inasmuch as it is necessary to develop new mines to take the place of the old ones which are worked out, the impossibility of new investigations means slow death to mining.
The preceding logical arguments, although theoretical, can be substantiated by actual examples.* * *
2. Taxes on mining production. Regarding the export tax, it is to be noted that the taxes have been changed several times. During many years the tax amounted to 2½ per cent on gold and silver. The new tax is approximately 9 per cent on gold and silver, and that too, on the intrinsic value of the metals. If it is considered that the average grade in the majority of the mines does not exceed 500 grams silver and 3/5 of a gram gold per ton, or a gross value of 18 pesos Mexican gold per ton, out of which about 9 pesos Mexican gold per ton represent the cost of extraction and treatment, the result is plain: that the 9 per cent tax on the 18 pesos Mexican gold amounts to an impost of 18 per cent on the net value of the ores. If to this be added the State taxes, stamp taxes, etc., it results that at least 25 per cent of the net product of a mine will consist in taxes, and this in the favored mines which have the grades above mentioned, and without considering the innumerable mines of lower grades where the tax would increase in per cent in direct ratio with the decrease in grade. Where In the world could the mine industry tolerate such an imposition?
Another question, of secondary importance, remains. For more than a year, through lack of traffic, stocks of ores and metals which could not be exported have been accumulating in mines, railway stations, warehouses and smelters. These ores have already suffered a severe depreciation due to the fall in the price of silver of about 20 per cent without counting loss of interest and extraordinary expenses. Now it is proposed to increase the export tax; a part of these ores has already paid the old taxes, thus the original value will fall to about 50 per cent.