The Mexican peso suffered its worst single-session decline since the 2020 pandemic, collapsing 4.2% to 19.85 against the US dollar in Friday evening offshore trading after President Claudia Sheinbaum used a primetime national address to announce a 35% mining royalty, an increase in the corporate tax rate from 30% to 33%, and a new 12% wealth tax on net assets above $20 million.
The announcement, which came without prior consultation with industry stakeholders or markets, was framed by Sheinbaum as necessary to fund the social programs promised during her 2024 presidential campaign and to restore fiscal balance to a budget that has run a 5.8% of GDP deficit for three consecutive years. The peso weakening implies an immediate 4% mark-to-market loss on Mexico's external debt service costs.
Mining Stocks Hammered
Mexican mining stocks suffered devastating declines in extended trading. Industrias Peñoles fell 22%, Grupo Mexico declined 18%, and Fresnillo (the country's largest silver producer, listed in London) tumbled 24%. Combined market capitalization losses across the sector exceeded $14 billion in a single after-hours session, with several names hitting circuit breakers.
Foreign mining companies with significant Mexican exposure also took heavy losses. First Majestic Silver fell 19% in Toronto extended trading, Newmont declined 8% on concerns about its Peñasquito mine, and Pan American Silver dropped 16%. Industry executives warned in Saturday statements that the new royalty structure would render approximately 30% of currently producing Mexican mines uneconomic at current commodity prices.
Industry Threatens Capex Strike
The Mexican Mining Chamber issued an unprecedented Saturday statement warning that "no new mining capex will be approved by member companies until the proposed royalty is withdrawn or significantly modified." The threat carries weight given that Mexican mining typically receives $4-6 billion in annual capital expenditure, much of which would shift to Peru, Chile, or Argentina if the policy stands.
Mining sector employment in Mexico exceeds 425,000 direct jobs and approximately 2 million indirect jobs, concentrated in politically sensitive northern states including Sonora, Chihuahua, and Zacatecas. The political math of imposing a tax that would meaningfully reduce employment in those states represents the most significant domestic political risk the Sheinbaum administration has faced.