Taking an international approach to improving Agnico-Eagle Mines Ltd's global tax savings case study

Implementing a tax-efficient financing structure at Agnico-Eagle Mines Limited

Summary:

Agnico gave PwC the opportunity to the company’s international organizational structure including the tax position of its Mexican operation’s financing structure
A review uncovered several opportunities to improve Agnico’s global tax efficiencies
PwC recommended several alternative holding and financing company structures and gathered information on industry benchmarks to determine how similar mining companies structure their businesses
PwC teams from Canada, Mexico, and the Netherlands worked alongside Agnico to assist with implementing the new structure

Multinational mining companies often have substantial opportunities to achieve global tax savings. Since such planning can be complex, it is frequently not done until mines are at or near completion. This was the case for Agnico-Eagle Mines Limited (Agnico), a Canadian-based gold producer with mines and exploration properties in Canada, Finland and Mexico. Agnico consulted with PwC to help select and implement a tax-efficient financing structure regarding its Pinos Altos property in Mexico.

The challenge

PwC’s client relationship with Agnico developed over the past five years, as John Gravelle, PwC's Canadian Mining leader, regularly reached out to Agnico to discuss tax planning strategies applicable to Canadian-based multinational mining companies.

PwC was given the opportunity to review Agnico’s international organizational structure — in particular the tax position of its Mexican operation’s financing structure. At the time, the structure was better suited for a mine in exploration or early development stages (which has a longer tax horizon), than a mine that was entering into production. A review of the holding and financing structure into Mexico uncovered several opportunities to optimize Agnico’s global tax efficiencies.

Since the ultimate goal was to maximize Agnico’s global tax savings, PwC recommended several alternative holding and financing company structures and was subsequently engaged to provide international tax services for the chosen restructuring.

"It’s fairly common for global mining companies like Agnico to maintain a simple financing and ownership structure for a site as it goes into production; but, the reality is this structure is often not the most tax effective on a long-term basis. We recognized that Agnico could reap significant tax benefits outside Canada by reorganizing its current structure."

Our approach

Agnico was receptive to PwC’s proposals to increase their overall tax efficiencies and get significant cash tax savings by refinancing its Mexican operations.

“It’s fairly common for global mining companies like Agnico to maintain a simple financing and ownership structure for a site as it goes into production; but, the reality is this structure is often not the most tax effective on a long-term basis,” said Gravelle. “We recognized that Agnico could reap significant tax benefits outside Canada by reorganizing its current structure.”

Throughout the initial review of Agnico’s Mexican holding and financing structure, PwC professionals from Canada, Mexico, the Netherlands and other countries offered industry expertise and knowledge of the local and global income tax landscape. This provided the opportunity to gather information on industry benchmarks to determine how similar international mining organizations structure their businesses. In the end, Agnico decided to reorganize its structure offshore.

PwC provided periodic updates throughout the restructuring and addressed questions and concerns to ensure that Agnico’s finance team was kept up-to-date on key issues.

By leveraging past experiences working with other mining companies on similar restructuring engagements, PwC also provided Agnico guidance on appropriate corporate governance in the two countries in the new offshore structure. To highlight the importance of proper governance, John travelled to the Netherlands on two occasions to participate in board of directors meetings where he could witness first-hand implementation of this key recommendation.

PwC team

The effort was lead by PwC’s Canadian mining leader John Gravelle, who brings offers more than 15 years experience in advising domestic and foreign multinational mining clients on a full range of tax matters.