New guidance for issuers seeking to list on the Toronto Stock Exchange (the TSX) was issued by the TSX on November 7, 2013 (the Staff Notice). The Staff Notice provides guidance with respect to: (i) issuers applying to list under the Mineral Exploration and Development-Stage Companies category; (ii) financial statements submitted to the TSX in support of an original listing application; and (iii) the pricing of stock options, rights and other entitlements granted by an issuer prior to its initial public offering (IPO).
With respect to Mineral Exploration and Development Companies, the Staff Notice outlines certain considerations that will be taken into account in assessing whether a mineral project qualifies as an Advanced Property. Emphasis is given to infrastructure considerations for certain projects (i.e. commodities typically shipped in bulk such as coal, iron ore, all base and precious metal concentrates, and industrial minerals, such as sand, gravel, limestone, commercial clay, and gypsum) located in remote or isolated areas that are not readily accessible (either by road, railway or port). The Staff Notice states that for such projects to satisfy the TSX requirement of having “economically interesting grades” the assumptions, plans and cost estimates for infrastructure should ideally be outlined in a technical report prepared by an independent qualified person in accordance with National Instrument 43-101 – Standards of Disclosure for Mineral Projects and supported by a Preliminary Economic Assessment, Pre-feasibility Study or Feasibility Study (as such terms are defined in “Estimation of Mineral Resources & Mineral Reserves best Practice Guidelines (May 30, 2003)” – Adopted by CIM Council on November 23, 2003). The Staff Notice goes on to state that where an issuer’s technical report does not address infrastructure, alternative supporting information may be accepted by the TSX, after consultation with the TSX, to satisfy the “economically interesting grades” requirement.
On August 6th, 2013, the Quebec Court of Appeal issued a noteworthy decision in the matter of Anglo Pacific Group PLC v. Ernst & Young Inc. et al. It is of particular interest to parties holding or considering obtaining mining royalties in the Province of Quebec.
The Court of Appeal analyzed for the first time the legal characterization of a royalty agreement under Quebec law, including whether it can create real rights. If real rights had been created and registration requirements were complied with, it would have been necessary to consider whether the real right in question was eligible to be purged by way of a vesting order in connection with a sale by a receiver in an insolvency context or other sale under judicial authority.
In the last three years Quebec has on three different occasions attempted to modernize its mining law. The latest attempt, Bill 43, seemed well on its way to becoming law when, on October 30, 2013, the two main opposition parties in the National Assembly voted against its adoption.
The Parti Quebecois government does not have a majority in the National Assembly. But the defeat of Bill 43 came as somewhat of a surprise. On October 10, the official opposition had issued a press release outlining four conditions for its support:
The recent In re Puda Coal, Inc. Stockholders Litigation decision serves as a cautionary note to directors of corporations with significant activities overseas. Specifically, the decision provides guidance to directors as to what is expected from them in order to fulfill their duties. While the case is not strictly applicable to Canadian domiciled companies, it is worth taking note of as Canadian courts have often referred to Delaware decisions when interpreting and applying directors’ duties under Canadian corporate statutes.
Puda Coal concerned a Delaware corporation listed on the New York Stock Exchange following a reverse triangular merger. The operating subsidiary and assets of the parent corporation, Puda Coal, were based in China. According to the plaintiffs, the corporation’s Chairman and Chief executive officer illegally sold the shares of the subsidiary to a third party, effectively looting the corporation of its assets.
The Corruption of Foreign Public Officials Act (CFPOA), Canada’s equivalent of the U.S. Foreign Corrupt Practices Act (FCPA), prohibits Canadian companies and individuals from giving or offering a benefit of any kind to a foreign public official with the ultimate purpose of obtaining or retaining a business advantage. While the CFPOA has been in effect since 1999, a recent set of amendments designed to strengthen the legislation should be on the radar screen of all Canadian companies and Canadian nationals that do business abroad. Canadian mining companies that do business in countries with less developed economies and legal systems, and who interact with foreign public officials in such countries on a regular basis, are particularly likely to be affected.
The recent amendments were in part a response to criticism from the OECD’s Working Group on Bribery that Canada’s enforcement efforts under the CFPOA have been inadequate. The amendments include the following:
On October 17, 2013, the B.C. Securities Commission (BCSC) released a report entitled “BC Junior Mining at a Crossroads: Executive Management’s Perspective“. The BCSC commissioned KPMG to prepare the report in order to help the BCSC to better understand industry challenges and perspectives about the current downturn, and the availability of financing for junior mining companies.
The report is based on interviews with senior executives from 15 junior mining companies headquartered in British Columbia. As KPMG itself cautions, given the small sample size (among other things), the report should not be considered to be statistically representative of industry opinion, but is merely indicative of potential industry opinion.
On January 14, 2013 a new merger control regime created by the Common Market for Eastern and Southern Africa (COMESA) came into force. The regime requires notification of mergers where at least one of the parties operates in two or more of COMESA’s member states. Failure to notify may result in penalties and/or the merger being of no legal effect in the COMESA region.
COMESA’s merger control regime affects 19 African nations and is enforced by the COMESA Competition Commission (CCC). Decisions made by the CCC are adjudicated by COMESA’s Board of Commissioners.
In November, proposals aimed at improving the merger control regime are expected to be reviewed by COMESA’s Council of Ministers. In the meantime, companies need to be aware of the current regulation and some of its peculiarities.
Response to the merger control regime has been mixed. Applause for its original aim of streamlining mergers in COMESA’s 19 member states has been silenced due to concerns over high filing fees, low thresholds for filings, long review periods and conflicting views regarding whether the CCC has exclusive jurisdiction to review transactions meeting COMESA’s filing thresholds. It is also unclear how the regime will operate in relation to mergers consummated outside the COMESA region that fall within the scope of the merger control regime.
In a move likely to be welcomed by the mining and resources industry in Australia, and potentially Canadian and other companies looking to explore in Australia, on September 3, 2013, the then Australian Shadow Minister for Energy and Resources, Ian Macfarlane, announced the then Australian opposition’s commitment to introduce an Exploration Development Incentive benefiting exploration companies. Four days later on September 7, 2013, the opposition Coalition emerged victorious in the Australian Federal election.
In the pre-election media release, Ian Macfarlane confirmed “The Coalition will introduce an Exploration Development Incentive that will allow investors to deduct the expense of mining exploration against their taxable income, starting on 1 July 2014” and “Our scheme will target small exploration companies by limiting eligibility to companies with no taxable income and will be capped at $100 million over the forward estimates”. While the details of the scheme are yet to be announced, the concept will ring very familiar to Canadian junior exploration companies who have benefited from Canada’s flow-through share tax incentive system for the better part of 25 years now. The National Post has previously reported that the five-year annual average raised from flow-through issuances through 2012 was approximately $500-million a year, encompassing 93 deals on average.
On August 7, a three-member panel of the British Columbia Securities Commission unanimously dismissed allegations that Canaco Resources Inc. and four of its directors contravened the B.C. Securities Act by failing to immediately disclose positive drill results emanating from the company’s marquee property.
Canaco was a TSX-V issuer with a property in Tanzania known as Magambazi on which it had made a gold discovery. On December 3, 2010, its board issued a significant number of options to directors and management. At the time of those grants, the company had in its possession undisclosed drill results from eight drill holes. In internal emails, the directors described the results as “just beautiful, “spectacular” and “fantastic news”.
Canaco disclosed the drill results in three separate news releases on December 6, 9 and 22, 2010 (that is, after the option grants). Two of those news releases described the drill results as “spectacular”. On each of the three days that the drill results were announced, the stock price rose. On two of those days, the price increases were significant. The TSX-V subsequently ordered the company to re-price the options to reflect the (much higher) market price following dissemination of the news releases.
First published in CIM magazine.
Ivan Grbešic and Patricio Leyton.
When Barrick Gold Corporation was fined $16.4 million in May by Chile’s Superintendent of the Environment (SMA) for nearly two dozen violations of its environmental impact agreement, many in the mining industry were surprised. Not only was the fine levied against the world’s largest gold miner, but the amount levied set a record for Chile. SMA also passed a resolution requiring Barrick to complete Pascua-Lama’s water management system in accordance with the project’s environmental permit before resuming construction activities. Barrick ultimately paid $11.6 million under a provision that grants a 25 per cent discount if the fine is paid within five working days.
This kind of decision has the potential to scare away foreign investment, particularly in a sector that is already under stress from declining gold prices. The decision and fine will initially make foreign investors nervous about their ability to develop and operate in Chile – traditionally considered one of the best jurisdictions for mining in the world. But while that initial reaction is understandable, a deeper review of the issue suggests that any broad industry concern is overdone.