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Commodity Forward Purchase Agreement: an alternative financing mechanism for junior mining companies

By Jason Kroft, Justin Parappally and Sumeet Thind on May 16th, 2013 Posted in Financing

Given the current environment of falling metal prices and increasingly elusive sources of attractive capital, mining issuers are turning to unconventional financing structures to fund their development and production costs. In particular, junior explorers have faced significant difficulties in obtaining equity financings. For example, the TMX Group has reported that the total number of financings raised on the TSX Venture Exchange in January was down 71% from December 2012 and down 51% from January 2012. Further, the Prospectors and Developers Association of Canada estimates 80% of Canadian mining companies are struggling to raise capital.

Recently, we discussed how stream financing is used in the resource sector. In this post, we will provide an overview of another alternative that can be used by mining issuers (particularly junior mining companies) trying to get a new mining project off the ground, or obtain financing for production stage mines.

Québec announces new mining tax regime

By David Massé and Franco Gadoury on May 15th, 2013 Posted in Taxation

The government of the Province of Québec announced changes to its mining tax regime on May 6, 2013. This follows months of debate relating to Québec’s mining tax regime and the resulting uncertainty which prevailed in the Québec mining industry.

The announcement indicates that the new regime is based on five core principles:

All mining corporations must pay royalties. Under the system, all mining operators must pay a minimum royalty referred to as the minimum mining tax.
Quebecers must benefit more extensively from mining operations. The new regime includes a progressive mining tax on profit designed to allow Quebecers to benefit more extensively from profitable mining operations.
More jobs in the processing sector. Measures are being adopted to encourage businesses to process ore in Québec.
More responsible exploitation of mineral resources. A financial guarantee to be provided by mining corporations will cover 100% of the cost of post-mining restoration and the issuance of all mining leases will be subject to obtaining relevant environmental authorizations.
A more transparent regime. The Mining Act will be amended to include disclosure obligations designed to inform the public of how much tax each operator pays and how much tonnage has been extracted. This information was previously not public.

TSX annual director election rule change begins affecting Australian incorporated issuers

By Quentin Markin on May 6th, 2013 Posted in Corporate Governance

On December 31, 2012, the Toronto Stock Exchange made amendments to the Company Manual to require, among other things, that TSX listed issuers elect all directors annually. The TSX subsequently issued Staff Notice 2013-0001 on February 22, 2013 to remind listed issuers of the new obligations. The new Section 461 has now been in effect for approximately four months, and while the changes regarding majority voting policies have attracted greater attention for Canadian domiciled issuers (see our securities posts of October 4 and October 12, 2012), foreign issuers (particularly those from Australia), have been far greater impacted by the annual director election changes.

In Australia, directors are already elected on a “for” or “against” basis, and not on a “for” or “withhold” basis and therefore already have a majority voting “policy” in effect by operation of the Australian Corporations Act 2001. However, the constitution (or articles) for a Corporations Act 2001 company would typically require that 1/3 of the directors resign at each annual general meeting and be re-elected. This means it would take 3 years to turn over the entire board.

Stream financing: A primer

By John F. Anderson and Jennifer Honeyman on February 25th, 2013 Posted in Financing

Stream financing, also known as resource streaming or metal purchase agreements, is becoming increasingly popular in the resources sector. Stream financing can be used to help bring a development stage project into production or to expand existing production capacity of an operating mine. It provides an alternative way of raising capital for a project at a time when market conditions make equity financings very dilutive and debt financing difficult and expensive to obtain. Stream financing can be in respect of either primary or secondary products and can be used for either precious or base metals. In this post, we will provide an overview of how stream financing is used in the resource sector, as well as its benefits and a short case study of a recent streaming agreement.

Are you complying with NI 43-101?

By Raymond McDougall on February 13th, 2013 Posted in NI 43-101 Disclosure Practices

According to the BCSC’s recently issued 2012 Mining Report (the Report) when it comes to compliance with NI 43-101, many issuers are not doing so well. In a sample of mineral disclosure reviewed during the period 2009 to 2012, disclosure in required filings was only 65% compliant, while voluntary disclosure was only 50% compliant. In fact, certain types of disclosure were found to be even far less compliant – for example, website disclosure of preliminary economic assessments (PEAs) was only 10% compliant.

Most often, non-compliant disclosure comes to light in contexts when an issuer has the least time to address the issue and correct it, such as during a financing transaction or during a M&A deal requiring prospectus-level disclosure. If, for example, an issuer finds that it must file a new technical report in one of these contexts, it may have a show-stopper on its hands. So, whether or not the statistics in the Report seem relevant to your specific situation, they are good reason to review your NI 43-101 disclosure for compliance.

Canada sharpens its teeth to take a bite out of bribery

By Susan Hutton on February 12th, 2013 Posted in Foreign Corrupt Practices

On February 5, 2013 the federal government tabled amendments to the Corruption of Foreign Public Officials Act (CFPOA) which, if passed, would give Canada a much broader reach and pose a more serious threat to Canadians and Canadian businesses who attempt to gain a business advantage through bribery. These amendments are evidence of the Government’s tougher approach to enforcement of the CFPOA in recent years, as witnessed already by prosecutions of Niko Resources in 2011 and more recently of Griffiths Energy, both of which pled guilty to offences under the Act (see below for more details). In some ways, the CFPOA will now be tougher than its US counterpart.

Generally speaking, the CFPOA prohibits giving or offering to give a benefit of any kind to a foreign public official, or any other person for the benefit of the foreign public official, where the ultimate purpose is to obtain or retain a business advantage.

Discussion on emerging trends for mining issuers

By Raymond McDougall on October 26th, 2012 Posted in Public Company Disclosure Issues

Next Tuesday, I will be speaking on Emerging Trends and Disclosure Issues for Mining and Exploration Issuers at Stock Exchange Filings Pitfalls for Mining Companies – a Lunch & Learn hosted by CCH Canadian on October 30 in Toronto. At the session, OSC and TSX Staff will also be presenting on subjects including regulatory reviews and commonly seen disclosure red flags. This session is meant to provide insight into not only many of the issues listed companies are facing, but more important, how to avoid them. This free CCH lunch session will take place in Toronto at P.J. O’Brien, from 12:00 to 1:30 PM. Registration is required and can be completed online at http://connect.cch.ca/Filingspitfalls.

SEC proposes eliminating solicitation and advertising prohibitions in private placements

By Canadian Securities Law on September 14th, 2012 Posted in Private Placements

On August 29, the U.S. Securities and Exchange Commission (SEC) proposed amendments to current rules that would provide an exemption to the prohibitions on general solicitation and general advertising in cases of offerings on a registration exempt basis under Regulation D and Rule 144A.

Under current rules, companies looking to sell securities to raise capital must either register the offering or rely on an exemption. Most registration exemptions, however, prohibit companies from engaging in general solicitation or general advertising in connection with the offering.

The proposal, part of the rulemaking required under the JOBS Act enacted earlier this year, would amend Rule 506 of Regulation D, which governs private placements, to permit companies to use general solicitation and general advertising to offer securities provided that the purchasers are accredited investors and the issuer takes reasonable steps to verify that the purchasers are accredited investors. Meanwhile, Rule 144A, which provides an exemption for resales of certain restricted securities to qualified institutional buyers, would be amended to provide that securities sold pursuant to the rule may be offered to persons other than QIBs, provided that the securities are sold only to persons that the seller and any person acting on the seller’s behalf reasonably believe are QIBs.

SEC adopts rules requiring resource issuer disclosure of payments to governments

By Raymond McDougall on August 29th, 2012 Posted in Foreign Corrupt Practices, Public Company Disclosure Issues

Earlier this month, the U.S. Securities and Exchange Commission announced the adoption of rules requiring resource extraction issuers to disclose information relating to payments made to the U.S. Government or a foreign government for the purpose of the commercial development of oil, natural gas or minerals. The rules, which are mandated by the Dodd-Frank Act, are intended to enhance the transparency of payments made by resource companies and “help empower citizens of those resource-rich countries to hold their governments accountable for the wealth generated by those resources”.

Can issuers file an addendum when amending technical reports? Maybe

By Raymond McDougall and Andrew Bozzato on August 28th, 2012 Posted in NI 43-101 Disclosure Practices, NI 43-101 Technical Reports

One question that we’re often asked by issuers and mining industry professionals is: When amending a technical report, is it a requirement that the issuer replace the report that is currently filed on SEDAR with a fully revised report, or can an issuer simply create and file an addendum?

From the inception of NI 43-101, the fundamental underlying principle has always been that an investor should be able to go to the SEDAR website and pull up one single comprehensive and current technical report to minimize the risk that people might otherwise not have current information in front of them, or might not have all of the current information – not to mention that it could be difficult to piece together multiple documents filed at different times. The requirement (discussed in section 4.2(8) of Companion Policy 43-101CP) is that any time an issuer is required to file a technical report, it must file one complete and current report, containing all material scientific and technical information about the mineral project. As a general rule, then, there will only be one current technical report on a mineral project at any given point in time. When a new technical report is filed in respect of a mineral project, it will supersede the one most recently filed, and for those parts of the last report that are still current and relevant, the new report will reproduce these sections in the new report so that there is no need to refer to the previously filed technical report. Continue Reading