France Tenaille 0:07
Hello, I am Frane Tenaille. I'm a partner in Gowling WLG's Toronto office. I'm a member of the business law and mining group. And I'm also the leader of the Latin American practice.
Brett Kagetsu 0:16
And I'm Brett Kagetsu. I'm a partner at Gowling WLG's Vancouver office and I'm a trustee of the firm. I've been practicing in the area of mining and M&A law for over 26 years. Welcome to part two of our three part mining and focus mini series focusing on Latin America.
France Tenaille 0:33
If you're developing or acquiring a project in Latin America, there is a lot you need to know.
Brett Kagetsu 0:38
What to look out for? Geopolitical considerations. Greater control over resources with new laws and taxes. Antitrust approval, bilateral investment treaties, and with all of this the importance of retaining qualified and experienced local counsel.
Brett Kagetsu 0:53
Latin American countries have rich endowments of important metals and minerals. Collectively, the host approximately 48% of the world's copper reserves 50% of the world's silver reserves, more than 60% of the world's lithium reserves 20% of the world's gold reserves an undetermined percentage of the world's potash reserves.
France Tenaille 1:14
It's no surprise then that mining companies would projects in Latin America closed or announced in 2021. At least that $900 million plus m&a deals with a combined bond yield of $9.2 billion. Almost half of the deals in 2021 targeted etilaam assets ahead of a forecast boom in demand for battery metals, driven largely by electric vehicles, and the decarbonisation of economies worldwide.
Brett Kagetsu 1:41
When considering the acquisition of a mining project in Latin America, one important factor is the rising level of geopolitical uncertainty in the local jurisdiction, where the target has operations. As many countries are considering populous changes and policies, which will have long term harmful effects for the affected industries in particular mining. In addition, in an environment of high commodity prices, some governments in Latin America and other countries around the world for that matter, are looking to capture a greater share of profits by, among other things, increasing taxes and royalty rates. In fact, according to latest report from risk consultancy various nibble, Croft, there is a clear four year trend in mineral rich nations seeking greater control over the revenues generated for the natural resources. And this is a trend that's expected to continue with the next two years. The same study concludes that Latin America is the region where the risk of expropriation and or tax hikes has increased the most.
France Tenaille 2:43
Given these factors, in addition to conducting a very thorough due diligence, we strongly recommend that you consider using an acquisition entity incorporated in a jurisdiction that has a bilateral investment treaty, also known as vat with the host country. A bilateral investment treaty is an agreement between two countries regarding the promotion and protection of investment made by best church from the respective countries in each other's territory. This will enable you as a foreign acquirer to potentially have recourse against the host country if it is appropriate your mining project.
Brett Kagetsu 3:16
will also consider corporate and tax structuring to address tax and foreign exchange control issues, as well as bilateral investment treaties. As mentioned before, we would recommend retaining a big four accounting firm to structure your acquisition having regard to the funding of the acquisition and funding of operations in the host country, and to later repatriate income out of the host country all in a tax efficient manner. Many times restructuring post acquisition can be very costly, and in some cases even impossible due to regulatory constraints.
France Tenaille 3:48
Know that each many American jurisdiction may have filing and antitrust approval requirements. If you are the entity to be acquired originate revenues in the host country from the sale of products, the provision of services or subsidies received by any entity in the acquisition group all the way up to the parent company. If certain monetary thresholds are met, the government in that jurisdiction may have antitrust approval requirements. The analysis generally also includes revenues produced by the target operation in the host country. In many countries. If antitrust approval is not obtained, the transaction may not proceed, or if a transaction closes prior to receiving approval, he may need to be alone, or the approval may come with conditions which will require the acquirer to divest certain assets or operations for that reason before deciding to proceed because they're reviewing dispatchers as a winding colo in part a transaction can prove to be very costly.
Brett Kagetsu 4:46
We're seeing a trend at Latin American countries to increasingly scrutinize acquisitions of mining properties, and their host countries that contain critical minerals or battery minerals. Most board choirs purchase shares of offshore holding entities that indirectly hold mining properties in Latin America. If you are acquiring the shares of a foreign entity that indirectly controls a mining property, or an operation through a local entity incorporated in the Latin American host country, be aware that such indirect acquisition could constitute a change for control the local entity and trigger filing and approval requirements. We also note that a significant number of mining projects in Latin America are indirectly held by Canadian incorporated companies. If you are a non Canadian entity, and you wish to acquire the shares of a Canadian incorporated company that indirectly holds a mining asset in Latin America. Note that the acquisition will require a filing and potentially receipt of approval under the investment Canada Act, and also potentially the Canadian Competition Act.
France Tenaille 5:46
Given these factors, we strongly recommend that you retain qualified local counsel at the foreign jurisdiction to provide transaction advice and to conduct comprehensive due diligence on the assets note and in particular, in addition to experiencing mining matters in the host country, significant experience in international transactions and regulation, and working with international lawyers is key.
Brett Kagetsu 6:08
Finally, if you're a Canadian publicly traded mining company, or you're seeking to become listed on the Canadian stock exchange, you may be required to prepare and file a technical report in respect to the targets property, in accordance with the requirements of Canadian national instrument 43 101. When the property to be acquired is material to you. There are accommodations available under the regulation that can provide you with additional time to prepare the technical report. Whatever even with these accommodations, we find it's often a challenge to have the technical report prepared in a timely manner. As such, we just suggest that you discuss this with your counsel the outset.