Mining in Focus: Latin America

Tara Amiri  0:08  
Hello, I'm Tara Amiri and I'm a partner in the Vancouver office of Gowling WLG.

Warren Cass  0:12  
And I'm Warren Cass. I'm a Toronto based partner. We are members of the Gowling WLG mining Group. We specialize in corporate finance, securities and mergers and acquisitions.

Tara Amiri  0:23  
Welcome to part one of our three part mining focus mini series focusing on Latin America will be giving you practical useful tips for successfully listing your Latin American mining capital. In Canada.

Warren Cass  0:35  
It's all about preparation, what to consider evaluating your team and recruiting appropriate expertise.

Tara Amiri  0:42  
If you're in the exploration or the development stage was mineral projects in Latin America, or a mining company looking for corporate finances securities expertise, we're sure you'll find this session particularly helpful. The whole series covers listing your Latin American mining company and advice on accessing the Canadian capital markets. We'll talk about M&A issues specifically affecting your company's mining projects, and key issues that arise from mining operations. So if you're a Canadian company, looking to get into the market, or in Latin America wondering what's concerning issue in Canada, this series is for you. 

Warren Cass  1:17  
Let's get started. In our experience, it's easy for issuers to underestimate the time and steps involved in getting ready to go public. Advanced preparation will help avoid delays and ensure that you can take advantage of favorable market conditions. Mining companies wishing to go public in Canada must have a significant interest in at least one qualifying mineral property and an NI 43 101 compliant technical report for each property material to the business. 43 101 is a national instrument that governs the disclosure of scientific and technical information for mineral projects made by companies that are public in Canada. Any technical disclosure that you make about your property, such as disclosure of mineral reserves and resources, development plans and mining plans must comply with 43 101 and in many cases must be supported by a 43 101 technical report. Your company's 43 101 report is also relevant to the minimum working capital that you will need to list on the stock exchange. If your project is at the exploration or development stage, you will need sufficient capital to execute the work plan recommended in your technical report for between 12 and 18 months after listing depending on the stock exchange you choose. If you have an advanced property that is not yet in commercial production and are looking to list on the TSX you will need at least three years of proven and probable reserves as described in the technical reports plus sufficient funds to bring your property into commercial production and the ability to fund plant expenditures for 18 months after listing.

Tara Amiri  2:48  
As a public company in Canada, you can only have one 43 101 Technical record per property at that time. Your company may have alternative line plants and work projects in mind. But remember, you will only be able to disclose and market a ... If it's described in your property's current technical report. You will also need a qualified person or a QP to sign off on all of your technical disclosure both in your listing disclosure document and afterwards. The QP will also be an important participant in the underwriters diligence under 43 101 technical reports. It will have to help legal counsel field questions from the relevant Stock Exchange and the securities regulators. So be sure to recruit a QP who is qualified under acceptable standards, or make alternative arrangements for an external QP to be very available while you recruit one a QP with experience a Canadian public company disclosure is ideal. Although a person may hold credentials that qualify them as a QP. They may not have practical experience the Canadian disclosure regime, which is critical.

Warren Cass  3:53  
Planning for due diligence is important. Build a data room. Know which members of your team are responsible to answer questions on various topics. Of course, your QP will be involved in questions about mining and exploration operations. But you'll also need to answer questions about regulatory compliance, permitting, financial labor legal and corporate matters and your ESG programs. You'll also want to review your material operating permits, make sure that they're all up to date and none of them are in default.

Tara Amiri  4:26  
Thanks, Warren. Let's talk about financial statement requirements. Your company's financial statements must generally be prepared in accordance with Canadian IFRS must be audited by a firm that's a member of the Canadian public accountability board. Issuers should also have a CFO who's familiar with IFRS and has prior experience working with public companies. The TSX customarily requires issuers to have a CPA as their CFO. If not, they will want to know how to ensure it will bring sufficient experience and expertise with Canadian public company financial reporting requirements, and audit practices to bear.

Warren Cass  5:02  
That's a good point Tara, it's important to consider the composition of your board and management team as a whole, and the expertise that they bring to bear. Exchanges and securities regulators will want to see a team with significant public company experience and a track record of success. As a public company in Canada, you must have sufficient number of independent, financially illiterate directors to satisfy various Stock Exchange requirements and securities laws. For example, you'll need an audit committee of the board. Companies listening on a senior Stock Exchange must have an audit committee composed of at least three members, all of whom must be independent and financially literate. Companies listing on a junior exchange will need at least two directors who satisfy the applicable independence requirements, in addition to any financial literacy requirements established by the relevant exchange.

Tara Amiri  5:50  
In addition, companies organized or operating in emerging markets which generally includes Latin America need to demonstrate their ability to satisfy additional requirements and provide enhanced disclosure, including with respect to internal controls, related party transactions and communications. Directors and management's will have to have adequate past experience into jurisdictions where you operate and with North American public companies. A few of the relevant instruments are listed on the current slide. As you can see, these requirements can be many and vary, and it may take time and resources to ensure the requirements are satisfied.

Warren Cass  6:28  
Now we are aware that things happen in the going public process. It is critical that you maintain an open dialogue with your Canadian Securities lawyers, tell them everything that's happening. There are heightened disclosure obligations as you go public. The requirements are complex. Changes in your company's situation may be in negotiations with underwriters, stock exchanges or securities regulators. Your prospectus or other disclosure document may also need to be amended. Your lawyers can help you understand your obligations, identify and manage potential conflicts and timing issues and raise any issues for discussion with the appropriate third parties at the right time.

Tara Amiri  7:05  
We hope this video has been interesting and informative. There are two more in the series. Video two features practical M&A tips for mining companies operating in Latin America, being aware of the potential problems or the politics of the region. Video three tells you about the key operational issues for mining companies in Latin America. Thanks for joining us.

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.

France Tenaille  0:08  
Hello, I am France 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.

Ian Mitchell  0:18  
And I'm Ian Mitchell. I'm a Toronto-based partner in Gowling WLG's capital markets practice and also head of the Canadian mining team.

France Tenaille  0:25  
Welcome to part three of our three part miniseries focusing in Latin America. If you're developing or acquiring a project in Latin America, there is a lot you need to know.

Ian Mitchell  0:35  
We'll be taking a high level look at some key issues that you and your company will need to watch out for the ever changing regulatory landscape, artisanal mining, and getting to know local communities and understanding who makes the decisions.

France Tenaille  0:47  
We'll be giving you some practical, useful tips and advice. Thanks for joining us. 

France Tenaille  0:54  
Public policy in the strategic sectors in the Latin American region is becoming even less predictable. Not necessarily because of the political tendencies on the left or the right. It's mainly due to the short term public tactics. These tactics create incentives for policies with short term popular gains, but that tend to result in longer term harmful effects for the affected industries. We can see for example, proposed constitutional and regulatory changes in Chile, or proposed failure to intervene locate or the proposed nationalization of ATM in Mexico. This in turn, creates additional uncertainty which needs to be taken into account and this cuts mostly at your home country Council and your local council, when structuring your business and protections that may need to be put in place to mitigate where possible, this risk.

Ian Mitchell  1:41  
Artisanal, small scale and illegal mining has a long history of Latin America. This has proved to be a challenge for many, but also an opportunity for some. Artisanal mining can result in environmental issues, security concerns and social issues if it's not properly managed, many countries have developed or developing legal frameworks that allow small scale and informal miners rights to be formalized, and or require industry to partner and work with them. When managed poorly, this can result in significant ESG problems and even jeopardize projects. Some companies, however, are turning to this to their advantage and working with artisanal miners to help ensure safe, environmentally friendly operations that benefit both the company and the individuals. We've seen at least one company that has worked with artisanal miners to secure among other things, proper health insurance and other trading to benefit the artisanal miners at their projects. The artisanal miners then in turn sell the ore they produce to the company who processes it, avoiding many of the larger environmental issues.

France Tenaille  2:39  
And, community buy-in is essential. It can't be underestimated or be superficial. Projects are generally remote and the local community may be your only neighbor for hundreds of miles. So get in and really get to know the people that are impacted by your project, understand what their concerns are, and what they truly need. In some cases, the concern may be how to keep and maintain a livelihood. In others how their life is going to be affected and how this will be remedied. Or even more simply, will they ever be able to return to their land. having these conversations beforehand will help you to understand the needs and expectations of your community, which will help you to manage the relationship long term.

Ian Mitchell  3:24  
Learn and understand who's making decisions behind the parties that you were talking to . Create a Power Map to help you understand how decisions are made and by whom. Even though you may focus on larger items, don't forget the little things that can go a long way. Ensuring that communities feel appreciated and looked after when they need it most even in small ways can have a big impact. For example, you can help them resolve issues not related to mining operations. One of our clients assisted a local community and developing a farming system that enabled them to better source local food.

France Tenaille  3:55  
Also, educating communities about what you do to protect the environment or their well being is key. Getting them involved is actually even better. Provide training programs and give them something they can use even when operations are terminated. Communities can help you. If local governments or outside parties tried to create friction with the project of the local community support it, it can go a long way to help solve the problem or gain the support you need and recover. In one case, for example, a client was only able to move their project forward because the community trust even when they did not trust the federal government. As a result, the client was able to bring everyone to the table and find a way in which everyone could work together.

Ian Mitchell  4:39  
Getting the right local consultants and lawyers is key. They can be your best friend or your largest challenge. Ideally, your local council will be familiar with international transactions in the international standards and requirements as well as local rules. Unless they understand both sets of rules they won't really be able to help you navigate the local legal framework and practices In a way that will allow you to satisfy your home country requirements and practices.

France Tenaille  5:05  
In fact, in a recent deal, having the right counsel saved a transaction, what our client was trying to do was definitely not done before. And our legal counsel was willing to think outside the box and do things in a manner that wasn't the local way. But it still complied with the local laws also ensuring the success of a deal.

Ian Mitchell  5:23  
Ask questions and avoid overly complicated or technical terms. Many consultants will tell you they understand but a lot can be lost in translation. Don't be afraid to ask the same question a few different ways if it's critical, better to make sure you are understood than to get it wrong.

France Tenaille  5:39  
And last but not least, make sure you have the right legal and other team both in country and in your home country. Once you have the right team, make sure they communicate on a regular basis about important matters. When you're operating in more than one jurisdiction. What happens in one affects the other. You may think it's more expedient to involve only local council in your project or local matters, but that can create problems. Always keep your home country Council up to date and vice versa. Having the right team in place and communicating with each other on a regular basis will help you to manage risk and secure the best results.