I have seen some on-line discussions about whether governments should be tightly regulating corporate takeovers, some of which may be outside their borders. The fear from some groups is that mine assets may be acquired by less than desirable acquirers.  One specific example that I have seen is related to the disposition of foreign resource assets by both Barrick and Ivanhoe to Zijin, a Chinese company.  I don’t know much about Zijin other than having seen reports that Norway’s government had directed its $790 billion oil fund to sell holdings in several companies because of environmental issues and Zijin was one of these companies.  In light of the Norway decision, some groups are questioning whether Zijin should be allowed to acquire mining assets owned by Canadian or American companies.
It appears that some groups would like the government to step in and prevent an owner company from selling their mining assets to another company that may have a poor reputation or limited financial capacity. The fear is the new company would operate in a non-sustainable manner and ignore local environmental rules.   Government sanctioning gets tricky in that how do they define which companies have poor reputations.  Also how do they tell the public shareholders of the owner company, in some cases possibly nearing bankruptcy, that they cannot sell their assets to a certain interested party?   Governments have stepped in and blocked acquisitions in the past but these were mainly related to deals involving antitrust issues or companies with unique technologies of national interest.
It will be interesting to see whether the idea of governments sanctioning the acceptability of acquirers in the mining industry will gain traction.  It may be an overstep for the government in this country trying to block the acquisition of a foreign property when the current owner may not have the funds to develop the project while the acquirer does.  The foreign government may want to see their own mineral assets developed but a government in another country may be directly blocking it by blocking transfer of ownership.  The last thing we need is more country-to-country disputes. I presume the only option for each country is to revoke the mineral concessions and hand them over to someone willing to develop them.  That then creates a series of new issues related to compensation and the attractiveness of that country as a place to invest in.
In essence, does the government of one country have the veto rights to prevent development in another country?  Does the government of one country have the right to decide on the environmental standards in another country by enforcing their own standards upon them via prevention of an asset sale?  This will be an interesting issue to watch in the future.  Personally I think it will be difficult to advance further since each country wants to be masters of their own jurisdiction without being told what to do by outsiders.
Share

5 thoughts on “30. Mining Takeovers – Should Governments Be Heavily Involved?

  1. hardrockminer

    If we can agree that government’s priority (after security) is to set the stage for employment then it doesn’t matter who owns the business, other than in select situations such as you mention above, or in situations where foreign owners attempt to place their own people into jobs that can be filled by Canadians. Nexen is an example of a foreign owned company where they are slowly displacing Canadians and replacing them with foreigners who are compensated less than Canadians. In cases such as that one, or with HD Mining there is a compelling need to restrict a foreign owner’s interests.

    There are plenty of codes available for companies to follow. It would be a simple matter to force new companies to follow them. ISO 14001 would be a good example, or the MAC sustainability guidelines. Provincial mining associations are tied in some way to codes. If foreign companies are unwilling to commit then they should be prevented from investing. Perhaps foreign companies should be required to belong to an association like MABC, who could hold a “hammer” over a foreign company to ensure they comply or else face expulsion and ultimately loss of assets.

  2. Ken Kuchling Post author

    The concerns that I have heard about were not about a foreigner buying a mine here in Canada, but rather a foreign company buying a Canadian-owned mine in a foreign country. While the Canadian company may follow their best practices in that foreign country, the acquirer might not follow those practices. Their position is that someone(?) should prevent the sale to the foreign company.

  3. hardrockminer

    One of the good things we have in Canada is a clear regulatory system. The initial permitting may be lengthy and frustrating, but once the mine is permitted the regulations are pretty clear. Other countries are not so good at regulating mines. This is one of our advantages.

    Anyone who wishes to purchase a mine in a foreign country will do their due diligence on the regulatory requirements. If not then they should expect the unexpected.

  4. hardrockminer

    I don’t see the process as bing much different from gaining an initial permit. I know of at least one project in BC that has been turned down by the government because government has no confidence in the management team.

    The resource ultimately belongs to the people. They or their state representation should decide how the resource is to be used and who can “rent” it from the state. Companies need to realize that once they make a decision to manage a mine they should consider themselves married to that resource, and divorce should not be an easy process.

    As for Barrick…I’m not sure I would want them mining in my country. All they’ve managed to do is lose 11 billion of shareholder value in retained earnings. And by the looks of their head office staff they still haven’t learned how to manage mines. There isn’t a single operator among them…all bean counters.

Leave a reply

required