30. Mining Takeovers – Should Governments Be Heavily Involved?
Date: July 13, 2015Author: Ken Kuchling
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.