When contemplating any merger or acquisition, a diligence review is one of the preliminary steps an acquiring company takes to fully understand what they are purchasing beyond the underlying asset. In mining transactions specifically, this diligence process can involve agreements or considerations that are unique to this industry and may extend across international borders. Two of these unique differences, mainly the use of indigenous mining agreements and the potential for domestic liability as a result of operations abroad, are becoming commonplace in the industry and are no longer outliers. With deal volume in mining M&A reaching its highest levels since 2014, the likelihood of a potential target being subject to one or both of these matters is high. It is important to become familiar with these beforehand to prevent getting lost in the weeds of a potential transaction.
Indigenous mining agreements
At the time of publication, Natural Resources Canada listed over 400 active agreements between mining companies and Indigenous groups across Canada concerning projects at varying stages of the mining lifecycle. The purpose of these agreements are to mitigate any negative effects and to share in the benefits garnered from commercial mining activity. They can vary in scope and type: from a fulsome Impact and Benefit Agreement which can govern the labour or commercial aspects of the mine to a Cooperation Agreement which can establish preferred mining methods or locations of facilities. If a potential target is a party to any one of these agreements, it is important for the acquirer to have a full understanding in order to appreciate how these agreements will impact future operations. Indigenous mining agreements are typically not made public, and unless early disclosure is negotiated, they would not be reviewed until the diligence process has started. Embarking on a full legal review is imperative to understand the impact and scope of these agreements and is crucial to the success of the transaction. Additionally, in a post-transaction environment, best practices should be followed to ensure these agreements are adhered to, which will in turn, further cement the success of future operations.
Global operations and domestic concerns
In her paper from 2014, Sara L. Seck advocates for international regulation of the “conduct of transnational mining corporations so as to prevent and remedy human rights and environmental harms.” This proposed regulation would allow for a mechanism by which stakeholders affected by the international operations of a mining company have access to the domestic courts in the mining company’s home jurisdiction. As if in response to Seck’s paper, it was recently announced that the Trudeau administration will be creating an “independent office to oversee Canadian mining, oil and gas companies’ activities abroad”. It is unclear what role this organization will play or if it will approach anything like Seck has advocated for; however, it was explained that the body will have an “advisory and robust investigative mandate.” Even before this international watchdog came to fruition, it is worth noting that a number of cases with serious allegations involving the international operations of mining or extractive companies have made their way into Canadian courts, including Choc v. Hudbay Minerals Inc., and Chevron Corp. v. Yaiguaje. Considering this evolving regulatory landscape, when a potential target is being considered, it is highly recommend that diligence efforts be expanded from narrowly assessing material contracts to analyzing broader business practices and international relations.
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