In M&A transactions, dissenting shareholders sometimes disagree with the fair market value (FMV) offered for their shares. Absent settlement, a court must determine the FMV of the company’s shares for dissenting shareholders. In the mining context, this task may be complicated by the prospect of valuing exploration lands unsupported by a “NI 43-101” (Standards of Disclosure for Mineral Projects) report or data demonstrating economic mineralization.
In Re Nord Gold SE, the Ontario Superior Court decided a valuation case in the junior mining context. Shareholders of Northquest Ltd. representing 0.86% of its common shares dissented from a plan of arrangement following the company’s takeover by Nord Gold SE. There are a number of takeaways from this case:
- If court proceedings become necessary, the company should file first unless there are good reasons to not do so. Under most Canadian corporate statutes, the company is obliged to initiate a proceeding within a specified time for the court to determine the FMV of common shares. Otherwise, any dissenting shareholder may bring a proceeding to determine FMV and may be awarded their costs notwithstanding the outcome of the litigation. Nordgold was in ongoing negotiations with the dissenting shareholders that continued beyond the time for Nordgold to commence a FMV proceeding. Without warning, the dissenters commenced litigation. Nordgold immediately commenced a FMV proceeding in which it explained its rationale for not rushing to court. Throughout the ensuing proceeding, Nordgold moved first during every litigation milestone.
- The parties should retain independent and qualified experts to opine on FMV. In a dissent proceeding, although no party has the onus of proving FMV, the court relies exclusively on the parties’ evidence – typically, expert evidence.
- The dissenters unsuccessfully challenged the independence of Nordgold’s valuation expert. Nordgold had retained the investment bank that had provided a valuation opinion for Northquest’s board. In other words, Nordgold retained the expert who was on the other side of the transaction when it was contested, thus providing it with an additional ground to successfully argue that the expert was indeed independent.
- Nordgold successfully challenged the admissibility of the dissenters’ valuation opinion. Despite retaining an expert, the dissenters tendered a “group opinion” through the affidavit of one of the dissenters. The Court determined that the opinion of an interested party was not independent and therefore, not admissible.
- Nordgold successfully argued that the dissenters’ expert in “mineral property valuation” was not a business valuator and thus, not qualified to opine on the FMV of shares.
- The valuation opinion must rely on relatively current exploration results. These results may be filed as part of a NI 43-101 report or an affidavit from a company employee acting as a “participant expert”. The latter approach is more cost-effective and reasonable if there are no material changes to resource estimates since the last NI 43-101 report. In Re Nord Gold SE, the Court rejected the dissenters’ argument that Nordgold’s exploration manager lacked the independence to opine on the significance of recent drilling results.
- CIMVal is only one of several methodologies that may be used to value common shares. The dissenters argued that Nordgold’s valuation opinion was not reliable because it did not apply CIMVal standards. The Court accepted Nordgold’s argument that CIMVal is only one of several tools available to a valuation expert and is not a mandatory valuation methodology in dissent proceedings.
- Non-economic mineralization will likely be excluded without compelling expert evidence. The dissenters unsuccessfully argued that the FMV of their common shares should include the purported value of mineralization outside the “Whittle Pit” model and unexplored land with no demonstrable economic mineralization. In the circumstances of this case, the court accepted evidence applying a standard of whether there were “reasonable prospects for eventual economic extraction” to determine whether mineralization should inform FMV.
 McCarthy Tetrault LLP represented Nordgold in this matter.
 With the exception of BC, PE and QC: Business Corporations Act, R.S.O. 1990, c. B.16, s. 185; Canada Business Corporations Act, R.S.C. 1985, c. C-44, s. 190; Business Corporations Act, R.S.A. 2000, c. B-9, s. 191; The Business Corporations Act, R.S.S. 1978, c. B-10, s. 184; The Corporations Act, C.C.S.M. c. C225, s. 184; Business Corporations Act, S.N.B. 1981, c. B-9.1 s. 131; Companies Act, R.S.N.S. 1989, c. 81, Third Sched. S. 2; Corporations Act, R.S.N.L. 1990, c. C-36, s. 308; Business Corporations Act, R.S.Y. 2002, c. 20, s. 193; Business Corporations Act, R.S.N.W.T. 1996, c. 19, s. 193; Business Corporations Act, S.N.W.T.(Nu.) 1996, c. 19, s. 193.
 A “participant expert” is a person who contemporaneously formed an opinion as part of the ordinary exercise of his or her skill, knowledge, training and expertise while observing or participating in events.
On 12 December, 2017, Chile’s Corporation for the Promotion of Production (“CORFO”), together with the National Service of Geology and Mining (“Sernageomin”) and the University of Chile, released an interesting preliminary report about the potential to explore for and develop cobalt deposits in Chile: “Cobalt Mineral Resources in Chile – Exploration & Mining Potential” (the “Report”). The Report identifies the districts of San Juan & Carrizalillo Alto (Atacama Region) and Tambillos (Coquimbo Region) as potential targets for cobalt extraction, together with copper and gold. These minerals are generally found together in small to medium scale deposits, breccias, mantos and veins within the Chilean Iron Belt. The Report relied on existing data and on-site visits of high and medium interest areas to identify cobalt deposits throughout Chile while focusing on the north of the country.
Given the current trend of sustained growth in cobalt demand, which is expected to increase 34% yearly until 2026 along with the booming development of the electric vehicle market, the Report might be of interest to investors considering to do business in the mining sector. Continue Reading
The recently completed initial public offering by Nexa Resources S.A. (formerly, Votorantim Metais) on the Toronto Stock Exchange (the TSX) and the New York Stock Exchange has received considerable attention from capital markets participants and the financial press for its size (US$570 million, including the exercise of the over-allotment option) and for the large and impressive underwriting syndicate. Nexa’s IPO was the largest mining IPO on the TSX of a Latin American company, it was Canada’s 3rd largest mining IPO ever and the largest mining IPO in Canada over the last decade! The IPO is also noteworthy for its regulatory achievements, from both technical and securities law perspectives, including managing the regulatory authority and stock exchange approvals for an issuer with a dozen existing material projects (and the related dozen technical reports which had to be summarized in the prospectuses, and reviewed and accepted by the regulators and stock exchanges). There were also several technical elements to the disclosure included in the U.S. and Canadian prospectuses that are potentially useful to other issuers and their advisors going forward. Continue Reading
Yaiguaje v. Chevron Corporation, 2017 ONCA 827
The Ontario Court of Appeal has overturned the decision of the motion judge who ordered that the foreign-resident plaintiffs post approximately $1M in security for costs in order to continue their proceeding and appeal against Chevron Corporation (“Chevron”) and Chevron Canada.
This is a significant reversal, as the motion’s judge decision (analyzed here) called into question whether the plaintiffs would be in a position to proceed with their appeal of Justice Hainey’s decision dismissing the proceeding against Chevron Canada on the basis that its assets are not available to satisfy the plaintiffs’ foreign judgment against Chevron (decision analyzed here). Continue Reading
Yaiguaje v. Chevron Corporation, 2017 ONCA 741
Resource extraction industries have been following the Yaiguaje v. Chevron proceedings closely. The decisions that flow from this action have far-reaching implications surrounding the enforcement of international judgments and the application of those judgments against related domestic parties’ assets.
The proceedings took an interesting turn when the Ontario Court of Appeal recently assessed the merits of the appeal in a security for costs motion. Continue Reading
In an interview on 27 August, 2017, the Executive Vice-President of Chile’s Corporation for the Promotion of Production (“CORFO”), Eduardo Bitran, announced that CORFO and the National Service of Geology and Mining (“Sernageomin”) are conducting surveys in the La Cobaltera area in Chile’s Atacama region in search for cobalt deposits. Cobalt deposits are also known to exist in the Coquimbo region.
Bitran cited CORFO’s expectations that cobalt demand should considerably increase in upcoming years, and noted Chile’s potential for developing this mineral: “If we were to produce 15,000 annual tons of cobalt by 2035, we would be talking about a business worth USD $975 million, considering the current price of this mineral”. A report on La Cobaltera’s suitability for cobalt mining is scheduled to be released later this month.
This could be an interesting opportunity for Canadian investors, as demand for cobalt is set to increase by 34% per year until 2026, and by 2021 demand could fall short of production by up to 8,000 tons. Cobalt at the London Metal Exchange traded at $32,000 a ton in late 2016, and increased to $56,000 a ton in 2017. These trends go hand in hand with increased cobalt usage in battery manufacturing for the electric car industry, which will be further boosted by China’s recent announcement to join France and the United Kingdom in setting a ban on sales for all fossil-fueled powered vehicles. Continue Reading
BC’s recently sworn-in New Democratic Party (NDP) government presented its first provincial budget on September 11, 2017. Among the policy measures announced were changes to the BC carbon tax. In particular, the Budget 2017 Update (2017/18 – 2019/20) provides for the following:
- As of April 1, 2018, the carbon tax will increase by $5 per tonne of carbon dioxide equivalent (CO2e) per year until it reaches the federal target carbon price of $50 on April 1, 2021 (one year before Ottawa’s 2022 deadline). BC’s carbon tax is currently set at $30 per tonne of CO2e.
- Part 2 of the Carbon Tax Act has been repealed, meaning that the requirement for the provincial Minister of Finance to prepare the Carbon Tax Report and Plan will no longer apply after September 11, 2017. In addition, this means that the Carbon Tax Act will no longer require that revenue measures be introduced to offset carbon tax revenues. This will allow the government to spend carbon tax revenues on emission reduction measures or other green initiatives, rather than returning carbon tax revenues to taxpayers.
On August 17, 2017, China’s NDRC, Ministry of Commerce, the People’s Bank of China and the Ministry of Foreign Affairs jointly released their Opinions on Further Guiding and Regulating the Directions of Overseas Investments (the “Guidelines”). The stated objectives of the Guidelines are to improve the macro guidance on overseas investments, further guide and regulate the directions of overseas investments, promote the sustainable, rational, orderly and healthy development of overseas investments, effectively prevent all types of risks and properly meet the needs of national economic and social development.
The Guidelines are encouraging for China’s continued overseas investment in the natural resources sector. The Guidelines indicate the China will support domestic enterprises with adequate capabilities and qualifications to actively and prudently invest overseas in an effort to, among other things, make up for China’s shortcomings in energy and resources. In particular, Chinese domestic enterprises have been encouraged to participate in the exploration and extraction of offshore oil and gas, mining and other energy resources based on prudent assessment of cost benefits.
In the past couple of years, we have seen several major Chinese overseas investments in the natural resources sector including:
- Yancoal’s ongoing acquisition from Rio Tinto of a majority interest in the Hunter Valley coal assets in Australia
- China Moly’s acquisition from Freeport of a majority interest in the Tenke copper and cobalt mine in the DRC
- Sinoenergy’s acquisition of Long Run Exploration, an intermediate oil and natural gas public company in Canada*
While we expect that overseas investments in the natural resources sectors by Chinese domestic enterprises will continue apace, we also expect that Chinese acquirers will spend more time on technical and legal diligence, cost benefit analysis and compliance issues in making their overseas investments.
* McCarthy Tétrault acted for Sinoenergy on this acquisition
In the decision of 1520658 Ontario Inc. v. Her Majesty the Queen, 2017 ONSC 4141 released earlier this month, Justice Goldstein of the Ontario Superior Court of Justice determined that a mining claim is not an equitable interest in land under the Ontario Expropriations Act.
This decision lays out the framework for the analysis of determining the definition of land, specifically the interplay between the Mining Act and the Expropriations Act, and may have broader implications for the mining and excavation industries as a whole. Continue Reading
The article “Mining in Latin America: An Overview of Mining Law in Argentina, Brazil, Chile, and Peru” by Frederico Marques and Etienne Ravilet Guzman (available here) offers an in depth analysis of the regulatory framework for investment and development of mineral exploration and mining projects in Argentina, Brazil, Chile and Peru. The goal is to provide stakeholders with a broad understanding of the suitability of these Latin American jurisdictions for mineral exploration and mining projects. It will also assist Canadian and international companies, as well as policy makers, to navigate contemporary challenges in the sector and at the same time identify common grounds and trends in the region. Each case study addresses foreign investments, mineral exploration and mining rights, main taxes, royalties, government incentives and environmental regulations.
The outcome is a comprehensive legal overview of mineral exploration and mining activities in these jurisdictions with practical insights to doing business in this increasingly international industry; as understanding and navigating these frameworks is essential to minimize risk, increase efficiency and attract capital.