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.
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.
If you're developing or acquiring a project in Latin America, there is a lot you need
to know.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.