Corruption concerns have increased implications for mining and exploration M&A – by Simon Rees (MiningWeekly.com – October 29, 2015)

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TORONTO (miningweekly.com) – Buyers are becoming increasingly wary of corruption issues when buying projects, operations or other companies, and those looking to sell will have to be more mindful of this, says PwC Canada MD and anticorruption expert Frederic Miller.

“Nobody these days wants to buy a problem. That’s why they hire people like me to look and ensure [that] they’re not about to step into something they don’t want to step into,” he told an audience at a recent Canada-Southern Africa Chamber of Business corporate social responsibility (CSR) seminar.

KEEP IT CLEAN

As the mining and exploration sectors languished in a downturn, purchasing and mergers and acquisition (M&A) activity was dominated by spin-outs, noncore asset divestment or fire sales by those desperate for liquidity. For those lucky enough to be buying, the top concern was to ensure no corruption was associated with the M&A target.

Corrupt practices known about beforehand or unearthed during negotiations could negatively affect an asset’s future revenues and heighten the buyer’s risk of taking on liabilities associated with corruption. If they remained interested, the buyer would factor these implications into the deal’s final value, usually leading to a reduced offer.

“I’ve been involved in numerous deals in Africa where the purchase price was greatly reduced because of these very issues,” Miller pointed out. In part, the reduction in price reflected the greater liabilities corruption and its attendant problems represented for a potential buyer.

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