Resource nationalism: do the riches outweigh the risks? – by Sandra Rubin (Lexpert Business of Law – September 19, 2017)

Canadian miners experiencing “increasing anxiety” over country risk

WITH A GROWING NUMBER of mining companies moving into higher-risk countries in recent years in the search of the next big deposit, they and their investors are increasingly grappling with a resurgence in resource nationalism that can badly buffet share prices.

There’s been a trend recently for foreign governments, especially in emerging-market countries, to target large producers and seek higher taxes, larger shares of the profits, new ownership arrangements or new kinds of payments from the same companies they once wooed with generous concessions.

And if they don’t get what they’re asking for? The companies may find their permits yanked, their income and personnel restricted from leaving the country, their tax regimes or legal obligations suddenly changed, or even be forced to give the government or state a larger stake in the project.

“Mining companies are easy targets because mining projects are so incredibly capital intensive that governments realize they are there for the long term,” says Linda Misetich Dann, co-head of capital markets and M&A, securities, corporate finance, and mining transactions at Bennett Jones LLP in Toronto.

Roger Taplin, co-leader of the global mining group at McCarthy Tétrault LLP, points out that it’s important for mining companies “that having committed that capital, they not then be held hostage to any fundamental change to that bargain.” And while resource nationalism isn’t new, he says, “there is an increasing level of anxiety around country risk.”

It’s not just the company executives, but the stockholders who may be biting their nails to the quick.Last week was a good one for shareholders in Toronto-based Centerra Gold Inc., which finally settled its dispute with the Kyrgyz Republic dating back to 2015. But the price of a return to its 2009 agreement was a payment of US $50 million and yearly payments of US $2.7 million to a new government-administered nature-development fund, as well as a onetime US $10-million payment to a new cancer-care fund.

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