Mining Law Canada Blog 

On March 3, 2019, the Canadian federal, provincial and territorial governments (other than Ontario and Saskatchewan) collectively unveiled the Canadian Minerals and Metals Plan (the “CMMP”), a forward-looking and generational strategic initiative for the Canadian mining industry intended to “support industry competitiveness, solidify Canada’s position as a global mining leader and to lay the foundation for lasting success at home and abroad.”¹

The CMMP was authored jointly by mining ministers across the country. The project involved discussions with a diverse group of stakeholders with the benefit of input from and engagement with Indigenous Peoples, the private sector, local governments, non-governmental organizations (including environmental and labour organizations) and various other stakeholders and partners of the Canadian mining industry. The CMMP recognizes that responsibility over resource ownership and management in Canada, as well as the regulation of mining activities that fall under the jurisdiction of provinces and territories. The CMMP is not intended to “supplant” these efforts; instead, the CMMP is intended to create synergies and support existing provincial and territorial objectives to address systematic challenges and realize on opportunities existing in the Canadian mining industry.

The CMMP envisions Canada as the “leading mining nation” in the world, which is home to a “competitive, sustainable and responsible mining industry that benefits all Canadians”.² As part of this vision, the CMMP sees Canada being a global leader in various aspects with a focus on outlining opportunities for growth and development.

To support the achievement of its visionary goals, the CMMP establishes six strategic directions. The following table provides a summary of each of the six strategic directions, the intended end-result and the areas of action identified in the CMMP to support the strategic direction:

Strategic Direction	Strategic Result	Areas of Action
Economic Development and Competitiveness	The CMMP aims for Canada to become the world’s most competitive and attractive jurisdiction for investment capital in the minerals and mining sector	Review and adjust Canada’s tax policies and regulations with the view of supporting cost competitiveness and bringing in investment capital Increase regulatory certainty through harmonization of existing regulations across Canadian jurisdictions and development of tools to assist stakeholders of the mining industry to navigate and understand existing regulations Increase government funding for geoscience Continued focus on settling lands claims as part of the reconciliation process with Indigenous Peoples Consider allocating additional resources to take advantage of the mineral potential of Northern Canada
Advancing the Participation of Indigenous Peoples	The CMMP strives to increase economic opportunities for Indigenous Peoples and to support the reconciliation process	Ensure Aboriginal and treaty rights continue to be respected Pursue meaningful engagement on potential projects in a culturally sensitive manner Work with Indigenous communities to enhance resources to support Indigenous Peoples’ participation in the mining industry, in particular Indigenous women Work with Indigenous communities to explore economic benefit sharing in the minerals sector, including exploring Indigenous procurement plans and supplier networks
Environment	The CMMP envisions Canada being a leader in building public trust, developing low-footprint mines and mine closure management	Provide support for research & development focused on reducing the consumption of water and energy, and the production of waste rock, in mining Accelerate efforts to develop and adopt clean energy sources Study Canada’s recycling and reprocessing capacity to support a sustainable and competitive circular economy Encourage the mining industry to plan for and adopt measures to deal with climate change
Science, Technology and Innovation	Canada’s mining industry is supported by world-leading science and technology that impacts all stages of the mineral development cycle	Develop a more effective ecosystem for mining-related innovation, including increase funding for research and innovation targeting the minerals and metals industry and accelerating the research and deployment of digital disruptive technologies Create incentives for the adoption of clean technologies and innovation practices Support the development of next generation geoscience technology and programming Increase collaboration with mining and other industries to advance mutually beneficial technology development and adoption (e.g., extreme climates, deep mining, offshore, space)
Communities	Canadian communities welcome sustainable mineral development activities and the resulting positive impacts	Consider means to formally engage with local communities at the early stages of project development Conduct an information campaign that highlights Canada’s sustainable and high-technology minerals industry Increase the diversity of the Canadian mining labour force to include more Indigenous Peoples, women and immigrants
Global Leadership	The CMMP hopes to achieve a  “sharpened competitive edge” for Canada and enhancing Canada’s position as a global leader	Work collaboratively with mining industry participants and other partners to establish a Canadian mining brand Establish a minerals trade and investment office to support increased minerals trade and investment Develop a “responsible business conduct” strategy for mining which further advances Canada’s position as a global leader Develop programs to support Canadian companies in the mining supply and services sector to export their expertise and penetrate global markets

It is anticipated that the first in a series of “Action Plans” to operationalize and support the CMMP will be released by the Canadian government in 2020, which will include “near-term actions supported by current data, rigorous research and analysis and input from stakeholders and partners”.³

One point of note with respect to the CMMP is that, as of the date of this publication, the provinces of Ontario and Saskatchewan have declined to endorse the plan, citing that the plan inadequately addresses certain challenges faced by the Canadian mining industry, including increasing energy costs, barriers to international trade, the federal cap-and-trade carbon tax and the federal government’s bill (Bill C-69) to overhaul environmental assessments of large resource projects. 

Please contact Eric Lung to discuss how the CMMP could affect your business.

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^{1 Page 45 of the CMMP (Appendix B)}

^{2 Page 4 of the CMMP}

^{3 Page 6 of the CMMP.}

On January 23, 2019, the Supreme Court of Canada heard oral arguments on the appeal in Nevsun Resourcs Ltd. v Gize Yebeyo Araya et al. (“Nevsun”). The two issues before the Supreme Court in this matter are whether the “act of state” doctrine (explained below) precludes a Canadian court from judging the legality of the sovereign acts of a foreign state that are carried out within that foreign state’s own territory, and whether Canadian common law should recognise a new “cause of action for damages based on alleged breaches of norms of customary international law.”¹ The Court’s decision has the potential to greatly increase the scope for claims against and risks for companies operating internationally. The following provides a review of the litigation, the two issues before the Supreme Court of Canada and the potential impacts that can be expected when the Court releases its decision.

The Claim

As a brief overview, the plaintiffs filed a Notice of Civil Claim (“NOCC”) in November 2014 in the Supreme Court of British Columbia against Nevsun alleging, amongst other things, that “Nevsun was complicit in the use of forced labour, slavery, torture, inhuman or degrading treatment, and crimes against humanity” in the construction and operation of the Bisha Mine located near Asmara, Eritrea.² Nevsun, a public British Columbia corporation, holds a 60% interest in the Bisha Mine Share Company (“BMSC”) (the other 40% of which is held by Eritrea’s national mining company).³ BMSC owns and operates the Bisha Mine.⁴ Construction of the Bisha Mine began in 2008 and commercial production of gold began in 2011, with production of copper and zinc following thereafter.⁵

BMSC engaged an Engineering, Procurement and Construction Manager for construction of the Bisha Mine, and the EPCM then further sub-contracted with other entities. The plaintiffs allege that these other, sub-contracted, entities utilized Eritrean nationals from that country’s National Service Program (“NSP”), “a government program of military and national service administered by the Eritrean Ministry of Defence,”⁶  to build the infrastructure at the Bisha Mine.⁷ The plaintiffs allege that they were conscripted under the NSP and then “forced to work at the mine in inhuman conditions and under the constant threat of physical punishment, torture and imprisonment, even after they had served their periods of conscription in the military.”⁸

The NOCC outlines several causes of action that can be broken into two categories. First, private law torts, including battery and unlawful confinement through corporations controlled by Nevsun and negligence in failing to adhere to any standards of corporate social responsibility. Second, the plaintiffs allege that Nevsun has breached principles of international law for which they seek damages at customary international law (“CIL”) as incorporated into the law of Canada.⁹

Nevsun’s Applications

In 2015, Nevsun brought three substantive applications to stay or strike all or part of the claims. Nevsun was unsuccessful in all three applications at the Supreme Court of British Columbia and before the British Columbia Court of Appeal. Issues from two of these applications are now before the Supreme Court of Canada.

The first involves the “Act of State Application”, under which Nevsun sought an order staying or striking the claim as a result of the State Immunity Act (“SIA”).¹⁰ Simply put, Nevsun’s argument is that for the claims to be successful a Canadian court must find that the State of Eritrea acted unlawfully under international and British Columbia law. This is because, in Nevsun’s argument, all or part of the alleged wrongs of which Nevsun is accused are secondary or derivative of the alleged liability of the State of Eritrea, a direct examination of which is prohibited by the SIA and the act of state doctrine. The chambers judge held that the act of state doctrine was not engaged in this case, but Nevsun could revisit the matter in its defence at trial.¹¹ The Court of Appeal held that the act of state doctrine did not apply and Nevsun could not rely on the doctrine further.¹² If the act of state doctrine precludes a Canadian court from judging the legality of the sovereign acts of a foreign state within that state’s own territory then Nevsun’s Act of State Application could, if resolved in its favour, be sufficient to settle the lawsuit.¹³ Regardless of the outcome, this will result in a rare decision from the Supreme Court of Canada on the applicability of, and exceptions to, the act of state doctrine.

The second ground of the appeal, which has the potential to create new causes of action for claims in Canada, is the so-called “CIL Application.” In this application, Nevsun sought to strike those parts of the claim based in customary international law.¹⁴ Both the chambers judge and the Court of Appeal were unwilling to strike these claims because they could not say that the claims met the threshold required to strike them, namely that they were “bound to fail.”¹⁵ The claims in the NOCC are unlike any claim previously determined in Canada; earlier jurisprudence alleging violations of human rights or torture abroad that sought civil remedies in Canadian courts for such violations involved claims brought by individuals against states. The NOCC, in contrast, seeks remedies only against Nevsun. This ultimately requires an examination of whether, to the extent CIL principles have been adopted into domestic Canadian law, they can constitute grounds for civil remedies and, in particular, remedies against a private corporation.

The ramifications from the creation of new torts would be extensive. As stated by the Mining Association of Canada in its intervener submissions, allowing this type of claim between private parties “based on a system of laws developed on the basis of inter-state relationships would amount to an unprecedented expansion of the common law, and would create indeterminate liability and materially (and negatively) affect the business environment within Canada.”¹⁶ They further caution of the risk of reduced investment in Canada, and reduced Canadian investment abroad, if these new causes of action are realized.

Takeaways

It is important to keep in mind the genesis for this appeal to the Supreme Court of Canada: Nevsun’s applications to strike all or part of the NOCC on various grounds. While the Supreme Court could determine that Canadian common law now recognises “a cause of action for damages based on alleged breaches of norms of customary international law,” this does not mean that the Court will, in its forthcoming decision on this matter, find that such has indeed occurred. That could remain outstanding, to be argued and adjudged by the courts at a later date (assuming the determination on the applicability of the act of state doctrine does not fully end this litigation). Clarity on this possibility, and on the application of the act of state doctrine, will assist companies operating internationally in assessing potential risk. As noted by Madam Justice Newberry of the British Columbia Court of Appeal, “it is to be hoped that guidance can be provided as to ‘where we are’ in the evolution of transnational law [which regulates actions transcending state borders] that legal and other scholars have observed in recent years.”¹⁷ Specifically, whether norms recognized by customary international law can ground new private law causes of action in Canada before Canadian courts.

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^{1 Factum of the Appellant Nevsun Resources Ltd. at para 21.
2 Araya v Nevsun Resources Ltd., 2017 BCCA 401 at para 4 [Appeal].
3 Ibid at para 2.
4 Araya v Nevsun Resources Ltd., 2016 BCSC 1856 at para 33.
5 Ibid at paras 33-36.
6 Ibid at para 26.
7 Ibid at para 37
8 Appeal at para 3.
9 Ibid at paras 6-7.
10 RSC 1985, c S-18.
11 Appeal at paras 67-72.
12 Ibid at paras 165-169.
13 Araya v Nevsun Resources Ltd,2019 BCSC 260 at para 9.
14 Respondents’ Factum at para 21.
15 Appeal at para 197.
16 Factum of the Intervener, Mining Association of Canada at para 4(c).
17 Appeal at para 177.}

Last summer, the Supreme Court of British Columbia held that a mining regulator may, in limited circumstances, owe a duty to pay a mine owner for its losses suffered as a result of a breach of a duty owed. This spring, the same court applied the same test to find liability on a regulatory authority.

In Imperial Metals Corporation v Knight Piesold Ltd. et al,[1] two engineering firms brought a third party proceeding against the BC Ministry of Energy, Mines and Petroleum Resources (“MEM”).  They alleged that MEM owed a duty of care to the mine owner, Imperial Metals, to provide the technical advice and directions it supplied as a part of the approval process for the mine permit, with reasonable care.  MEM was also alleged to owe a duty to take all reasonable steps within its regulatory authority to reduce or eliminate known risks of imminent danger at the mine.

The Province applied to strike the claims on the basis that they had no merit, alleging the Government did not owe a duty to the mine owner.  

Justice Branch determined that the claim alleged against the regulator had enough merit to proceed to trial.[2] Specifically, he decided that the Province:

1. had a duty to perform its responsibilities outlined by statute as mandatory; and
2. may have created an independent duty to the mine owner if the Province or its agents performed acts taking it beyond its responsibilities imposed by statute, such as actively participating in the design or construction of the tailings storage facility of the mine.

Justice Branch further set out a list of “Accepted Exceptions” of particular conduct which could attract liability to an otherwise immune regulator:

1. where the regulator steps outside the role of the regulator and assumes the role of the designer, developer or advisor to the regulated party;
2. where the regulator acquires knowledge of serious and specific risks to the person or property of a clearly defined group of the class that the statutory scheme was intended to protect;
3. where the regulator makes a specific misrepresentation to the regulated party – apart from a regulatory statement – that invites reliance, and the regulated party relies on the misrepresentation for the purpose for which is was made; or
4. where interactions between the regulator and the regulated party give rise to a clear set of expectations that the regulator will consider the interests of the regulated party, and the statute does not expressly or implicitly exclude consideration of those interests.

The significance of this decision to the mining industry is evident from the facts of the case from which it arose. The litigation related to the 2014 breach of the tailings storage facility at the Mount Polley mine near Likely, BC.

In Wu v Vancouver (City),[3] a case decided after Imperial Metals, the BC Court of Appeal made it clear that statutory duties do not in and of themselves give rise to private duties, especially where interactions with the public are inherent in the statute. More is required. A private duty of care will only arise where the public authority and claimant have a relationship of proximity over and above the regulatory relationship, either by the nature of specific interactions or from the context of the statute.

In Waterway Houseboats Ltd. v British Columbia,[4] the court found a duty of care was owed by the regulator by applying the test from Imperial Metals. At issue was the Province’s approval of a permit for a privately owned bridge, the improper construction of which caused flooding to adjacent property. The Court found the Province breached a private law duty of care to the property owners created when the Province’s engineer:

1. stepped outside the role of regulator by providing advice regarding the construction of the bridge and channel beneath it, including its required height;
2. acquired knowledge of serious and specific risks of flooding to the adjacent property; and
3. made specific representations to the owners about the required bridge height.

The potential for mine owners to claim against regulators is particularly noteworthy in an industry where limitation of liability clauses often limit the mine owner’s ability to recover from other parties to a fraction of the mine owner’s loss. Mine owners may continue to look at their interactions with their regulator to assess whether there is another party who may have responsibility to help allay their financial losses.

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^{[1] 2018 BCSC 1191.
[2] The nature of the decision in an application to strike the claim necessarily meant that Justice Branch’s did not make a final determination on whether a duty of care was in fact owed or whether the Province breached their duty of care. Rather, the question was whether the claim had a chance of success at trial, if it were to proceed.
[3] 2019 BCCA 23.
[4] 2019 BCSC 581.}

On February 7, Dentons’ Montreal office hosted the local chapter of Women in Mining Canada for a lunchtime event on artificial intelligence and mining. A lively panel discussion took place before more than 60 people among the following panelists:

• Sarane Sterckx, Project Manager, Goldspot Discoveries Inc.
• Guy Desharnais, Director of Mineral Resource Evaluation, Osisko Gold Royalties Ltd.
• Maiko Sell, Earth Data Scientist, Rio Tinto
• Caitrin Armstrong, Machine Learning Engineer at Aifred Health and MSc candidate in Computer Science in the Network Dynamics Lab at McGill University
• Adam Allouba, Partner, Dentons

Dentons partner Mira Gauvin moderated the panel, and the event was chaired by WIM Montréal president Kimberly Darlington of Refined Substance. SNC-Lavalin provided an interactive demonstration of equipment from its Innovation Centre in Toronto at the start of the luncheon.

With each panelist contributing insights from his or her own area of expertise, several themes emerged from the discussion. First, AI has serious potential to revolutionize numerous aspects of the mining industry. From analyzing geological survey results to directing autonomous vehicles to monitoring environmental or health & safety conditions, AI can be a useful tool in any application that blends data analysis with predictive capacity. As a data-driven industry, mining is a natural fit for AI. What’s more, many of the legal concerns that typically arise with AI, such as privacy and ethical questions, are typically not at issue in the natural resources sector since the data is purely scientific and technical in nature.

Second, as useful as it promises to be, AI is no magic bullet. Implementing AI requires the creation of multidisciplinary teams – including geologists, data scientists and, yes, even legal counsel! – to ensure that the project addresses the business’ real needs. The AI tools will need to be tested and retested before being deployed, and employees will need to be trained to use them properly. It also requires buy-in from senior management, who will often want to see proof of its value before making the required investments – and as the technology is so new and changing so rapidly, that proof is not always easy to provide.

Third, it’s essential not to neglect the legal aspects of implementing AI. Who is liable if something goes wrong: the software provider, the mining company, a third-party consultant or someone else in the supply chain? When drafting their contracts, the parties need to ensure to include the language necessary to protect them, including clear descriptions of the software being provided and its limitations, representations and warranties regarding the training data and the performance of the finished product, and indemnification provisions. What about intellectual property considerations, such as whether the company has the necessary rights to the training data or who will own any new IP that may be created by the AI software itself?

What’s for certain is business applications of AI are still in their infancy. As new use cases emerge, practical applications tested and best practices crafted, the technical, legal and other considerations that AI entails will evolve in ways that we in 2019 can’t yet envision. Only by closely monitoring developments in both the mining and technology sectors can an observer hope to keep up with the rapid pace of development that undoubtedly will only accelerate in the future.

A mining producer would typically be a party to a multitude of contracts, including those relating to the mining and processing of its products and their subsequent transport (by rail, truck and/or vessel) and delivery to its customers. Typically, a delay in or a failure to perform a party’s contractual obligations under those agreements would constitute a breach of contract under Canadian common law and the non-breaching party would have a claim for damages against the breaching party. However, the inclusion of
a force majeure (FM) clause allows a party to a contract to invoke a “force majeure right”, the effect being that the invoking party will be relieved of its contractual obligations to the extent that the performance of those obligations “is prevented or delayed by an event beyond its reasonable control”. The concept of force majeure does not exist under common law, but only exists by virtue of contract and therefore it must be included in the contract itself in order to be relied on. It is important to note that FM is not equivalent to the concept of “frustration” at common law. Rather, frustration of a contract occurs when an event so significantly changes the nature of the contract from what was contemplated that both parties are discharged from the whole of the contract. By contrast, an FM clause only excuses non-performance or a delay in performance as a result of, and during, the FM event such that neither party is in breach of the contract (nor liable for damages for breach of contract).

An FM clause in a contract should include general language covering “any event beyond the reasonable control of a party”. This broad language provides the parties with a lot of flexibility to try to bring many different types of events within its potential scope. However, as there can inevitably be disagreement among the parties in the future about whether or not a specific event falls within the meaning of the general language, it is recommended that the parties should also stipulate the specific FM events that they agree neither party should bear the risk of in the context of their particular contract having regard to the specific circumstances surrounding the contract and its subject matter (such as the services to be provided, the nature of the product to be transported, the location of the mining project, the type of equipment and labour used in performing the services).

A determination of whether an alleged FM event fits into the specific FM events articulated in the contract must be determined on a case-by-case basis. Generally speaking, the courts will give words in a contract their plain and ordinary meaning. Accordingly, if a party wishes to rely on a specific FM event, the ordinary meaning of that provision must contemplate the alleged FM event. Mining suppliers should carefully consider what events and circumstances relating to their ability to perform the provisions of a supply contract (or other related contracts) should be included in the FM clause, and should stipulate any event that they are concerned might potentially hinder or prevent the performance of their obligations under the contract. To mitigate risk, mining suppliers will want to, at a minimum, also include in their supply agreements the specific FM events contemplated in the related transportation and port agreements that could affect their ability to deliver their product under a supply agreement.

Examples of specific FM events to consider for inclusion in a mining supply contract are:

• delays, interruptions in, or lack of, transportation or carriers;
• communication breakdown or malfunction, or breakdown of, or damage or accident to, plant, machinery, equipment or facilities, including transportation, mine, railroad or port equipment or facilities;
• road closures, impassibility of roads or lack of access to roads;
• civil commotion, strikes, boycotts, lockouts, war, blockade, revolution or riots;
• acts of god, fire, flood, adverse weather conditions, tempest, storm, high winds, slides, earthquakes, epidemics, or quarantines;
• impossibility of obtaining, delay in obtaining, or shortage or lack of, interruptions to or contingencies of transportation, personnel, supplies, equipment, electricity, gas, water, power, fuel or other materials;
• laws, rules or regulations or acts of government, government restrictions or control on imports;
• inability to obtain or renew a permit or license

A lack of funds by a party should never be an FM event.

The parties should also consider whether after a certain period of delay or non-performance as a result of an FM event, either party should be permitted to terminate the contract (i.e. 60 days, 6 months). The applicable period of time that the FM event needs to last in order to permit a termination of a specific contract will depend on the subject matter of the contract and a consideration of whether a delay in or non-performance of obligations for that period of time would materially affect the substance of the contract such that either party should be permitted to end the relationship. In many cases, however, the early termination of a contract as a result of an FM event may not be an appropriate remedy, particularly for an exclusive or long-term contract that otherwise has few termination provisions available to the parties.

It is important to note that an FM clause does not actually amend any contractual provisions such as a liquidated damage payment clause or reduce guaranteed volume delivery requirements and the requirement to pay related deficiency payments. If the parties wish for those provisions not to apply or to provide for some type of reduction in guaranteed volume deliveries in a year as a result of an FM event, the contract should specifically state that and provide a mechanism for how those guaranteed volume deliveries are to be adjusted in the event of an FM event.

As a FM clause provides a “force majeure right”, in order to properly exercise that contractual right, an invoking party should strictly comply with the FM event clause regarding what exact steps are required to be taken by that invoking party to rely on it in the first instance (and in order to continue to rely on it) and the specific notice provisions set out in the contract must be strictly followed.

On December 18, 2018, notice of work applications for placer mines, aggregates and mineral explorations can now be submitted by filing on the Natural Resource Online Services website.  A British Columbia electronic identification number is required for either a business or individuals and this can be obtained by setting up an account with Natural Resource Online Services.

As part of the notice of work, it can be bundled with the explosive magazine storage and use permit, occupant licence to cut and section 10 of the Water Sustainability Act.

Standalone obligations for notice of work activities can also be submitted and these include:

• change of mine manager
• notification of deemed authorization
• start‑stop work

Note that if a water permit is related to a stream under section 11 of the Water Sustainability Act, a separate application is required.

Additional information can be obtained here.

For assistance please email NRPP@gov.bc.ca

Everyone is talking about blockchain. The concepts may be fuzzy, but the consensus is that the technology will revolutionize the way we do just about everything. The mining industry is no exception and it is clear that blockchain and its cousin, the smart contract, show great promise as an addition to a mining company’s toolkit.  My colleague, Tracy Molino, and I co-authored this piece in Canadian Mining Magazine about use cases for blockchain in the mining industry, so check it out here and reach out if you have any questions.

For a third consecutive year, Dentons is proud to support the Mining & Investment Latin America Summit (MILA), the largest mining and investment event in Latin America, which was incepted in 2014. This year’s summit will host an audience of more than 650 attendees, including miners, investors and financiers.

For a preview of the discussion to take place on mining mergers and acquisitions, read “Mining M&A and Consolidation: Are We There Yet?”, originally published in the Mining & Investment Latin America Special Report 2016.

Taking place on October 24-25, MILA will give attendees an overview of the key opportunities that exist in the Latin American mining industry. Mining group partners, Brian Abraham and Catherine Wade of the Firm’s Vancouver office, James Valdiri of the Bogotá office and Christopher Manderville of the Calgary office, will be joining attendees for two days of business matching, knowledge sharing and deal-making.

An Alberta court has held that provisions of the Bankruptcy and Insolvency Act allowing a trustee or receiver to disclaim real property without assuming environmental  liabilities in relation thereto renders inoperable provincial legislation that would otherwise seek to impose such liability on the trustee or receiver. The Court further held that a provincial regulatory body could not use its regulatory powers to block the sale of assets in insolvency proceedings. Although this case dealt with provincial legislation in the energy sector, the principles of paramountcy articulated therein would apply equally in the mining space.

See our Dentons Insight.

Effective May 9, 2016, the Canadian Securities Administrators will implement new take-over bid rules that will introduce significant changes to bid mechanics, including lengthier minimum deposit periods.  For a description of the changes, see here.

A recent court decision led to the failure of an attempted acquisition of an exploration company by a listed issuer, in part due to conflicts of interest. We analyze the decision, and provide commentary on the law and practice of managing conflicts, in this Dentons Insight.

This summary was co-authored by Daniel McElroy, Knowledge Management Lawyer in Dentons’ Vancouver office.

Mining exploration activities in Canada have attracted widespread interest over the past few decades and is today considered by most as a sector in its own right. Flow-through shares financings have helped raise significant capital for mining companies.

However, when evaluating the suitability of a flow-through financing, an operating corporation must also assess the discounted value of the tax deductions and tax incentives it is intending to forgo. Discounting their value allows the corporation to better appraise their current worth and more accurately evaluate the premium it must obtain to make flow-through financing economically advantageous. See our Dentons Insight.

As noted in the September 1, 2015 posting below, recent rule changes have required senior Canadian public companies to disclose their policies and record on the appointment of women as directors and executive officers. Our recent Insight summarizes the initial results of and response to these new disclosure rules, and indicates what further changes may lie ahead. See our Dentons Insight.

Mining issuers have their qualified persons (“QPs”) and occasionally legal counsel review technical disclosure, including news releases and technical reports, to ensure they comply with National Instrument 43-101 Standards of Disclosure for Mineral Projects (“NI 43-101”). Some mining issuers might not realize that information found on their websites and other presentations, including investor relations materials, is captured by the definition of “written disclosure” in NI 43-101 and disclosure requirements apply. Common areas of non-compliant disclosure on mining issuers’ websites include investor presentations, fact sheets, media articles, failure to update material information and links to third party content.

Staff Notice 43-309

On April 9, 2015, the Canadian Securities Administrators published CSA Staff Notice 43-309 Review of Website Investor Presentations (“Staff Notice 43-309”), which highlighted findings from a review of investor presentations on mining issuers’ websites, conducted by staff of the British Columbia Securities Commission, the Ontario Securities Commission, and the Autorité des marchés financiers (collectively, the “Regulators”). This review also included a review of mining issuers’ forward looking information (“FLI”) against the requirements of Part 4A of National Instrument 51-102 Continuous Disclosure Obligations (“NI 51-102”).

The Consequences

Of the 130 mining issuers reviewed, the Regulators sent letters to 49 mining issuers requiring them to amend their investor presentations and correct the non-compliant disclosure, resulting in outcomes from mining issuers confirming future compliance with the requirements, to issuing a corrective news release, to filing or refiling a technical report. The majority of the corrective news releases and technical report filings or refilings resulted from non-compliant disclosure of economic studies, preliminary economic assessments (“PEAs”), mineral resources, mineral reserves, exploration targets, historical estimates, or overly promotional language.

Practical Tips to Avoid Trouble

The take away for mining issuers is to ensure all written disclosure on their website complies with NI 43 101. Fortunately, Staff Notice 43-309 included the following practical advice to assist mining issuers in designing investor presentations and websites that meet their disclosure obligations:

A. Areas where there is a high level of non-compliance

1. Naming the QP: An issuer must include the name of the QP and their relationship to the issuer for all documents containing scientific or technical disclosure, including websites and investor relations materials. All technical information must either be approved by a qualified person or based upon information prepared by or under the supervision of a qualified person. In the latter case, an issuer must ensure that the technical information is consistent with the information provided by the QP. An issuer should consider having the QP review disclosure that summarizes or restates a technical report or technical advice or opinion to ensure that the disclosure is accurate.

2. PEA cautionary statements: Disclosure of the results of a PEA must provide appropriate cautionary statements to ensure the public understands the limitations of the results of the PEA. The following cautionary language, stated with equal prominence, must be included in disclosure of a PEA that includes inferred mineral resources:

“The preliminary economic assessment is preliminary in nature, it includes inferred mineral resources that are considered too speculative geologically to have the economic considerations applied to them that would enable them to be categorized as mineral reserves, and there is no certainty that the preliminary economic assessment will be realized.”

3. Mineral resources and mineral reserves:

a. Caution that mineral resources are not mineral reserves: The disclosure of results of an economic analysis of mineral resources must include an equally prominent statement that “mineral resources that are not mineral reserves do not have demonstrated economic viability”.

b. Inclusion or exclusion of mineral reserves in mineral resources: When reporting both mineral resources and mineral reserves, an issuer must include a clear statement whether mineral resources include or exclude mineral reserves. While practices on this matter vary, the CIM Estimation Best Practice Committee from 2003 recommends that mineral resources should be reported separately and exclusive of mineral reserves.

4. Exploration targets: If an issuer discloses an exploration target, both the potential quantity and grade of the exploration target must be expressed as ranges and be accompanied by an equally prominent statement that “the potential quantity and grade is conceptual in nature, there has been insufficient exploration to define a mineral resource” and that “it is uncertain if further exploration will result in the target being delineated as a mineral resource”.

5. Historical estimates: Each time an issuer discloses historical estimates, the issuer must include information about the source, date, reliability, key assumptions and other factors, and the following, equally prominent statements: “a qualified person has not done sufficient work to classify the historical estimate as current mineral resources or mineral reserves” and “the issuer is not treating the historical estimate as current mineral resources or mineral reserves”.

B. Areas for Additional Improvement

1. Taxes in economic studies: Financial results and the cash flow model for an “advanced property” (which includes results of a PEA, pre-feasibility or feasibility study) must include assumptions that have an economic impact such as taxes, royalties, and other government levies. In respect of such tax matters relevant to a technical report, we note that a QP may rely on a report, opinion or statement of another expert who is not a QP, or on information provided by the issuer, and may include a limited disclaimer of responsibility, provided the QP discloses: (i) the source of the information relied upon, including the date, title, and author of any report, opinion, or statement; (ii) the extent of reliance; and (iii) the portions of the technical report to which the disclaimer applies.

2. Metal price assumptions: When reporting mineral resources and mineral reserves, an issuer must ensure the assumed metal or commodity price, and the cut-off grade, are clearly stated, as well as the effective date of the reported estimate. For investor presentations, this information could be provided in an appendix.

3. Technical report triggers: An issuer must ensure that PEA disclosure on its website is supported by an existing technical report. Disclosing economic projections in investor presentations, fact sheets, posted or linked third party reports[1], or any statements on the issuer’s website may trigger the filing of a technical report to support the disclosure. Such PEA disclosure can include forecast mine production rates that might contain capital costs to develop and sustain the mining operation, operating costs, and projected cash flows.

4. FLI compliance: An issuer should ensure that FLI disclosure in investor presentations provides the material factors and assumptions used to develop the FLI. Examples of FLI include metal price assumptions, cash flow forecasts, projected capital and operating costs, metal or mineral recoveries, mine life and production rates, and other assumptions used in preliminary economic assessments, pre-feasibility studies, and feasibility studies.

5. Overly promotional terms and potentially misleading information. An issuer should avoid terms and statements that may be overly promotional or misleading. Terms which may be used inappropriately in certain circumstances include, “world-class”, “spectacular and exceptional results”, “production ready”, “ore” in relation to mineral resources, and “management estimates”.

6. Ability to rely on previous disclosure: An issuer must include in any written disclosure the following information, but may be able to comply with these requirements by including a reference to the title and date of a document previously filed on SEDAR that contains this information:

a. Exploration information about quality assurance/quality control and naming the laboratory.

b. Data verification – data verification is the process of confirming that the data underlying the written disclosure has been properly generated, was accurately transcribed, and is suitable for the purpose that the data is used.

c. Information about the nature and context of drilling results such as true width and higher grade intersections. In some cases, investor presentations may be able to include representative drill sections or other figures showing mineralized intervals to assist in providing the necessary information.

d. Metal price assumptions. However, if the assumed metal or commodity price is significantly below or above current prices, an issuer should clearly state the key assumptions to ensure the disclosure is not misleading.

Ultimately, if an issuer is in doubt about whether disclosure on its website or in its investor presentations complies with NI 43 101, the issuer can have a QP or legal counsel review the applicable disclosure.

 

[1] We also recommend that an issuer’s website does not include links to third party content, such as analysts’ reports.  National Policy 51-201 Disclosure Standards (“NP 51-201”) provides that if an issuer elects to post to its website or otherwise publish the names of analysts who cover the issuer and/or their recommendations, the names and/or recommendations of all analysts who cover the issuer should be similarly posted or published.  This applies whether the analysts’ coverage of the issuer is positive or negative.  NP 51-201 also provides that an issuer that redistributes an analyst’s report risks being seen as endorsing that report.  This may trigger a requirement for the issuer to file a technical report, depending on the content of the analyst’s report.

On Sunday March 1, 2015, the Honourable Joe Oliver, Federal Minister of Finance addressed the Prospectors & Developers Association of Canada (“PDAC”) at the annual PDAC Convention in Toronto and announced certain proposals aimed at bolstering Canada’s junior mining industry. First, the Government has announced that it intends to extend the 15% Mineral Exploration Tax Credit (“METC”) for flow-through share investors for an additional year. The METC was scheduled to expire on March 31, 2015. The METC was first introduced in 2000 as a temporary measure which expired in 2003. Since 2003, the Department of Finance has extended the METC annually, one year at a time.

The Government has also modified its previous position with respect to the types of expenses that will qualify as Canadian exploration expenses (“CEE”). Expenses which qualify for CEE treatment are 100% deductible in the year they are incurred. Additionally, certain types of CEE may be renounced to investors pursuant to flow-through share agreements which enable junior mining companies to raise capital and fund exploration programs. In a letter to PDAC dated September 19, 2007, the Canada Revenue Agency (“CRA”) provided certain guidelines in determining whether certain expenses incurred at the exploration stage qualified as CEE. In that 2007 letter, the CRA took the position that environmental assessments and community consultations undertaken to meet a legal requirement to obtain a permit would not be eligible for CEE treatment as these costs are not incurred for the purpose of determining the existence, location, extent or quality of a mineral resource in Canada.

In his speech, Minister Oliver announced the government’s intention to modify the definition of CEE contained in the Income Tax Act (Canada) to provide that effective March 1, 2015, the costs associated with undertaking environmental studies and community consultations as a pre-condition to obtaining a licence or permit to explore will qualify as CEE.

These proposed tax measures are welcome particularly since many mining companies are facing challenges in securing capital.

Only going to one mining investment show? Make it this one. PDAC International Convention, Trade Show & Investors Exchange is the world’s leading Convention for people, companies and organizations in, or connected with, mineral exploration.

The four-day annual Convention held in Toronto, Canada, has grown in size, stature and influence since it began in 1932 and today is the event of choice for the world’s mineral industry. In addition to meeting over 1,000 exhibitors, 25,122 attendees from over 100 countries, it allows you the opportunity to attend technical sessions, short courses as well as social and networking events.

For more information on PDAC, or to register, please visit the PDAC website.

Dentons Sponsored Events:

Your place ore mine?

Join Dentons for our annual cocktail reception during PDAC.

Come catch up with fellow stakeholders in the mining industry over an enjoyable evening of Hors d’oeuvre, drinks and networking.

We look forward to seeing you!

Date & Time
March 2, 2015
4:00 PM – 7:00 PM

Location
InterContinental Toronto Centre
Sapphire/Turquoise Room
225 Front Street West
Toronto
(Connected to the Metro Toronto Convention Centre)

Dentons is proud to support the Women in Mining – International Networking Reception

Take advantage of a global networking opportunity at the 8th annual Women in Mining International Reception hosted by Women in Mining Canada, designed to bring together industry leaders, academia, employers, students and job seekers from around the world. Here, you can connect with the people and personalities who comprise this dynamic industry and celebrate the global contributions that women have made to this vibrant industry – this reception is full of the energy that will fuel your PDAC experience. Afternoon appetizers and refreshments will be served.

Visit Women in Mining (WIM) Canada on the Trade Show floor at Booth 913, pre-and post-reception.

Become a member, learn how to become involved through volunteering or participating on committees, catch up with old friends and grow your network.

WIM Canada is a national not-for-profit organization formed in 2009 and focused on advancing the interests of women in the minerals exploration and mining sector.

For more details please contact: info@wimcanada.org

Date & Time
March 3, 2015
3:00 PM – 5:00 PM

Location
Metro Toronto Convention Centre
Room 105, North Building
Toronto

For more information on Dentons’ involvement at PDAC or to attend an event, please contact Kylie Panciuk.

The Northern Plan will focus on the integrated and coherent development of the area covered by the Northern Plan which includes all of Québec located north of the 49th degree of north latitude and north of the St. Lawrence River and the Gulf of St. Lawrence. There are several mining exploration projects and major mining projects at various stages of development in the north, some of which require significant access to infrastructures. The Government of Quebec intends to take steps to facilitate the implementation of mining and other projects in the area. With confirmation by the Government of Québec of its intention to relaunch the Northern Plan by introducing Bill 11, An Act respecting the Société du Plan Nord, on September 30, 2014, the implementation of the Northern Plan continues. Bill 11 reiterates the majority of the elements included in the former Bill 27, An Act respecting the Société du Plan Nord, introduced in 2011, which was examined by a parliamentary committee. However, Bill 11 contains new elements and incorporates differences when compared to the previous version as outlined in Relaunching the Northern Plan: Introduction of the Bill to establish the Société du Plan Nord. Mr. Couillard’s government seems determined to proceed with the implementation of all mechanisms required for the orderly deployment of the Northern Plan while the mining sector and international business community continue to demonstrate interest in this major plan.

Dentons is proud to be a Silver Sponsor of Mining & Investment Latin America Summit, the largest mining and investment event in Latin America.

Mining & Investment Latin America Summit is the only event that focuses on mining investment and efficiency strategies in Latin America, bringing together mining companies; companies with mining assets in Latin America; local, regional and international investors and financial service providers.

Please join us on Day 1 at 9:40 a.m. for a government and mining company panel discussion regarding optimizing the relationship between both parties to ensure long term growth and development. The distinguished panelists include Dr. Beatriz Uribe, President of Mineros; Patricia Fortier, Ambassador, Embassy of Canada, Peru; and Brian Abraham, Partner, Mining, Dentons Canada LLP.

Dentons Canada mining partner Jaime McVicar will also attend the Summit.

Brian and Jaime look forward to getting together with you for two days of business matching, knowledge sharing and deal-making.