COVID 19 – Opportunities and challenges for M&A in the Canadian mining sector

The COVID-19 pandemic has disrupted workforces, supply chains, capital markets and the prices of various commodities worldwide. The mining and metals sector is no exception, and companies involved in mineral exploration and development in particular, now face a number of challenges. While the health and safety of workers remains a top priority of companies involved in the production of minerals, many are now assessing the economic impact of the pandemic on their business, operations, and capital. Indeed, the revenues of a number of mining companies have declined due to reduced or halted operations, prompting these businesses to consider how to bring their employees back on site while maintaining the health and safety of their workforce. On the other hand, the economic landscape which has been altered as a result of the pandemic, has created opportunities for targeted acquisitions within the sector.

The price of certain metals has risen dramatically in recent months, creating an incentive for those companies with the necessary financial strength to take advantage of distressed M&A opportunities in Canada, including exploration projects as well as producing mines. In considering such opportunities, acquiring companies will obviously need to consider the operational issues carefully and, in particular, the challenges involved in bringing personnel to the site. Provinces and territories across Canada have implemented a range of travel restrictions, with some jurisdictions imposing mandatory periods of self-isolation for non-residents upon arrival. In addition to travel restrictions, governments in many jurisdictions have implemented additional workplace safety requirements to address COVID-related concerns. In some cases, these restrictions and measures have created difficult operational issues, which acquirers are now considering as part of their due diligence processes. There is a possibility that these measures may be in place for some time, or brought back in the future.

An important preliminary step potential acquirers are currently taking in assessing a potential target is determining the extent to which the COVID-regulatory regime (including new and proposed requirements) will apply, in order to assess how certain travel restrictions and workplace safety measures may affect and increase the costs of both the due diligence process and the target’s business operations. In particular, acquirers are now needing to assess how travel restrictions, rules regarding physical distancing, and requirements to provide a clean and safe working environment will impact operational logistics, including:

  • flying or transporting employees, consultants, and contractors in and out of worksites;
  • whether and the extent to which employees, consultants, and contractors may be tested before arriving on site;
  • flying and transporting equipment in and out of worksites;
  • sleeping accommodations, meal preparation, meal halls, showers, and laboratories;
  • the use of equipment operated by more than one individual (e.g., trucks, drills, and other machinery or tools etc.); and
  • the sourcing and transportation of cleaning products and personal protective equipment (PPE).

Added care is needed when considering acquisition target with assets in those jurisdictions with mandatory periods of self-isolation. For example, non-residents of Nunavut and Yukon are currently required to undergo a mandatory 14-day period of self-isolation upon arrival. This in turn requires companies operating in Nunavut and Yukon to find additional accommodation for those employees and consultants arriving from outside the territory until they can be transported to their onsite accommodations. Potential acquirers who have identified opportunities in jurisdictions with required self-isolation periods are considering the additional costs and time constraints involved with air travel, increased community and access issues, new government regulations, and increased risk disclosure obligations.

Although the rules, restrictions, and measures associated with the pandemic will, for a certain period, complicate due diligence investigations and the operation of mining projects in Canada, those companies that are mindful of such issues and prepared to solve these operational challenges may find themselves poised to capitalize on available M&A opportunities.

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Robin Longe

About Robin Longe

Robin Longe is a partner in Dentons’ Vancouver office, and a member of the Firm’s Corporate group.

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Chad Groulx

Chad Groulx