Frank Mariage, partner at Fasken, took some time to talk about the top trends in mining law and to share his advice for investors.
Frank Mariage, partner at Fasken, took some time to talk about mining law and to share his advice for investors at the Prospectors & Developers Association of Canada (PDAC) conference earlier this month.
Mariage works with mining firms in Canada and abroad on various aspects of their businesses, including navigating regulations, mergers and acquisitions and financing.
He said 2018 and 2019 will be good years for the industry, and “obviously gold is still attracting the attention, but we have the new metals now. The industrial metals, lithium, cobalt. That’s generating a lot of activity.” Mariage added that cannabis and cryptocurrencies have taken in some attention, and junior mining firms are facing “a hard fight” to raise capital for exploration.
He said investors should read a company’s MD&A, notes and other documents before they start investing because “a lot of investors don’t do that.” There’s generally a lot of information in the fine print that perhaps never makes it into a press release.
Of course, jurisdiction is another factor to consider when choosing a company to invest in. Mariage noted that changes to the Democratic Republic of Congo’s (DRC) mining code, which the country’s president signed into law on March 9, could cause issues for Ivanhoe Mines (TSX:IVN) and Glencore (LSE:GLEN).
The new mining code designates cobalt as a “strategic metal,” allowing royalties to rise from 2 to 10 percent. For other base metals, royalties will increase from 2 to 3.5 percent. Mariage said the DRC is not the only country where changes are occurring, as “Cameroon just enacted a new bill. Madagascar’s working on one; Burkina Faso did it recently.”
He said greater transparency and greater responsibility to the environment are two key trends that he’s seeing happen in terms of laws that impact miners, but “you know what, it’s a good thing. It’s important that mining companies are responsible citizens and make sure they have a plan to rehabilitate sites where the mining operations are.”
Watch the interview above for more insight from Mariage, or read the transcript below. You can also click here to view our PDAC 2018 playlist on YouTube.
INN: So, tell me a little bit about your work. What are the types of cases that you deal with?
FM: Well, I’m a — of course what we call a corporate commercial lawyer. My clientele is mostly mining companies. I accompany them in the various aspects of their business where that’s regulatory, mergers and acquisitions, financing, of course, is a large part of working for mining companies since the stock exchange and the issuing capital to raise funds for exploration is a large part if it. So, through all those activities, that’s generally what I do with our clients. I practice out of Quebec in the Montreal office at Fasken where we have a pretty large group or global mining group over a hundred lawyers at under the mining sector I’m focused in Montreal. Working with mining companies in Canada but also abroad, Latin America, French Africa, wherever our clients take us. I also act in Quebec, I am Chairman of the Quebec Mineral Exploration Association. So, I get involved in the industries. So a lot of issues have caught our attention in the last couple of years that should say in the mining sector.
INN: Which issues have caught your attention. What are you seeing – the top trends?
FM: The top trends well, the regulatory framework is becoming very complex. More and more regulations for permitting, access to land, access to territory for exploration is very, very important. It’s becoming more and more difficult of course the tax regime and you know, also getting the attention of investors. I see a lot of people here it looks promising. The last couple of years have been very difficult for the mining sector. Especially for mining exploration companies.
INN: Why is that?
FM: Well of capital. I mean, capital has been hard to raise. Just in Quebec for example, mining exploration expenses and development of deposits. We literally went back 10 years. So we’re close to 1 billion dollars in expenses before — I think before 2011, 2012, and two years ago I think last statistics came out. We’re back ten years to like 350 million dollars or something. There was this –you know, very steep decline in exploration and mining companies were having a very difficult time raising capital and honestly, it’s still is the case right now. I mean, the industry is booming out there. There are various sectors that are attracting attention, but for that junior exploration company it’s a hard a fight. It’s still hard.
INN: How long do you think that will take to change or will it?
FM: Boy if I had a crystal ball, I don’t know.
FM: I think it’ll still — you know what — I think I’m very optimistic for 2018. I think it’ll be a good year. I think 2019 will be a very good year. We’re seeing a slow ramp up. So for me I’ve been in the business for 18 years now. I much rather see a long term progress and big you know because what goes up quickly also goes down quickly. So I’d rather a slow ramp up and just to show the fundamentals are there. Obviously gold is still attracting the attention, but we have the new metals now. The industrial metal, the lithium, the cobalt. That’s generating a lot of activity. You and I, were talking before, what’s maybe hurting the mining industry right now in terms of financing. All the attention that cannabis is getting and cryptocurrency. There’s a lot of investing going in that and obviously that money is not going towards exploration. So maybe — you know it’s a trend. We’ll see how long it last, but obviously, maybe that money will be available in a near term for mining companies.
INN: Right. Do you want to talk about the jurisdiction a little bit. So you do you some cases in Quebec, some abroad. What are the differences in some of the mining laws? Is it tougher in certain places to get a project off the ground?
FM: It is. As you can see The Fraser Institute just release its report where Quebec is 2nd place in Canada, 6th in the world. We’re very happy about that. But it just shows you how dangerous it can get when a government wants to start talking about mining legislation. We were –Quebec was first in the world. You know 7 years ago. Then we went down to 21st spot because we tried to amend the mining law, created a lot of animosity. It’s a dangerous slope when you want to do mining reform. It creates a lot of attention. Look what’s going on in the Congo right now. Major issues with Ivanhoe Mines and Glencore. The government wants to drastically change the mining code. A lot of that’s going around in Africa. We called the 4th generations of mining codes. We’re seeing Cameroon just enacted a new bill. Madagascar’s working on one Burkina-Faso did it recently. Of course we’re all moving to greater transparency. That’s the key. Greater transparency and a greater responsibility in terms of environmental. That’s also a key issue.
INN: So, what should investors do when they’re looking to select a company in terms of you know, evaluating whether it’s going to be encountering some legal issues?
FM: You know what, first thing to do is to look at their disclosure, right? You can find out a lot of things in the fine print when you read a company’s MD&A, their financial statements and their notes. A lot of investors don’t do that. A lot of times, I mean, companies who have bad news who are not necessarily going to put it out in the press release when technically, they should. But if you’re going to read it in the fine print of their MD&As. So I think that’s a good start, you know, making sure that you read their materials before you start investing.
INN: What happens when they have an investment in a company and then that company faces some legal issues? What should they do? Or how should they pull out? Or should they sell?
FM: Pray maybe — well I mean it depends with the legal issue, right? I mean, there are legal issues that are significant and some that are minor. Of course, you know obviously, if you look at companies that have had some more legal issues in the past with permitting abroad. I mean, there’s stuff you can control and there’s stuff you can’t control, right? So, depending on the nature again, read the materials, get comfortable with it, consult your advisors and to try and determine how serious that issue is. If you’re comfortable to remain, remain. If you’re not then you know– sell I guess.
INN: Right. So what do you see on the horizon in terms of things that maybe aren’t regulated yet or issues that are upcoming in the industry that will need kind of regulations to be introduced?
FM: Well I mean, I mentioned at the beginning that we’re already dealing with the very, very important regulatory framework. It’s funny that you know governments are trying to reduce that burden but it’s honestly, I don’t think — I think regulatory framework is going to– especially on the environment side. Just two weeks ago in Quebec, the government published 35 regulations under the new Environment Quality Act, that mining exploration companies have to look at because it will have an effect on their activity. It will increase their cost. But that’s not just in Quebec. That’s happening all around the First Nation’s issues as well. But you know the regulatory framework for the environmental issues is very important. It’s not going to go away. You know what, it’s a good thing. It’s important that mining companies are responsible citizens and make sure they have a plan to rehabilitate sites where the mining operations are. You know, it wasn’t done in the past. I’m talking– 30-40 years ago. Now it’s normal that mining companies expected to clean up once it’s done with it’s operations. That goes from exploration all the way to operations.
INN: Right. So I’m pretty much out of questions. Is there anything else that we didn’t talk about that you wanted to add?
FM: Listen, I think 2018 will be very interesting. I mentioned the fact that lithium and cobalt was getting a lot of activity. We’ll see how this plays out. I don’t think it’s going to go away anytime soon. What I’m seeing as well in Canada is the Chinese investors are back. They’re looking for deposits that they can acquire, companies. That was something that went away a couple of years ago and now it seems to be coming back. I know they have a much stronger, a difficult regulatory framework in China to get the capital out. So that will be interesting to see how that plays out. But again, I think 2018 will be a positive year for the industry, and which is good news for everybody.
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Securities Disclosure: I, Melissa Shaw, hold no direct investment interest in any company mentioned in this article.
Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.