Andrew Powers, partner and co-head of McMillan’s Natural Resources & Energy Group, and Sasa Jarvis, partner in the firm’s Capital Markets & Securities Group, answer questions addressing the critical mining industry, including how recent government changes may impact their practices going forward.
Q: Recently the government announced plans to improve permitting processes for/address backlogs in developing new critical mineral mines – what are the implications of this move, from your perspective?
A: The mining industry has lamented long project timelines for Canadian mineral assets for decades. In response, the Canadian government recently announced plans to reduce the length of time it takes to develop a critical minerals mine by organizing key regulatory reviews in parallel, including permitting and environmental assessments, rather than creating artificial wait times between approval processes, and by providing better funding to government agencies to reduce application backlogs. For Canadian miners, this is a welcome change and one that the federal government has been working on for some time as it explores ways to achieve the goals of Canada’s Critical Minerals Strategy. The Honourable Jonathan Wilkinson, Minister of Energy & Natural Resources, indicated that he hoped these changes would reduce the length of time required to take a mineral project to production from 12-15 years to only five years. This likely wouldn’t include early exploration stages, which can expand the process from pre-discovery to production by up to two decades – or longer. Given the pace at which Ottawa expects to effect its energy transition strategy, including achieving net zero emissions by 2050, reducing regulatory wait times for permitting is going to be vital to allowing Canadian miners to get their assets to production and for their products to subsequently enter our supply chains.
This is good news for Canadian miners with critical mineral assets, but what about those miners targeting minerals outside of what the Canadian government currently classifies as being critical? By retaining all the existing standards and requirements but restructuring the order and speed with which things are done, the government is implicitly acknowledging that its own inefficiencies result in an increase in project timelines of up to 300%. So, if the federal government is telling the Canadian mining industry that, with a few tweaks here and a few tweaks there it can take as little as five years to take a mineral project to production, it raises the question: is it possible to introduce this compressed time frame for mineral projects that are not currently classified as targeting critical minerals? If the Canadian government can increase the number of producing mines in Canada, not only will that drive investment into Canada capable of supporting the Canadian mining industry, but it will also increase the number of co-products and by-products mined (which can include critical minerals). Moreover, since Canada’s list of critical minerals will undoubtedly evolve to include additional minerals as the global landscape continues to change, the mineral projects that are positioned to fill this need won’t be mired in a lengthy permitting process because of being deprioritized at this stage.
Q: How does the 30% tax credit for critical mineral exploration fit in to Canada’s approach?
A: One of the main issues Canada’s mining industry currently faces is an acute lack of investment capital flowing into the industry. These days, exploration miners are having a particularly difficult time raising capital to fund operations and for those miners without any production revenues, this can effectively grind projects to a halt. The Critical Minerals Exploration Tax Credit, or CMETC, builds on the success of Canada’s flow through financing regime, where companies are permitted to renounce certain qualified expenditures to the investor, generally allowing the investor to deduct those expenditures up to the amount of their investment for income tax purposes in Canada. The CMETC is an additional benefit designed to drive investment towards exploration companies targeting specified critical minerals. Incentivizing investment capital in this way is going to be necessary to compete with other jurisdictions that are also trying to drive exploration and development activities towards critical minerals and the biggest beneficiaries are the junior exploration miners that need every advantage in the current capital markets climate.
Q: How does Canada compare with other nations, globally, when it comes to critical mining, given the recent interest and investment from the government?
A: Canada is fortunate to host an abundance of critical minerals, have a long history of mining its lands and boast a sophisticated mining labour force – all underpinned by an industry that has demonstrated its commitment to responsible decision-making when it comes to exploring and extracting minerals. In theory then, Canada should be a very favourable jurisdiction to help satisfy the world’s demand for critical minerals. In practice, however, Canada is falling behind other jurisdictions, most notably Australia, despite all its inherent advantages – and despite the significant funds being earmarked by the federal government to increase domestic activity in the critical minerals sector.
In recent years, Australian companies have heavily invested in Canadian mineral assets, including by acquiring marquee Canadian mining companies. Take Newmont Mining Corporation’s 2019 acquisition of Goldcorp Inc. and the numerous mineral projects operated by Rio Tinto Group in Canada as examples. Recently, there’s been commentary around the lack of investment in mining by Canadian pension funds, which as of the 1990s are no longer required to invest 90% of their assets in Canada. The result is that, according to mining.com, the eight largest pension funds in Canada having only 3% of their holdings in domestic equities, compared to Australia’s superannuation funds, which hold up 21.9% of their asset base in Australian equities. In effect, this means that the investments from these Canadian pension funds are often going to offshore commitments and are consequentially driving investment and development in those jurisdictions, which means that the Canadians (i.e., the future retirees whose earnings fund these pension funds) only stand to benefit from potential profits associated with these investments, instead of simultaneously benefiting from the positioning of Canada’s mining industry to best compete in the coming energy transition that is intended to secure the future generations of Canadians.
Outside of pension funds, we’re seeing lower levels of investment capital available more generally from the Canadian investor base for mining activities, despite government incentives such as CMETC, and so mining companies are looking beyond our shores for solutions to funding gaps. We see this in strategic investments with offshore funds and other entities, as well as through attempts to lure manufacturers to build their production facilities in Canada and utilize critical minerals produced domestically. There’s been limited success in obtaining this type of funding from foreign sources. The Canadian government has become increasingly concerned with ‘friend-shoring’ and limiting investment from certain jurisdictions, such as China, but replacement funding has not yet materialized.
Ultimately, without buy-in or investments by Canadian investors, Canada’s mining industry will be unable to reach its full potential and this will significantly hamper our ability to be a competitive jurisdiction in the sector globally.
Q: What are your concerns/points that you’re addressing with clients in this area?
A: As noted above, accessing investment capital continues to be one of the main issues that our mining clients are dealing with. These days, we’re advising numerous clients in relation to foreign investments since domestic investment capital just isn’t there. For some clients, raising foreign capital comes with its own set of unique challenges, including undertaking complex tax structuring, compliance with securities laws and exchange policies and – the latest obstacle lurking in the shadows – the potential for triggering a national security review. Over the last few years, the relatively robust inbound flow of Chinese capital into the Canadian critical minerals sector has been a life preserver for many struggling TSX-listed mining issuers, but the Canadian government isn’t so sure this is in the best interests of Canada’s national security. In November of 2022, the Canadian government ordered three Chinese-owned entities to divest themselves of their respective holdings in Canadian mining companies due to national security concerns. As a reaction to this, we’re seeing increased caution from both mining issuers and Chinese investors alike, neither of whom wants to find itself being forced to unwind a transaction, possibly at fire sale prices.
We’re also seeing questions from clients related to how Canada’s mining regulatory landscape is evolving. For example, British Columbia is in the process of overhauling the Mineral Tenure Act, although scant details are available as to what this overhauled legislation will ultimately look like. In this business, when there’s uncertainty, there’s deal risk, and so tracking and understanding the latest legislative developments in the sector becomes very important for lawyers to properly assess and advise their clients with regards to the level of risk associated with operating a mineral project in a specific jurisdiction.
Q: How are the lawyers at McMillan equipped to navigate this rapidly evolving industry? What sets you apart?
A: McMillan LLP has been representing mining companies operating both domestically and internationally since the 1920s. Though we’ve advised on some of Canada’s highest profile mining transactions, our firm’s work in the sector goes well beyond M&A and capital raising. The team at McMillan has extensive expertise in several key adjacent practice areas, including aboriginal law, environmental law, transportation law, competition and anti-trust law and foreign investment concerns under the Investment Canada Act. At McMillan, we’re engineered to provide advice to mining companies throughout the lifespan of a project, from greenfield exploration all the way to reclamation – and everything in between. Notably, McMillan offers its clients the benefit of sophisticated government relations expertise through our unique strategic partnership with McMillan Vantage, a public affairs and government relations firm anchored in McMillan LLP. Our clients recognize that what sets us apart is our ability to help them stay ahead at every step of their journey by offering real time business solutions. We’re proud to have played a role in the success of many mining companies over the years by leveraging our deep expertise to provide practical guidance to our clients in the sector.
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Andrew Powers is an accomplished capital markets and securities lawyer, and a co-head of McMillan’s Natural Resources & Energy Group. His practice focuses on corporate finance, mergers and acquisitions, and regulatory compliance.
Known for his ability to provide practical solutions to complex problems and move deals to close, Andrew’s corporate finance experience includes advising issuers, investment dealers and institutional investors in a wide range of financing transactions. He has an impressive track record of raising seed capital, undertaking initial public offerings and secondary public offerings, and in negotiating public and private offerings of debt and equity securities, both domestically and cross-border.
In his mergers and acquisitions practice, Andrew advises both acquirers and target companies involved in takeover bids, plans of arrangement, reverse takeovers and other business combinations and corporate transactions.
With sweeping experience in the mining industry, Andrew acts for parties involved in critical minerals, supports companies going through energy transition projects, and advises on geopolitical aspects of mining deals. Frequently, he is called upon to provide advice on National Instrument 43-101 Standards of Disclosure for Mining Products, and the impact of property rights on mining projects and the executives overseeing them.
Andrew’s body of work also includes several leading transactions in the cannabis sector and advisory work on complex commercial arrangement for market participants in the industry, including licencing, royalty and streaming as well as supply and consulting agreements.
Sasa Jarvis is a respected capital markets and securities lawyer. Her practice focuses primarily on corporate and securities law matters, where Sasa advises both private and public clients on a range of transactions. Her experience includes financings of public and private companies, initial public offerings, listings, mergers and acquisitions, and continuous disclosure obligations.
Representing clients in various industries, Sasa works extensively with clients in the mining and life sciences sectors. As part of her mining practice, Sasa advises public and private companies with respect to property option agreements, acquisitions of mineral properties, asset purchase and sale transactions, joint ventures, as well as technical disclosure.
Sasa’s life sciences practice includes providing advice to companies operating in highly regulated spaces, including cannabis and psychedelics, including on transactional and corporate compliance matters, going public transactions, raising funds, and continuing to comply with disclosure and other requirements. She has assisted clients in the cannabis space since the firm established its dedicated practice in 2016, and is a frequent writer and speaker on developments in Canadian law as they relate to psychedelic regulation.
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