40 LEXPERT MAGAZINE
|
MAY 2018
| INTERNATIONAL PROJECTS |
quickly sold on to rival Eurasian Natural
Resources Corporation PLC, known as
ENRC, a company listed on the London
Stock Exchange.
First Quantum filed an international
arbitration against the Congolese govern-
ment, and a lawsuit against the third-party
company in the British Virgin Islands,
Turner says. With mainstream British
media picking up on the Canadian miner's
insistence that ENRC was dealing in stolen
property, the London-based
company's reputation start-
ed to take a hit. e case
settled in 2012.
"We ultimately received
US$1.25 billion, which was
what the asset was worth,
from ENRC. It was a win
in the sense that people ex-
pected we wouldn't get any compensation
or very little compensation, and on that
basis we recovered what it cost to build the
mines. Obviously, we would have preferred
to keep operating them but we basically got
our money back."
Can you mitigate against this type of
political risk? You can, he says, and the
best way to do so involves bringing in
multilateral agencies such as Export De-
velopment Canada or the World Bank's
International Finance Corporation to
partner in some capacity.
"ere's obviously a huge government-
relations aspect," and so being proactive
about engaging with local non-governmen-
tal organizations as well as with all levels of
government on the ground, and making
sure they understand the project and are
onside, is critical. Because simply refusing
to do business in jurisdictions that present
volatile political risk isn't a viable option for
allegedly operating in the country illegally
and supposedly failing to fully disclose its
export earnings over 17 years. e amount
equals two centuries worth of revenue.
Foreign anti-corruption laws imposed
on American, Canadian and many EU
companies "pose additional challenges" to
doing mega projects in jurisdictions where
additional payments to key figures are the
norm and the host government has a dif-
ferent view of business practices. Sabine
says another factor that has to be taken
into consideration, regardless of political
climate is infrastructure — or complete
lack of it.
"You have to effectively frequently build
your own infrastructure. You have to build
a community, build and staff schools,
medical facilities, provide drinking wa-
ter. … We've had problems in Central
Africa because we couldn't source electri-
cal power. We were doing a copper project
that requires power so sometimes you have
to build your own power plant or you can
negotiate with the government to get the
power and they have to supply it. And fre-
quency they can't. I know one deal where
we effectively paid to build a sub-station
with another mining company, and as the
thing came to fruition the government
required us to give up 10% of the power
output for use by the city. Which is fine, it's
just there are always little surprises along
the way."
In fact, the little surprises can be the big-
gest challenge, says Alain Massicotte, head
of the Montréal Infrastructure and P3
Group at Blake, Cassels and Graydon LLP.
Massicotte says as lawyers, the biggest
challenge is to make sure you identify all
the risks "then making sure all the risks are
mitigated correctly" before the documen-
tation is drawn up and signed.
What keeps it interesting is the risks are
different in each country: and sometimes
impossible to foresee. Yet they are critical
to the client and to the project.
For example, he says, he was working
on an independent power project in India
some years ago negotiating a power pur-
chase agreement with the government's
state energy board when something com-
pletely unexpected happened: neighbour-
ing Pakistan carried out a nuclear test.
In project finance, he says, the infra-
structure must be built within budget and
large international miners.
John Sabine, now counsel to Bennett
Jones LLP, with many years of experience
working on such projects, says large mining
companies have to go where the deposits
are, whether they be in the People's Demo-
cratic Republic of the Congo, Venezuela,
Zimbabwe, Argentina or Tanzania.
"Mineral grades are huge, there's an
abundance of copper, most metals, par-
ticularly in Africa right now — Congo in
particular — has a tremendous amount of
cobalt; about 70% of the world's produc-
tion comes from Africa," Sabine says. "So
what you're trading off is the accessibility
to high-grade large resource projects in
exchange for the peripheral things you
wouldn't normally expect in Canada or
the United States where we have the rule
of law, a ban on corruption and we have
transparency."
Depending on the jurisdiction, Sabine
says, there may be some upsides to doing
mega projects there along with the poten-
tial risk.
"You face reduced risk of environmen-
tal issues and probably face less risk of
constraints on your ability to operate in
a circumstance where you have mining
laws that are less rigorously enforced. On
the other hand, you face the issues of gov-
ernment competency, government cor-
ruption, taxation."
Sabine points to Tanzania, which hit
UK-based Acacia Mining, majority owned
by Canada's Barrick Gold, with a US$190-
billion bill for taxes and fines last year for
JOHN TURNER
>
FASKEN MARTINEAU DUMOULIN LLP
"There's always the risk your
client's going to lose the
project entirely," he says.
"Once you're in the process of
building a mine you can't pick
it up and move it if you have
a dispute with the government,
and it's always possible you
can have it confiscated."
