Canada: Mining Prospects


We welcome you to our June 2010 issue of Mining Prospects, the periodical of our Global Mining Group. At the same time that many mining companies of all sizes and nationalities continue to benefit from a general improvement (however tentative) in the global economy, they also face challenges from the collapse or near-collapse of a seemingly endless variety of "too-big-to-fail" entities — and, more recently, of governments. Recently announced tax initiatives, licence terminations, and court- or government-ordered expropriations overseas also point to a period of political and regulatory uncertainty. Against this backdrop, the themes of this issue of Mining Prospects are understanding the landscape and preparing for challenges and opportunities.

This issue includes articles describing proposed changes to Canadian disclosure requirements for mineral projects and proposed Canadian federal legislation seeking to impose standards of conduct for Canadian mining companies operating anywhere in the world. This issue also includes articles providing guidance on two very different M&A scenarios; one being how to respond to a "bear hug" letter from a potential hostile bidder, and the other being tips for successfully structuring transactions with Chinese investors. In addition, we have included a short version of a larger article summarizing recommendations for building boards of directors as the fundamental underpinning for good corporate governance. Our two principal goals for Mining Prospects are to update you on developments of interest to mining companies and their advisors, and to provide you with guidance on how to address various challenges and opportunities in the life cycle of mining companies.

Please continue to give us your suggestions and requests for future topics, so that we can make Mining Prospects as useful as possible for our readers.


by: Richard B. Miner

The Canadian Securities Administrators (CSA) recently released for a 90-day comment period proposed changes to National Instrument 43-101 Standards of Disclosure for Mineral Projects (NI 43-101). The proposed changes do not reflect any major policy shift. Instead, they streamline and clarify certain disclosure requirements to reflect experience with the instrument as well as developments in the industry and capital markets that have occurred since NI 43-101 was originally introduced. Overall, the proposed changes represent a commendable attempt to balance the cost of compliance with regulatory effectiveness.

While the volume of changes is substantial, and a detailed understanding of their full impact (intended and unintended) will only become apparent through practical application, the following is a brief summary of those changes that appear to be of most interest to a broad audience.

Broader Acceptance of Foreign Standards and Professionals

Currently, NI 43-101 permits foreign companies, as well as Canadian companies with mineral properties abroad, to disclose reserves and resources using any of the Joint Ore Reserves Committee (JORC), Securities and Exchange Commission (SEC), Institute of Materials, Minerals and Mining (IMMM), or South African Code for Reporting of Mineral Resources and Mineral Reserves (SAMREC) classifications as an alternative to the NI 43-101-mandated Canadian Institute of Mining (CIM) classifications, provided that such disclosure includes a reconciliation between the foreign and CIM classifications. The proposed changes will add the Chilean and Pan-European classifications to the list of specified international classification systems that are acceptable, and will also permit the use of any other international classification system that is "generally accepted in a foreign jurisdiction" and that defines resources and reserves in a manner consistent with the CIM classification. In addition, the reconciliation requirement will be removed.

In order for a foreign geologist or engineer to be recognized as a qualified person (QP), NI 43-101 currently requires that person to be a member of one of the foreign professional associations listed in a schedule to the instrument. The proposed changes will remove the schedule and instead require membership in a foreign association that "is generally accepted within the international mining community as a reputable professional association" and that has a membership designation with certain objective standards, including holding a university degree or equivalent.

These proposals for broader recognition of foreign standards and professionals reflect both the increasing globalization of the industry and an attempt to replace prescriptive lists with objective tests so as to provide flexibility to accommodate the continuing evolution of the industry.

Disclosure of Historical Estimates — Property Acquisitions

A particularly problematic area under the current NI 43-101 is the disclosure of historical resource estimates in the context of the acquisition of a mineral property. The acquiror generally wishes to disclose the historical resource information at the time it announces the acquisition, but may not have had sufficient time and resources to update this historical information to NI 43-101 standards. If the historical information is not NI 43-101-compliant, it can only be disclosed if it satisfies the definition of historical estimate, which requires that it have been prepared prior to February 1, 2001. Estimates made after February 1, 2001 that are not NI 43-101-compliant cannot be disclosed. Disclosure by the acquiror of post-February 1, 2001 estimates that are NI 43-101-compliant triggers a requirement for the acquiror to file a technical report within 45 days following the disclosure, a deadline that is frequently impossible to meet.

The proposed changes represent a practical compromise. First, the definition of "historical estimate" will be broadened to include any estimate prepared before the acquiror acquired, or entered into an agreement to acquire, the property, and that the acquiror has not verified. Second, if the historical estimate is supported by a technical report previously filed by the vendor, and if the acquiror is not aware of any new information that would make the historical information misleading, the acquiror will have six months (as opposed to the current 45 days) in which to file its own technical report verifying or updating the historical estimate.

Royalty Holders

Another awkward area of NI 43-101 has been the very limited exemption provided when a royalty holder is required to file a technical report. Typically, the technical report requirement is triggered when a royalty holder first becomes a reporting issuer in Canada or subsequently files a prospectus or annual information form. In many cases, the royalty holder will not have a right to access the property or the detailed information about the property required to be included in a technical report, and operators are generally reluctant to grant such access.

Currently, NI 43-101 provides relief to a royalty holder only with respect to those items of the technical report that require data verification, personal inspection or document review — and then only if the royalty holder has requested but has not received access to the site and data from the operating company. Recognizing that in most cases NI 43-101-compliant disclosure on the properties in question is already made by the operator, the proposed changes will exempt a royalty holder from having to file a technical report on a particular property in respect of scientific or technical information that has been disclosed by the operator if the operator is either subject to NI 43-101 or is a producing issuer listed on a specified foreign exchange and discloses its reserves and resources under an acceptable foreign code.

Technical Report for Short Form Prospectus

Currently, NI 43-101 requires that a technical report be filed concurrently with the filing of a preliminary short form prospectus that contains material technical information about a property material to the issuer unless that information is already contained in a previously filed technical report. Given the time necessary to prepare a technical report, this requirement can be a considerable impediment to an issuer benefitting from the short timeline under which short form prospectus offerings (particularly bought deals) can be carried out. Accordingly, the CSA is considering, but has not yet proposed, removing or limiting the current requirement to file a technical report with a short form prospectus, and is requesting specific comment from issuers and investors on this question.

The CSA requests comments on each of the following three scenarios, all of which assume the filing of a short form prospectus that includes material technical information about a project material to the issuer that is not supported by a previously filed technical report:


by: Matthew D.G. DeBock , Roger R. Taplin , Adam D. Wanke

Bill C-300, a private member's bill put forth by Ontario Liberal MP John McKay, purports to promote corporate social responsibility (CSR) in the Canadian mining industry's site country operations. However, the perverse result of Bill C-300 could be that mining companies move to countries with less of a commitment to CSR, ultimately making matters worse for site countries.

The core of the bill, titled An Act Respecting Corporate Accountability for the Activities of Mining, Oil or Gas in Developing Countries, is captured in two requirements: first, that the federal government issue CSR guidelines meeting the requirements of the bill within 12 months, and, second, that the Ministers of Foreign Affairs and International Trade investigate any complaint regarding a Canadian mining company that is made by any citizen or resident of Canada or of a developing country where that company operates.

Under the proposed regime, the Ministers would only be able to decline to investigate if a complaint were clearly frivolous, vexatious or made in bad faith. However, even this determination would require at least some minimal level of investigation. Under this regime, therefore, no mining company could avoid being the target of such investigations, no matter how robust its own CSR policies and practices.

Canada's mining companies already operate in one of the most regulated industries in the world, a fact ignored by Bill C-300. Additionally, other, more general legislation also exists that regulates all Canadian companies with international operations. For example, the Corruption of Foreign Public Officials Act makes it a crime for a Canadian entity to bribe, attempt to bribe, aid someone in bribing, or counsel someone to bribe a foreign official. This offence is punishable in Canada by a prison term of up to five years, an unlimited fine, or both.

Additionally, Canadian mining companies are heavily dependent on access to institutional financing. Most international banks, including all major Canadian banks, have subscribed to the Equator Principles (EP), which are the industry standard for environmental and social issues in global project financing. If Canada's mining companies do not ensure that their projects are developed in a socially and environmentally responsible fashion, they will be unable to secure debt financing for those projects.

In addition to the existing regulatory framework, and the ongoing CSR efforts of Canadian mining companies, Bill C-300 ignores the federal government's National Roundtable Process on Corporate Social Responsibility (CSR) and Canadian Extractive Industries in Developing Countries. This year-long, government-led effort included the participation of multiple stakeholders, including mining, oil and gas companies, labour organizations, Canadian and international non-governmental organizations and others. The final report of the Roundtable noted that Canadian extractive companies "have been recognized domestically and internationally for their leadership on [CSR] issues."

As a result of its consultative efforts, the federal government launched its CSR strategy in March 2009, Building the Canadian Advantage: A Corporate Social Responsibility Strategy for the Canadian International Extractive Sector. The strategy includes:

  • a new CSR counsellor for the extractive sector to assist in resolving social and environmental issues relating to Canadian extractive companies operating abroad;
  • continued support and assistance, through the Canadian International Development Agency, for foreign governments to develop and manage their own natural resources in a sustainable manner; and
  • promotion of internationally recognized, voluntary guidelines for CSR.

On January 13, 2010, the federal government, in conjunction with the Canadian Institute of Mining, Metallurgy and Petroleum, launched a new website ( designed to help Canadian mining, oil and gas companies meet and exceed their social and environmental responsibilities while operating abroad. The new website will:

  • offer an inventory of experts, contacts, activities, reference materials, policies and regulations, country profiles and existing Canadian and international tools to assist companies in developing solid CSR policies;
  • provide a forum in which companies, CSR practitioners and stakeholders in Canada and abroad can share experiences and CSR best practices by posting case scenarios, stories and advice; and
  • facilitate the development of education programs for industry and stakeholders.

This leadership position on CSR could be undermined by Bill C-300, which could lead mining companies to relocate to jurisdictions with less onerous regulatory regimes. By encouraging such an exodus, Bill C-300 would not only hollow out Canada's mining industry, but also encourage mining companies to locate in jurisdictions with less regulation and no commitment to CSR efforts.

Bill C-300 is premised on the flawed theory that the Canadian mining industry is inherently abusive of the developing site countries in which it operates, and that the industry must be subjected to an arbitrary, unbalanced and punitive process to embarrass mining companies into being better corporate citizens. While this belief may have had some merit in days past, it is out of step with the modern Canadian mining industry and the complex realities of operating in developing countries. Bill C-300 ignores Canada's leading role in both the mining industry generally and CSR in particular.

As part of its leadership position, Canada's mining industry has encouraged, and will continue to encourage, the development of CSR standards and practices in its site countries. Rather than imposing new burdensome and ill-considered regulation on Canadian companies, with little to no positive effect, Canada would be well-served to continue to assist developing site countries in establishing the resources needed to effectively monitor corporate behaviour for themselves. These efforts, which are a key part of the government's ongoing CSR strategy, would ensure that CSR standards are adhered to by all mining companies, not only those from Canada.


by: Joyce Lee

In recent years, more and more Chinese enterprises are making investments in Canada. Such investments are taking various forms, including acquisition of the target Canadian corporation or business, acquisition of majority control in the target Canadian corporation or its business, or entering into a joint venture and becoming a major but non-controlling shareholder of the target Canadian corporation or business. The purpose of this article is to set out briefly a "Top 10" list of matters for Canadian companies to consider in dealing with investors from China.

1. Identity and Status of the Chinese Investors

The first thing that must be ascertained is whether the Chinese investor is a state-owned enterprise (SOE) or a privately owned enterprise, and if it is state-owned, whether it is a central government SOE or provincial or other level of SOE. The status of the Chinese investor will impact the approval process, decision-making and flexibility in investment. Understanding this issue early on in the negotiation will be most helpful to the Canadian company in coming up with an appropriate approach to not only negotiating the transaction, but also to establishing parameters for the ongoing relationship.

2. Nature of the Investment

It is important to understand the objectives of the proposed investment for the Chinese investor, e.g., how important is it to gain majority control; or is it off-take, access to project management, economic return or access to technology that is most important to the Chinese investor? This will help the Canadian company to map out a negotiation strategy and approach that will lead to a successful deal.

3. Who is/are the Key Decision Maker/s within the Chinese Investor?

In order to avoid unnecessary frustration, it is important for the Canadian company to understand the decision-making process within the Chinese investor, including who is the key person/group that need/s to be convinced before the deal can proceed and how best to establish contact or access to that person/group to understand their needs and requirements. This can differ substantially between SOEs and privately owned enterprises, and may differ from one Chinese company to another depending on background, history, etc. It may not be easy for a Canadian company to get to the bottom of this, and the experience of your advisors in dealing with Chinese investors of different types may turn out to be critical.

4. Understanding the Required Approvals from the Different Government Authorities

This includes understanding the approvals required for the transaction from the Chinese government side, e.g., their National Development and Reform Commission (NDRC) and Ministry of Commerce (MOFCOM), which represent China's central and provincial governments, respectively, and their State Administration of Foreign Exchange (SAFE). It also includes understanding the time-lines involved, as well as the requirements for any Canadian approvals or consents. It is also very important that, as early as possible, a time-line setting out all the external/ third-party variables is settled and agreed upon so that all parties understand exactly what will happen, and when.

5. Language and Translation Requirements

For some Chinese enterprises, the key decision-makers may not be fully comfortable with the English language, and it is therefore important to have a plan for dealing with effective communication during negotiation and document drafting. Translation of legal documents can be time-consuming and costly. However, it is important for the Canadian company to consider having someone (either a reliable staff member or a staff member of an advisor) who can understand Chinese (both oral Mandarin and the written language). This will help ensure that there is no major miscommunication during the transaction process that could lead to a last-minute "surprise" or an "unbridgeable misunderstanding" after a lot of time and effort has been invested.

6. Preparing for Due Diligence –Business, Financial and Legal

As in any other transaction, the more prepared the investee company is to respond to due diligence requests, the more smoothly the deal will proceed. This is especially important with Chinese investors, as they come from a different business culture and it is important to agree early on to a due diligence process and time-line that both parties are comfortable with. Depending on the level of international experience of the Chinese investor, it is also important to ensure that they engage advisors that are familiar with the North American transaction process as early as possible.

7. Public Relationship Issues

Depending on the size and nature of the deal, early planning on public relationship and perception of the transaction may be a deal breaker or maker. This is especially important for high-profile transactions involving sensitive Canadian businesses or well-known Canadian household names. This may also play a large role in businesses that may be considered "national security" under the Investment Canada Act.

8. Confidentiality

Signing an appropriate confidentiality agreement with the Chinese investor at the earliest possible time is advisable. It is also important to note that if news or rumours about a possible deal with a Chinese investor gets out too early, that may have a major adverse impact on the Chinese investor's willingness and ability to proceed with the transaction. It is therefore important from a Canadian company perspective to make sure that the existence of and information about the proposed transaction is only made known to senior executives on a need-to-know basis and that tight control is maintained on confidentiality.

9. Expectation of Involvement Post-Closing and Secondment of Employees of Chinese Investors

This is particularly important for transactions that will involve a joint-venture or continual cooperation between the Canadian company and the Chinese investor. The parties need to identify what positions the Chinese investor will need, post-closing, at the board and management level. It is also important to understand the implications of local requirements for directors and management, especially if the Canadian company is a corporation listed on a stock exchange or is a reporting issuer. There are corporate governance practices in North America that are different from those of the People's Republic of China, including in areas such as requirements for independent directors, for directors' attendance at board meetings, and for directors' contributions to the board. There are also clearance requirements (background check) for directors and officers of listed companies. Clear communication and realistic expectations on these fronts will make the execution of the transaction much smoother.

10. Governing Law and Dispute Resolution

Although this may seem to be merely detail, early agreement on governing law and dispute resolution may help the parties to move forward on difficult issues, especially if there is to be an ongoing relationship between the parties post-closing. Apart from the selection of traditional arbitration rules and an arbitration centre (Hong Kong and Singapore being two preferred centres), there may need to be thought given to experts taking on a quasi-arbitrator role, such as involvement of an accounting firm (usually neutral) in resolution of dispute over financial and accounting matters of a proposed joint venture, etc. Understanding and getting comfortable with the relevant arbitration rules and credibility of relevant arbitration centres, and determining experts available to take on quasi-arbitrator roles in relevant areas, sometimes can get the parties through difficult issues involving uncertainties after closing.


As in any other transaction, knowing your partner, preparing yourself as much as you can, and obtaining advice from experienced people in the relevant field will be keys to a successful transaction and will help establish the right parameters for the ongoing relationship. Canadian companies should not let myths and unfounded worries related to Chinese investors stop them from pursuing what could be exciting investment and business opportunities. Companies from around the world have already been ahead of Canadian companies in benefitting from investments from China and the potential offered by the huge Chinese markets. Canadian companies have a lot to offer, ranging from resources to technology, so we hope the next decade will see the joining of forces between Canadian companies and Chinese companies to create stronger and more efficient global leaders in multiple industries.


by: Graham P.C. Gow

Very often, the first shot fired in a take-over bid battle is when the potential acquiror of a public company calls the target's CEO or Chair and asks for a meeting to discuss a matter of "mutual interest." One scenario is that the potential buyer will express admiration for the target company, disclose that they are already a significant shareholder (maybe just below 10 per cent, so no insider or early warning report has been filed), and propose that the two parties enter into formal discussions to explore whether an outright purchase, or maybe a merger, might be in the best interests of both parties. At some point toward the end of that conversation, the potential bidder will table a letter addressed to the target company, the purpose of which is to sweep the target into as firm an embrace as possible — this is the so-called "bear-hug" letter.

This article will offer some comments on what to watch for in such letters, and will outline some responses for a target company's board and management to consider.

Typically, that first letter will introduce the potential bidder, as well as its investment banker and lawyer, and may or may not set out a proposed price for a transaction. In addition, it will contain the following elements:

  • a statement that the letter, and the related conversations, are meant to be strictly confidential, and that if the target company is prepared to move forward, a non-disclosure agreement should be signed by both parties as soon as possible;
  • a statement that the proposal is non-binding, and that legally enforceable commitments will only arise if and when formal contracts are entered into;
  • a request that the potential bidder be allowed access to material documents and to senior management at the target for the purposes of conducting due diligence; and
  • a request that the target deal exclusively with the bidder for some relatively short defined period of time (depending upon the time needed for diligence, usually a few weeks to a month).

What Public Disclosure is Needed?

If the initial contact has been made on the basis of a non-binding proposal, together with a request from the bidder to keep the discussions confidential until an agreement is reached, most lawyers are comfortable with the advice that the initial contact does not amount to a "material fact" or a "material change" that requires an immediate press release by the target public company. This makes sense. Securities regulators recognize that premature disclosure can be just as inappropriate as late disclosure for a publicly traded company. It is not desirable for the trading price of the target's stock to shoot up briefly on take-over bid speculation, only to crash shortly thereafter when no transaction actually materializes. Generally, the preferred approach is to wait until the bidder is firmly committed to proceeding with a bid before public disclosure is made.

On the other hand, just because a proposal is non-binding and the potential bidder has asked for confidentiality, this does not mean the target company must keep the approach confidential. Sometimes, strategically, the target might prefer to issue a press release disclosing that an unsolicited approach has been made as well as the nature of the proposal (emphasizing that it is non-binding), and advising shareholders to await further developments. At least in the short term, such a press release will likely cause the target's share price to rise. It will also likely attract the attention of other potentially interested parties, and may lead to a competitive bidding process if other strategic or financial buyers choose to get involved.

Disclosure issues can be complicated and difficult. They are highly fact-specific and no general guideline will be correct in all cases. The guidance of experienced professional advisors, financial and legal, will be beneficial to both management and the board of directors.

Is a Sale Inevitable?

The fact that a public company is approached by a potential bidder with a take-over bid or merger proposal does not mean the target board must immediately put the company up for sale. The board's legal fiduciary duty is to act in the best interests of the company (whether it is a publicly traded corporation or an income trust or a partnership), and there may be a variety of reasons that the board feels take-over bid discussions at this time are not in the best interests of the company. Perhaps the bidder is offering a very low price that the target board knows it could never support. Perhaps the bidder is being opportunistic by making its approach at a time when stock markets generally are down, or the target company has just come off an unusually bad financial quarter. The target board may conclude that it is not the right time, nor in the best interests of the company, to entertain acquisition or merger discussions.

If the target company board rejects the acquisition proposal, this, of course, is not necessarily the end of the matter. In the absence of a standstill commitment, the bidder is always free to go public and make its offer directly to the target company shareholders. Management and the target board may recommend that shareholders reject the offer, but ultimately it will be the shareholders who decide.

How Serious is This Bidder?

One important factor for the board and management to consider in deciding how to respond to a bear-hug letter is the apparent determination and state of preparedness of the potential bidder. Have they assembled a team of advisors? Is the proposal subject to financing, or is the financing already in place? Do they need due diligence, or are they ready to proceed without it? Have they identified all necessary regulatory approvals, and do they have a well-formulated plan to obtain them?

It is usually safe to assume that the potential bidder has alternative strategies planned out depending on how the target reacts to the initial proposal. The bidder will prefer a negotiated transaction, if possible, so that they can enjoy some deal protection (such as a break-fee) under a transaction agreement with the target before the rest of the world hears about the transaction. If that is not possible, however, because the parties are far apart on price or other terms, a potential bidder that is rebuffed at that initial meeting or shortly thereafter may well have anticipated that response and prepared its take-over bid circular and other materials in advance so as to be in a position to immediately launch its bid. The bidder's objective, of course, is to move quickly and allow the target company only the minimum 35-day period prescribed by law to seek out "white knights" or otherwise respond to a hostile bid.

Should We Go Exclusive?

Bidders always ask that the target deal with them exclusively. In some cases, where a very attractive price is being offered, strategically the bidder and target are an obvious fit, and the financial advisor is prepared to advise the board that an auction or other process is unlikely to surface greater value for the shareholders, a target company may agree to deal with one party exclusively for a relatively short period of time. As noted above, management and the board of the target cannot agree to sell the company, of course; only the target company shareholders can do that. The board can endorse a deal and recommend that shareholders support it, but once the proposed transaction is announced, there will be a period of time during which other parties can come forward and make superior proposals. Target boards sometimes feel justified in negotiating with one party, confidentially and exclusively, so as to get a favourable transaction launched into the market. If some third party then proposes an even better transaction, that's a good thing for target company shareholders.

What are the Next Steps?

If the unsolicited approach by the bidder takes the target company by surprise, there are a number of matters for management and the board to consider right away. The full board of directors will likely want to be apprised of the situation. An experienced M&A lawyer is obviously needed. In order to assess the financial merits of the proposal, professional financial advice may be called for. Does the board of directors need to strike a special committee to deal with potential conflicts or logistical issues? If there is no shareholder rights plan, should the board adopt one? Should an electronic data room be created for the benefit of this bidder, or perhaps others?


Public companies are approached regularly by third parties exploring possible purchase or other transactions. Many such discussions come to nothing. For the target company, however, giving some advance thought as to how management and the board might respond allows everyone to react in a calm, deliberate manner. This state of preparedness usually serves the target company and its shareholders well.


by: Philip C. Moore , Richard A. Shaw

In March of this year, the Canadian Coalition for Good Governance (CCGG) published new guidelines for Building High Performance Boards (Guidelines). The original guidelines were introduced in 2005. Significant new commentary has been added in respect of risk management, and the Guidelines demonstrate an increasing emphasis on shareholder engagement by boards of directors as reflected in its model shareholder engagement and say-on-pay policy.

The Guidelines focus on developing high performance boards that are (1) accountable and independent; (2) have experienced, knowledgeable and effective directors and committees; (3) have clear roles and responsibilities; and (4) engage with shareholders. The CCGG encourages corporate boards and executives to continually assess whether their governance practices are enhancing shareholder value.

The Guidelines were developed after consultation with Canadian directors and issuers, governance experts, lawyers and compensation consultants. The expectation is that Canadian reporting issuers will adopt these Guidelines over and above the minimum standards required by the Canadian Securities Administrators and corporate law. As global governance practices evolve, they will periodically revise the guidelines to ensure they stay modern and relevant.

There are thirteen Guidelines, each of which is based on the four principles above. They are as follows:

A high performance board is accountable and independent.

Guideline 1 — Facilitate Shareholder Democracy.

Guideline 2 — Ensure at least two-thirds of directors are independent of management.

Guideline 3 — Separate the roles of chair and CEO.

A high performance board has experienced, knowledgeable and effective directors and committees, and the highest level of integrity.

Guideline 4 — Ensure that directors are competent and knowledgeable.

Guideline 5 — Ensure that the goal of every director is to make integrity the hallmark of the company.

Guideline 6 — Establish mandates for board committees and ensure committee independence.

Guideline 7 — Establish reasonable compensation and share ownership guidelines for directors.

Guideline 8 — Evaluate board, committee and individual director performance.

A high performance board has clear roles and responsibilities.

Guideline 9 — Oversee strategic planning, risk management and the hiring and evaluation of management.

Guideline 10 — Assess the CEO and plan for succession.

Guideline 11 — Develop and oversee executive compensation plans.

A high performance board engages with shareholders.

Guideline 12 — Report governance policies and initiatives to shareholders.

Guideline 13 — Engage with shareholders within and outside the Annual General Meeting.

For a more detailed discussion of the new CCGG guidelines, and in particular, expected best practices for each guideline, click here.


by: Gary M. Litwack

Listed below are recent initiatives and decisions of Canadian regulatory and governmental authorities (and one from the U.S. Securities and Exchange Commission) and Canadian courts that we believe will be of interest to mining companies and their public markets advisors. Please contact us if you would like additional information about any of these items.

Decisions of Courts and Securities Regulatory Panels

  • The British Columbia Securities Commission (BCSC) agreed to issue an order cease trading a shareholder rights plan implemented by Lions Gate Entertainment Corp. (Lions Gate). The order was sought by various entities related to U.S. investor Carl Icahn, who had previously launched a hostile take-over bid for Lions Gate, and had revised the terms of their bid to not only increase the premium to market price offered but also to make the offer for all outstanding Lions Gate shares and to further provide that the bid would be extended (to allow Lions Gate shareholders who did not tender to the bid further time to tender) if either the minimum tender condition was met or if the bidders determined to waive the minimum tender condition. Although full reasons for the BCSC's decision have yet to be released, the panel indicated in their preliminary reasons (issued on an expedited basis to assist the British Columbia Court of Appeal in considering Lions Gate's appeal of the BCSC decision) that they would be elaborating on their "reservations" about the decisions of the Alberta Securities Commission in Pulse Data Inc. and the Ontario Securities Commission (OSC) in Neo Materials Technologies. These decisions were seen by some as potentially opening the door to a "just say no" defence in the Canadian take-over bid landscape. The British Columbia Court of Appeal rejected Lions Gate's appeal of the BCSC decision.
  • The Ontario Superior Court granted leave to the plaintiffs to proceed with, and certified, the class action proceeding in Silver v. IMAX Corporation. The decision is the first to consider the leave requirements for a statutory misrepresentation claim under the secondary market liability provisions of the Securities Act (Ontario), and appears to accept the "efficient market" (or "fraud on the market") theory for common law misrepresentation claims.
  • The Supreme Court of Canada released its decision in Mining Watch Canada v. Canada (Fisheries and Oceans). The court unanimously held that the level of scrutiny to be imposed by a federal environmental assessment is determined by the project as proposed by a proponent, rather than by a discretionary scoping decision of the federal authority charged with carrying out the assessment. The case involved the federal environmental assessment process concerning the Red Chris Mine (a proposed open-pit mining and milling operation for the production of gold and copper) in British Columbia.
    This is the first Supreme Court of Canada decision to interpret the procedural operation of the Canadian Environmental Assessment Act (CEAA) in relation to environmental assessments, and the proper sequence of decisions to be made when determining the level of scrutiny to be imposed on a project. The court has clarified that federal authorities do not have discretion to reduce the scope of an assessment below the scope triggered under the CEAA, although a federal authority does have discretion to increase the scope of study.

Canadian Securities Administrators

  • The Canadian Securities Administrators (CSA) published for comment a proposed restatement of National Instrument 43-101 Standards of Disclosure for Mineral Projects (NI 43-101), and have asked for comments by July 23, 2010. The proposed restatement includes several improvements that reduce or eliminate certain logistical issues that currently arise in the context of corporate finance and M&A transactions, as well as additional flexibility to use foreign mining codes and foreign experts. Please see the article discussing the proposed changes to NI 43-101 in this issue of Mining Prospects.
  • A new national insider reporting regime has come into force. Insider reporting requirements and exemptions have now been harmonized under National Instrument 55-104 Insider Reporting Requirements and Exemptions (NI 55-104) and equivalent requirements under the Securities Act (Ontario). NI 55-104 reduces the range of insiders required to file insider reports by introducing the concept of "reporting insiders" (the CSA's stated intention is to focus the insider reporting requirements on the core group of insiders with the greatest access to material undisclosed information and the greatest influence over the reporting issuer). The deadlines for filing insider reports have also been tightened: with initial insider reports (i.e., upon becoming an insider) being required within 10 days and with subsequent reports of insider purchases or sales being required within five days of the trade (although the tightened timeline only goes into effect on October 31, 2010). The requirements have also been expanded in respect of derivatives.
    The CSA have also published CSA Staff Notice 55-315 Frequently Asked Questions about National Instrument 55-104 Insider Reporting Requirements and Exemptions, CSA Staff Notice 55-316 Questions and Answers on Insider Reporting and the System for Electronic Disclosure by Insiders (SEDI) and CSA Staff Notice 55-312 Insider Reporting Guidelines for Certain Derivative Transactions (Equity Monetization) (Revised).
  • The CSA published a staff notice setting out their views regarding the ability of an offeror to vary a formal take-over bid in a manner that is less favourable to the securityholders of the target issuer. Examples of such variations referred to in the notice include (i) lowering, or changing the form of, the consideration offered; (ii) lowering the percentage of the outstanding securities that the offeror is prepared to acquire; or (iii) adding new conditions. In this notice, CSA staff state that the formal take-over bid regime does not contemplate the right of an offeror to unilaterally "withdraw" a bid or, if all terms and conditions have been satisfied or waived, to reduce the offered consideration or introduce new conditions. As such, CSA staff suggest that language contained in offer documents and bid circulars that provide the offeror with the right to vary its bid in its sole discretion "may be inconsistent" with bid requirements.
  • The OSC published OSC Staff Notice 52-718 IFRS Transition Disclosure Review, which summarizes the results of a review conducted by the OSC of the "extent and quality of International Financial Reporting Standards (IFRS) transition disclosure." The OSC found that reporting issuers are not adequately discussing the key elements of their IFRS changeover plan or their progress towards achieving the plan in their MD&A.
    Somewhat related, the U.S. Securities and Exchange Commission (SEC) issued a statement that it expected to make decisions as to IFRS implementation in 2011. The SEC suggested that if it does decide in 2011 to incorporate IFRS, the earliest U.S. companies would be required to report under IFRS would be 2015 or 2016.
  • The securities regulators in British Columbia, Alberta, Saskatchewan, Manitoba, New Brunswick and Nova Scotia have published a consultation paper designed to assess market interest in developing a more tailored approach to regulating venture issuers. Venture issuers are reporting issuers whose securities are not listed on the Toronto Stock Exchange (TSX) (i.e., TSX Venture Exchange and Canadian National Stock Exchange listed issuers , as well as other reporting issuers whose shares are only traded over-the-counter or on junior exchanges abroad).
    Multilateral Consultation Paper 51-403 Tailoring Venture Issuer Regulation seeks input on whether there is an opportunity to build on the current venture market regulatory regime and further enhance investor protection while reducing regulatory costs for venture issuers.
    Significant proposals include (i) requiring an annual report combining certain disclosure elements found in an annual information form, MD&A, annual financial statements and annual meeting circular into one document which emphasizes forward looking rather than retrospective disclosure; (ii) eliminating the requirement for three and nine month interim financial statements and MD&A but requiring a "mid-year" report containing further disclosure than currently required for six month interim financial reporting; (iii) enhanced certifications to accompany annual and mid-year filings; (iv) enhanced corporate governance standards (including specifically enshrining fiduciary duties so that the duties can be enforced by securities regulators, requiring implementation of policies to address conflicts of interest and related entity transactions, and requiring implementation of policies designed to deter tipping and illegal insider trading); (v) replacing business acquisition reports with enhanced material change report requirements; and (vi) simplified disclosure in connection with offerings (including reducing the disclosure obligations for IPO prospectuses for venture issuers to be consistent with the proposed required disclosure for annual reports).

Canadian Stock Exchanges

  • The TSX published a staff notice providing guidance on (among other things) acceptable standards for anti-dilution provisions for convertible securities (such as warrants, options, convertible debentures and convertible preferred shares). Convertible securities can contain provisions under which the exercise/conversion price will be lowered (or, alternatively, the number of underlying securities issuable upon exercise or conversion will be increased) if the issuer completes a subsequent issuance at a lower subscription price.
    The notice states that the TSX will not generally accept downward adjustments to an exercise or conversion price (or an increase in the underlying securities issuable that effectively results in a downward adjustment to an exercise or conversion price) unless (i) in the case of warrants or options, the exercise price is not lower than the market price at the time the convertible security was issued (Issue Time Market Price); and (ii) in the case of convertible instruments, the adjusted conversion price is not lower than the Issue Time Market Price less the TSX's maximum permitted discount.

Federal Government Initiatives

  • The Canadian Department of Finance has released a proposed draft Canadian Securities Act. This proposed legislation was drafted by the Canadian Securities Transition Office, which was established by the Federal Government to assist in establishing a Canadian securities regulator. Representatives from each province and territory other than Alberta, Manitoba and Québec have participated in the development of the proposed legislation and the federal securities regulatory regime. The proposed legislation is designed to set out the core fundamental provisions of federal securities regulation, with the detailed technical requirements to be set out in the (not-yet-published) regulations.
    Notable aspects of the proposed legislation includes (i) an opt-in mechanism that would allow willing provinces and territories to opt into the federal securities regulatory regime, and allow the securities legislation in non-opting jurisdictions to remain in force; (ii) designation of certain acts (such as fraud, market manipulation, insider trading and intentional misrepresentations) as criminal acts (enforceable in all jurisdictions, including those that have not opted-in to the federal securities regulatory regime); (iii) broad enforcement powers; and (iv) harmonized regulation of derivatives.
    The Department of Finance has referred the proposed legislation to the Supreme Court of Canada to obtain a ruling as to whether it is with the legislative competence of the Federal Government. The Department of Finance has stated that it expects that it will take 10 to 24 months for the Supreme Court to issue its ruling, and has also announced that it is targeting 2012 or 2013 for the establishment of the Canadian Securities Regulatory Authority.
  • The 2010 Canadian Federal Budget has proposed to change the definition of "taxable Canadian property" to exclude shares, partnership interests and trust interests that do not derive and have not derived their value principally from (i) real property, (ii) Canadian resource property, or (iii) timber resource property. This should eliminate Income Tax Act (Canada) Section 116 compliance obligations (for non-residents) when selling many types of securities that are otherwise not exempted under a Canadian tax treaty.


Set out below is a list of selected mining financings, M&A transactions and other engagements announced or completed between January 1, 2009 and April 1, 2010 in which McCarthy Tétrault was involved.


Atlas Precious Metals Inc.

Private placement of subscription receipts exchangeable for units comprising common shares and warrants ($15 million)

B2Gold Corp.

Secured credit facility for feasibility study ($20 million)

Baffinland Iron Mines Corporation

Private placement of flow-through shares ($20 million)

Baffinland Iron Mines Corporation

Bought deal public offering of conventional units, each comprising one common share and one half of one common share purchase warrant, and flow-through units, each comprising one flow-through common share and one half of one common share purchase warrant ($44 million)

Detour Gold Corporation

Bought deal short form prospectus offering of common shares ($48.4 million)

Etruscan Resources Inc.

Best efforts private placement of common shares ($10.5 million)

European Nickel Plc

Private placement of ordinary shares (£4.3 million)

First Quantum Minerals Ltd.

Corporate debt financing secured by tradeable securities ($250 million)

First Quantum Minerals Ltd.

Public offering of common shares ($345 million)

General Moly, Inc.

Investment by Hanlong (USA) Mining Investment Inc. including a $665-million guarantee of a bank loan facility, $80-million equity investment, a $20-million bridge loan and long-term molybdenum supply off-take agreement

Mavrix Explore 2009-I FT Limited Partnership

Public offering of limited partnership units ($6.6 million)

McWatters Mining Inc.

Private placement of common shares to International Royalty Corporation (US$160 million)

Metanor Resources Inc.

Private placements of flow-through common shares ($7.0 million)

Orocobre Limited

Private placement of subscription receipts with underlying shares qualified by long form prospectus ($20 million), followed by listing of the ordinary shares on the TSX

Orsu Metals Corporation

Public offering of units each comprising one common share and one half of one common share purchase warrant ($28 million)

Osisko Exploration Ltd. (renamed Osisko Mining Corporation)

Private placement of unsecured convertible debt and warrants ($20 million)

Pan-Pacific Metal Mining Corporation

$5 million investment in Selwyn Resources Inc.

Quadra Mining Ltd.

Refinancing of $37.5 million Centenario Copper Corporation project finance

Rio Tinto Plc

Investment in an additional 10% of the shares of Ivanhoe Mines Ltd. (US$388 million) and reorganization of funding and security arrangements for the Oyu Tolgoi copper/gold project in Mongolia

Selwyn Resources Ltd.

Non-brokered private placement of shares and share purchase warrants to Pan Pacific Metal Mining Corporation, a Canadian subsidiary of Korea Zinc Company ($3 million)

Sidex Limited Partnership

Private placement investments in debt and equity securities of selected TSX Venture Exchange-listed companies with exploration properties in the Province of Québec

Soltoro Ltd.

Private placement of units, each comprising one common share and one half of one share purchase warrant ($1.35 million)

Taseko Mines Limited

Public offering of common shares ($25 million)

Victoria Gold Corp.

Private placement of special warrants followed by qualification of underlying shares by short form prospectus ($15 million)

Xstrata Canada Corporation

Provision of US$600 million secured carried funding loan facility to New Gold Inc.


Mergers And Acquisitions

Angus & Ross Plc

Acquisition of Nalunaq Gold Mine from Crew Gold Corporation for US$1.5 million.

Brilliant Mining Corp.

Sale of its 25% joint venture interest in the Lanfranchi nickel mine to Panoramic Resources Ltd.

Carpathian Gold Inc.

Completed gold purchase and sale agreement for its RDM gold project in Brazil (US$30 million)

CBR Gold Corp.

Spin-out of North Country Gold Corp. by plan of arrangement, listing on TSXV and brokered private placement ($6 million)

Companhia Vale do Rio Doce

Acquisition of 50% interest in the assets of TEAL Exploration & Mining Incorporated for $81 million, and related acquisition by African Rainbow Minerals Limited of all of the shares of TEAL by plan of arrangement

First Quantum Minerals Ltd.

Acquisition of Kiwara Plc for cash and share consideration (US$260 million)

Forsys Metals Corp.

Proposed $579-million acquisition by George Forrest International Afrique S.P.R.L. by plan of arrangement

Gold Fields Limited

Sale of 19.9% interest in Sino Gold Mining Limited to Eldorado Gold Corporation for US$282 million in shares pursuant to a prospectus

Gold Fields Limited

Option and joint venture agreement with Cascadero Copper Corporation regarding the Toodoggone copper-gold project

Lake Shore Gold Corp.

Acquisition of the Bell Creek West property from Goldcorp. Inc. and Goldcorp Canada Ltd. for $20 million in cash and share consideration

Mindanao Gold Inc.

Acquisition of Apex Mining Company and all related assets from Crew Gold Corporation (US$7 million)

Quadra Mining Ltd.

Acquisition of Centenario Copper Corporation by plan of arrangement for C$57 million in Quadra shares

Rambler Metals and Mining Plc

Acquisition of Nugget Pond Processing Facility from Crew Gold Corporation for $3.5 million

Royal Gold, Inc.

Acquisition of International Royalty Corporation for cash and share consideration ($700 million)

Wuham Iron & Steel (Group) Corporation

US$240 million strategic investment in Consolidated Thompson Iron Mines Limited and Bloom Lake joint venture.

Xstrata Copper Canada

Entered into a copper concentrate supply agreement with Northgate Minerals

Zambia Copper Investments Limited

Initial hostile take-over of African Copper Plc. resulting in a $9.9 million equity investment, a US$31.1-million term facility, and Zambia Copper owning 82% of African Copper

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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