Earlier this year, KPMG released its Mining M&A Newsletter for the second half of 2016. According to the report, deal volume as well as deal value increased in the second half of 2016 due to a large North American merger. In fact, deal value more than doubled from the first half of 2016 to the second. In addition, for the first time in two years, the number of deals completed for producing assets grew significantly, also doubling its first half 2016 numbers.
For Canadian deals, it was reported that deal volume rose 16% in 2016, while deal value remained essentially the same. Of note was that 2016 only saw one deal valued at over US$1 billion. This seems to indicate a trend towards a higher volume of deals as opposed to fewer larger deals.
While many may view these trends with optimism, potential acquirers must be cautious in the midst of regulatory uncertainty in overseas operations of Canadian-registered mining companies. As mentioned in our previous post regarding parent-subsidiary liability, the 2015 election campaign saw the Liberal Party making promises regarding corporate social responsibility abroad. In particular, it was suggested that the Liberal Government would take a stricter approach with Canadian mining companies.
Currently there is no Canadian law that directly regulates Canadian mining companies abroad. However, a Liberal Party representative was quoted as saying that he expected to see a plan for the creation of a mining ombudsperson "by March 2017". Talks of creating an ombudsperson in the extractive sector began back in November 2016, although we have yet to see a plan put in place.
Nevertheless, it would be prudent for potential acquirers to assess the potential impact associated with stricter regulatory rules governing mining abroad, as well as mitigate risks by taking actions such as obtaining legal advice and engaging in additional due diligence.
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