May 2007

Seeking effective legal counsel in the mining industry

By H.E. Robinson

Legal expertise is required for many different aspects of the minerals industry. Mining law tends to be viewed as just preparing agreements and doing development contracts, when in fact it involves everything. Whether it is regulatory frameworks that govern exploration, foreign risk mitigation, mergers and acquisitions, or consultation with aboriginal rights, the firms that work in the mining sector have lawyers with a wide range of specialties. These are some of the particular skills that lawyers who have worked with the industry for years recommend to seek in legal counsel.

It is important to establish a relationship with a firm that works in the mining sector. A minerals company is not going to be able to find one single lawyer who does all the things required and has all the experience. Industry members need to go to firms that have knowledgeable and experienced teams working in mining.

“Mining law touches on almost every aspect of the law with the possible exception of criminal and family law,” stated Brian Abraham, a partner at Fraser Milner Casgrain (FMC), who specializes in international and domestic mining matters. “Having an industry background is helpful; when you speak that ‘language,’ [a client] does not have to describe what their project looks like to you. I can read it and understand what they are trying to do, and show some genuine interest.”

Taxation and foreign exploration

Having a lawyer who is knowledgeable about taxation in the mining industry is particularly useful for foreign exploration. In different countries, there are different tax codes and different sets of rules. Some places have very large value-added taxes (VATs) that are chargeable when building mines, and chargeable on equipment being brought into the country. Negotiations are necessary to receive the appropriate tax exemptions while your company is bringing money into the country and investing in development, and then, in negotiating the right kind of tax regime in order for your organization to make a profit. Recently, countries such as Vietnam have imposed a tax on exporting commodities where there isn’t further benefit to the country. Taking raw ore out of the country, when it has not been through some sort of processing, results in extra taxation when those processing facilities exist in that country. These extra taxes are not recoverable, which can affect profit significantly.

John Sabine, who specializes in business transactions in the mining sector at FMC, explained, “There is this whole cottage industry of tax law because some countries will let you take the money out and some will not. Taxation and dealing with international flow of funds is very important.”

It is also important, when you are sending workers overseas, to know that you are paying them properly, with all the necessary paperwork, so that they are not being over-taxed.

“There are all kinds of tax issues, and it becomes extremely complicated to make sure you are in compliance with a myriad of laws within each jurisdiction,” said Sabine. “For example, countries in French West Africa are all civil law jurisdictions, which is different from those countries that grew out of the British tradition who have common law. So you need to have [legal] people who are knowledgeable about different legal systems and who speak different languages.”

Putting contracts together and doing corporate work also plays a large role in mining. In addition, people work in securities, so they are not only working on mergers but also doing financing. There is a lot of corporate finance work in Canada that comes out of the mining industry.

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