Who’s Who Legal brings together Robert Milbourne of K&L Gates, Ignacio Randle of Estudio Randle and Jim Cress of Bryan Cave to discuss the state of financing and regulatory regimes, as well as expectations for growth, in the industry.
K&L Gates LLP
WWL: Are the traditional areas of financing for mining projects still viable as the first choice? Do debt/equity financing and foreign investment remain active in your jurisdiction? What ramifications has this had on legal work?
Robert Milbourne: The major and mid-tier mining houses operate in a realm quite distinct from the juniors. The financing options available to juniors have been particularly constrained over the last year, requiring a more open search for new capital. We certainly have seen a growing interest in streaming products and other innovative instruments. However, the difficult market is forcing many participants to resort to equity when they would prefer to avoid dilution and seek more traditional debt finance. It may require a stronger return in commodity prices for traditional project financing to return.
Ignacio Randle: There are different answers to this question, dictated by the diverse situations reflected by markets, minerals, regions and even company sizes. The larger the company, the easier the access to financing. Juniors need to compete harder with each other for the available financing, but in the end good projects with adequate conditions do get what they deserve. Financing options during hard times tend to reward the most creative ones, both mining companies and lenders. Streaming and other creative solutions are no longer rare or a novelty and are rapidly growing. A harder financing environment also requires mining companies to be more flexible regarding the conditions they are open to accept to see a certain project come to fruition, instead of waiting for conditions to improve. As current Chairman of the International Bar Association’s Mining Law Committee, I have the advantage of exposure to the insights of top practitioners in mining and financing from all over the world, and their views in general tend to confirm the above.
It is important to take into account that in Argentina most finance sources are foreign.
Jim Cress: I agree with Ignacio that current access to financing depends on a number of factors. In the US, several large mining projects have run into difficulties with financing as the markets turned and the companies ran into permitting and other difficulties. Smaller development-stage companies have seen financing dry up or have defaulted on loans. Other projects have been financed in a difficult environment, such as Midway Gold’s Pan project. The effect on legal work is mainly to change the nature of the work – more financings with royalties or other creative elements, and, inevitably, more loan workouts and foreclosures.
WWL: Has the regulatory regime for mining companies become more restrictive for your clients in recent times? Are you and your firm called upon to advise on corporate, environment or other related matters as well as more typical mining-related issues?
Robert Milbourne: Many jurisdictions around the world put in place reform agendas during the end of the peak of the mining boom and, unfortunately, many of those reforms are only now coming into force – well and truly after the boom that gave rise to some of the more aggressive policies. In my experience, clients are still struggling to deal with unsupportive regulatory regimes. Regulatory reforms almost always bring about uncertainty until they have been “bedded” down and become well understood and accepted by the sector. We are still facing broad regulatory reform in the resources sector – for example, an overhaul of the mining and resource regulations in Queensland, Australia, new mining codes being proposed in Myanmar, Brazil and throughout other jurisdictions around the world. Many of these reforms have been adopted from the experience of regulators dealing with the mining “boom”, yet the policies themselves are not necessarily adaptive to deal with the contraction we are currently seeing in the market.
Ignacio Randle: In Argentina, we have not seen new restrictive regulations strictly applicable to mining companies. The whole picture is quite challenging, but Argentina’s immensely rich geology is extremely attractive. In fact, we at the firm are called upon every day to advise on general regulatory, corporate, environmental or other related matters, as well as more typical mining-related issues. When we advise on a project, we must take into account the whole picture, which includes areas as diverse as labour, administrative and general compliance. Because of the current mineral prices, mining companies are making extra efforts in terms of efficiency, and this includes analysing from a legal perspective how to fully comply with the applicable regulations (thus avoiding fines which are an unproductive and avoidable cost) in the most cost-effective manner. To do so, our professional relationship with the governmental agencies and enforcement authorities involved (mining-related and others) is essential.
Jim Cress: In the US, the regulatory regimes for mine permitting and mine safety have become more restrictive, and there are additional regulations on the horizon for some commodities, particularly coal. The US Environmental Protection Agency (EPA) has been aggressive in the last few years in expanding its role in mine permitting issues, which in the US are often regulated by both state governments and the federal government. One example is the EPA’s retroactive rescission of a Clean Water Act permit for the Spruce No. 1 coal mine in West Virginia three years after the permit had been approved by another federal agency. A second example is the EPA’s use of its Clean Water Act permit veto authority in a controversial decision to prohibit development of the Pebble mine in Alaska, a veto which occurred before the mining company had even applied for a permit. For coal mines, mine safety regulations have been tightened and air quality regulations have been proposed to deal with climate change that would make it technically impossible to permit new coal-burning power plants. In tandem with mining work, our firm continues to handle administrative appeals and litigation for mining companies, including appeals by community groups and NGOs opposing mining and mineral exploration projects, as well as government relations work on legislation and regulations that impact the mining industry. The current seven to 10-year time frame required for mine permitting and related appeals in the US has sparked the introduction of legislation to address permitting delays, in particular for minerals that are deemed critical to national security.
WWL: Are there any new jurisdictions or production sites that are generating interest in your experience in recent months? Which jurisdictions appear to be performing the strongest in terms of securing investment and backing for new projects?
Robert Milbourne: Africa remains of general interest to many of my clients, but the one jurisdiction in which I personally am seeing the most interest is Myanmar. I advised the government on some proposed revisions to its mining law and regulations last year, and currently I am advising several different clients who are interested in entering the country for mineral exploration. Quite clearly, the new government in Myanmar is very focused on attracting international investment. Juniors and majors alike are very interested in understanding the regulatory change in Myanmar and keeping an eye on the opportunities in the country. It has some of the most prospective copper/gold and tin/tungsten deposits in the world, along with many other commodities including coal and graphite. The vast majority of the country has been unexplored over the last several decades, so it provides a bit of excitement as a new jurisdiction to understand.
Ignacio Randle: In Argentina, the frontiers of mining exploration and production are expanding almost constantly. As more projects are in place, they bring with them infrastructure and knowledge that were previously inadequate or not available. In this regard, instead of competing among themselves, the mining companies each foster activity by increasing the chances and conditions for other mining companies to operate and have access to a knowledgeable potential workforce and better infrastructure. In fact, the more companies which are active, the better. In other regions of the world, Africa stands out as a preferred investment destination in natural resources-related projects. Foreign investment in Africa tripled in the last decade, and many companies already doing business in Africa are expanding their investments. Last September, I co-chaired a two-day conference on mining in Africa in Tanzania. The success of the conference, with twice as many registrants as expected, and the interest of the African delegates in a variety of topics ranging from stabilisation agreements, to land use, to environmental and social aspects, clearly reflected the bright prospects for the mining industry in Africa.
Jim Cress: Like Robert and Ignacio, I have seen an increase in enthusiasm for African projects. Turkey also remains an attractive destination. Domestically, Nevada continues to draw the most investment interest. There has been increased interest in Alaska as well.
WWL: What are your expectations for commodity prices over the next 12 months? How will this affect your clients and the nature of the work you do?
Robert Milbourne: Frankly, if I could answer this effectively I should be in a different role than that of a corporate partner at K&L Gates. My expectation is that we seem to be near the bottom of a correction in the market that has been continuing for over two years now. It would seem, therefore, that positive sentiment is due to return at some stage, particularly now that we are seeing so much production being pulled from the market as mines are being shut down and exploration and new project development being suspended. I, personally, am bullish that a positive return to commodity prices and the market in general is due over the next 12 months.
Ignacio Randle: Since sometimes our expectations may get mixed with our wishes, I should refrain from running such a risk. In any event, although commodity prices do have an impact on mining activity in general, many of our clients have a long-term approach to their activities in Argentina, and as such we foresee that our work in mining, infrastructure and related activities will continue growing.
Jim Cress: If I had an insight on commodities prices I might be able to retire early, but based on past experience with guessing about where prices are headed, I am likely to be working for many more years. In the next 12 months, I think the commodity price outlook will continue to be flat generally, but with some commodities performing well and others not. For example, certain industrial minerals such as frac sand and barite are performing well due to the revolution that horizontal drilling has brought to US oil and gas production from shale. Uranium and coal have not been performing well, the latter in part due to the global market downturn and the significant increase in US gas-fired power generation, including fuel switching from coal to gas. Gold companies are very hunkered down and focused on cost reduction, so there is less development work and more work disposing of non-core assets. Like Ignacio, I find short-term prices do not always affect the nature of the work we do, but longer-term trends (such as the shale revolution) do result in lasting pivots to other types of work. Fortunately, the US has a healthy, diverse domestic mining industry with significant, continuing regulatory and public lands issues, so I am confident there will be no shortage of work for mining lawyers.