Forsys and GFI Settle amid Wikileaks Intrigue

8 03 2011

In one of my very first entries, I discussed the failed acquisition of Forsys, a Canadian junior with a fully-permitted uranium project in Namibia, by Georges Forest International (GFI), a Belgian firm with questionable business practices. After being temporarily halted by Industry Canada, the transaction was called off due to GFI’s failure to transfer the funds. I speculated on the cause in a subsequent entry.

Both companies have since attempted to collect funds from each other (either as damages or break fee). A settlement has been reached. Forsys will not have to pay damages to GFI although it is unknown, yet likely that it will receive compensation from the Belgian firm. This is still no happy ending for Forsys whose share price is standing below half of the value envisioned by the 2009 deal.

According to a diplomatic cable made available to Wikileaks, Industry Canada halted the transaction under the national security provisions of the Investment Canada Act in 2009. Washington and Ottawa worried that GFI would provide uranium to Iran if it secured Forsys’ mine in Namibia. GFI is alleged to have held discussions with Iranian officials regarding the supply of uranium.


Oh No She Didn’t! Australian PM Announces Carbon Tax.

1 03 2011

Having witnessed the grand debacle of the mineral resource rent tax, a tax increase mused as part of the Henry Review to reduce Australia’s corporate income tax rate and support superannuation, I assumed Australia would be better off with no tax on super profits. The difficulties of administrating such a narrow base and intricate deductions while yielding little revenue formed the basis of my conclusions. I also thought that the Australian Labor Party, having lost significant political capital over tax issues, would move on and focus on other things while the world forgets. Instead the Australian Government announced the introduction of a carbon tax in 2012. Details have not yet been announced but it seems the introduction of the tax will be budget neutral rather than revenue neutral (e.g. the extra revenues from the tax will not be compensated by lower income tax rates). In consideration of this upcoming cash grab, I wonder if stakeholders from the mining sector would rather revert to mineral resource rent tax version 1.0 than having any form of carbon tax. Click here for the sector’s initial thoughts.

No Time Wasted!

3 01 2011

Just a few days after his presidency was inaugurated, speculation on how Guinea’s new president, Alpha Conde, will live up to his electoral promise of making mining deals more favourable to the State has already emerged. In his inaugural speech, the new president however stressed the need for political and economic stability and stated that current priorities were to modernize the army and promote good governance.

Russia’s envoy to Africa has already began the diplomatic posturing stating that while “it would be logical for Guinea to demand more favourable terms for the operations of foreign companies” Guinea’s approach should be based on “compromise and in the interests of all sides”. As the country is embarking on a “democratic path”, existing laws should be respected the envoy stressed. It remains to be seen whether Guinea’s approach is more in line with democratic processes or whether it is taking cues from Russia’s Khodorkovsky handbook. As of now, Conde’s first move as President was to purge the higher levels of the civil service and elected officials contacted for comment by Bloomberg News did not comment.

This issue is of importance to Russia as UC Rusal is sourcing 40 per cent of it bauxite from Guinea and has a plan to invest further in the country through its Dian Dian mining project. In 2006, UC Rusal was affected by a decision of the Government to cancel its purchase of the Friguia refinery through obscure court proceedings.

DeBeers. Panning for Gold.

9 12 2010

I am struggling to keep up with my one-entry-a-week commitment. Last week, news reports of DeBeers and AngloGold Ashanti joint venture to search for gold off South Africa’s West Coast particularly caught my attention. Here’s what, the already one year old joint venture is about.

De Beers and AngloGold Ashanti committed themselves to prospecting and exploring one of Seafield Resource’s projects in New Zealand using the technology developed by DeBeers Marine to search for diamonds in water of a depth of 20 m to 200m off the Namibian coast. The results of the prospecting campaign were considered disappointing by Seafield.

Following this setback, De Beers and AngloGold Ashanti have taken their JV to the South African West Coast where gold is thought to have washed into the sea from rivers (millions of years ago) and are covered in sediment. Drilling is set to start in Q1 of 2011 and will aim at determining the economic viability of the deposit.

Seafield Resources, part of E Oppenheimer & Son International, has been exploring the coast of South Island in New Zealand through other projects. This week Seafield Resources was brought up in Trading Markets’ “Small Cap Stocks on the Move” following a recent 148% gain.

More on Marine Mining

Marine mining is fairly new, having taken off in the 60s and 70s. Current operations are mostly focused on tin dredging, gemstones, sands and gravels. The costs of marine mining have been prohibitive for many years, but marine mining to be becoming more attractive.

Other firms such as Nautilus Minerals (TSE:NUS) and Neptune Minerals (LON:NPM) are focusing their marine operations in the “other” ring of fire, a region known for its seafloor earthquakes and volcanic eruptions in Oceania.

Marine deposits may be easier and more economical to mine than land-deposits as they are exposed on the sea floor and do not require the removal of tons of overburden. They also require less staff (DeBeers’ ships have about 40 employees onboard) and present fewer risks to workers. These operations are also mobile and can be taken from a deposit to another.


20 09 2010

I’m back on the blog, now writing from brand new headquarters! Maybe I was projecting my enthusiasm for renouveau but I dared to think that Guinea was up to a fresh start too when it held its first democratic elections since 1958 a few weeks ago. Perhaps that was even shared by Rio Tinto and Chinalco when they signed their binding joint venture agreement regarding the Simandou iron ore project.  With the postponement of the second round of the presidential election (scheduled 09-19-2010) due to unrest, I guess that I’ll have to review and lower my expectations.

I assumed that after the election, the newly elected President would act swiftly to re-dynamize Guinea’s mining industry, considering the sheer size of the sector relative to Guinea’s economy. In the past years, upheavals(exhibit 1 and 2) in the development of the Simandou iron ore project, revisions of contracts and attempted expropriations have hindered the development of mineral resources.  If carefully exploited, these could make Guinea a prosperous West African country.

My enthusiasm was propelled by the abundant presence of “it” minerals (iron ore, gold, diamonds and bauxite) in Guinea.  I was clearly planning on listing projects that were upcoming or seemingly shelved as a result of the coup. Yet, these are likely trivial now as we’re faced with setbacks in a democratization process and further instability which, in the case of Guinea is not new.

Now the first step has to be taken, the step towards democracy. This step is full of risks, and requires trust on all sides. We don’t know where it will lead. But if we just stand still, we will have no chance of escaping the violence. Daniel Barenboim

Democracy is an objective. Democratization is a process. Democratization serves the cause of peace because it offers the possibility of justice and of progressive change without force. Boutros Boutros-Ghali

International Arbitration: Canadian Firms in Troubled Waters

11 06 2010

It seems that lately, Canadian firms have been at the mercy of government’s will to play nice or not. In the last remedy available to protect substantial investments in developing countries’, firms have turned to international arbitration hoping to overturn decisions made by sometimes corrupted domestic courts or abrupt policy shifts.

Africa-First Quantum (TSX: FM, LSE:FQM)

The highest profile case to emerge lately was of course First Quantum whose rights to two mines (Frontier and Lonshi) in the Democratic Republic of Congo were annulled by a court and handed over to a state-owned firm. The Court cancelled a letter giving First Quantum’s the mining rights to the two properties claiming that subsequently to a reform of mining laws, a decree was required to allow First Quantum to exploit the mines. This behaviour from Congolese authorities could be partly explained by the decision of the firm to seek international arbitration in relation to a previous ruling made on its Kolwezi project.

The Kolwezi project is developed by the Kingamyambo Musonoi Tailings SARL (“KMT”), a partnership involving First Quantum (65%), the state-owned Gécamines (12.5%), Industrial Development of South Africa (10%) and the International Finance Corporation (5%). A contract review conducted in September 2009 highlighted contract irregularities and production delays to the project. The review pointed that the constitution of the company resulted of a fraud for which Gécamines and the Mining Registry were seeking compensation of US $7 billion and 5$ billion respectively.

First Quantum explained in a press release that partners in the Kolwezi project were not served and with a proper Notice of Hearing Date for matters related to the Kolwezi project and noted that there were grounds for thinking that the Code of Civil Procedure was not adhered too in the process. The firm began arbitration procedures on February 1, 2010 through the International Chamber of Commerce International Court of Arbitration in Paris which (sadly) does not publish documentation on the case on its web site.

Central America

 Amazingly enough, 61% of the mining cases filed to the International Center for Settlement of Investment Disputes, the most commonly used arbitration court, involved Latin American countries. It seems that Governments have settled previous dilemmas between resource development and environmental protection and have taken swift turns in the latter direction, making some mining projects casualties.   

El Salvador-Pacific Rim (TSE: PMU), a Vancouver-based firm, has seen its El Dorado gold project jeopardized as a result of the government refusing to provide a mining permit for fear of being clobbered by citizens opposing mining. In responding to popular pressure the Government avoided to approve an Environmental Impact Assessment. The company provided its first impact assessment in 2004 and substantially reviewed it, at the Government’s demand until 2006, and then nothing.

 Ironically, it was conveyed in the press that the environmental quality of the project is not the factor preventing the issue of the permit as the final design of the mine is exceeding international standards. The government of then-President Tony Saca acknowledged this by telling the company that there is no technical problem with the mine, only political ones”. Opponents to the project however argue that the measures to mitigate adverse environmental impacts are not sufficient. In response to this stalemate, Pacific Rim has filed for international arbitration.

 Pacific Rim announced in December 2008 their intention to file for arbitration under Dominican Republic-United States-Central America Free Trade Agreement’s (“CAFTA”) investment rules. Pacific Rim can rely on this agreement as it has U.S. subsidiaries operating in El Salvador (PRES and DOREX). The company formally filed for arbitration at the ICSID on April 30, 2009. The hearing of preliminary objections has taken place only recently on May 31st and June 1st 2010. The Government of El Salvador was attempting to get the case dismissed at the outset. Video recordings of the hearing are available here. We are still months away of any substantial developments. Should any newsworthy development arises, you will be made aware.

Similarly to Pacific Rim, Vannessa Ventures, through its subsidiary Industrias Infinito S.A, attempted to obtain an environmental permit for its Cerro Crucitas gold project. The permit it obtained was overturned in 2004 by the Supreme Court of Costa Rica as the permit violated provisions from the constitution guaranteeing the public a healthy environment. The court ordered the state to pay costs, damages and compensation to Vannessa Ventures. The company later on filed for arbitration with the ICSID and is now operating on another name: Infinito Gold Ltd. A bit of browsing has indicated that Infinito Gold has also filed for arbitration regarding the expropriation of its Las Cristinas project in Venezuela. Gracias!

 This was just a quick sightseeing of the international arbitration seen from the mining industry’s perspective. The UN Commission on International Trade Law another international arbitration body, similarly to Chamber of Commerce International Court of Arbitration, does not publish a registry of cases. So this entry is only a sampling of current cases but it does underscore the political and social risks inherent to mining operations.

Zimbabwe’s Sober Second Thoughts on Indigenisation.

11 03 2010

Last week Zimbabwe’s government has informed that it was reviewing indigenisation regulations according to which firms were supposed to cede a 51% equity stake to black Zimbabweans. The Government admitted that rules the new rules had been released prematurely last month.

Remember, the regulations were released so “prematurely” that Zimbabwean Prime Minister Morgan Tsvangirai declared them “null and void” as its Cabinet had not seen the regulations prior to their publication, which is in breach of Zimbabwe’s power-sharing agreement. This situation could lead to the regulations not being implemented but as far as a review is ongoing it is worth examining sensible options that would make indigenisation manageable for businesses.

New Ownership Laws [as Currently Standing]

As set out in February, the regulation would require firms to cede 51 per cent of their shareholding to indigenous Zimbabweans. This would apply to every firm with business assets above US$500,000. Firms are given 5 years to comply with this requirement but will have to present plans on how they intend to comply with this regulation by April 15th.

The scope of the policy goes way beyond the Zimbabwe Chamber of Mines’ initial proposal. In discussions with government official, the Chamber had proposed that local equity ownership be of a minimum of 10% with empowerment credits making up to 15% and was covering local procurement. Industry was of impression that this proposal had been well received.

Many mining firms with activities in Zimbabwe have expressed concerns with the regulations. Nick Cobban, a spokesman for RioTinto, indicated that the legislation was “draconian and unworkable” and that legislative uncertainty and the threat of indigenisation law were factors hindering the development of some of their assets in the country. Many statements echoed those views. Impala Platinum, one of the largest mining investor in Zimbabwe had foreseen indigenisation risks and reached an agreement in May 2006, regarding the operations of Zimplats, under which it released 36 % of its resource base in return for 19.5 percent empowerment credits as well as a cash credit of US$51 million.

New ownership laws came just as the Zimbabwean Minister of Finance was trying to attract foreign direct investment. Unless the policy is significantly reviewed, money may not exactly be pouring in.

South African Experience with Economic Empowerment

Empowerment of a population long disadvantaged is a legitimate goal. Now, why, in a world of policy contagion, would one disregard examples in good standing of economic empowerment that happen to be working just fine next door? Yes, I am talking about South Africa’s Black Economic Empowerment (BEE). This initiative was also welcomed with lots of criticism too but businesses have been successful into complying with its requirements.

BEE sets sector-specific targets regarding equity ownership, management representation, employment equity, skills development, preferential procurement, enterprise development and socio-economic development. Equity ownership in BEE was set at 26%. Management control is set to 40%. Preferential procurement was to account for 70% of inputs. These targets had to be achieved over 10 years and compliance is weighted differently for each component so as to come up with a score that reflects compliance. BEE Charters and Scorecards can be found here.

Compared to Zimbabwe’s new ownership laws requirements set out by BEE come across as very reasonable. As currently gazetted, Zimbabwe is requiring firms to achieve twice as much in half the time. South Africa as also been able to frame BEE in such a way that it is not a mere transfer of property from one group of citizens to another but is instead an economic growth strategy. With Mugabe’s repeated seizures of white-owned farms, we’re not really sure whether he’s not just handing in the wealth of others in exchange of political support.