Mining sector will see more government intervention: report

The Canadian Press

OTTAWA — Mining companies should expect to deal with growing government intervention in their operations around the globe in the coming year, a new report suggests.

Audit and consulting firm Deloitte said Canada's decision to block BHP Billiton's attempted takeover of PotashCorp was just part of a new reality for mining companies in which new taxes, regulations and political agendas take on greater importance.

"It really confirmed a trend rather than instigated a trend," Glenn Ives, chairman of Deloitte Canada and head of the company's North American mining practice, said Wednesday.

After weeks of speculation that the federal government would allow BHP's hostile takeover bid for Potash Corp. of Saskatchewan to go ahead, Industry Minister Tony Clement nixed the offer because it did not meet a net benefit test for the country despite millions in promises by the Australian company.

But the Deloitte report also cited changes in Australia's tax regime and increased levies in Chile, South Africa, Zambia, Tanzania and Burkina Faso as signs of the growing role of governments in the mining sector.

"One overpowering issue that governments have everywhere in the world is that they don't have any money at the moment and, of course with commodity prices high, mines are generating a lot of cash," Ives said.

"So you have to go where the money is if you are a government and so we're seeing lots of changes, not just to taxes, but to royalties and other regulations where the people or governments are keen to get perhaps a bigger share of an available pile of cash."

A Conference Board of Canada report, which was commissioned by Saskatchewan, suggested the province could lose between $2 billion and $5.7 billion in taxes and royalties over the next decade if BHP bought PotashCorp.

Other Canadian companies facing recent political troubles have included First Quantum Minerals and its losing fight with the Democratic Republic of Congo and both Ivanhoe Mines and Centerra Gold with their respective operations in Mongolia.

In Venezuela, Toronto-based miner Crystallex has faced political wrangling and regulatory slowdowns for years as it has struggled to develop its Las Cristinas gold project.

The company signed a partnership deal earlier this year with China Railway Engineering Corp., a state-owned company, that it hopes will help unblock the Venezuelan environmental approval process for Las Cristinas.

Ives said companies looking to build mines need to have widespread support in the countries they operate.

"You've got to have the government onside, the ministry of environment onside," he said.

"There are no short cuts. You have to do things properly. Don't try and rush them. If you rush them you make mistakes and give people the opportunity to criticize you and cause problems down the road."

Deloitte said what is driving demand today is significantly different than the forces in the past and mining companies need to change the way they pursue growth if they hope to keep pace.

The report suggested international investment will fuel the mining sector as companies look to strategic partnerships to finance developments and volatility becomes the new normal for resource prices.

http://www.thestar.com/business/companies/potash/article/899829--mining-sector-will-see-more-government-intervention-report