Michael Pickersgill says confluence of trends is disrupting and creating opportunities in mining industry
A confluence of interrelated macroeconomic trends is disrupting and creating opportunities in the mining industry, says Michael Pickersgill, head of Torys LLP's mining and metals practice.
In mining – and other natural resource industries such as fertilizer, oil, and gas – several factors drive the current deglobalization trend, says Pickersgill. One is the shift in the world order and an increase in multipolarity. Another is that economic disparity is becoming a domestic political concern in every country.
The breakdown of certain trade groups and the declining leadership of the US, which is stepping away from international, multi-lateral trade agreements, is also affecting mining.
Simultaneously, the energy transition generates demand for various commodities and prompts “a huge opportunity and requirement for economic development,” he says. Countries are pursuing domestic development and trying to ensure some level of domestic ownership of these assets to maximize the economic benefits flowing from the transition.
Pickersgill says that, historically, resource nationalism in the mining sector has involved countries expropriating assets, refusing to grant authorizations to foreigners to develop projects, or the indirect nationalization of assets through significant tax-regime or royalty changes. Now, resource nationalism in the form of industrial policy is prevelant, and includes Canada’s Critical Minerals Strategy, he says.
Last December, Ottawa announced the strategy, which is aimed at spurring economic growth and addressing climate change. Among the feds’ focus areas in achieving their goals are “accelerating project development” and “driving research, innovation, and exploration.”
“We have this opportunity with critical minerals all over the country,” says Pickersgill. “We have this maybe once-in-a-generation opportunity to develop a whole series of assets.” He says he and his firm have a favourable view of Canada’s Critical Minerals Strategy, which, in addition to financial incentives, includes direct investment in the critical mineral industries.
Canada’s strategy includes a fiscal program involving tax breaks, tax incentives, and other financial commitments to help support development. Canada is also toughening its stance on foreign investment in critical minerals by state-owned companies. Last November, Innovation Science and Economic Development Canada ordered three Chinese companies to divest their stake in Canadian critical minerals projects, citing national security.
Canada, the US, and other jurisdictions are reacting to deglobalization and the energy transition by trying to develop, protect, and support their domestic resource production and processing to try and create vertical industries, says Pickersgill.
Two examples of more “traditional resource nationalism” are Chile and Mexico, he says.
In April, Chilean President Gabriel Boric announced plans to nationalize the country’s lithium industry. Chile has the world’s second-largest lithium reserves. Last year, Mexico announced it would seek to nationalize its lithium, setting up the state-owned company, Litio para Mexico, to mine the metal.
Countries are also negotiating different tax regimes and changing laws to build vertical industries to benefit from the resource demand produced by the energy transition, says Pickersgill.
The Government of Panama recently settled a dispute over profit sharing with Canada’s First Quantum Minerals. First Quantum agreed to a minimum of US$375 million in annual tax and royalty payments for an initial 20-year term.
In Indonesia, the government has implemented laws that require that nickel mined in the country must be processed and refined there, too.
“They want the value-add processing components to be in their jurisdiction as well,” says Pickersgill. “Because then they get the benefit of that work, those jobs, the tax that follows from that, and the development of a national industry.”
“Given the macro-economic drivers I mentioned, at a simple level one can see why this might be an attractive model to pursue, or be seen to pursue, to spur economic development in a country. It will be interesting to see if and how other countries follow suit in that respect."
