Uncertainties in Canada’s resource sector

Uncertainties in Canada’s resource sector
Existing and future land claims and doubts on environmental rules have added a layer of uncertainty to an already difficult environment in the Canadian mining and resource sector, as companies struggle for development cash in a nervous and unsettled market.

With oil prices sagging, and global capital markets looking askance at mining and resources, lawyers say both the Tsilhqot’in Nation v. British Columbia aboriginal land rights case, and the new recommendations and likely regulations after the Mount Polley tailings dam disaster are adding to the gloom.

“These developments, Tsilhqot’in and Mount Polley, have added to the considerations that investors consider when they are looking at investing in Canada,” says Paul Cassidy, a partner in the business law group at McCarthy Tétrault LLP in Vancouver. “Are they using these two factors as the tipping point to make or not make an investment decision? I think that’s too hard to say. The investors we deal with are much too sophisticated to rely on one mine incident or one court decision as a tipping point.”

The 2014 Tsilhqot’in Nation v. British Columbia case was the Supreme Court’s first declaration of aboriginal title, a ruling that the band holds title to land in the interior of British Columbia that it has used over generations. The decision has implications for provinces where First Nations have no treaties dealing with land use, including parts of Quebec and the Maritimes. But the biggest impact is being felt in resource-rich British Columbia, where other bands are now considering similar title claims.

“B.C. is looking like tough ground, I think that’s pretty clear to everybody,” says Brian Battison, vice president for corporate affairs at Taseko Mines, whose New Prosperity property lies close to the title lands designated in the Tsilhqot’in ruling and who includes Prosperity in a long list of costly B.C. resource projects that have run up against problems.

“If we are going to spend millions and millions of dollars [on development] we have to have some confidence that we’ve got a fighting chance that the process is going to be fair,” he says. “We look for laws and regulations that are clear and that we can understand, and we need to know what is required of us.”

Partly in response to the uncertainties caused by Tsilhqot’in, the Vancouver-based Fraser Institute nudged British Columbia down several notches in its annual assessment of the attractiveness of mining policies in jurisdictions around the globe, describing the region as the Canadian province with the most room for improvement.

“The two policy areas significantly hampering B.C. are uncertainty concerning disputed land claims and uncertainty over which areas will be protected,” the report said.

Other Canadian provinces fared much better, with Saskatchewan, Manitoba, and Quebec all ranked in the top six jurisdictions.

Thomas Isaac, head of the aboriginal law group at Osler Hoskin & Harcourt LLP, says the B.C. government has been slow to respond to the latest developments, which include the Tsilhqot’in’s announcement of the creation of a tribal park that touches on both tribal and provincial lands. The band says it isn’t ruling out development within the park, which it describes as “an expression of self-determination and a means of governing a land base.”

“For me the real question is where is government in all of this,” says Isaac. “Is government simply letting these messages float around, or does it have a definitive view, or even a semi definitive view on how this is all going to work together?”

He adds: “Decisions are being made to focus [investment] resources elsewhere other than in Canada. It would be unfair to say that it’s simply the aboriginal issues, but the aboriginal issues are a big factor . . . Companies are coming to the conclusion that, relatively speaking, there are more certain investment environments than the one that we are presently dealing with. I won’t say that it’s a mad rush to the door, but I am aware of some dampening.”

The Mount Polley accident, where the breach of a tailings pond caused an environmental disaster, will also affect the mining sector as companies respond to tougher regulations.

“Mining companies on an operational basis are adjusting, as any responsible operator would be, to the outcome of that incident, whatever that will be,” says Cassidy, noting that the disaster is still under investigation. “Both of these factors [Tsilhqot’in and Mount Polley] are being taken into account in capital markets and in the offshore investor world and at operational levels.”

A lawyer with a resource company active in British Columbia says Tsilhqot’in heightens the need for companies to have First Nations on side as they formulate their development plans.

“There was always a need to at least try and negotiate with aboriginal groups, even if it wasn’t legally required, but I think now it’s becoming a requirement,” he says. “You have to have a strong showing of First Nation support if your projects are going to be successful.”

The lawyer, who asked not to be named because it would violate company policy, highlighted the possibility of future title claims that could delay projects, perhaps for years. “What we are seeing is that groups are . . . taking the pieces out of Tsilhqot’in that are favourable to their views without recognizing the years and years of litigation involved,” he says. “Groups that have not gone out through the courts and proven title are just declaring title as a fact.”

Yet not everyone sees Tsilhqot’in and Mount Polley as the main factors behind the investment slowdown in the resource sector.

“These cases are very important in the Canadian legal landscape, but absolutely we do not believe they are hindering, or dampening or pushing away investment in the mining industry in Canada,” says Dawn Whittaker, Canadian leader of the mining and commodities practice at Norton Rose Fulbright Canada LLP. “What is having a significant impact is the capital markets and the inability of mining companies, particularly junior exploration companies, to have access to capital. That is the real issue, I think.”

She adds: “It’s not these aboriginal or environmental decisions that will drive investment, it’s the capital markets. If the capital markets are good there’s much more opportunity for mining companies to work with aboriginal groups to come to mutually satisfactory arrangements. It’s a win-win. When the capital markets are in the challenging times that they are now, unfortunately it’s not a win-win for anybody.”

Whittaker says she is more concerned about the Ontario Environmental Review Tribunal’s 2013 Northstar ruling that made directors personally responsible for the cleanup of a polluted parcel of land.

“There’s a fair bit of concern that that could have a chilling effect on some investment in Canada,” she says. “When capital markets are down people have to look to alternative sources of financing, and that includes things like private equity, which the mining industry has always been hoping would jump into Canada. Private equity is going to want their representatives on the board, and if you give them an overview of the law and what the potential liabilities are, telling an investor who sits on a board that they may suffer millions of dollars in personal liability has a fairly chilling effect.”

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