Dentons mining seminar

Dentons Mining Seminar Presenters:

Anthony Cole, PartnerBrian Abraham, PartnerJune 1, 2016

Dentons Canada LLP

Disclosure of Payments to Governments The Extractive Sector Transparency Measures Act

Presented by: Anthony ColeJune 1, 2016

Dentons Canada LLP

Extractive Sector Transparency Measures Act

June 1, 2016 Dentons Canada LLP 3

What is it?• Federal Act which requires extractive sector companies to disclose

payments they make to domestic and foreign governments, including state-owned entitiesSubstantial penalties for a violation Transparency at the core - Reports filed with government, but also to be made

available to the publicFramed as an anti-corruption lawSection 6 – “The purpose of this Act is to implement Canada’s international commitments to participate in the fight against corruption through the implementation of measures applicable to the extractive sector, including measures that enhance transparency and measures that impose reporting obligations with respect to payments made by entities. Those measures are designed to deter and detect corruption including any forms of corruption under any of sections 119 to 121 and 341 of the Criminal Code and sections 3 and 4 of the Corruption of Foreign Public Officials Act”.

When do obligations begin?

• ESTMA is in forceReports to be filed within 150 days following financial year-end

• Application to payments made to Aboriginal government entities deferred(Further) consultation ongoingCurrent intention is for it to take effect from 2017

• Guidance available on NRCan websiteAlso Technical Specifications and reporting template


To whom does it apply?

• Any company that engages in the “commercial development” of oil and gas or minerals, or that controls a company engaged in such activity, and is either: a. listed on a Canadian exchange; orb. (subject to meeting certain size requirements) an entity incorporated

anywhere in the world, which i. Has a place of business in Canada; orii. Does business in Canada; oriii. Has assets in Canada

• Size threshold for private companies – any two of the following (within one of previous two financial years):i. $20million in assets;ii. Generated $40 million in revenue; iii. 250 or more employees.


To whom does it apply (cont.)?

• Scope of reporting extends to any entity “controlled” by the reporting entity Under s. 3(c) of ESTMA, payments by a controlled entity are deemed to be

made by parent (unless controlled entity is also a reporting entity)“Direct or indirect” control - extremely broad scope

Guidance provides several examples, but IFRS/US GAAP “control” will be sufficient

Intention appears to be that payments by foreign subsidiaries will be captured

• Significant implications for Joint VenturesWho has control? Joint Control?Who is making the payment?

Be aware of deeming provisions in section 3


What must be reported?

• Payments over $100,000 made to the same “payee” (either cumulatively over one year or on a one-time basis), by categoryTaxes levied on income, production or profits;Royalties;Fees - capable of broad interpretation, but explicitly includes anything paid “in

consideration for a license/permit/concession”;Production entitlements;Bonuses, such as signature, discovery and production bonuses; Dividends, except those received as ordinary shareholder; andInfrastructure improvements – potentially broad scope

May cover certain social/community payments

• Includes payments in kindMust assess cash value


“Payments” to whom?

• “Payee” refers to any Government entity, including:Any body established by two or more governmentsBoard, commission or corporation established by government to perform a

power, duty or function of government Will include many state-owned companies

Payments to Aboriginal governments are intended to be caughtReporting of payments to aboriginal governments delayed by two years to allow further

consultationCritical question is what is meant by “government” in the Aboriginal context – Guidance

provides little help as it stands, but possible that it will be added

• Payments to government officials/employees are deemed to be made to a “government”


Other Issues of Scope

• Attribution of payments by third parties (section 3) – payments made by a third party “for” a reporting entity are attributed to the reporting entityJV OperatorsService companies generally out of scope

But consider whether any payments on behalf of an extractive reporting entity

• Project level reporting is required• Arises under legally binding technical specifications


What form will reports take?

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• See Technical Specifications and Reporting Template published by NRCan

• Report requires attestation by director or officer, or independent auditor“Report is true, accurate and complete”Audit?

May be a cost/benefit assessment


Exceptions

• Equivalent Reporting in other jurisdictionsEU (UK rules already in effect)

Equivalency Recognised by NRCan Potential application of UK rules to payments to aboriginal entities – already in effect

US 1504 Dodd-Frank Act – SEC’s first effort struck down after challenge by the American Petroleum

InstituteRevised rules published for consultation by SEC – finalization imminent

o Similar in many respects, but some significant differences

• No exemption for conflict of laws, or breach of confidentiality


Enforcement

• Very broad enforcement powers under sections 14 and 16Production of records (including potential obligation to create/produce

explanatory documents)Entry to business premises (search and seizure)Mandatory audit by independent third party

• Potentially vast penalties for non-compliance • $250,000 per violation• Compounding provision – violation occurs every day of default

• Section 24 contains a broad anti-avoidance provisionS.24(3) - Offence to structure payments so as to avoid reporting under ESTMA

Categorization of payments must be undertaken carefully


Defences

• Corporate offence of misreporting (s. 24(1)) appears to be strict liabilityScope for personal exposure of directors and officers if knowingly complicit in

misreporting

• Due Diligence defenceNot liable if “exercise due diligence” to prevent commission of the office

Could be critical, given broad scope of ESTMA


Practical Due Diligence

plDue Diligence • Assess systems in place to capture payments

Are all relevant payments being recorded? Are they being recorded accurately?Do you have means to gather information (partners, agents, co-venturers)?

• Have a clear position on critical definitions/concepts, as you may be called to defend them“Project” “Control”Social/community payments

• Ensure employees and contractors understand obligations and importance of compliancePoliciesTraining


Practical Due Diligence (Continued)

• Confirm obligations and exposure under local lawIs compliance in Canada potentially going to violate foreign laws, licenses or

contracts?

• Co-ordinate with parent/affiliates in other jurisdictions with similar standards• EU (U.K. Rules already in force), U.S. (anticipated)• Some differences in regimes – especially U.S.

• Understand and prepare for implications following disclosureAny problematic or “red flag” payments identified during review?


Thank you

Dentons Canada LLP

Dentons is the world's first polycentric global law firm. A top 20 firm on the Acritas 2015 Global Elite Brand Index, the Firm is committed to challenging the status quo in delivering consistent and uncompromising quality and value in new and inventive ways. Driven to provide clients a competitive edge, and connected to the communities where its clients want to do business, Dentons knows that understanding local cultures is crucial to successfully completing a deal, resolving a dispute or solving a business challenge. Now the world's largest law firm, Dentons' global team builds agile, tailored solutions to meet the local, national and global needs of private and public clients of any size in more than 125 locations serving 50-plus countries. www.dentons.com.

© 2015 Dentons. Dentons is a global legal practice providing client services worldwide through its member firms and affiliates. This document is not designed to provide legal or other advice and you should not take, or refrain from taking, action based on its content. We are providing information to you on the basis you agree to keep it confidential. If you give us confidential information but do not instruct or retain us, we may act for another client on any matter to which that confidential information may be relevant. Please see dentons.com for Legal Notices.

May 3, 2023 16

NI 43‑101 in Connection with Acquisitions

Presented by: Brian Abraham, Q.C., P.GeoJune 1, 2016

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1. Two main types of acquisitions:a) the acquisition of a company and risks b) an acquisition of a project risk limited to project.

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2. Materiality and currency of reports.• project• mines• single or multiple mines or projects• stagesa) CAPEX/OPEX Estimates

i. Are they reasonable?ii. Time frameiii. Overruns

b) Metal Prices

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3. Due diligence process.a) Regulatory Issuesb) Royaltiesc) Site Visits by Clientsd) Government and State Contracts

i. Enforceabilityii. International Agreements ‑ arbitrationiii. Timelines

e) Material Contractsi. Smelting and refining agreements (redacted)

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Due Diligence Process (continued)f) Debt

i. Direct debtii. Indirect debt

g) Streaming Agreements and Royalty Agreementsh) Proprietary Datai) Intellectual Propertyj) Reports and Certificates

i. QPs project visitsii. experience of QPs

k) Issuer’s Economic Analysis

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Due Diligence Process (continued)l) Resources and Reserves Factors Under NI 43‑101

i. environmentalii. permittingiii. legaliv. titlev. taxationvi. socio economicvii. marketingviii. politicalix. other relevant factors

m) Personal Pet Peevei. Exact figures, for example 10 figures for tonnage based on 2.1 grams per tonne gold

10,132,941 tonnes grading 2.1 grams per tonne 21,279,176 g or 685,761 ounces

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Due Diligence Process (continued)n) Section 3 Reliance on Other Experts

• legal• political• environmental• tax matters i. QP identifies the source of information; the extent of reliance; and the portions of the

report to which the disclaimer applies.ii. There are certain exceptions for evaluations, for example of diamonds and other

gemstone valuations or pricing of commodities which prices are not publicly available.

o) Gross Metal Valuesi. Recoverableii. Dilutioniii. Processingiv. Shipping and transportation

p) Independent vs. Non Independent Reportsq) “Reasonable Prospect for Economic Extraction” – Resources

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4. Social Issues, Environmental Issues, Public Commentarya) Public Disclosure

i. quarterly reportsii. financial notesiii. MD&Aiv. news releasesv. PDAC, Roundup, conventions/seminarsvi. news reports

b) Important area, CSR, TSM

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5. Other Factorsa) Project Performanceb) Foreign Assetsc) Geopolitical Risksd) Riskse) Cautionary Language

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6. Codesa) JORCb) PERCc) SAMRECd) Certification Code Chilee) SEC Guide 7f) Russian Code (NAEN)

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NI 43‑101 is the World’s Best Reporting Systembut we can do Better and will with Time

01 June 2016


Thank you

Dentons Canada LLP250 Howe Street20th FloorVancouver, British Columbia V6C 3R8Canada

Dentons is the world's first polycentric global law firm. A top 20 firm on the Acritas 2015 Global Elite Brand Index, the Firm is committed to challenging the status quo in delivering consistent and uncompromising quality and value in new and inventive ways. Driven to provide clients a competitive edge, and connected to the communities where its clients want to do business, Dentons knows that understanding local cultures is crucial to successfully completing a deal, resolving a dispute or solving a business challenge. Now the world's largest law firm, Dentons' global team builds agile, tailored solutions to meet the local, national and global needs of private and public clients of any size in more than 125 locations serving 50-plus countries. www.dentons.com.

© 2015 Dentons. Dentons is a global legal practice providing client services worldwide through its member firms and affiliates. This document is not designed to provide legal or other advice and you should not take, or refrain from taking, action based on its content. We are providing information to you on the basis you agree to keep it confidential. If you give us confidential information but do not instruct or retain us, we may act for another client on any matter to which that confidential information may be relevant. Please see dentons.com for Legal Notices.

May 3, 2023 28

Dentons mining seminar

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