Canada’s Remaining Resource Companies Must Stay Canadian – by Michael Atkins

Established in 1980, Northern Ontario Business  provides Canadians and international investors with relevant, current and insightful editorial content and business news information about Ontario’s vibrant and resource-rich North. Michael Atkins is President of Laurentian Media Group matkins@laurentianmedia.com His column was published in the October, 2010 issue.

“Australia’s position in global resources is not guaranteed. If we fail to remain competitive, Australia will incur a substantial opportunity cost and, in the worst-case scenario, our resources will fall into overseas hands and we will become a branch office — just like Canada…. We have been losing competitiveness, but we are well-placed to increase market share and we have the resources to do it, so Australia in the new world order needs to work out whether we become a competitor or a spectator.” Don Argus, Former Chairman of Australia’s BHP Billiton

If you run a business publication in Northern Ontario, you are never far from the politics of resources. We are always either discovering something new (say, the Ring of Fire) or coming up against something closing (say, the copper and zinc plants in Timmins), either suffering the effect of low prices or getting almost no benefit from higher ones. Lately, of considerable interest is not just what is happening but who owns what is happening.

We are living in an era of worldwide consolidation of the resource sector and this is having a tremendous impact on our prospects and profile. A couple of the consolidators are Canadian companies (say, Barrick Gold) but by and large Canada is disappearing as a serious player. We are pansies. We don’t have the guts and we don’t have the governance and we don’t have the wherewithal to find the capital. We are drifting into irrelevance.

We need look no further than the former chairman of Australia’s BHP Billiton, Don Argus, who said the following a few years ago as he was politicking to buy Rio Tinto, another mammoth mining company that incidentally had bought out another great Canadian company, Alcan:

“Australia’s position in global resources is not guaranteed. If we fail to remain competitive, Australia will incur a substantial opportunity cost and, in the worst-case scenario, our resources will fall into overseas hands and we will become a branch office — just like Canada…. We have been losing competitiveness, but we are well-placed to increase market share and we have the resources to do it, so Australia in the new world order needs to work out whether we become a competitor or a spectator.”

What renews the discussion is the proposed takeover of Potash Corporation by that same BHP. My views are no different on this transaction than on the ridiculous sale of INCO and Falconbridge. We need to be owners, not rentiers; players, not spectators; conscious, not somnolent; proud, not resigned; risk takers, not couch potatoes; leaders, not followers. To my surprise, I find the editor-at-large of the National Post Diane Francis in agreement. Yes, she of the National Post. Here is what she said in a column where she was interviewing Stephen Jarislowsky, a well-known money manager in Montréal:

“In my view, and Jarislowsky’s, it is time to realize that Canada is targeted by companies that are bigger than some of our governments and will hollow out the nation. For instance, bidder BHP Billiton made a profit in 2009 of US$16-billion on revenues of US$44-billion while Saskatchewan made total tax and royalty revenues in 2009 of $9.5-billion with 1.2 million ‘shareholders,’ or residents. And legally they own the deposit and should get all the benefits. The world has changed and Canada’s head offices are disappearing rapidly, along with our best assets. Nickel’s gone, steel’s gone, base metal mining’s mostly gone, income trusts are mostly foreign now, and just wait for the buyout of our major oil, uranium, railway and real estate entities.”

Jarislowsky’s view is that mining companies should come under the same kind of legislation as Canadian banks, namely that no one shareholder can own more than 20 per cent, no foreign investor more than 10 per cent.

Ironically, although violently opposed to the whole transaction, he has no option but to vote for it if push comes to shove because he has bought shares in this company for his clients and owes them a fiduciary responsibility to sell at the highest price.

Like much in life, if you want to understand why things happen, just follow the money. The current president of Potash Corporation Bill Doyle is an American. He lives in Chicago and commutes to Saskatchewan. If the business sells, he gets a bonus of more than $400 million. Yes, $400 million. Basically, his objective is to sell as quickly as possible. Why not?

This compensation rivals the earnings of the people of Saskatchewan who own the stuff. Does this make sense to you?

The board of course wants to reward stock price valuation. The flaw is that the president has nothing to do with this value. It is a function of how much fertilizer China needs in the next 50 years. Instead of rewarding management, the board is rewarding luck.

The result for the country is ineptitude so breathtaking it is impossible to measure.

Sound familiar?

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