Commentary: Resource nationalism and mining reforms: An increased potential for international disputes – by Harry Burnett, Caline Mouawad and Louis-Alexis Bret (Northern Miner – September 26, 2013)

The Northern Miner, first published in 1915, during the Cobalt Silver Rush, is considered Canada’s leading authority on the mining industry. 

Ernst & Young listed resource nationalism as the number one risk threatening the mining sector in 2013, a sharp increase over five years ago when resource nationalism appeared at the bottom of Ernst & Young’s top 10 list of business risks facing the mining and metals sector.

Amidst a struggling global economic context, increasing mineral and metal prices over that period have fueled host governments’ efforts to seek a greater take from the mining sector. These efforts have translated into a new wave of mining reforms imposing or increasing royalties and mining taxes, introducing local beneficiation requirements under penalty of increased export levies, or limiting foreign ownership of mining assets.

These contemplated or newly-enacted mining reforms have generated uncertainty and have caused mining projects around the world to be deferred or cancelled altogether. These reforms — with their dramatic impact on existing projects’ risk/reward equation — have caused, and are likely to continue to cause a significant number of international disputes between international mining companies and resource-rich host governments including Peru, Bolivia, Venezuela or Mongolia.

Faced with the threat of resource nationalism, existing and prospective foreign investors must develop strategies aimed at protecting and preserving their rights. These strategies include securing optimal protection under available bilateral investment treaties (BITs), laws and contracts — in particular, obtaining or preserving the right to dispute resolution before international arbitration tribunals (thus avoiding the local courts) — and engaging with governmental entities to delineate areas of responsibility and foster a greater understanding of the value that natural resources development bring to the host states.

A new wave of mining reforms

Robust mineral and metal prices over the past few years have led resource-rich countries to enact or contemplate overhauling mining legislations aimed at capturing an increased share of the mineral rent. In that respect, this trend compares to some oil-producing countries’ efforts to enact “windfall profit” taxes on oil production over the 2005-2010 period.

Australia announced a proposed Resource Super Profit Tax in 2010, aimed at capturing a large share of profits stemming from coal and iron ore mining in the country. This initial proposal evolved into the Minerals Resource Rent Tax, which entered into force on July 1, 2012, and provided for an additional 30% tax on the profits generated by iron ore or coal companies in excess of A$67 million. Tony Abbott’s recent election as Australia’s prime minister, however, may result in an overhaul of these taxes. Prior to his election, Abbott stated that if elected, he would introduce legislation to repeal the country’s Minerals Resource Rent Tax and Carbon Tax.

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