SIMEXMIN Financing Mineral Exploration Projects in Canada and the new Draft Mining Code

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1 SIMEXMIN 2014 Financing Mineral Exploration Projects in Canada and the new Draft Mining Code Financiamento de Projetos de Pesquisa Mineral no Canadá e o Projeto do Novo Código de Mineração Gary Litwack Partner McCarthy Tétrault Dr. Frederico Marques Partner McCarthy Tétrault

2 AGENDA Why Canada and the Canadian Capital Markets? Initial Access to Capital Markets in Canada Canadian Prospectus Requirements Getting Listed in Canada Further Financing Continuous Disclosure Requirements Principais aspectos para desenvolvimento da indústria de exploração mineral e mineração / Mercado de capitais E o Brasil? Empresas listadas na BMF&BOVESPA Principais aspectos a serem considerados na revisão do novo Marco Regulatório Mas qual o caminho que o Brasil seguirá? Outras matérias importantes do ponto de vista de captação de recursos (equity & debt) Conclusões

3 I WHY CANADA AND THE CANADIAN CAPITAL MARKETS 3 World s Largest Resources Public Market Liquid trading market Sophisticated retail and institutional investor base Equity culture Tailored listing standards Lower costs of compliance Global visibility Investment bankers with unparalleled experience in evaluating, valuing and advising on resource projects throughout the world, and in completing financings for projects anywhere in the world and across market capitalizations

4 I WHY CANADA AND THE CANADIAN CAPITAL MARKETS 3B Globally recognized disclosure standards and requirements for mining (NI ) and oil & gas (NI ) companies which allows for more inclusive reporting then SEC Industry Guide 7

5 I WHY CANADA AND THE CANADIAN CAPITAL MARKETS? 4 Global exchange leader for new listings World s soundest banking system Toronto Venture Exchange (TSX-V) - trading platform for smaller cap companies o Easier to become a listed issuer and less demanding ongoing requirements o Market structure encourages growth and graduation to Toronto Stock Exchange (TSX). Liquid trading market with strong equity culture and sophisticated investing public Familiarity with South American companies and projects

6 I WHY CANADA AND THE CANADIAN CAPITAL MARKETS? 4B Unique short form prospectus financing option allows for faster access to capital markets Bought-deal financings give TSX and TSX-V listed issuers faster access to equity with greater certainty of results Four month hold period for private placements has allowed this to become more acceptable to many investors and investment bankers U.S. capital markets made more accessible through the Multijurisdictional Disclosure System (MJDS) which permits issuers who are subject to the disclosure requirements of Canadian securities laws to offer securities in the U.S. without the additional cost of duplicative disclosure and regulatory filings Public companies of all sizes receive analyst coverage, from $50 million in market cap to over $1 billion

7 5 INITIAL ACCESS TO CAPITAL MARKETS IN CANADA Initial Public Offering Capital Pool Company/Special Purpose Acquisition Companies Other Reverse Take-Overs

8 INITIAL ACCESS TO CAPITAL MARKETS IN CANADA 6 Initial Public Offering (IPO) Process Traditional method of going public Two concurrent steps: Preparing and filing prospectus with securities regulators; and Application to list company s shares on either the TSX or TSX-V Prospectus is a detailed disclosure document that summarizes material information about your company and the shares being offered to help investors make informed decisions. Will include elements such as historical overview, summary of business and operations, overview of business plans and, for resource companies, description of principal resource properties, including input from a technical report prepared for each material property (pursuant to NI or NI )

9 INITIAL ACCESS TO CAPITAL MARKETS IN CANADA 7 Capital Pool Company (CPC) Process and Special Purpose Acquisition Company (SPAC) CPC Unique program, exclusive to the TSX-V Allows a new clean company (i.e. no past operations or potential liability) to conduct an IPO and list on the TSX-V before acquiring a business or properties and commencing any commercial operations Divides a traditional IPO into two phases: SPAC Creation and funding of the CPC The qualifying transaction Essentially, the TSX s larger cap version of CPC

10 INITIAL ACCESS TO CAPITAL MARKETS IN CANADA 8 Capital Pool Company (CPC) Process Creation and funding of the CPC Between 3 6 founders incorporate a shell corporation with a minimum of the greater of $100,000 or 5% of total funds to be raised Prospectus prepared and application made to list the shell company as a CPC on the TSX-V CPC prospectus outlines intention to raise between $200,000 and $4,750,000 and to use proceeds to identify and evaluate potential business acquisitions CPC issues shares to at least 200 arm s length shareholders, each of whom buy at least 1,000 shares Since, generally, the CPC will not have identified its target business or properties (may contemplate a target industry, but not required), the prospectus need not contain detailed business disclosure As a result, for resource companies, no requirement at this stage for a NI or NI report CPC prospectus and all supporting documentation are filed with both the TSX-V and the securities regulators

11 INITIAL ACCESS TO CAPITAL MARKETS IN CANADA 9 Capital Pool Company (CPC) Process The qualifying transaction 24 months to find a business to acquire as the qualifying transaction Shareholder approval is generally only required if the qualifying transaction is not arm s length Once identified, a filing statement or information circular is prepared After the qualifying transaction, the CPC graduates to trade as a regular issuer on the TSX-V (depending on size/profitability of target business, the CPC can even immediately graduate to a TSX listing). There is often a private placement financing done concurrently with the qualifying transaction. Canadian securities laws often allow for the private placement securities to be freely tradeable immediately following completion of the qualifying transaction Potential for vendors of target business to get tax deferral (at least in part) in respect of the qualifying transaction depending on local tax legislation

12 INITIAL ACCESS TO CAPITAL MARKETS IN CANADA 10 Special Purpose Acquisition Company (SPAC) Process SPACs are required to raise a minimum of $30 million (with no stipulated maximum) SPAC may arrange for debt financing and/or additional equity financing contemporaneously with the closing of the qualifying transaction allowing for acquisition of bigger target SPAC must give its investors the right to vote on any proposed qualifying transaction

13 INITIAL ACCESS TO CAPITAL MARKETS IN CANADA 11 Reverse Take-Over (RTO) Process Reverse take-over of a company that is already listed on the TSX or TSX-V A listed company acquires the shares or assets of an operating private company in exchange for shares which will represent a majority of the shares of the listed company The shareholders of the operating private company take control of the listed company Involves the preparation and filing of a listing statement o o Prospectus-level disclosure required Includes information about the private operating company, the listed company and the resulting issuer RTO process requires a suitable TSX or TSX-V listed issuer to begin the process

14 INITIAL ACCESS TO CAPITAL MARKETS IN CANADA 12 Choosing The Appropriate Route IPO Traditional method Fully market dependent Appropriate for large financing o Generally requires some history of operations or exploration work Estimated to take three-five months

15 INITIAL ACCESS TO CAPITAL MARKETS IN CANADA 13 Choosing The Appropriate Route CPC More popular for companies attempting to list on TSX-V, particularly resource issuers, but can be appropriate for any industry o Somewhat market dependent (if concurrent financing will be required) o Preferable if a company wants to access capital at an early stage or if market is not suitable for an IPO Time required to complete the qualifying transaction can be significantly less than the time needed for an IPO SPAC Substantially the same considerations as CPC

16 INITIAL ACCESS TO CAPITAL MARKETS IN CANADA 14 Choosing The Appropriate Route RTO Less common than IPO or CPC Less dependent on market conditions May not allow for faster listing than a traditional IPO or CPC (prospectus-level disclosure document still required) Risks to RTOs include: o Listed company may have unfavourable history/liabilities Identifying a suitable candidate may be time-consuming

17 INITIAL ACCESS TO CAPITAL MARKETS IN CANADA Choosing The Appropriate Route 15 IPO CPC/SPAC RTO TIMING Approximately 3-5 months Approximately 2-3 months Approximately 2-3 months MARKET DEPENDENCY Fully market dependent Somewhat market dependent (if concurrent financing will be required) Somewhat market dependent (if concurrent financing will be required) COSTS More significant cost Lower cost Lower cost

18 16 CANADIAN PROSPECTUS REQUIREMENTS Prospectus Disclosure Requirements Description of business Financial statements Management discussion and analysis Principal shareholders, directors, management, corporate governance and executive compensation Plan of distribution Material contracts

19 17 CANADIAN PROSPECTUS REQUIREMENTS Prospectus Disclosure Requirements Risk factors Description of specific industry and jurisdictional considerations Special tax considerations Additional requirements for resource extraction companies Use of proceeds (which should be supported by NI or NI compliant development cost estimates for resource extraction companies) Significant acquisitions Compliance with NI for mining companies or NI for oil & gas companies

20 18 CANADIAN PROSPECTUS REQUIREMENTS Prospectus Review Process

21 19 CANADIAN PROSPECTUS REQUIREMENTS Financial Disclosure Requirements (IFRS) An issuer s IPO prospectus must include the following: o Audited financial statements for the 3 most recently completed financial years and most recent interim financial statements An issuer listing on the TSX or TSX-V requires filing of: o Audited financial statements for the most recently completed financial year and most recent interim financial statements

22 20 GETTING LISTED IN CANADA General requirements o Public distribution o Management o Sponsorship Business-specific requirements: Mining Companies and Oil & Gas Companies o Property Requirements o Recommended Work Program o Working Capital and Financial Resources o Net Tangible Assets, Earnings or Revenue o Geological Report

23 21 GETTING LISTED IN CANADA Industrial, Technology, Research & Development and Real Estate Companies: Earnings or Revenues Cash Flow Net Tangible Assets

24 22 GETTING LISTED IN CANADA Issues and practical considerations for international issuers Financials / accounting reporting methods PIFs / international security clearances Restricted shares Incentive plans Registrar and transfer agent in Canada Escrow and Lock-up Agreements

25 23 GETTING LISTED IN CANADA Dual Listing TSX approach to dual listings Process Issues and practical considerations

26 24 FURTHER FINANCING Listing Requirements Long-form Prospectus Short-form Prospectus Shelf Prospectus Private Placement

27 25 CONTINUOUS DISCLOSURE REQUIREMENTS Canadian securities regulators require reporting issuers to prepare and file publicly certain disclosure on a regular basis for the purpose keeping the investing public informed Documents are filed publicly online using the System for Electronic Document Analysis and Retrieval ( o News Releases (disclosing material changes in the affairs of a reporting issuer, however in practice not all news releases contain material information) o Material Change Reports Option to file confidentially with securities regulators in exceptional circumstances

28 26 CONTINUOUS DISCLOSURE REQUIREMENTS o Annual Information Form Annual, point-in-time discussion of material information relating to the issuer in the context of its historical and possible future development, in prescribed form Optional for TSX-V issuers (but required if issuer will want to use short form prospectus) o Financial Statements Interim (quarterly) and annual audited; in accordance with IFRS o Managements Discussion & Analysis Quarterly and annual, prescribed form Narrative discussion of company performance during the annual or interim financial statement period

29 27 CONTINUOUS DISCLOSURE REQUIREMENTS o Business Acquisition Report In relation to a significant acquisition, an issuer has 75 days (up to 120 days in certain circumstances) to prepare and file a report in prescribed form o National Instrument Standards of Disclosure for Mineral Projects and National Instrument Standards of Disclosure for Oil & Gas Activities

30 CONTINUOUS DISCLOSURE REQUIREMENTS NI for Mineral Resource Companies and NI Oil & Gas Companies NI o Rules relating to disclosure and filing requirements for mineral resource issuers in Canada o Requirements relate to the disclosure of scientific and technical information relating to a mineral project on a property material to the issuer o Broad interpretation of disclosure by securities regulators including all written an oral statements (websites and analyst interviews, presentations) o Built around Canadian Institute of Mining and Metals definitions of resource and reserve for the purpose of ensuring consistency of mining industry disclosure and maintaining integrity of mining capital markets 28

31 CONTINUOUS DISCLOSURE REQUIREMENTS NI for Mineral Resource Companies and NI Oil & Gas Companies NI o In addition, issuer is required to prepare and file detailed technical reports in certain instances and in prescribed form Triggers include upon becoming a reporting issuer, in connection with prospectus financings (other than by short form prospectus), upon filing an AIF and first time disclosure of resources or reserves or the results of a preliminary economic assessment or a material change in any of them 29

32 CONTINUOUS DISCLOSURE REQUIREMENTS 30 NI for Mineral Resource Companies and NI Oil & Gas Companies NI o Contains concept of a Qualified Person (QP) A defined term, must be an engineer or a geoscientist with an appropriate professional association (several international professional associations are recognized) A QP must sign off on all public disclosure of a scientific or technical nature and in certain instances must be independent of the issuer (long form prospectus, valuations, new resource or reserve estimates or a 100% change or greater in existing estimates)

33 CONTINUOUS DISCLOSURE REQUIREMENTS 31 NI for Mineral Resource Companies and NI Oil & Gas Companies NI o NI vs. SEC Industry Guide 7 Under Guide 7, mineralization can only be categorized as a reserve once economic and legal viability have been established whereas NI allows for a probable mineral reserve category Guide 7 does not recognize the reporting of resources Mineral resource issuers therefore ensure that securities offering materials alert readers that the disclosure regarding mineral reserve and mineral resource estimates are being made in accordance with NI and not Guide 7

34 CONTINUOUS DISCLOSURE REQUIREMENTS 32 NI for Mineral Resource Companies and NI Oil & Gas Companies NI o Disclosure and regulatory filing requirements applicable to reporting issuers in Canada involved in oil & gas activities o Definition includes exploration; acquisition of properties; construction, drilling and production activities; and extraction, but does not include Transporting, refining or marketing oil or gas o Annual filings, in prescribed form, are required on or before filing of annual financial statements (or information may be included in AIF): Statement of Reserves Data and Other Information Report of Independent Qualified Reserves Evaluator or Auditor Report of Management and Directors

35 CONTINUOUS DISCLOSURE REQUIREMENTS 33 NI for Mineral Resource Companies and NI Oil & Gas Companies NI o Also regulates all of issuer s public disclosure and all documents filed with regulators Disclosure requirements and restrictions based on definitions, including of reserve and resource, in Canadian Oil & Gas Evaluation Handbook o Issuer required to appoint one or more qualified reserves evaluators or auditors, each of whom must be independent of the issuer o Enumerated responsibilities of boards of directors include implementation and review of procedures relating to the appointment and ongoing work of the Qualified Reserves Evaluator or Auditor and review and approval of all annual filings required under NI Responsibilities may be delegated to a Reserves Committee other than relating to the annual filings

36 Principais aspectos para desenvolvimento da indústria de exploração mineral e mineração / Mercado de capitais 36 Quadro Jurídico Segurança Jurídica Transparência Respeito ao Direito Adquirido Harmonização Práticas Int. Expertise Técnica Geólogos Engenheiros de Mina Analistas, Economistas Advogados, Contadores etc Investimento Harmonização da Informação Acesso a Equity & Debt Finance Investidores institucionais, empresas, private equities, indivíduos. Cultura de investimento Mercado de Capitais & Empresas de Exploração Mineral e Mineração Projeto + Management Projeto de qualidade e bem desenvolvido Equipe com experiência técnica e de mercado de capitais

37 37 E o Brasil? Brasil é um país de tradição minerária Excelente geologia e grande potencial Geólogos e Engenheiros de Mina Experientes RR AP Poucas empresas possuem acesso ao mercado de capitais nacional (operações de equity) e debt praticamente inexistente (exceto para majors) Segurança jurídica abalada com as discussões em torno do novo marco regulatório para o setor AC AM RO PA TO MT GO DF MS SP PR SC MA MG PI RJ BA ES CE PE RN PB AL SE Necessidade de atrair mais investimento para projetos de exploração mineral RS

38 Empresas listadas na BMF&BOVESPA 38 Setor Razão Social Nome de Pregão Segmento Minerais Metálicos Litel Participações S.A. LITEL MB Minerais Metálicos Manabi S.A. MANABI Minerais Metálicos MMX Mineração e Metálicos S.A. MMX MINER NM Minerais Metálicos VALE S.A. VALE N1 Minerais não Metálicos CCX Carvão da Colômbia S.A. CCX CARVAO NM Fertilizantes e Defensivos Fertilizantes Heringer S.A. FER HERINGER NM Fertilizantes e Defensivos Nutriplant Indústria e Comércio S.A. NUTRIPLANT MA Artefatos de Cobre Paranapanema S.A. PARANAPANEMA NM Artefatos de Ferro e Aço Fibam Companhia Industrial FIBAM Artefatos de Ferro e Aço Mangels Industrial S.A. MANGELS INDL N1 Artefatos de Ferro e Aço Metalúrgica Duque S.A. MET DUQUE Artefatos de Ferro e Aço Panatlântica S.A. PANATLANTICA Artefatos de Ferro e Aço Siderúrgica J. L. Aliperti S.A. ALIPERTI Artefatos de Ferro e Aço Tekno S.A. Indústria e Comércio TEKNO Siderurgia Cia Ferro Ligas da Bahia Ferbasa FERBASA N1 Siderurgia Cia Siderúrgica Nacional SID NACIONAL Siderurgia Gerdau S.A. GERDAU N1 Siderurgia Metalúrgica Gerdau S.A. GERDAU MET N1 Siderurgia Usinas Sid de Minas Gerais S.A. USIMINAS USIMINAS Materiais Diversos Magnesita Refratários S.A. MAGNESITA NM N1

39 39 Principais aspectos a serem considerados na revisão do novo Marco Regulatório Prioridade na Outorga de Direitos Minerários First Come First Served Basis Controle efetivo Taxa progressiva Normas de Mercado de Capitais + Incentivos Normas específicas para a indústria Felixibilidade para operações de captação de recursos Aproximar do Modelo Canadense Harmonização de Conceito de Recursos e Reservas Adotar práticas internacionais Mecanismo para elaboração de relatório técnico brasileiro reconhecido internacionalmente Criação de procedimentos de Dual listing listagem de empresas TSX & TSX- V na BMF&BOVESPA e vice-versa procedimentos e taxas

40 Mas qual o caminho que o Brasil seguirá? 40 Matéria/Modelo Autal Proposta do Governo Substitutivo no Congresso Regime de Prioridade na Outorga de autorização de pesquisa (atualmente em vigor no Brasil), concessão para atividade de mineração automaticamente garantida se comprovada a economicidade do depósito. Harmonização do conceito de recursos e reservas com os padrões internacionalmente aceitos (NI & JORC) Normas específicas para mercado de capitais Criação de procedimento para facilitar dual listing Cria sistema complexo e altamente discrescionário: - Concessão, precedida de licitação, - Chamada pública, ou - Autorização Não há na proposta apresentada. Não há Cria sistema menos complexo, mas também com certa discricionariedade: - Regime de autorização (poder concedente pode negar autorização de pesquisa em área que pretenda realizar futura licitação) - Regime de concessão, concessão automática quando precedido de autorização e concessão precedida de licitação para áreas que o Poder Executivo determinar (áreas detidas pela CPRM) e aquelas em regime de disponibilidade. Há referência, mas falta melhor detalhamento, o que pode ser realizado por regulamento do poder concedente, desde que harmonize com os padrões internacionalmente aceitos. Não há (exceto em relação aos títutlos de creditos minerários) Não há Não há Incentivos Não há Isenta do imposto de renda os rendimentos dos títulos de crédito minerários.

41 Outras matérias importantes do ponto de vista de captação de recursos (equity & debt) 41 Matéria Proposta do Governo Substitutivo no Congresso ANM Agência Nacional de Mineração Autarquia especial vinculada ao Ministério de Minas e Energia. Promover a gestão de informacões e a fiscalizacão do aproveitamento dos recursos minerais no país. Autarquia especial vinculada ao Ministério de Minas e Energia. Promover a regulação, a gestão de informações e a fiscalização do aproveitamento dos recursos minerais no país. Cessão de direitos minerários (contrato de concessão, autorização etc) Pré autorização para cisão, fusão incorporação ou transferência de controle acionário, direto ou indireto, do titular dos referidos direitos, sem prévia anuência do poder concedente implicará na caducidade dos direitos minerários. Dependerá de prévia anuência do Poder Concedente a cessão ou transferência, total ou parcial, da autorização de pesquisa mineral, da autorização para aproveitamento de recursos minerais ou do contrato de concessão, assim como a cisão, fusão, transformação, incorporação, ou outras operações que resultem em transferência do controle societário do concessionário ou do autorizatário. CFEM Compensação Financeira pela Exploração Mineral Aliquota de até 4%, incidente sobre a receita bruta da venda, deduzidos os tributos efetivamente pagos e incidentes sobre a sua comercialização. As alíquotas da CFEM serão as constantes do Anexo II desta Lei e incidirão, conforme o caso, sobre: I - a receita bruta da venda, deduzidos os tributos efetivamente pagos incidentes sobre a sua comercialização; II - o custo apurado do minério até o momento imediatamente anterior à transformação industrial, nas hipóteses de consumo do bem mineral, observado o disposto nos 1º e 2º;III - o preço parâmetro definido pela Receita Federal do Brasil, na hipótese de exportação para pessoas jurídicas vinculadas ou domiciliadas em países com tributação favorecida, na forma do 3º; IV - o valor indicado no documento fiscal de saída, nos casos de transferência do minério entre estabelecimentos do mesmo titular, observado o disposto no 4º; V - o valor de arrematação; ou VI - o valor da primeira aquisição do bem mineral, no caso de extração sob o regime de permissão de lavra garimpeira. Oneração de Direitos Minerários Não há Os direitos minerários poderão ser onerados para fins de obtenção de financiamento das atividades relacionadas ao desenvolvimento da mina, por meio de penhor ou de propriedade fiduciária com escopo e garantia. Títulos de Crédito Não há Minerário Cria os seguintes títulos de crédito minerários: (I) Cédula de Crédito a Pesquisa Mineral CCPM, Cédula de Crédito a Lavra Mineral CCLM, Certificado de Cédula de Crédito da Mineração CCCM e Certificado de Recebíveis da Mineração CRM.

42 42 Conclusões Modelo Canadense é um modelo de sucesso que ao mesmo tempo: - Proporciona a segurança jurídica para todos os stakeholders - Possui regras e alternativas flexíveis para captação de recursos - Possui incentivos específicos para desenvolvimento da exploração mineral Brasil precisa de mais investimentos em exploração mineral e mineração (maior pare e realizado por majors) Ao rever o marco regulatório para o setor Brasil deveria aproximar ao modelo canadense Para o desenvolvimento da indústria em bases competitivas internacionalmente e imprescindível haver: - Harmonização do conceito de recursos e reservas - Manter o sistema de prioridade para outorga de direitos minerários - Adotar regras específicas para o mercado de capitais - Criar incentivos para as indústrias de pesquisa mineral e mineração Adotar um sistema de dual listing TSX e TSX-V e BMF&BOVESPA, a exemplo do que fez Chile (BNDESPAR pode ter papel importante nesse contexto)

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