Contributed By Cassels Brock & Blackwell LLP
Mining is one of Canada’s main industries, and it has a long and successful history. The country is resource rich and hosts many mines that produce a wide variety of minerals and metals, including gold, silver, platinum group metals, copper, zinc, nickel, molybdenum, cobalt, coal, diamonds and uranium. Canada is also the home to numerous junior mining companies that explore for minerals in Canada and worldwide, and the financial markets in Canada provide a large part of the funding for these junior companies. Tax and securities laws provide significant incentives for investment in the mining industry in Canada, and the stock exchanges are friendly to facilitating the listing and financing of junior and senior mining companies based there. Canada also boasts a large concentration of professionals in the technical, engineering, legal, accounting and management fields that help sustain a robust mining industry. This Practice Guide will highlight these features, many of which are unique to the mining industry in Canada.
Canada’s legal system is a combination of common law and civil law. The common law applies in all provinces and territories of Canada, except for Québec, which is the only province with a civil code.
As Canada is a federalist state, the powers and responsibilities with respect to mining are constitutionally allocated between the Federal Parliament and the country's ten provincial legislatures.
The provincial legislatures have the power to enact laws in relation to mineral titles and the exploration and extraction of minerals within their provincial jurisdictions, including the development and operation of mines, the conservation of mineral resources and environmental protection; they also have the power to enact laws relating to the export of minerals from one province to another within Canada, provided they do not discriminate in favour of the producing province. Finally, provinces can impose direct or indirect taxes on metal concentrates, regardless of whether they will be exported from the province.
The provincial jurisdiction with respect to mining has resulted in substantive mining regimes that are fairly consistent across provinces. However, these provincial powers are rarely codified in a single provincial statute. In British Columbia, for example, hardrock and placer mineral titles are administered under the Mineral Tenure Act; coal titles are administered under the Coal Act; titles for quarrying sand and gravel are administered under the Lands Act, which also governs the grant of additional surface tenure to explore or develop mineral or coal titles; the Mines Act provides for the regulation of exploration, development and mining activities; the Environmental Assessment Act governs the environmental review of proposed mines; and the Environmental Management Act governs waste discharge, pollution, hazardous wastes and mine remediation.
Canada’s Federal Parliament has the power to make laws in relation to minerals and mining on federal lands, and also makes laws in relation to mineral exports and imports, nuclear energy and minerals used to generate nuclear energy, inter-provincial transport of dangerous goods, the use of explosives, navigable waters and, perhaps most importantly, the protection and conservation of the environment as it impacts federal jurisdiction, including migratory birds, species at risk and fisheries resources and their habitat.
Canada's three territories (Yukon, Northwest Territories and Nunavut) are under federal jurisdiction and are governed by territorial governments created by federal statute. In the Yukon and Northwest Territories, mineral rights are administered and controlled by the respective territorial government through statutory devolution. In Nunavut, mineral rights continue to be administered and controlled by the federal government; however, negotiations for statutory devolution to the territorial government are ongoing.
Property interests with respect to surface and subsurface minerals are generally severed in Canada. This is largely a function of the historic disposition of land in Canada. Generally, all lands were historically owned by the Crown until title was granted to settlers or municipalities by Crown grant. A separate fee estate consisting either of only surface rights, of both surface rights and mineral rights, or solely of mineral rights could be created by Crown grant or by a grant of the fee simple estate, with or without reservation by the Crown of the mineral fee. Near the end of the 19th century, the Crown adopted a practice of reserving the minerals from fee simple grants. Federal and provincial legislation across Canada now provides that minerals are reserved from Crown land dispositions.
As a result, each Canadian province and territory has its own system of mineral tenure and legislation pertaining thereto, as well as its own procedures whereby mineral interests may be granted by the Crown and acquired by private legal persons. The total area of privately owned land in Canada is relatively small, at approximately 11% of the country’s total surface area, and the mineral fee remains reserved by the Crown for a substantial portion of those private lands. The Crown is the largest holder of minerals in Canada, both as fee simple owner of Crown lands and due to mineral reservations from historic Crown grants.
Section 109 of the Constitution Act, 1867 (the “Constitution”) vests ownership of Crown minerals situated in a province to the provincial Crown. Pursuant to Sections 92(13), 109 and 92A of the Constitution, the regulation of mineral tenure, exploration, development, mine operation and environmental remediation in the provinces is predominantly a matter of provincial jurisdiction.
Title to minerals located in Canada’s three territories, the territorial sea and continental shelves and federal lands (national parks, harbours, First Nation reserves) vests in the federal Crown, as discussed above.
Crown title to all Crown lands is subject to Aboriginal treaty rights, claims for Aboriginal title or other rights, and to the provisions of any applicable land claim agreement.
The federal and provincial governments serve as grantor-regulator of mining activity. The federal government, the ten provinces and the three territories each have their own ministries, agencies or other governmental bodies that oversee the mining sector. Often, multiple agencies will administer separate facets of the mining business.
Examples of this engagement of multiple agencies are found in all provinces. In British Columbia, for example, there is the Ministry of Energy, Mines and Petroleum Resources (EMPR); the Ministry of Environment and Climate Change Strategy (ENV); the Environmental Assessment Office (EAO); and other agencies, such as the Ministry of Forests, Lands, Natural Resource Operations and Rural Development (FLNRO), which work together to provide compliance oversight of mining activities. The EMPR’s oversight responsibilities generally apply within the mine site boundary and involve regular field inspections to make sure that mines are complying with the Mines Act, the Health, Safety and Reclamation Code for Mines, and other codes and standards. The ENV’s responsibilities are typically limited to actual or potential environmental impacts beyond the mine site boundary, including leaching and acid rock drainage, effluent discharges, air emissions, hazardous wastes and landfills. The EAO oversees environmental assessments of mine development projects, as well as compliance and the enforcement of environmental assessment certificates. The FLNRO is responsible for the stewardship of provincial Crown land, timber clearance, the quality of drinking water, wildlife management and the protection of archaeological and heritage resources. There is also a Major Mine Permitting Office that works directly with mining project proponents, First Nations and government technical advisers to co-ordinate multi-agency regulatory permits and implement the efficient and timely review of applications for major new mines and expansion projects.
In addition, there are multiple federal agencies that regulate environmental aspects of mining activity, as described in 2.1 Environmental Protection and Licensing.
As noted above, mineral rights have a constitutional basis insofar as the rights and powers over their extraction have been constitutionally apportioned.
Mineral rights in Canada are a property right and can be broken down into three distinct categories.
The Right of Entry on Crown or Private Lands Containing Crown Minerals
Holders of mining claims have the right to enter upon, use, occupy and let down such part(s) of the surface rights of the claim as necessary for prospecting and efficient exploration, development and operation of the mines, minerals and mining rights therein. In all jurisdictions, compensation will be owed to existing surface rights owners.
Priority Over Other Miners
Staking or registering a mining claim gives priority over other miners, so long as the claim remains in good standing. Where disputes arise between prospectors with respect to the staking, registration or priority of claims, inspections of the claims may be requested by a recorder or similar government official, and the recording of challenged claims may be appealed to a quasi-judicial officer or board, such as the Chief Gold Commissioner in British Columbia.
The Right to a Lease and to Enter into Production
A mining claim holder is entitled, and has the exclusive right, to apply for a mining lease over the area of the claim, following the prescribed periods of assessment work. Such a mining lease grants the right to enter into production from a mineral deposit and, upon production, to take title to the minerals and to process and dispose of them for valuable consideration.
The granting of mineral rights will depend on the location of the minerals. Most mineral rights are granted by statute by the provincial government.
The provinces of British Columbia, Manitoba, New Brunswick, Newfoundland and Labrador, Ontario, Québec and Saskatchewan, along with the three territories, have adopted some form of modified free-entry system, which allows individuals and corporations to obtain mineral rights by staking and/or registering (in the case of Ontario) mining claims on their own initiative on mineral lands deemed open for staking.
The free-entry system relates only to the limited acquisition of mining rights or temporary limited tenure by mining claim (referred to as a mineral claim in other jurisdictions). The acquired rights do not necessarily extend to actual permission for the activities of exploration, development or mining. These industrial activities remain subject to land use, environmental and other principles and laws and regulations. If a mining claim holder wishes to develop a mineral deposit on the land subject to the claim, they must usually apply for and obtain a Crown mining lease.
Alberta, Nova Scotia and Prince Edward Island have adopted the Crown discretion mining system, under which the provincial government, as owner of the mineral resources, has the discretion to decide whether and on what terms a person may prospect for minerals. Governmental approval of a prospector’s activities generally takes the form of a licence or permit. If a permit-holder wishes to develop a mineral deposit, it must usually apply for and obtain a Crown mining lease.
Once recorded, mining claims allow a mineral explorer to claim a demarcated portion of available Crown lands as their exclusive area, solely for exploration for a specified period. Many jurisdictions in Canada have moved away from the physical staking of mining claims (requiring the placement of posts or other visible markers on the ground to indicate the claimed area). Instead, mining claims are acquired by selecting blocks of claims using an online mapping system, known as “map selection” or “map staking.”
Finally, applications to record a mining claim must be filed within a specified time with the applicable ministry or agency. The recording is designed to give public notice of the area held by the staker/claimant.
The holder of a mining claim generally has the right to transfer or sell an interest in that claim freely without Crown consent (unlike other jurisdictions, where Crown consent is required to sell or transfer a Crown mining lease).
Security of tenure of a mineral claim is generally maintained through satisfying prescribed work requirements or payment in lieu thereof. The length of a mineral claim will vary across provinces. In British Columbia, a mineral claim is valid for one year and may be extended for up to ten years from the application date or on a year-to-year basis. Mining leases are granted for terms ranging from ten to 30 years. In British Columbia, the initial term of a mining lease cannot exceed 30 years. A lessee can renew for a period of up to 30 years, if the Mineral Tenure Act is complied with. Before proceeding to develop a mine, the holder of a mining claim will generally convert a mineral claim to a mineral lease to avoid the annual upkeep costs related to a mineral claim.
Mineral title may be unilaterally terminated by the Crown, usually due to failure by the holder to comply with the applicable legislation or the conditions of the mining interest itself. For example, a mineral claim may be terminated if prescribed work has not been performed, or if reports have not been filed within the prescribed time. Termination, however, is not automatic. In British Columbia, the Chief Gold Commissioner has the power to relieve the claim holder from cancellation and extend the time for performing work or acts on terms and conditions set by the Chief Gold Commissioner.
While the federal and provincial Crown have the discretionary power to designate lands as withdrawn or not open for mining activity, and to withdraw land for the creation of parks, existing mineral claims or mining leases have typically not been subject to withdrawals unless compensation has been paid.
The development of mining projects in Canada is subject to environmental regulation at both the federal and provincial level, and requires, among other things, environmental impact assessments to be conducted prior to commencing operations, and sometimes even at various stages of development. The objective is to determine whether approval for a mining operation should be granted based on the project’s environmental impacts. Even where a mining project receives approval from the various environmental authorities, obligations will be imposed for rehabilitation and restoration activities on lands and the environment that are affected following the completion of the project or mine closure. In Canada, environmental regulation is shared between the federal government and the provincial governments. Municipalities are also getting more involved in environmental regulation, and municipal by-laws and permitting requirements are important aspects of review prior to and while implementing a mining project.
The federal government has legislative jurisdiction over environmental matters of international and inter-provincial concern, as well as over fisheries, navigable waters and any dealings with federal lands, including Indian reserves or National Parks. The applicable federal entities that regulate environmental aspects of mining activity include Fisheries and Oceans Canada, Crown-Indigenous Relations and Northern Affairs Canada, Environment and Climate Change Canada, Natural Resources Canada and Transport Canada. For example, if mining activity has the potential to affect navigable waterways, Transport Canada would assess the activity under the Canadian Navigable Waters Act; or release potentially dangerous substances into the environment, this might be assessed by the Ministry of Fisheries and Oceans under the Metal and Diamond Mining Effluent Regulations and/or by Environment and Climate Change Canada under the Canadian Environmental Protection Act, 1999.
The provinces and the territories (other than Nunavut) are primarily responsible for matters within their boundaries and regulate, among other things, the extraction and transformation of natural resources (forestry, pulp and paper, mineral resources, and fossil fuels) as well as other industries, such as renewable energy production (wind energy, hydroelectricity and cogeneration). In British Columbia, the EMPR is responsible for the protection and reclamation of land and watercourses affected by mining activity, while the ENV is responsible for broader environmental impacts and the EAO is responsible for overseeing environmental assessment processes.
Generally, mining regulators in Canada have three principal mechanisms for protecting the environment: (i) the requirement for an environmental assessment before mine construction; (ii) regulation on the discharge of pollution into the environment; and (iii) a system of permits required for activities that may impair the environment.
The environmental assessment process generally seeks to determine and predict the environmental impact of proposed mine development initiatives before they are carried out, and generates detailed environmental terms and conditions for mine construction and operation.
The recent federal Impact Assessment Act (“IA Act”) requires the newly constituted Assessment Agency of Canada (the “Agency”) to conduct an impact assessment (including environmental) if a federal authority provides lands or issues certain permits or approval of a project, or if a project otherwise affects matters under federal jurisdiction or is cross-boundary, including cross-provincial or territorial, or if a project is designated subject to impact assessment by the federal Minister at its discretion. The IA Act adds several new factors to be assessed, compared to the former Canadian Environmental Assessment Act, 2012, with the scope expanded beyond environmental effects of proposed projects, to include matters such as:
While the IA Act may not necessarily apply to all projects in Canada, it will generally apply to most, including most major mining operations.
The British Columbia Environmental Assessment Act prescribes a single environmental review process for certain designated major projects in British Columbia, which examines a broad range of issues such as environmental, social, economic, heritage, First Nation and health effects, and is subject to multiple rounds of public comment. The number of specific conditions contained in an environmental assessment certificate issued to a mine proponent under British Columbia’s process often exceeds 100.
Regulation of the discharge of pollution
Much environmental regulation in Canada consists of prohibitions against the discharge of pollutants into the environment, except where authorised in advance. For example, the British Columbia Environmental Management Act forbids the introduction of waste into the environment so as to cause pollution (unless valid permits and approvals are obtained). Failure to comply is an offence and may punishment include fines, imprisonment, environmental penalties and administrative orders. Generally, all discharges must be approved by the ENV, and project-specific conditions and requirements, including monitoring requirements and financial assurances, may be imposed in connection with such approvals.
Other environmental regulations focus on the impact of projects on the broader environment, including wildlife and their habitats. For example, Québec’s Act Respecting Threatened or Vulnerable Species and Ontario’s Endangered Species Act prohibit persons from destroying or harming designated species or altering the ecosystem or biological diversity of their habitat.
Environmental protection and permits
In mining, approvals are commonly required for air emissions, waste, water, noise and mine closure plans. Regulatory authorisation for discharges of effluents or emissions into the environment from a mine usually takes the form of permits, which are often tied to pre-established standards or guidelines.
Each province has its own environmental permitting regime, often requiring multiple permits under different statutes and ministries. Permits will be required for the discharge of waste, the building and storage of mine tailings and the use of water, among other activities. Provinces often have specific regulations for the monitoring and control of effluents in the metals mining sector, which set out effluent concentration limits, monitoring, sampling and record-keeping requirements. Waste management regulations cover rock fill or mill tailings from mines, and require approvals for the use and operation of waste management or disposal systems.
The nature of mining operations may also require certain federal permits or approvals provided by multiple federal statutes, including the Fisheries Act, the Impact Assessment Act, the Canadian Environmental Protection Act, 1999, the Canadian Navigable Waters Act, the Explosives Act, the Migratory Birds Convention Act, 1994 or the Nuclear Safety and Control Act.
Proponents will also be required to provide financial security and a mine closure plan towards reclamation of the mine site. Financial security must generally cover the full reclamation of the mine site. Such security is generally exclusive to reclamation and does not provide coverage for accidents during mineral exploration and extraction.
It is important to note that applicable First Nations are often included throughout the regulatory review process and provided an opportunity to make submissions.
Certain lands are typically not open for mining activity, such as cultivated lands, park lands, railway lands, public roadways, environmentally sensitive lands (eg, game reserves and bird sanctuaries), heritage lands, airport lands, and town sites and other such developed areas. Additionally, lands in which a claim, mining exploration licence, mining concession, or mining lease has already been granted are not open for mining activity.
Exploration and mining activities are also subject to the applicable land use plans in effect in the area. An example of recent changes to land use plans with significant impact is the moratorium on new mines in certain designated areas of the Far North of Ontario (defined as the northernmost third of Ontario’s land mass) imposed by the government of Ontario pursuant to the revised Mining Act and the Far North Act. This legislation also creates an additional regulatory requirement in the form of required community-based land use plans applicable in at least 50% of the Far North’s boreal forest areas. Existing projects and mining rights tenures are grandfathered. Community-based land use plans will be developed by First Nations, individually or collectively by neighbouring communities, working jointly with the Ministry of Natural Resources. These plans will establish land use designations and permitted uses, including protected areas, within a planning area identified by First Nation communities. Specific activities, including the opening of new mines, will not be allowed to proceed until a community-based land use plan is in place. The government of Ontario recently announced a review and possible repeal of the Far North Act (existing and significantly advanced land use plans in progress would be grandfathered), with ongoing land use planning to potentially be governed by the existing terms of the Public Lands Act.
Government officials responsible for administering statutes governing the disposition of minerals on Crown lands have the discretionary power to designate lands as withdrawn or not open for mining activity. For example, lands in southern Ontario are deemed withdrawn from prospecting and staking where there is a private surface rights owner.
Community relations are a critical part of the approval and ongoing operation of mining projects in Canada and, in some instances, can be an essential requirement for governmental regulators in the consideration and approval of such projects. For Indigenous communities that may be affected by a mining project, the need for proactive community relations, both before and after a project is developed, can also be a key part of the regulatory approval process(es) related to a project, including any Crown duty to consult Indigenous people regarding their Aboriginal and treaty rights.
Under Section 35 of the Constitution Act, 1982, the Crown has a duty to “uphold the Honour of the Crown” and to consult and, where appropriate, accommodate (compensate, address, accommodate, remedy and/or mitigate impact) Aboriginal peoples when making decisions (approval, grant of right or licence) or taking actions that may affect the rights of Aboriginal peoples. Most natural resource-related projects will trigger the duty to consult. While the consultation process is the Crown’s responsibility (both the federal and provincial Crown, within their respective jurisdictions), the Crown is able to delegate some or all of the procedural aspects of consultation to project proponents, who in turn must work closely with the Crown as they carry out their respective consultation obligations. This is because the proponent has assessed the project’s feasibility before applying, and has the most current information and the most incentive to conduct a successful consultation. The objective of the consultation process it to provide a fair and transparent forum for the issues and concerns of Aboriginal peoples to be heard and considered in light of the proposed project’s activities and impacts on their lands, their rights and the environment, and, where appropriate, to address such concerns through compensation, accommodation or other mitigation measures.
The duty to consult and accommodate varies on a case-by-case basis, and not every project requires the same degree of consultation or accommodation. A single Crown decision can affect many different groups of Aboriginal peoples with overlapping claims or interests, so it is imperative that relevant Aboriginal groups are identified and consulted, that the consultation and accommodation records are done properly, and that the relevant Aboriginal groups are meaningfully consulted. Failure to do so can result in grants of licences and permits or approvals being delayed or challenged, community protests, investor relations problems and/or litigation for injunctions or damages.
Aboriginal (Indigenous) law in Canada is based on constitutionally protected inherent Aboriginal, treaty and land rights based on historic Indigenous occupation and traditional land use, historic and modern treaties, negotiated claim settlements and court-recognised claim rights. Aboriginal and treaty rights are constitutionally protected under the Constitution Act, 1982, Section 35 of which recognises and affirms the Aboriginal and treaty rights of Aboriginal (Inuit, Metis and Indian –now commonly recognised as “First Nations”) peoples of Canada and, as a result, both the federal and provincial governments are obligated to “act honourably” when dealing with Aboriginal peoples. Companies involved in the natural resources sector are among the most affected by Aboriginal law issues, which naturally arise when developments or activities occur on land that is subject to land claims or other proven or asserted Aboriginal or treaty rights.
Aboriginal Rights, Aboriginal Title, Treaty Rights and Traditional Land Use Rights
Aboriginal rights are based upon and include customs, activities and traditions that have been exercised historically by Aboriginal peoples, including, among other things, the right to hunt, trap, fish and gather on the land in question, as well as the protection of related economic, sacred, cultural and archaeological lands, sites and flora and fauna.
Aboriginal title is a form of Aboriginal right that includes the right to the land itself derived from exclusive and unsurrendered occupation and use from prior to contact, and encompasses the right to exclusive benefit from and use and occupation of the land for a variety of purposes (and not just for traditional or cultural uses). Aboriginal title holders have the right to determine how land is used and the right to benefit from those uses. This is the highest order and least common of Aboriginal land rights, and was only recently successfully established for the first time by an Aboriginal group.
Treaty rights are those rights that an Aboriginal group enjoys as a result of having entered into a treaty (a unique legal instrument) setting out such rights with the Crown. Large parts of Canada are subject to treaty, while large parts are not (British Columbia, in particular). The specific treaty will determine what specific rights have been granted and are held. Many historical treaties granted rights to hunt and trap on unoccupied Crown land within the geographic boundaries of the treaty. Modern-day treaties can be significantly broader in the rights that are granted, such as rights to lands in fee simple, mineral rights and, in some cases, self-government.
Traditional land use rights are Aboriginal rights based upon and including customs, activities and traditions that have been exercised historically by Aboriginal peoples, including, among other things, the right to hunt, trap, fish and gather on the land in question, as well as the protection of related economic, sacred, cultural and archaeological lands, sites and flora and fauna, without surrender by treaty, and may or may not be sufficient to support Aboriginal title and may be subject to, but protected by, terms of treaty. Nevertheless, traditional land use rights are recognised and protected, and will trigger the Crown duty to consult (and potentially accommodate), as will Aboriginal title and treaty rights.
Justifiable Infringement of Aboriginal Rights
The Supreme Court of Canada has affirmed that certain Crown objectives can, in principle, justify infringement of Aboriginal title or treaty or other Aboriginal rights, including for the development of agriculture, forestry, mining and hydroelectric power, general economic development, the protection of the environment or endangered species, the building of infrastructure, and the settlement of foreign populations to support these objectives.
In order to justify an impairment or infringement of Aboriginal or treaty rights, the Crown must demonstrate a compelling and substantial governmental objective, and demonstrate that its actions are consistent with the fiduciary duty it owes to the Indigenous groups, including appropriate consultation (or attempts at consultation) as a precursor to justification of the infringement. Proof that the Crown’s actions in justifying infringement are consistent with the fiduciary duties it owes to Aboriginal groups involves consideration of a three-part test:
The Supreme Court of Canada has also held that provincial governments, acting within their legislative authority under Section 92 of the Constitution, may seek to justify an infringement of Aboriginal rights, including but not limited to Aboriginal title. The federal Crown has recently endorsed, and British Columbia recently statutorily adopted, the United Nations Declaration on the Rights of Indigenous Peoples. How this will integrate with the constitutional framework recognised by the Supreme Court of Canada as described above will be determined by future legislative enactments and/or future court cases.
Impact Benefits Agreements
It is becoming common for companies to enter into impact-benefit, participation or other mutually beneficial agreements with Aboriginal peoples regarding projects, through consultation processes. Such agreements are often necessary to ensure that projects can proceed with greater certainty and that the legitimate concerns of the affected Aboriginal groups are addressed. Depending upon the nature and strength of the proven or asserted Aboriginal right, benefits negotiated in these agreements can include some form of revenue or income participation, employment opportunities, education and training initiatives, or contracting and business opportunities for the affected communities, as well as capacity-building initiatives and plans to mitigate the environmental impacts of the project. As a result, companies have more regulatory and legal certainty regarding affected Aboriginal peoples’ support for a project. Aboriginal and community support for a project can play a significant role in the level of government support.
It is common, and in many cases expected, that mining projects will enter into some form of agreement with Indigenous communities affected by a mining project; such agreements can also be linked to the requirements of the Crown to consult with Indigenous peoples. In some cases, community benefit and similar agreements are mandated by law, particularly in northern Canada relating to modern land claims agreements, such as the Nunavut Land Claim Agreement.
Greenstone Gold Mines – Hardrock Project
Greenstone Gold Mines has entered into three separate Long-term Relationship Agreements involving four First Nations and the Metis Nation of Ontario, which provide benefits to First Nations and Metis peoples regarding Greenstone Gold’s “Hardrock Project” in northern Ontario. While none of the agreements were legally required, Greenstone Gold was proactive in engaging in positive relationship building with these Indigenous peoples, that ultimately resulted in “win-win” agreements and strong relationships going forward for the advancement of the project.
Taseko Mines – Prosperity Project
Many of the issues facing Taseko Mines’ “Prosperity Project” in British Columbia dealt with challenges regarding its relationship with local First Nations communities and the finding that the project would cause a material environmental adverse effect, namely involving the draining of Fish Lake. As a result, the project failed to be approved in 2010. Since then, Taseko has proposed a “New Prosperity Project”, which does not involve the draining of Fish Lake and, while Taseko has attempted to reach agreements with local First Nations, the Tsilqhot’in Nation remains opposed to the project. The project continues to be before the courts as to whether it can proceed.
Federal and provincial governments in Canada and other countries have introduced climate change legislation that affects the mining industry. In addition, treaties have been introduced at the international level. These requirements are generally becoming more stringent, and are expected to increase compliance costs for the mining industry.
Climate change could also impose risks on the operations of the mining industry, due to effects such as increased extreme weather events, rising sea levels, and the melting of the Arctic permafrost. Major Canadian mining companies are aware of the potentially significant effects on their operations. For example, in recent disclosure, Teck Resources noted that melting permafrost in the Arctic could have an impact on their Red Dog mine located in the Arctic. In the same vein, Barrick Gold has identified an increase in extended duration extreme precipitation events as a primary climate-related risk for its business.
Canada has a two-tiered approach to climate change regulation: 1) federal; and 2) provincial.
At the federal level, the Greenhouse Gas Pollution Pricing Act implements the federal carbon pollution pricing (fee) system aimed at reducing greenhouse gas (GHG) emissions. The federal scheme has two key parts. The first part is the fuel charge administered by the Canadian Revenue Agency of CAD20 per tonne of CO2 equivalent. This charge is imposed on 21 types of fuel and combustible waste, and will increase by CAD10 per tonne annually until it reaches CAD50 per tonne in 2022. The second component is the output-based pricing system, whereby facilities pay a carbon price if their emissions exceed a set level. Future federal legislation such as the Regulations Respecting Reduction in the Release of Methane and Certain Volatile Organic Compounds, which is due to come into force in 2023, will also affect the mining industry.
At the provincial level, each province has its own supplementary regime and is free to choose whether to implement a carbon pollution price or a cap-and-trade system, if the minimum federal pricing and emissions reduction targets are met. Where provincial systems do not meet these minimums, the federal pricing system will apply as a backstop to ensure the minimum targets are achieved. Currently, the federal system applies in Manitoba, New Brunswick, Ontario, Saskatchewan, Nunavut and Yukon. The federal system is scheduled to be applied to Alberta on 1 January 2020.
British Columbia has enacted a number of climate change initiatives. Most significantly, the province has imposed a carbon tax since 2008, which is currently set at CAD40 per tonne of CO2 equivalent emissions. British Columbia has also implemented the Greenhouse Gas Industrial Reporting and Control Act, under which the emissions limit for liquefied natural gas (LNG) facilities is 0.16 tonnes of GHG emissions per tonne of LNG produced. Future legislation is also likely to impose further compliance costs on mining companies: in 2018, the Climate Change Accountability Act established a provincial target of reducing GHG emissions to 40% below 2007 levels by the year 2030, and to 60% below 2007 levels by 2040. Furthermore, the Clean Energy Act aims to make the province self-sufficient in electricity generation, with 93% coming from clean and renewable energy sources.
There are many sustainable development and corporate social responsibility initiatives affecting the mining industry in Canada including the following examples:
Corporations that carry on exploration and mining activities in Canada are subject to the general corporate income tax rules that apply to all corporations operating in Canada. Income tax is imposed at the federal level, under the Income Tax Act (Canada), and at the provincial and territorial level, with each province and territory having its own income tax statute. The current Canadian federal corporate tax rate is 15%, and provincial/territorial tax rates range from 11.5% to 16%.
A non-resident corporation that carries on business in Canada is subject to income tax in Canada at the same corporate tax rate as applies to Canadian resident corporations, and is also subject to a 25% “branch tax” on profits that are not reinvested in Canada. In addition, a non-resident is subject to income tax in Canada on the disposition of “taxable Canadian property”, which includes any interest in real or resource properties in Canada, as well as certain shares and partnership or trust interests that derive their value from such properties.
Canada levies a 25% withholding tax on certain payments to non-residents, including dividends, certain interest payments, rents and royalties. The rate of Canadian withholding tax may be reduced if the non-resident recipient is eligible to claim the benefits of one of Canada’s tax treaties.
Each province and territory also levies separate mining taxes or royalties on mining activities; the rates and basis of calculation vary depending upon the jurisdiction and the type of mineral. In many provinces and territories, the mining tax is computed by reference to mining profits, whereas certain provinces impose royalties that vary according to the specific mineral.
As is the case in other sectors, a corporation engaged in exploration and mining activities is entitled to deduct expenses incurred for the purpose of earning income. In addition, a corporation is entitled to deduct certain capital expenditures, including tax depreciation on tangible capital assets (capital cost allowance). Recognising the capital-intensive nature of the mining industry, and to ensure the international competitiveness of the Canadian resource industry, the tax regimes applicable to exploration and mining contain a number of incentives designed to encourage investment, including the following:
Canada does not offer tax stabilisation agreements to non-resident investors in the mining industry.
A mining project may be disposed of by way of a sale of the mining assets or of the relevant entity in which the mining project is held. The disposition of capital property in Canada generally results in a capital gain (or loss), with one-half of any capital gain being included in income. The disposition of mining assets may result in income (in the case of resource property), recapture (in the case of depreciable property), and capital gains on capital property. Non-residents are subject to tax in Canada on the disposition of “taxable Canadian property”, which includes real property and resource property situated in Canada, property used by the taxpayer in certain businesses carried on in Canada, and certain shares and partnership or trust interests that derive their value from real property or resource properties situated in Canada.
Most provinces impose land transfer taxes on transfers of real property. The rates of land transfer tax vary by province, and transfers of resource properties are often exempt from land transfer tax.
Canada and each of its provinces and territories that regulate mining activities consistently rank high in many of the world mining surveys for investment attractiveness; for instance, the Fraser Institute’s annual survey of Mining Companies ranked four Canadian jurisdictions (Saskatchewan, Québec, Northwest Territories and Yukon) in the top ten out of 83 worldwide mining jurisdictions in 2018. In addition, Canada hosts excellent geology conducive to mineral exploration and development, with a track record of mineral discoveries in numerous commodities. The country also has a stable legal and political framework to support the mining industry, a high concentration of professionals to service the mining industry, multiple investment-friendly tax incentives specific to the mining industry, and securities regulators and stock exchanges that are friendly to the mining industry. All these attributes contribute to attracting considerable investment in the mining industry in Canada.
In general, investment in a Canadian mining enterprise may require approval under the Investment Canada Act (the ICA), under which the federal government reviews foreign acquisitions of control of Canadian businesses above certain monetary thresholds. The review threshold ultimately depends on the transacting parties and whether a trade agreement exists between such party’s country and Canada. As of November 2019, the monetary thresholds are as follows:
The ICA requires notice of all other foreign acquisitions of control (within the meaning of the ICA) of Canadian businesses and certain new foreign investment. However, there is no provincial or territorial mining legislation that restricts the ownership or development of mineral rights based on citizenship.
Where an investment is subject to review under the ICA, the investor must demonstrate that the investment is of “net benefit” to Canada. Typically, this requires investors to provide binding undertakings to the federal government regarding their operation of the Canadian business.
In addition, the ICA allows the federal government to review all investments by foreign companies where it believes the investment may be “injurious to national security”.
Foreign mining companies are generally free to hold mineral rights directly or through Canadian subsidiaries. However, the federal government does limit non-resident ownership of uranium mines to 49% at the first stage of production. Exemptions may be granted in cases where it can be demonstrated that the project remains under Canadian control, or where Canadian partners cannot be found. There are no restrictions on uranium exploration by foreign persons or companies.
Canada is a party to several multilateral free trade agreements and investment agreements, which provide foreign investors, including Canadian mining companies, with the right to file a claim for damages against the government of the host country for expropriation or unfair or discriminatory treatment of their investments and investors. To date, Canadian companies have initiated 43 investor-state claims in South and Central America, with almost 70% of claims related to resource management and environmental policies. Firms in the oil, mining and gas sectors account for approximately 70% of all claims.
In Canada, the traditional sources of financing for exploration stage projects have been raising capital through the equity markets (eg, private placements or public offerings) and option/joint venture transactions (eg, a junior company that owns a project grants an option to a more senior company for it to earn a controlling interest in the project in exchange for expending funds in exploration (or cash payments) on an agreed schedule). In this type of option/joint venture transaction, the junior company is not required to fund the initial stages of the project and is “carried” until the senior company earns its majority interest, following which both parties contribute to the project in proportion to their interests, with a joint venture then being formed between the companies.
As a project evolves into the development phase, in addition to these traditional sources, debt financing becomes more accessible, such as bond or convertible debt offerings, and debt facilities from a bank. Once a production decision is made based on a feasibility study, project financing is the most common source of financing for the construction of a mine, with the assets of the project being offered as security. Such project financing may also be supplemented by offtake agreements, where the producer will sell all or a percentage of the future production from a specific facility to an end user. Offtake agreements are typically negotiated prior to the construction of a mine to secure a market for some of the output, and it provides project lenders with some certainty that the project will have sales for its output.
Other less traditional finance methods, such as royalties and metal streaming, have recently become more common to finance all stages of the project, including exploration and development, well before construction of a mine begins. A royalty entitles the holder to a certain percentage of the net profits or the net smelter returns that a producer receives from the sale of product. Also, metal stream financings have become more common earlier in the life cycle of a mine, in addition to being used at later stages. Stream financings are where a company agrees to sell a certain percentage of one or more of the metals/minerals produced from a mining operation to a streaming company, at a fixed price that is lower than the prevailing market rate, in exchange for an upfront payment in the form of a financial deposit. This enables a company to monetise a specific metal/mineral prior to physically extracting it.
Domestic and international securities markets play an especially crucial role in the financing of mining projects in Canada. As discussed under 5.4 Sources of Finance, junior companies in Canada rely on raising capital through the Canadian equity markets (and, in some cases, in other markets like Australia and Hong Kong), especially at the early stages of the life of a project. The amount of investment that these junior companies can attract is dependent on commodity prices, world economic health, the state of global mining cycles and, lately, competition from other industries for this risk capital.
The types of security available over mining-related assets in Canada differ depending on the stage of development and the location of the project.
For exploration stage projects, a lender or financer can obtain minimal security due to the nature of the type of mineral tenure that is granted early in a project in most provinces or territories; typically, these are mineral claims granted under statue. This type of mineral tenure is not generally considered an interest in land (ie, not real property), so a mortgage cannot be filed on title in a land title office. Nor are mining or mineral claims typically considered to fall within the scope of the provincial personal property security regimes, and, therefore, a registered security interest cannot be filed in a personal property registry. Most provincial mineral registries will, however, allow notices to be filed on title giving notice of the security granted over such mineral claims, but such notices do not provide a priority regime and are merely a notice to third parties regarding a potential encumbrance, or interest.
As a project advances, most companies will upgrade their mining or mineral claims to a more secure type of tenure, typically a mining lease (or equivalent). In most jurisdictions, mining leases are considered an interest in land and, therefore, mortgages and other encumbrances can be filed on title, which could provide priorities and enforcement rights to lenders or other financers, depending on the jurisdiction and nature of the mining tenure.
When the project has advanced to the stage of mine construction, the security for project financing is generally provided at the project level, by the project entity that owns the project and the minerals. Common security is: direct guarantees by the parent(s) of the project entity; general security agreements registered in a personal property registry over all of the personal property of the project entity; mortgages or debentures filed in applicable registries; pledges by the parent(s) of shares in the project entity; and assignments of material contracts.
Over the past three years, industries such as cryptocurrency, blockchain and cannabis have lured risk capital away from mining, and that, combined with depressed commodity prices, has slowed the growth and activity of the mining industry domestically and internationally. This has, however, spawned a round of industry consolidation through mergers and acquisitions in Canada, both with junior companies and recently with major companies, such as the acquisition of Goldcorp Inc. by Newmont Mining Corporation. The consolidation of medium to large players in the mining industry in Canada currently underway may allow them to compete more efficiently on a global scale for valuable assets, plus these consolidations could result in spin offs of non-core assets that junior companies may acquire, then finance through the equity markets or other finance methods, as described above. In addition, despite the diversion of risk capital during the past three years, the interest in these other industries appears to be subduing, with the potential to free up this capital for mining ventures. Furthermore, the recent years of slowed growth and activity of the mining industry may give rise to future supply shortages. These factors may signal a renewed prospect for growth and investment in the Canadian mining industry.