Mining 2024

Last Updated January 25, 2024

Canada

Law and Practice

Authors



Cassels Brock & Blackwell LLP is a Canadian law firm focused on serving the transaction, operational, advocacy and advisory needs of the country’s most dynamic business sectors. It offers the largest and most experienced dedicated mining group of any major Canadian law firm, representing a veritable “who’s who” of mining and natural resources clients. It is also the go-to firm for junior mining companies looking to grow into large entities or position themselves for acquisition. Each year, Cassels acts on more than 100 of the most significant mining M&A and corporate finance transactions around the world from its offices in Toronto, Vancouver and Calgary. The firm would like to thank its members Davit Akman, Jeremy Barretto, Corinne Grigoriu, Tom Isaac, Arend Hoekstra, Eric Buist, Aaron Cressman and Ashley Jung for their contributions to this chapter.

Canada is the world’s largest exporter of minerals and metals. Mining is one of Canada’s main industries, and it has a long and successful history. The country is rich in resources and home to many mines producing a diverse array of minerals and metals, including gold, coal, iron ore concentrates, potash, copper, aluminium, nickel, platinum group metals, diamonds, silver, zinc, molybdenum, cobalt and uranium. Advanced mineral projects for rare earth elements can also be found in Canada, including lithium, graphite and vanadium. Numerous junior mining companies that explore for minerals worldwide are domiciled in Canada, and the Canadian financial markets provide a significant source of capital for such junior companies.

Tax and securities laws offer significant incentives for investment in the mining industry in Canada, and Canadian stock exchanges are open to facilitating the listing and financing of both junior and senior mining companies.

Canada also boasts a large concentration of specialised professionals in the technical, engineering, legal, accounting and management fields that help sustain its robust mining industry.

This practice guide will highlight these features, many of which are unique to the Canadian mining industry.

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 Quebec, which is the only province with a civil law code.

As Canada is a federal state, the governmental powers and responsibilities applicable to mining are constitutionally allocated between its federal Parliament and ten provincial legislatures, with certain federal powers shifting to its three northern territories through statutory devolution, as discussed below.

Provincial legislatures have the power to enact laws in relation to provincial public lands, mineral titles and the exploration and extraction of minerals within their provincial jurisdictions. These powers include oversight of the development and operation of mines, conservation of mineral resources, and environmental protection. Provinces may also enact laws relating to the export of minerals and metals between Canadian provinces or outside of Canada.

Despite their independent governance, substantive mining regimes are generally consistent across Canadian provinces. However, these rules and regulations tend to be highly complex and are rarely codified in a single provincial statute.

Canada’s federal Parliament has the power to make laws affecting minerals and mining on federal lands, in addition to minerals and metals 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 Indigenous rights, migratory birds, at-risk species and fisheries, habitats and resources.

Canada’s three territories (Yukon, Northwest Territories and Nunavut) are within the federal government’s jurisdiction and are governed by territorial governments created by federal statutes. The federal government has articulated a commitment to, and has mostly implemented, the statutory devolution of legislative authority to territorial governments, which will provide the territories with additional self-governing power in the coming years.

Property interests in surface and subsurface minerals are generally severed in Canada, largely as a function of early-settlement disposition procedures for land in what would ultimately become Canada. Generally, all lands were considered to be owned by the Crown until title was granted to settlers or municipalities via Crown (government) 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 of the fee simple estate, with or without reservation by the Crown of the mineral rights. Near the end of the 19th century, the Crown adopted a practice of reserving the minerals from fee simple grants, and modern federal and provincial legislation across Canada now provides that minerals are reserved from Crown land dispositions and that grants of mineral rights be of leasehold estate.

Section 109 of the Constitution Act, 1867 vests ownership of Crown minerals to the provincial Crown of the province where such minerals are situated. As a result, each province and territory’s respective discrete system of mineral tenure and legislation is accompanied by distinct procedures whereby mineral interests may be granted by the Crown and acquired by private legal persons. The Crown remains the largest holder of minerals in Canada (but open to private tenure and development), both as fee simple owner of Crown lands and through mineral reservations from historic Crown grants.

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, and is governed as discussed in 1.2 Legal System and Sources of Mining Law.

Crown title to all Crown lands is subject to limitations pursuant to Aboriginal treaty rights, claims for Aboriginal title or other Aboriginal rights, and the provisions of any applicable land claim settlement agreement – in each case as enshrined and protected by the Constitution of Canada.

The federal and provincial governments serve as grantor of right-regulator of mining activity. The federal government, ten provinces and three territories each have their own ministries, agencies or other governmental bodies to oversee the mining sector. Often, multiple agencies will administer separate facets of the mining business.

Examples of this multi-agency approach can be observed in all provinces, and multiple federal agencies regulate the environmental aspects of mining activity, as discussed in 2. Impact of Environmental Protection and Community Relations on Mining Projects.

Mineral rights have a constitutional basis wherein the rights and powers over mineral title and extraction have been apportioned between the constitutional levels of government (federal and provincial).

Mineral rights in Canada are property rights 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 of, and the prospective development and operation of, the mines, minerals and mining rights therein. In all Canadian jurisdictions, compensation will be owed to existing surface rights owners for such use.

Priority Over Other Miners

Recording 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 recording, 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.

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 of jurisdiction.

The provinces of British Columbia, Manitoba, New Brunswick, Newfoundland and Labrador, Ontario and Quebec, along with the three territories, have adopted some form of modified free-entry system, which allows individuals and corporations to obtain mineral rights by recording and/or registering (in the case of Ontario) mining claims on their own initiative on mineral lands deemed open for recording.

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 industrial activities of exploration, development or mining, which 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, Saskatchewan, 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 recorder/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 leasehold tenures, where Crown consent is required to sell or transfer a Crown mining lease).

Security of rights under a mineral claim is generally maintained through satisfying prescribed work requirements or making payment in lieu thereof. The length of a mineral claim and terms for extension will vary across provinces. In British Columbia, a mineral claim is initially valid for one year, but may be maintained indefinitely on a year-to-year basis by satisfying statutory work requirements or paying a fee. If payment is made in lieu of work, the mineral claim may be extended by a minimum of six months and a maximum of one year from the current expiry date. Crown mining leases are granted for terms ranging from ten to 30 years. Before proceeding to develop a mine, the holder of a mining claim will generally be required to convert a mineral claim to a mineral lease.

Mineral title can be 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, if reports have not been filed within the prescribed time, or if a Crown mining lease is used for some purpose other than mining.

Environmental Regulation

The development of mining projects in Canada is subject to environmental regulation at the federal and provincial levels, and requires, among other things, the completion of environmental impact assessments prior to commencing operations. In certain cases, these assessments must be repeated at subsequent stages of development. The regulatory objective is to determine whether approval for a mining operation should be granted based on the project’s likely environmental impacts. If a mining project receives approval from the relevant environmental authorities, significant obligations will be imposed on the developer for rehabilitation and restoration activities on affected lands following the completion of the project or mine closure.

In Canada, the broad scope of environmental regulation is shared between the federal government and the provinces. While municipal powers are generally limited with respect to the environment, municipalities are getting more involved in environmental regulation, and municipal by-laws and permitting requirements are important aspects to consider prior to and while implementing a mining project.

The federal government has primary jurisdiction over environmental matters of international and inter-provincial concern, as well as over fisheries, navigable waters and matters on federal lands, which includes Indigenous reserve lands and national parks.

All provinces and territories (except Nunavut, which is currently negotiating a final agreement with the federal government whereby Nunavut will assume primary responsibility for its internal environmental governance) are primarily responsible for environmental matters within their boundaries. They regulate, among other things, the extraction and processing of natural resources like forestry, mineral resources and fossil fuels, and renewable energy industries like hydroelectricity, wind energy and cogeneration.

Environmental Licensing

Generally, mining regulators in Canada use three principal mechanisms for protecting the environment:

  • the requirement for an environmental assessment before mine construction;
  • regulation of the discharge of pollution into the environment; and
  • a permits system for activities that may impair the environment.

Environmental assessment

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 terms and conditions for mine construction and operation.

Canada’s Impact Assessment Act (IAA) requires the Impact Assessment Agency of Canada to conduct an impact assessment when a federal authority provides lands or issues certain permits or approval to a project. An impact assessment must also be conducted if a project otherwise affects matters under federal jurisdiction or is cross-boundary, including cross-provincial or territorial. The responsible government minister has discretion to order impact assessments in additional cases. The IAA is more rigorous than the former regulatory regime.

Impact assessments go beyond the environmental effects of proposed projects to include matters such as:

  • changes to the environment or to health, social or economic conditions and the consequences thereof;
  • measures mitigating adverse effects;
  • the need for and alternatives to the project;
  • Indigenous traditional knowledge;
  • a project's contribution to sustainability;
  • the effects on the federal government’s ability to meet its environmental and climate change commitments;
  • impacts on Indigenous rights, communities and cultures; and
  • comments received from the public and from provincial or Indigenous governments.

The IAA does not apply to all projects in Canada, but it generally applies to most major mining operations.

A majority of the Supreme Court of Canada recently held in Reference re Impact Assessment Act, 2023 SCC 23 that the IAA and the Physical Activities Regulations thereunder are outside the jurisdiction of the federal government (with the exception of Sections 81 to 91 of the IAA, which concern projects carried out or financed by federal authorities on federal lands or outside Canada). A large portion of the IAA, specifically relating to “designated projects” on provincial lands, is therefore unconstitutional and unenforceable, intruding into the exclusive jurisdiction and propriety rights of the provinces over their respective public lands and natural resources. The federal government has issued interim guidance for project proponents while it works to amend the legislation.

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).

Other environmental regulations focus on the impact of projects on the broader environment, including wildlife and their habitats. For example, Quebec’s Act Respecting Threatened or Vulnerable Species and Ontario’s Endangered Species Act prohibit the destroying or harming of designated species, including altering the ecosystem or biological diversity of their habitat.

Environmental protection and permits

In mining, environmental standards are commonly prescribed in relation to 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 commitments to meet pre-established standards or guidelines, often tailored to the particular project.

Proponents are required to provide financial security against mine closure plans towards reclamation of the mine site as a condition of permit approval. This security safeguards communities from lasting environmental damage in the event that a proponent becomes insolvent or prematurely abandons their project.

Each province has its own environmental permitting regime, often overlapping under multiple statutes and ministries. Permits are required for the discharge of waste, the building and storage of mine tailings and the use of water, among other activities.

Mining operations may also require certain federal permits or approvals under various federal statutes, including the Fisheries Act, the IAA (subject to its limitations, as discussed above), the Canadian Environmental Protection Act, the Canadian Navigable Waters Act, the Explosives Act, the Migratory Birds Convention Act or the Nuclear Safety and Control Act.

While Indigenous communities and governments do not have statutory authority over the environment, mining projects frequently intersect with the constitutional rights of Indigenous people. As such, the participation of Indigenous groups in the regulatory review process is fairly standard, and affected groups are given an opportunity to make submissions to statutory decision-makers in such cases.

Cultivated lands, park lands, railway lands, public roadways, environmentally sensitive lands (eg, game reserves and bird sanctuaries), heritage lands, airport lands, town sites and other such developed areas are typically not open for mining activity, nor are lands for which a claim, mining exploration licence, mining concession or mining lease has already been granted.

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.

Exploration and mining activities can also be subject to land use plans for a given area. Ontario’s Far North Act previously included a moratorium on new mines in certain designated remote northern areas of Ontario (which constituted 42% of Ontario’s land mass). Under Ontario’s Far North Act, there was also a prohibition against specific activities without a land use plan, such as the opening of a new mine.

Ontario’s Far North Act grandfathers existing projects and mining rights tenures, but community-based land use plans will be developed in designated areas by First Nations (individually or collectively by neighbouring communities) working jointly with the Ministry of Natural Resources and Forestry. These plans will establish land use designations and permitted uses, including protected areas, within a planning area identified by First Nations communities.

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, proactive community relations – both before and after a project is developed – can be a key factor in the regulatory approval of a project, including satisfying any Crown duty to consult Indigenous people regarding their constitutional and treaty rights.

Under Section 35 of the Constitution Act, 1982, the Crown has a duty to “uphold the Honour of the Crown”, to consult and, where appropriate, accommodate Indigenous peoples where a government action or decision (such as granting an authorisation) may potentially adversely impact their established or asserted Aboriginal or treaty rights. Accommodation can take the form of project conditions to minimise or avoid potential adverse effects on the rights of Indigenous peoples. Most natural resource-related projects, including mining projects, will trigger the duty to consult. British Columbia and Yukon court decisions indicate that consultation may be required as early as at the mineral claims registration stage.

While the consultation process is the Crown’s responsibility (both federal and provincial, within their respective jurisdictions), the Crown can delegate some or all of the procedural aspects of consultation to project proponents. In such cases, proponents must work closely with the Crown to carry out their consultation obligations. The objective of the consultation process is to provide a fair and transparent forum for the issues and concerns of Indigenous peoples to be heard and considered in light of the proposed project’s potential or actual impacts on their traditional lands, their rights and the environment. Where appropriate, the process should address such concerns through accommodation or other mitigation measures.

The obligations imposed by the Crown’s duty to consult and accommodate vary according to the particular circumstances of a proposed project, and not every project requires the same degree of consultation or accommodation. A single Crown decision can affect many separate Indigenous groups with overlapping claims or interests. It is imperative that all relevant Indigenous groups are correctly identified and consulted, that proper consultation and accommodation records are kept, and that consultation with the affected Indigenous community is meaningful. Failure to follow these steps can result in delays or challenges to grants of licences, permits and approvals, community protests, investor relations problems and litigation seeking injunctions or the overturning of authorisations.

Indigenous groups are the most notable specially protected community in Canada. Indigenous law in Canada is based on constitutionally protected inherent and treaty rights, referred to in Section 35 of the Constitution Act, 1982 as Aboriginal and treaty rights. The Canadian Constitution recognises and affirms the rights of Aboriginal peoples of Canada (eg, Inuit, Métis, First Nations), and both the federal and provincial governments are obliged to “act honourably” when dealing with Aboriginal peoples in light of this constitutional protection. Aboriginal rights legally flow from historic Indigenous occupation and traditional use of land, historic and modern treaties, negotiated claim settlements and court-affirmed rights.

Aboriginal Rights, Aboriginal Title, Treaty Rights and Traditional Land Use Rights

Aboriginal rights in Canada are based upon and include customs, activities and traditions that have been exercised historically by Aboriginal peoples, including 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 of land from prior to contact, and encompasses the right to exclusive benefit from and use and occupation of the land for a variety of purposes (not just 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 of Aboriginal land rights.

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 treaties, while other parts are not (notably, large portions of British Columbia). The applicable treaty will determine what specific rights have been granted and are held.

Aboriginal rights are based upon and include customs, activities and traditions that have been exercised historically by Aboriginal peoples, without surrender by treaty, and may or may not be sufficient to support Aboriginal title and may be subject to, but protected by, treaty terms. Nevertheless, Aboriginal rights are recognised and protected, and will trigger the Crown’s duty to consult (and potentially accommodate) where they may be adversely affected by a Crown decision or action.

Justifiable Infringement of Aboriginal Rights

The Supreme Court of Canada has affirmed that certain Crown objectives can, in principle, justify the infringement of Aboriginal title or treaty or other Aboriginal rights, such as:

  • the development of agriculture;
  • forestry;
  • mining;
  • 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 to consult) 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 Indigenous peoples involves consideration of a three-part test:

  • rational connection – the infringement must be necessary to achieve the Crown’s objective;
  • minimal impairment – the Crown must go no further than necessary to achieve its objective; and
  • proportionality of impact – the benefits expected to flow from the objective must not be outweighed by the adverse effects on the Aboriginal interest.

The Supreme Court of Canada has held that provincial governments, when acting within their jurisdiction, may seek to justify an infringement of Aboriginal rights, including Aboriginal title.

The federal government and the province of British Columbia have attempted to adopt the United Nations Declaration on the Rights of Indigenous Peoples (UNDRIP) via statute. However, the Supreme Court of British Columbia recently held that British Columbia’s UNDRIP statute did not implement UNDRIP into British Columbia law, nor create justiciable issues. Federal legislation approving the adoption of UNDRIP in 2021 required consultation and co-operation with Indigenous peoples to implement an action plan to achieve the objectives of UNDRIP.

Impact Benefits Agreements

It has become common, through consultation processes, for proponents of resource projects to enter into impact-benefit, participation or other mutual benefit agreements with Indigenous peoples. Such agreements are often necessary to ensure that projects proceed with greater certainty while the legitimate concerns of affected Indigenous 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 affected Indigenous communities, as well as capacity-building initiatives and plans to mitigate the environmental impacts of the project. Some modern treaties contain terms requiring the negotiation of such agreements as a matter of law.

It is common, and in many cases expected, that mining projects will enter into some form of agreement with communities in proximity to and affected by such project. 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 Claims Agreement.

ESG factors are used by investors to evaluate the sustainability of investments and corporate practices. There are currently no ESG-specific legislative regimes in Canada for the mining sector. However, there are emerging securities disclosure regimes, securities exchange commentary and industry guidance that relate to ESG factors, any of which may:

  • carry the force of law;
  • be as influential to proponents as direct legislation; and
  • foreshadow the future of Canada’s ESG regulatory framework.

Securities Disclosure Regimes

In Canada, the Canadian Securities Administrators (CSA) are primarily responsible for developing a harmonised approach to securities regulation across all provinces and territories. They work with provincial and territorial securities regulators to design policies and regulations to achieve that goal. A primary guidance tool of the CSA is the publication of national instruments. CSA-issued guidance is typically adopted by provincial and territorial regulators, ensuring a certain consistency to securities regulatory application across Canada. Despite the growing prominence of ESG in Canadian investment, the CSA has not yet developed comprehensive ESG guidance for public companies, although it has provided substantive guidance on certain environmental and governance matters that are typically viewed as being within the ESG rubric.

In 2021, the CSA published National Instrument NI 51-107, Climate-related Disclosure Requirements for public comment. In 2022, the CSA stated that it was considering international developments that may impact or further inform NI 51-107, including regulatory proposals advanced by the United States Securities and Exchange Commission and by the IFRS International Sustainability Standards Board.

Also in 2021, the Ontario Capital Markets Modernization Taskforce issued 74 recommendations to the Ontario government. Recommendation 41 outlines enhanced disclosure requirements for material ESG information, which would apply to all non-investment fund reporting issuers. These enhanced disclosure requirements would include the disclosure of:

  • material governance, strategy and risk management information; and
  • certain GHG emissions on a comply-or-explain basis.

In 2022, the CSA published guidance via Staff Notices for investment funds on their ESG disclosure practices, particularly for ESG-related funds. The guidance seeks to address “greenwashing” concerns – where a fund’s disclosure or marketing intentionally or inadvertently misleads investors about the fund’s ESG attributes. The guidance is based on existing securities regulatory requirements and does not create or modify any legal requirements. Instead, the guidance provides the views of CSA staff on how existing regulatory requirements apply to ESG-related fund disclosure. The guidance also includes best practices to enhance ESG-related disclosure and sales communications to enable investors to make more informed investment decisions.

Industry Standards

The Mining Association of Canada’s Towards Sustainable Mining (TSM) standard helps mining companies evaluate and manage environmental and social responsibilities, and also addresses certain ESG matters. The TSM evaluates, independently validates and publicly reports on eight aspects of social and environmental performance against 30 distinct performance indicators. Although becoming a member of the Mining Association of Canada is voluntary for project proponents, all members are required to undergo site-level assessments for evaluation under the TSM standard.

Greenstone Gold Mines – Hardrock Project

Greenstone Gold Mines has entered into three long-term relationship agreements involving four First Nations and the Metis Nation of Ontario, which provide benefits to First Nations and Metis peoples regarding each community connected to Greenstone Gold’s “Hardrock Project” in northern Ontario. While none of the agreements were legally required, Greenstone Gold proactively engaged in positive relationship-building with the affected Indigenous groups, which ultimately resulted in “win-win” agreements and strong working relationships going forward for the advancement of the project.

Generation Mining Limited – Marathon Palladium Project

Generation Mining Limited’s “Marathon Project” in Ontario was approved after long-term relationship agreements were reached with several First Nations. Similar to Greenstone, while none of the agreements were legally required, Generation tailored its environmental commitments for the Marathon Project with input from the relevant First Nation and Metis communities. The Marathon Project was approved by the government of Canada despite findings during a Joint Review Panel’s environmental assessment that the project was likely to cause an adverse cumulative effect on critical caribou habitat. The government of Canada’s approval contains 269 legally binding conditions to protect the environment throughout the life of the project, many of which were advanced by Generation in consultation with the Indigenous groups that were most likely to suffer potential adverse effects from the Marathon Project.

Taseko Mines – Prosperity Project

In 2010, Taseko Mines’ “Prosperity Project” in British Columbia was not approved after receiving an adverse environmental assessment involving the draining of Teẑtan Biny (Fish Lake) and associated impacts to local First Nations communities, which strongly opposed the project. Since then, Taseko has proposed a “New Prosperity Project”, which attempted to address regulator concerns and does not involve the draining of Fish Lake. While Taseko has attempted to reach agreements with local First Nations and to seek remedies through the courts, the Tsilqhot’in Nation remains opposed to the project, and in 2020 the Supreme Court of Canada refused to hear Taseko’s challenge to the federal government’s rejection of the project.

The parties have continued to negotiate over the project, but have not reached a resolution and have entered into a standstill with respect to certain outstanding litigation and regulatory matters related to the project. In December 2021, the British Columbia Minister of Environment and Climate Change Strategy refused to grant a further 12-month extension to the project’s provincial environmental assessment certificate, meaning that any development of the project will require a new application for a provincial environmental assessment certificate.

National and provincial (regional) governments in Canada and abroad have introduced climate change legislation that affects the mining industry, in addition to international treaties. Climate change standards are generally becoming more stringent and are expected to increase compliance costs for the mining industry.

Climate change itself may also impose risks on mining industry operations due to increases in extreme weather events, rising sea levels, the melting of Arctic permafrost and other natural phenomena. Major Canadian mining companies are aware of and consider these potentially significant effects on their operations.

Canada has a two-tiered approach to climate change regulation: federal and provincial. As detailed in the following sections, federal regulations will prevail in cases where provincial regimes do not meet the minimum standards.

Federal Regulation

The Greenhouse Gas Pollution Pricing Act implements the federal carbon pollution pricing (fee) scheme aimed at reducing greenhouse gas (GHG) emissions, and in 2021 the Supreme Court of Canada upheld the constitutionality of this legislation. The federal scheme has two key parts.

  • Part one is a fuel charge administered by the Canada Revenue Agency and imposed on 21 types of fuel and combustible waste. The fuel charge in 2023 was CAD65 per tonne of carbon dioxide equivalent (CO2e). The charge will increase by CAD15 per tonne annually until it reaches CAD170 per tonne in 2030.
  • Part two is an output-based pricing system, whereby facilities pay a carbon price for emissions exceeding a maximum threshold.

Federal climate change legislation affecting the mining industry also includes the Regulations Respecting Reduction in the Release of Methane and Certain Volatile Organic Compounds, which came into force in January 2023, and the overlapping environmental protection regimes discussed in 2. Impact of Environmental Protection and Community Relations on Mining Projects

Provincial and Territorial Regulation

Each province and territory has its own supplementary climate change regime and is free to choose whether to implement a carbon pollution price or a cap-and-trade system, provided such system meets the minimum federal pricing and emissions reduction targets. Where a provincial system does not meet these minimums, the federal pricing system will apply as a backstop to ensure national compliance with the regulatory regime.

Currently, the federal fuel charge system applies in Alberta, Saskatchewan, Manitoba, Ontario, New Brunswick, Nova Scotia, Prince Edward Island, Newfoundland and Labrador, Nunavut and Yukon. The federal output-based pricing system applies in Yukon, Manitoba, Nunavut and Prince Edward Island.

Many sustainable development and corporate social responsibility initiatives affect the mining industry in Canada, including:

  • the International Council on Mining and Metals – a collection of mining and metals organisations working to improve sustainability and requiring its members to meet certain principles of sustainable development;
  • the Extractive Industries Transparency Initiative – a partnership of governments, international organisations, companies, non-governmental organisations, investors, and business and industrial organisations aiming to improve transparency in transactions between governments and companies in the extractive industries;
  • the World Gold Council’s Conflict-Free Gold Standard – a common approach by which gold producers can assess and provide assurance that gold has been extracted in a manner that avoids benefiting armed conflict or human rights abusers; and
  • the Towards Sustainable Mining standard, discussed in 2.7 Environmental, Social and Governance (ESG) Guidelines and Regulations.

The federal government released “The Canadian Critical Minerals Strategy” on 9 December 2022, containing a list of 31 critical minerals that are deemed to be:

  • essential to Canada’s economic security and its supply if threatened;
  • required for Canada’s transition to a low-carbon economy; or
  • a sustainable source of highly strategic critical minerals for Canada’s partners and allies.

The Canadian Critical Minerals Strategy addresses the following five core objectives:

  • supporting economic growth, competitiveness and job creation;
  • promoting climate action and environmental protection;
  • advancing reconciliation with Indigenous peoples;
  • fostering diverse and inclusive workforces and communities; and
  • enhancing global security and partnerships with allies.

Corporations that carry on exploration and mining activities in Canada are subject to the general income tax rules that apply to all corporations operating in the country. Income tax is imposed at the federal level under the Income Tax Act (Canada), and at the provincial and territorial level each province and territory has its own income tax statute. The current Canadian federal corporate tax rate is 15%, and provincial/territorial tax rates range from 8% to 16%.

A non-resident corporation carrying on business in Canada is subject to Canadian income tax at the same tax rate as is applicable to Canadian resident corporations, in addition to a 25% “branch tax” on profits that are not reinvested in Canada. The branch tax is intended to approximate withholding tax on dividends; where the dividend withholding tax rate is reduced under an applicable tax treaty, the branch tax is generally correspondingly reduced. 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 situated in Canada, and 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 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 may deduct certain capital expenditures, including tax depreciation on tangible capital assets (capital cost allowance, or CCA). Canadian tax regimes applicable to exploration and mining recognise the capital-intensive nature of the mining industry. To ensure the international competitiveness of Canada’s resource industry, these regimes provide incentives designed to encourage investment, including the following.

  • Mining taxes and royalties paid to a province or territory for income from a mineral resource are fully deductible when computing income for income tax purposes.
  • The depreciation of tangible assets for income tax purposes is allowed under the CCA system, under which the capital cost of a depreciable asset is included in a particular asset class, for which a maximum annual depreciation rate is prescribed.
  • Certain other resource or mining expenses may also be deducted on a current or declining-balance basis. These expenses are added to cumulative resource pools classified as Canadian exploration expenses (CEE) and Canadian development expenses (CDE).
    1. CEE include expenses that are incurred by the taxpayer for the purpose of determining the existence, location, extent or quality of a mineral resource in Canada. Generally, CEE may be deducted at a rate of 100%, up to the taxpayer’s income for the year. Any unclaimed CEE may be carried forward indefinitely.
    2. CDE include expenses that are not CEE and are incurred for the purpose of bringing a new mine in Canada into production (ie, pre-production mine development expenses). CDE may be deducted at a rate of 30% on a declining-balance basis. Unclaimed CDE may be carried forward indefinitely. An enhanced deduction is also available for certain CDE incurred after 20 November 2018 and before 2028 (Accelerated CDE). Accelerated CDE incurred prior to 2024 qualify for an additional deduction of 15%. The enhanced deduction will be phased out beginning in 2024, with Accelerated CDE incurred from 2024 through 2027 qualifying for an additional deduction of 7.5%.
  • Certain corporations carrying out exploration and mining activities in Canada (other than for oil, gas and coal activities) can issue flow-through shares, pursuant to which the tax deductions attributable to certain expenditures incurred (such as CDE and CEE) are renounced by the corporation to the flow-through shareholders, such that the shareholders (and not the corporation) may deduct the renounced expenditures in computing their income. An additional 15% federal Mineral Exploration Tax Credit (METC) is available with respect to certain flow-through mining expenditures (generally referred to as “grassroots exploration” expenses). Many provinces offer parallel credits as high as 30% in some circumstances.
  • The Critical Minerals Exploration Tax Credit (CMETC) was introduced by the federal government in 2022 and is a 30% federal tax credit for eligible flow-through mining expenditures renounced under eligible flow-through share agreements entered into between 7 April 2022 and 31 March 2027. Among other requirements, eligible expenditures must be exploration expenses that primarily target deposits containing mostly (more than 50%) certain critical minerals. Eligible expenditures are not permitted to benefit from both the CMETC and the METC.
  • Contributions made to a qualifying environmental trust used to fund future reclamation are deductible in the year in which they are made (as opposed to reclamation expenses, which are generally recognised for income tax purposes at the time the reclamation is carried out).
  • Provincial governments also provide tax incentives for exploration and mining activities that are carried out in the province. These incentives are structured as income tax credits or relief with respect to provincial mining taxes.

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 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 this tax.

Canada consistently ranks highly in many world mining surveys for investment attractiveness. For instance, the Fraser Institute Annual Survey of Mining Companies 2022 ranked Canada the second most attractive region in the world for investment.

Canada attracts considerable investment in the mining industry due to its favourable combination of:

  • rich geology, with a track record of mineral discoveries in numerous commodities;
  • a stable legal and political system;
  • a high concentration of specialised professionals that service the mining industry;
  • mining-specific and pro-investment tax incentives; and
  • securities regulators and stock exchanges that are friendly to the mining industry.

In general, investment in a Canadian mining enterprise may require pre-closing approval under the Investment Canada Act (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 the non-Canadian party’s country and Canada (eg, the United States, European Union member states, the United Kingdom and Mexico). As of December 2023, the monetary thresholds are as follows:

  • CAD1.931 billion in enterprise value for trade agreement investors that are not state-owned enterprises and non-trade agreement investors that are not state-owned enterprises where the Canadian business is, immediately prior to the investment, controlled by a trade agreement investor;
  • CAD1.287 billion in enterprise value for World Trade Organization (WTO) investors that are not state-owned enterprises and non-WTO investors that are not state-owned enterprises where the Canadian business is, immediately prior to the investment, controlled by a WTO investor;
  • CAD512 million in asset value for WTO state-owned enterprises (SOE) and non-WTO investors that are state-owned enterprises where the Canadian business is, immediately prior to the investment, controlled by a WTO investor; and
  • CAD5 million and CAD50 million in asset value for a non-WTO investor for direct and indirect investments, respectively.

The ICA currently requires post-closing notification of all other foreign acquisitions of control (within the meaning of the ICA) of Canadian businesses and of 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 a pre-closing review under the ICA, the foreign 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 intended operation of the Canadian business.

In addition, the ICA allows the federal government to review any level of investment in or related to a Canadian business 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.

Recent Developments

In October 2022, the Canadian government issued its Policy Regarding Foreign Investments from State-Owned Enterprises in Critical Minerals under the ICA (Critical Minerals Policy), under which investments by SOEs and foreign-influenced private investors in Canada’s critical minerals sectors at any stage of the critical minerals value chain (exploration, development and production, resource processing and refining, etc) are subject to special rules, including that the direct or indirect participation of a foreign SOE or foreign-influenced private investor in any level of investment in a Canadian business involving critical minerals will (by itself) support a finding that there are reasonable grounds to believe the investment could be injurious to Canada’s national security.

SOEs include:

  • enterprises that are directly or indirectly owned or controlled by a foreign government; and
  • enterprises that are “influenced directly or indirectly” by a foreign government.

Foreign-influenced investors are private investors closely tied to, subject to influence from or who could be compelled to comply with extrajudicial direction from foreign governments, particularly non-likeminded governments such as China (Hong Kong), Russia and Iran.

In November 2022, pursuant to the Critical Minerals Policy, the federal government ordered the divestiture by certain Chinese entities of their investments in certain Canadian companies with critical mineral projects both in Canada and in foreign jurisdictions. Notably, divestiture was not ordered for an operational lithium property in Manitoba, which has been owned by Sinomine Resource Group Co. Ltd., a Chinese public company, since 2019. In March 2023, the government clarified its position to not force existing, legacy Chinese investors to divest shares in three major Canadian mining companies, suggesting it would not “start looking backwards at investments”.

Amendments to the ICA are expected to become effective in early 2024. In part, the amendments will create a mandatory, suspensory pre-closing notification regime for prescribed investments in certain sensitive sectors, including critical minerals. The amendments will also broaden government discretion to order pre-closing net benefit to Canada reviews for proposed acquisitions of control of Canadian businesses. This discretion will apply regardless of transaction value if the foreign investor is an SOE or is controlled by an SOE, unless the investor is from a trade agreement country.

The developments discussed in this section portend significant scrutiny on proposed acquisitions and investments in Canadian mining companies by Chinese, Russian and Iranian investors and other state-owned or influenced entities, including non-Chinese companies with material Chinese shareholders.

In September 2023, the federal government released an annual report covering foreign investment reviews under the ICA from April 2022 through March 2023. The report confirmed that foreign investment levels are returning to pre-COVID-19 levels as global foreign direct investment recovers. The report noted a continued increase in the number of extended national security reviews. However, not all such extended reviews resulted in orders that prevented or unwound a foreign investment.

Canada is a party to several multilateral free trade agreements and investment agreements, which give foreign investors, including Canadian mining companies, 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. The Canadian government’s Foreign Investment Promotion and Protection Agreement Model confirms that Canada intends to continue providing international dispute resolution protections to foreign investors.

To date, Canadian investors in the mining, oil and gas industries have been, on a relative basis, more aggressive in asserting arbitration rights to safeguard their offshore interests, with the majority of their complaints targeting Latin America. July 2023 marked the end of the sunset clause in the North American Free Trade Agreement (NAFTA), and the mechanism for arbitration proceedings with the United States and Mexico under NAFTA is no longer available (other than for legacy claims submitted prior to that time); instead, investors must submit claims under the United States-Mexico-Canada Agreement.

The Canadian mining sector is subject to Canadian economic sanctions legislation as well as foreign anti-corruption legislation, including the Extractive Sector Transparency Measures Act (ESTMA), which requires Canadian mining companies to implement mandatory reporting standards and report annually on payments to all levels of government, domestically and internationally.

In Canada, the traditional sources of financing for exploration-stage projects have been capital raises through 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 exploration expenditures (or cash payments) on an agreed schedule. In option/joint venture transactions, 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, 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 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.

Recently, other less traditional finance methods, such as royalties and metal streaming, have become more common methods to finance all stages of a project, including exploration and development, well before the construction of a mine begins. 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 may be lower than the prevailing market rate, in exchange for an upfront payment in the form of a financial investment. This enables a company to wholly or partially 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 in 5.4 Sources of Finance for Exploration, Development and Mining, junior companies rely on raising capital through Canadian equity markets (and, in some cases, in other markets, such as those in the United States, Australia and London), especially at the early stages of a project. The amount of investment a junior company can attract depends 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 of Crown minerals, 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 statute. The type of security that can be granted will depend on the statute creating the interest and the related registry. Some statutes deem mineral claims to be a form of personal property, while others deem mineral claims to be an interest in land equivalent to a lease.

Regardless of the interest, land title statutes and personal property security legislation typically do not apply to Crown minerals, and security must be registered in accordance with the mining statute. Most provincial mineral statutes and registries will, however, allow notices to be filed on mineral claims, giving notice of the security granted over such mineral claims. Many of these statutes do not provide a priority regime and are merely a notice to third parties regarding a potential encumbrance or interest, and the priority is governed by common law.

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.

In the years immediately preceding the COVID-19 pandemic, industries such as cryptocurrency, blockchain and cannabis had lured some risk capital away from mining; combined with depressed commodity prices, this slowed the growth and activity of the mining industry domestically and internationally. However, both federal and provincial governments undertook steps to mitigate such impacts and improve commodity prices, particularly for precious and energy-related minerals and metals. World demand for green energy-related minerals and metals, industry consolidation through Canadian mergers and acquisitions and traditional investment diversification during times of economic recovery have seen strong investor interest return to the Canadian mining sector.

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Law and Practice

Authors



Cassels Brock & Blackwell LLP is a Canadian law firm focused on serving the transaction, operational, advocacy and advisory needs of the country’s most dynamic business sectors. It offers the largest and most experienced dedicated mining group of any major Canadian law firm, representing a veritable “who’s who” of mining and natural resources clients. It is also the go-to firm for junior mining companies looking to grow into large entities or position themselves for acquisition. Each year, Cassels acts on more than 100 of the most significant mining M&A and corporate finance transactions around the world from its offices in Toronto, Vancouver and Calgary. The firm would like to thank its members Davit Akman, Jeremy Barretto, Corinne Grigoriu, Tom Isaac, Arend Hoekstra, Eric Buist, Aaron Cressman and Ashley Jung for their contributions to this chapter.

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