The Investment Canada Act has been a hot topic since BHP Billiton’s failed bid for Potash Corp. of Saskatchewan Inc., but foreign interest in Canadian public mining companies has not declined. Experience with the ICA to date indicates that, except in very rare circumstances, the ICA is not a significant hurdle to the acquisition of TSX-listed mining companies, especially those with operations mainly outside of Canada – a category that applies to many TSX-listed companies today. That said, it is important for foreign investors to be aware of the legislation.
Investors should recognize that acquisitions by non-Canadians of TSX- or TSX-V-listed companies, whose operations are outside Canada, may in some circumstances trigger the application of the provisions of the ICA, and should factor this knowledge into planning the execution of transactions.
Under the ICA, most direct acquisitions of control of “Canadian businesses” by non-Canadians are subject to either a simple notification requirement or a “net benefit to Canada” approval process. Whether a notification or a net benefit to Canada approval is required depends, in most cases, on whether specified monetary thresholds are exceeded. For direct acquisitions of control of Canadian-incorporated and listed mining companies by “WTO investors,” 2012’s review threshold is $330 million, measured in terms of the book value of assets of the target entity.
Where that threshold is exceeded, triggering the “net benefit to Canada” approval process, the parties are generally prohibited from closing the transaction until ministerial approval is obtained. An acquisition of control of a Canadian business does not exceed the application threshold other than a “cultural business” by a non-Canadian company which does not exceed the applicable threshold is merely notifiable. A notification is not burdensome to complete and can be filed either prior to, or within 30 days following closing.
Because the ICA’s definition of “Canadian business” includes a business “that it is carried on partly in Canada and partly in some other place,” a Canadian mining company without mining operations in Canada, but with an office, assets and employees in Canada, may come within the ambit of this definition. Thus, some acquisitions of Canadian-listed mining companies may attract a “net benefit to Canada review.”
If an acquisition is subject to the approval process, the minister of industry must be satisfied that such transaction is of “net benefit to Canada,” based on a number of factors, including the effect of the investment on employment, on resource processing in Canada, on the degree and significance of participation by Canadians in the Canadian business, on productivity in Canada, and on Canada’s ability to compete in world markets.
In the context of an acquisition of a Canadian-listed mining company with its mining operations outside of Canada, there is a persuasive argument, given the very substantive economic benefits that Canada and Canadians derive from being a global centre for the listing of mining companies. That is,the ICA should be administered in a manner that removes any obstacles or disincentives for international mining companies to list and raise capital in Canada. The benefits to Canada of being a world-leading centre for mining finance are obvious and include, in addition to the importance to Canada of being a global mining powerhouse, all of the economic benefits generated by the finance, legal, accounting and mining expertise that exists in Canada because of these companies.
As a result of amendments to the ICA in 2009, the Governor in Council (i.e. federal cabinet) may now review a broad range of foreign investments where the minister has reasonable grounds to believe that such investments could be injurious to national security. The review of an investment on the grounds of national security may occur whether or not an investment is subject to review on the basis of “net benefit to Canada,” or notification under the ICA. While acquisition of a TSX- or TSX-V-listed mining company without projects or mining operations in Canada by a non-Canadian may be subjected to a national security review, the limited history of the national security provisions of the ICA suggests that such reviews would be rare in the context of acquisitions of mining companies.
Huy Do and Douglas New are partners working in the Toronto office of Fasken Martineau. Both have extensive experience advising clients, both domestic and foreign, with respect to pre-merger regulatory approvals under Canadian legislation including the Competition Act and the Investment Canada Act.