Navigating the Legal Framework of M&AMon, 10/21/2013 - 10:05
Q: Mergers, acquisitions, joint ventures, alliances, and other corporate strategies pose a continuous challenge for mining companies. What is the added value of Baker & McKenzie’s advice and support in these processes?
A: Our added value is our in-depth knowledge of both the legal framework and the mining industry. In Mexico we rely heavily on the knowledge the firm has developed in other regional and global jurisdictions. We have trained our practitioners in all aspects of M&A and JV transactions. Highly specialized training is also provided to our M&A attorneys every year through our own M&A Combined Institute. Additionally, we train and allow our M&A practitioners to temporarily relocate to our other offices through our Associate Training Program. Perhaps the greatest added value that we give our clients is through the interaction between our different practice groups, which allows us to accomplish the best results for our clients. We are fortunate that across our various offices some of the world’s largest mining corporations are our clients. Our network of five Mexican offices and our knowledge of all of the mining regions also provide us with a significant competitive advantage in the industry.
Q: Which economic and fiscal impact do you expect potential tax reform to have on the mining industry?
A: We doubt whether the bill introducing a change to the Mining Law, which has been approved by the Chamber of Deputies, will be passed by the Senate any time soon. We feel that such a bill still requires significant changes, considerations and adjustments. In the case where the bill may become law, we feel that it will be possible to take recourse and contest the adverse effects that such changes may bring to the bottom line of mining companies. The special mining royalty tax that has been approved by the Chamber of Deputies may have a devastating effect on the industry as it will increase the tax burden, which will translate into an economic downturn.
Q: How does project financing play a role in mergers and acquisitions in the Mexican mining industry?
A: Most resources, including credit facilities and project financing, come from abroad. Although it is not common for mining companies to secure project financing specifically from local sources, we regularly see the involvement of several financial institutions and even some private equity firms in the financing of deals. In a nutshell, financing in all its different forms plays an extremely important role in our jurisdiction. Secure transactions in the industry require solid legal documentation regarding concessions and lands.
Q: What is the value proposition of Baker & McKenzie in major transactions before the Antitrust Commission?
A: Our Corporate/M&A Practice Group is formed by professionals that are experienced and knowledgeable in all areas of securities, corporate governance, record keeping and general corporate advice. We have a team of experienced lawyers that is led by one of our Principal Partners in charge of this area. We have significant experience in dealing with merger control issues, including all phases of the proceedings. We are knowledgeable about the thresholds and other legal requirements, as well as the notice process, if needed. We have in-depth knowledge of the industry, including its players and the general environment. We also maintain a close relationship with the COFECO (Mexico’s Federal Competition Commission) and its officials. In addition to this very strong local presence, our team of antitrust attorneys belongs to a global group that is in constant communication with all of its members. It is quite common for our practitioners in this area to be trained in jurisdictions such as London and Washington.
Q: What are the critical success factors in finding the best opportunities in the Mexican mining industry?
A: It will mostly depend on the demand for minerals across the world and the financial resources that mining companies have access to. At the local level, critical success factors include dealing with those individuals and companies that indeed are entitled to the concessions and to the land surface rights. Another critical factor is how deals are documented, and how agreements and contracts are prepared, executed and registered. Most successful mining companies doing business in this jurisdiction have been careful enough in dealing with entitled and reputable companies and individuals in being adequately represented. Another important factor when acquiring mines at the more developed stages is to find junior miners that have meticulously developed the property, taking care of all of the aspects involved. Other critical aspects include being conscious about the environmental impact that a mining operation may have, as well as about the nearby communities and how a mining exploration, development or production process will affect them. This is particularly true when dealing with indigenous communities or ejidos, some of whom consider the land to be an extension of their bodies and minds.
Q: What are Baker & McKenzie’s ambitions for contributing to the development of the Mexican mining industry?
A: Based on the expertise and experience of our practitioners in the sector we have become a promoter of the industry within our network of global offices and in the main jurisdictions where foreign investment originates. We are constantly in contact with federal and local officials in charge of regulatory and promotional issues, as well as activities related to the industry. We speak up regarding those issues that we feel may affect the mining industry or the communities where mines exist. We feel that Mexico should continue working towards achieving greater competitiveness on all fronts, and continue to be mindful of its legal framework and rule of law. We feel that the main drivers for the mining industry are currently: legal certainty, openness to foreign investors, vast unexplored reserves, political and social stability, a centuries old mining tradition, geographical location, and competitive land and maritime infrastructure, among others.
M&As are a common practice in the global mining industry. In 2012 there was a 7% decrease in M&A transactions globally compared to 2011, with 941 transactions amounting to a total of US$104 billion. In Mexico, only six deals were concluded by Mexichem, Pan American Silver, First Majestic Silver, Endeavour Silver, Minera Frisco, and Primero Mining