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Securities commissions asked to investigate ahead of mining companies merger

|Written By Elizabeth Raymer
Securities commissions asked to investigate ahead of mining companies merger
Shin Imai says publicly listed mining companies have an obligation to disclose information that will affect their business, so investors can make informed decisions.

Counsel for three non-profit organizations acting on behalf of Indigenous peoples in Guatemala are asking the British Columbia Securities Commission and the United States Securities and Exchange Commission to investigate two Canadian mining companies’ alleged failure to disclose material information related to a planned merger.

Shin Imai, director of the Justice and Corporate Accountability Project and a law professor at Osgoode Hall Law School, is a lawyer representing Breaking the Silence, Mining Watch Canada, and Earthworks, which today filed letters with the two securities commissions asking for an investigation into claims in relation to the Guatemalan court-ordered consultation with Xinka Indigenous people in Guatemala.

“As a publicly listed company, under the Securities Act, [the mining companies have] an obligation to disclose information that will affect their business, so investors can make informed decisions,” says Imai.

“This requirement for disclosure is policed by the securities commissions. We’re saying, there should be truth in advertising; [the companies] should be disclosing issues that relate to social conflict,” and as they may affect share prices.

The letters sent today claim that Pan American Silver Corp. and Tahoe Resources Inc. have made misleading statements about the future of the Escobal mine, and failed to disclose conflict in the consultation process. The letters also allege a failure to disclose that the Guatemalan high court suspended an application for an exploratory license and an order that could result in increased royalties.

The request to the securities commissions to investigate comes ahead of a Jan. 8 shareholder vote on Pan American Silver’s acquisition of Tahoe Resources for $1.1 billion. Pan American Silver is a primary silver producer headquartered in Vancouver. Tahoe Resources, also a Canadian company, has mines and projects in Canada, Peru, and in Guatemala, where it owns the Escobal mine. The proposed acquisition was announced on Nov. 14.

Escobal’s activities have been suspended since July 2017, when a Guatemalan court ordered the state to consult with the indigenous Xinka people about the mine. In September 2018, its highest court, the Constitutional Court of Guatemala, confirmed the decision and ordered Escobal’s mining activities suspended pending the completion of consultations in accordance with the International Labour Organization’s Convention 169, and reformation of laws to increase royalties for communities affected by mining. The judgment also ordered that the process for renewing Tahoe’s last remaining exploration license be revoked, according to the letter addressed to the B.C.S.C.

Today’s letters marks the third submission regarding Tahoe Resources in less than three years. In August 2016, the Justice and Corporate Accountability Project filed letters to the U.S. Securities Exchange Commission, and to the BCSC in May 2017, alleging that Tahoe had not disclosed a failure to consult with Indigenous people and its knowledge of community opposition to the mine.

“Social conflict can have a big impact on the viability of a project,” says Imai, adding that he uses the Tahoe case in his law classes to illustrate the impact of community opposition in develop mines and other resources.

“The Xinka were very, very involved with some of the opposition to the mine,” and at least two Xinka leaders have been killed in targeted attacks in recent years, he says.

With the closure of the Escobal mine in July 2017, Tahoe’s stock fell from nearly $25 a share, says Imai, to less than $5 per share, and there is no expectation of when the mine will reopen.

“The agreement and consent of the Xinka is very important” to the reopening of that mine, he says, adding that the situation for indigenous people in Guatemala is similar to that in Canada. First Nations don’t have a veto over mining and other projects that affect the land and environment, but there is an obligation for the government to consult with them. Imai points to the proposed Trans Mountain pipeline expansion as an example of how community opposition can stall or torpedo a resource project.

“If you don’t get agreement, … there could be years and years of litigation and conflict,” he says, adding he does not believe that current consultations in Guatemala are successful. “Whether or not there is a veto, there is a requirement that there be efforts to get agreements, to get consent.”

Imai also sees an opportunity for law reform in the case at hand. “My view is that the securities commissions are very weak in requiring disclosure of social conflict,” he says. “The securities commissions need to get onboard, and do some policing here.”

Pan American Silver's general counsel Christopher Lemon said the company has not been advised of any regulatory investigation.

"We believe that the issues relating to the Escobal mine have been well-documented in the disclosure record of Tahoe Resources over the past several years, and Pan American Silver has further described these risks in our November 14, 2018 press release and in the subsequent Management Information Circular of Pan American dated December 4, 2018," Lemon said in an emailed statement to Legal Feeds.

"We agree that proper consultation with Indigenous groups and broader engagement with communities of interest are important to gaining the social acceptance for the Escobal mine to re-open. An Indigenous Consultation Process — ILO 169 — has been mandated by the Guatemalan Court and is being led by the Guatemalan Ministry of Energy and Mines. Tahoe Resources is currently participating in this process, as will Pan American Silver, as and when it is appropriate to do so. We look forward to peacefully engaging with these stakeholders in good faith and to the opportunity to address any concerns. We have been clear that this process will take time and we have never set a timeline for the restart of the Escobal mine."
 
Lemon added that "We welcome the opportunity to discuss these matters with JCAP, in the spirit of open, productive dialogue with all parties of interest."

Counsel for Tahoe Resources was not immediately available for comment.

Editor's Note: Story updated Jan. 3, 2019 to include comments from Pan American Silver.

 


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