Canada and Canadian mining is under attack on two fronts today. At least that is what the sensational new releases would have us believe. Let us take a look at the two set of reports and decide.
The first is a series of reports that the United States Supreme Court has refused to hear an appeal from Teck Cominco in a case they lost in lower courts. The previous judgements, in effect, say that Teck Cominco is liable under Superfund to clean up its impact on the US part of the Columbia River resulting from discharges into the Canada part of the Columbia River. The US Supreme Court, in refusing to hear the appeal, in practice confirms the lower court rulings, and now Teck Cominco is just another of the many PRPs cleaning up the land. [A PRP is a Potentially Responsible Party in Superfund lingo.]
The second is another series of reports that the Chinese are buying up Canadian mining companies, threatening to turn Canada into just another colony of an industrial/economic superpower. I quote:
Tyler Resources Inc. of Calgary [TSX-V:TYS] announced Monday it found a white-knight suitor with a C$214 million takeover offer from Jinchuan Group Ltd., China’s largest producer of nickel, cobalt and platinum group metals and a major producer of copper. Meanwhile, junior uranium explorer Ditem Explorations [TSX-V:DIT] said it has signed a memorandum of understanding with a subsidiary of China’s Sinosteel Corp., to develop uranium properties in the Athabasca Basin of Western Canada.
I suggest that neither of these events represents a significant deviation from normal. US companies get added to the Superfund list regularly and many are dealing perfectly well with doing what the law demands. The Canadians may not like it, but they are being treated equal with other American companies. Seems equitable; even if it is going to be expensive; but presumably the share price takes account of past practice clean-up costs?
As for take over of companies by Chinese. That is happening all over the world. Africa is almost “gobbled-up” if you believe the Zambians. Canadian mining companies have had no problems with taking over opportunities all over the world. In fact this is a point of bragging at most Canadian mining company gatherings. So can we really complain if the standard practices of a civilized & nice nation are now copied and practiced by others?
As an American, I can look with amusement at the Canadian agonies at being liable under Superfund and being gobbled-up by a superpower. As a Canadian, I feel a vague [no distinct] unease about it all. As a mining investor, I am enraged.
In practice, nationalistic-induced emotions are powerful, but irrelevant. What really counts is share price. The only issue that should concern us is the share price of the companies affected.
As noted above, I presume the share prices reflect Superfund liabilty and superpower ownership. If they do not, then soon enough after these reports are digested they will; so decide soon whether to buy or sell.
And if the Superfund environmental liabilities become too onerous, then soon enough a superpower will buy the indebted company and slough off the liabilities. So watch what happens now; and particularly in the future.
For it seems to me that mining companies are playing a Red Queen Game. You recall that the Red Queen said we have to run faster and faster just to stay in the same place. As mining companies gobble each other up and acquire more long-term liabilities for old dumping and closed mine Superfund liabilities, they need more new mines just to pay to “maintain” old mines.
It would be a most interesting calculation to work out how long it takes for the big takeover players to accumulate enough old mines relative to new mines to have to go under the burden of Superfund liability that goes along with the closed mines they acquire when they buy companies to acquire their new mines.
I know some of these old mines acquired in bold takeovers. The estimated cleanup costs documented in the annual reports are ludicrously low: a vast triumph of hope over reason. But reality will catch up quickly. Then the takeover winner will have to sell out to a superpower to duck the Superfund implications.
This is a complex topic, and one that deserve more than a blog. Over to the super-financiers and super analysists.
