PDAC 2015: Lawyers still look to China for mining deals
Source: www.chinamining.org Citation: Financial Post Date: March 4, 2015
China’s demand for metals has been a big part of the mining story over the past decade.
China’s economy grew an average of 9.6% between 1990 and 2010. The country needed basic materials that fueled huge demand for commodities and mining investments.
Metal markets are less robust these days. There are many reasons for that, among them a cooling Chinese economy. Lawyers go where the deals are, so you’d expect China to be less of a hot topic in legal circles. That’s not the case at all. China remains an important focus for mining lawyers and executives. In fact, China is at the epicenter of the biggest legal story of the year so far.
"From exploration to production, the mining industry is still focused on China as a significant source of capital and as the biggest consumer of metals in the world," says Alan Hutchison, a partner in the Vancouver office of Dacheng Dentons.
Take note of that name, Dacheng Dentons. In January, China’s biggest law firm, Dacheng Law Offices, merged with Dentons, a global firm that was created two years ago through the three-way merger of Anglo-American firm SNR Denton, Canadian national firm Fraser Milner Casgrain and French firm Salans. Dacheng Dentons is now the world’s largest law firm by head count with about 6,500 lawyers at 120 offices in more than 50 countries.
The merger reflects a shift in the Chinese story. For a long time, Canadian mining lawyers have been chasing business from the big Chinese state-owned enterprises working out of Beijing and Shanghai. But there is a rising number of private sector players, some from other cities that might be off the radar for Western law firms. The Dentons deal plugs that firm into Dacheng’s network of 41 offices within China.
"There are a number of other centers in China that are rising in prominence relative to Beijing and Shanghai and that are sources of China-outbound work," Mr. Hutchison says.
That’s not to say it’s easy. China transactions tend to be rather fee sensitive, Mr. Hutchison explains. Chinese investors are looking for cost certainty in their legal services. "Law firms have to respond to that. We can’t just count on our Dacheng colleagues to do all that for us."
Norton Rose Fulbright, another global law firm with a strong Canadian component, has offices in Beijing, Shanghai and Hong Kong.
David McIntyre, a lawyer in Norton Rose Fulbright’s Toronto office with extensive mining experience, says there are a few important things to keep in mind about the Chinese market right now.
He said Chinese investors are regrouping. They had mixed success with their first mining deals, and are proceeding cautiously with their next transactions. "They’re trying to make sure the next investment is more successful than the last."
China’s business people are still getting used to how new political leader Xi Jinping aims to manage the world’s second largest economy. "There’s been a big pause while people are trying to understand what the new leader wants," Mr. McIntyre says. "It’s really no different than when there’s a new CEO at a company. Decision-making grinds to a halt for a while at the lower levels while people try to understand the new direction from the top."
There’s also been a change in China’s investment focus. During the boom, China needed raw materials, such as iron ore and met coal, to supply its domestic steel firms. But now Chinese investors are diversifying their assets, their commodity mix, and their geographic focus, Mr. McIntyre says.
"I think mining itself was overweighed in China’s initial outbound investments, and Canada itself was overweighed in its initial outbound investments because Canada satisfied China’s immediate needs," Mr. McIntyre says. Canada and mining will continue to be an important part of Chinese investment strategies, but the amount of money destined for Canada and mining will be more in line with a more diversified focus, he says.
Put another way, you could say China is maturing into more of a normal player in the market place, says Steven McKoen, a partner in the Vancouver office of Blake, Cassels & Graydon LLP.
China remains the world’s largest consumer of metals, and lawyers need to keep their Chinese contacts in place. "This stuff is cyclical. If you don’t stay in the game during the downtimes, no one’s going to remember who you are in the up times," Mr. McKoen says.
As important as China is, lawyers recognize that the broader story is actually Asia. For example, even though it’s had tough times of late, Japan remains one of the most important economies in the world.
Canadian firm Davis LLP has long had a strong connection with Japanese clients such as Mitsubishi Corp. and Sumitomo Corp. It has a sizeable office in Tokyo known locally as Davis & Takahashi. "In Japan, there has been a growing interest in doing deals with China and other parts of southeast Asia. Our group there has been very focused on that," says David Reid, a senior partner in the Vancouver office of Davis LLP.
In April, Davis LLP will spread its reach even further by merging with global firm DLA Piper, which has offices in Beijing, Hong Kong and Shanghai.
The Chinese story might not be as novel as it once was, but it’s still a important source of business for Canadian mining lawyers.
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