Canadian Lawyer

LEGAL REPORT/Mining Law From undertaker to fixer How restructuring lawyers are becoming the heroes of the day for junior and mid-cap mining companies in Canada. I t's no secret it's been a tough year in the mining sector, especially for those in the exploration and development stage struggling to get much-needed access to cash in order to further their ventures. Falling commodity and share prices — off considerably from their 12-24 month highs — coupled with the inability to get financing from spooked capital markets has created a formula for unpleasant discussions about what to do next. Enter the restructuring and insolvency lawyers. But unlike the past, in some cases they have come armed with solutions for mining companies that may have thought all hope was lost. "The perception can often be that restructuring lawyers are undertakers as opposed to fixers," says John Sandrelli, a partner and specialist in restructuring, insolvency, and bankruptcy with Dentons Canada LLP in Vancouver. "Our experience has been if companies deal with matters well in advance of a crisis there is a lot more flexibility for them in ultimately coming back to full production, or becoming a company that is more a development company to retain its assets and ultimately come back when markets improve." Unlike in other markets, mining companies don't tend to want to buy other mining companies when they think they are at a low — they don't have a lot of cash themselves and would rather do it when the market starts to tick up again. The first hurdle in restructuring to a healthy position is convincing a management team such a move doesn't have to be equated with bad news. "They will often say, 'John, you're the last person I want to talk to,' because they associate it with negative information in the media, particularly for public companies. So getting over that stigma is particularly a challenge," says Sandrelli Another challenge emerges where the management team makes up a significant portion of the shareholders or have been a part of a team that has raised money from www.CANADIAN a group of shareholders and do not want to explore anything that leads to a significant dilution of the existing shareholders. "That's where sometimes I think it is in the best interest of the company for the independent board members or the audit committee of the board, in the case of the public company, to identifying a crisis well before it hits," says Sandrelli. Tackling the balance sheet through debt conversion can often make a company more marketable to raise further equity or financing and that can be done through a Canada Business Corporations Act type of restructuring arrangement, which can be efficient in terms of correcting the balance sheet and the capital structure without a shareholders meeting, or more formally under the CCAA. "That would be for the company that has larger debt issues or publicly traded debt. Our message is there is an opportunity in down markets when your share prices are depressed to take steps to clean up the balance sheet even though it has a significant dilution L a w ye r m a g . c o m September 2013 47 Justin Renteria By Jennifer Brown

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