Non-profit firms ac­cuse Pan Amer­i­can and Ta­hoe of hid­ing con­ceal­ing risks

Montreal Gazette - - FINANCIAL POST - GABRIEL FRIEDMAN Fi­nan­cial Post gfried­[email protected]­tion­al­ Twit­ GabeFriedz

Less than a week be­fore Pan Amer­i­can Sil­ver Corp. share­hold­ers vote on a US$1.1-bil­lion ac­qui­si­tion of Ta­hoe Re­sources Inc., three non-profit firms have filed com­plaints with the Bri­tish Columbia Se­cu­ri­ties Com­mis­sion ac­cus­ing the com­pa­nies of hid­ing key risks. The com­plaints say the com­pa­nies are overly op­ti­mistic in their time­line for the re­open­ing of Ta­hoe’s flag­ship Es­cobal mine in Gu­atemala and failed to dis­close all con­flicts with the lo­cal com­mu­nity around that mine. Shin Imai, a di­rec­tor of the Jus­tice and Cor­po­rate Ac­count­abil­ity Project at York Uni­ver­sity’s Os­goode Hall Law School in Toronto, who drafted the com­plaints and has a track record of ac­cu­rately pre­dict­ing when con­flict will flare up at Es­cobal, said the case ties into a broader ef­fort to im­prove min­ing com­pa­nies’ dis­clo­sures about their com­mu­nity re­la­tions. “This Ta­hoe case is just a clas­sic ex­am­ple that shows that if you don’t have a so­cial li­cence and you don’t dis­close that, then in­vestors get screwed,” said Imai. He said his clients in the case — the Mar­itimes-Gu­atemala-based Break­ing the Si­lence Net­work, Wash­ing­ton, D.C.-based Earth­works, and Ot­tawa-based Min­ing-Watch Canada sent em­ploy­ees to visit the Es­cobal site, or live in Gu­atemala and thus un­der­stand the state of af­fairs on the ground at the mine. In May 2017, Imai filed his first com­plaint with the BCSC ask­ing for an in­ves­ti­ga­tion of Ta­hoe — as he is do­ing again now — for fail­ing to dis­close its con­flicts with the lo­cal Xinka com­mu­nity near the Es­cobal mine. Two months af­ter that ini­tial com­plaint was filed, in July 2017, a Gu­atemalan court or­dered the mine closed be­cause of a lack of con­sul­ta­tion with the lo­cal Xinka com­mu­nity. That court de­ci­sion was up­held in Septem­ber by Gu­atemala’s Con­sti­tu­tional Court, which Imai wrote in his com­plaint also nul­li­fied all of Ta­hoe’s ex­ploratory li­cences around the mine, or­dered the leg­is­la­ture to in­crease roy­al­ties from mines and or­dered con­sul­ta­tion with the lo­cal Xinka com­mu­nity. In a state­ment, Pan Amer­i­can said it be­lieved the is­sues re­lat­ing to the Es­cobal mine have been well-doc­u­mented in its own fil­ings and past fil­ings by Ta­hoe, and that it be­lieves con­sult­ing Indige­nous com­mu­ni­ties is im­por­tant. “We look for­ward to peace­fully en­gag­ing with th­ese stake­hold­ers in good faith and to the op­por­tu­nity to ad­dress any con­cerns,” the state­ment read in part. “We have been clear that this process will take time and we have never set a time­line for the restart of the Es­cobal mine.” The Es­cobal mine is a key as­set in the Ta­hoe ac­qui­si­tion. Prior to its clo­sure, it had pro­duced 20 mil­lion ounces of sil­ver per year; and Pan Amer­i­can is de­scrib­ing it to share­hold­ers as “one of the world’s most at­trac­tive sil­ver mines.” “This is a very long term as­set (with) big ex­plo­ration po­ten­tial up­side,” Michael Stein­mann, chief ex­ec­u­tive of Van­cou­ver-based Pan Amer­i­can told the Fi­nan­cial Post on Nov. 26 when the ac­qui­si­tion was an­nounced. Imai’s let­ter states that Ta­hoe’s ex­pected re­open­ing of the mine by De­cem­ber 2019 is not likely be­cause the Xinka Par­lia­ment has filed two new court pro­ceed­ings since the Septem­ber court or­der. On Nov. 15, it ac­cused Ta­hoe of fail­ing to con­sult its com­mu­nity; and Gu­atemala’s Supreme Court of Jus­tice found the min­ing com­pany had not ful­filled phase 1 of the process — even though it had told share­hold­ers that the first part of the con­sul­ta­tions were “well-ad­vanced,” ac­cord­ing to Imai’s 12page com­plaint to the BCSC. On Nov. 19, the Xinka Par­lia­ment filed a sec­ond court pro­ceed­ing to pro­hibit Ta­hoe from seek­ing to bring non-le­git­i­mate rep­re­sen­ta­tives of its com­mu­nity to a me­di­a­tion in Rome, Italy. “Ta­hoe has started on the wrong foot and pos­si­bly ir­re­vo­ca­bly poi­soned re­la­tion­ships,” Imai wrote. But Stein­mann has said that his com­pany is com­mit­ted to work­ing with the lo­cal com­mu­ni­ties around the mines where it op­er­ates. Imai said his main goal is to prod the BCSC to raise its stan­dards when it comes to min­ing com­pa­nies’ dis­clo­sures around “so­cial li­cence” risks. Since May 2017, Ta­hoe’s stock on the New York Stock Ex­change has dropped from around US$9 to un­der US$4. It closed slightly up at US$3.69 on Thurs­day. Van­cou­ver-based Pan Amer­i­can’s US$1.1 bil­lion cash and share deal val­ues Ta­hoe shares at US$3.40. Imai noted that the price is far be­low the com­pany’s peak share price, around US$27 in Au­gust 2014. “We’re try­ing to build a record and make the case that dis­clo­sure of so­cial record is im­por­tant and af­fects in­vestors,” said Imai. The dis­clo­sures would have a trickle-down ef­fect, he said, in that in­vestors would stay away from com­pa­nies that lack a so­cial li­cence and min­ing ex­ec­u­tives would op­er­ate with more con­sid­er­a­tion for the com­mu­ni­ties near their mines. Pan Amer­i­can share­hold­ers vote on the buy­out of Ta­hoe on Jan. 8 at a spe­cial meet­ing. Its stock was trad­ing at $19.98 in Toronto on Thurs­day, up from around $18.70 prior to the merger an­nounce­ment.

Three non-profit com­pa­nies have launched com­plaints against Pan Amer­i­can and Ta­hoe over what they say is the firms’ fail­ure to dis­close con­flicts with the lo­cal com­mu­nity around Ta­hoe’s Es­cobal mine in Gu­atemala.

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