Research Trends and Conclusions: Mining 2012
With the benefit of over 14 years of research and tens of thousands of votes from clients and private practitioners, Who’s Who Legal takes a closer look at developing trends in the mining legal marketplace worldwide.
The price of gold climbed above US$1,600 an ounce for the first time in history in July 2011. Copper prices have tripled over the last two years, and the price of tin also set new records. While the uncertainty that plagues markets around the world is having a dampening effect on the sector, it also serves to make the precious metal’s “safe haven” status more valuable than ever. Demand from around the world, while also subject to the same pressures from the widespread economic difficulties, is generally increasing and this drives up prices even further.
Against this backdrop, the demand for legal expertise in this sector is growing, and this edition is our largest yet with 287 lawyers selected from in 47 countries, an increase of four jurisdictions on last year. Each practitioner is internationally recognised for their expertise in this sector, which runs from dirt law and native title matters to mine financing, leasing and corporate representation of mining companies.
The majority of the private practitioners and industry participants we spoke to reported that the market continues to be active, particularly in relation to transactional work. “The M&A side is booming” said one source, a view that found support elsewhere in our research; particularly in comparison with the lesser levels of transactional activity in other sectors.
Both mining companies and their assets have been the subject of attempted acquisition, and our interviewees cited a steady stream of distressed M&A work. Emerging economies such as India and China have been particularly active in this sector, and ‘security of supply’ concerns are prompting greater investment. Increasing numbers of joint ventures and takeovers were also observed with more predicted for the future, and there has been widespread consolidation in the market, particularly among junior companies.
However, while the M&A side remains busy the same cannot be said for financing work. “Putting mines into production remains time consuming and seems to be getting more expensive” said one interviewee. “The price of commodities is up, but so is the cost of everything that goes into running a mine”. While there is a general realisation that activity needs to continue at the exploration end to provide future projects to satisfy demand, the availability of finance has been squeezed in this sector as in all others. There is a lower availability of commercial bank funding, at least from traditional sources, and it was reported that “while mid-cap project financings by Western banks are possible, anything above that will need serious Chinese participation.” While mining corporations remain part of a very select group still able to raise capital through public listings, we received reports of a greater focus on alternative strategies for financing, with an increased reliance on private equity, sovereign wealth funds and export credit agencies in particular. There remain “significant challenges” for the industry on the finance side, but the view was summed up as “near term concern but long term optimism” anticipating the easing of the world’s current financial problems and demand continuing to grow.
While the trends identified above reflect the industry in general terms, the story can vary widely from country to country with some regions far more active than others. The focus for US lawyers has shifted in recent times from international exploration work to inward investment, in particular from Chinese companies but also from Canadian, Australian and Latin American corporates. The BRIC countries are driving activity across the world, with Chinese and Indian clients in particular cited by local experts in Africa and Latin America, and French lawyers much in demand for advice on projects in Francophone countries in the former. There were also reports of increased mining activity in the Far East, with the Hong Kong stock exchange seeing more mining related listings including the debut of Vale in December 2010.
INTERNATIONAL EXPANSION
Law firms have been quick to identify the mining sector as particularly active, and are taking steps to position themselves to compete for further work in the future. The high levels of activity in recent years have made local firms in established jurisdictions such as Canada and Australia targets for their international counterparts, and the market has seen significant developments on this front in recent months.
The development of the legal marketplace in Australia in the past two years reflects many of the issues shaping the sector as a whole. In this area, as in other types of law, firms are looking to gain access to Chinese clients through a local office in the country. In the words of one partner at an international firm: “acquiring a presence in Australia is a great way to access a talented lawyer market to service Asian clients. The local market – like those in Canada and England - provides a depth of well trained practitioners of a quality and level of experience that it is not always easy to find elsewhere”.
This combination of quality and experience, coupled with a mining sector that has proved lucrative in recent years and with potential to grow further, has seen international firms make strides into the market. The UK magic circle arrived in the form of Allen & Overy, which opened offices in Sydney and Perth in 2010, and Clifford Chance which did likewise in May 2011. Ashurst and Blake Dawson have announced plans to combine their businesses in Asia and merge their operations globally, with an agreement that Blake Dawson will rebrand as Ashurst in Australia in a merger scheduled to take place by 2014.
US firm Squire Sanders & Dempsey also acquired a presence in Perth through its combination with the local office of Minter Ellison in October 2011, giving the firm – as it notes in its press materials – a presence “within the same time zones as China, India, Indonesia and Japan, (which) places us in the heart of a regional hub that contains the world’s fastest growing economies”. These advantages no doubt played a role in the thinking behind the arrival of other international firms such as Jones Day, DLA Piper, Holman Fenwick Willan and Norton Rose in recent times.
This influx has placed the legal market in Australia into a stage of transition, reflected in the make-up of our mining research in recent years. The local firms have been – and continue to be – recognised for the quality of their mining expertise, and this expertise has proved attractive to those looking to enter the market from outside. Barry Irwin and Geoff Simpson joined Allen & Overy from Clayton Utz as part of the original 17 partner team that formed its local launch: mining and energy experts are seen as key players in the field and central to the strategic plans of international entrants. Further changes are expected in the coming year as national firms respond to the arrival of international competitors, and perhaps look to expand further afield themselves.
We received similar feedback relating to the legal market in South Africa, where the established expertise and potential access to the stream of work coming out of the continent are also widely recognised, as well as the moves by local firms to export their knowledge overseas.
The most important current markets for law firms in the mining sector were said to be outbound work from China, inbound work into Australia, work into South Africa and investment into, as well as financings in, Canada. Through its recent mergers with Deacons, Deneys Reitz and its imminent combination with Macleod Dixon, scheduled to complete in January 2012, Norton Rose Group has established a local presence for all these major jurisdictions for inbound work.
LEADING FIRMS OVER PAST FIVE EDITIONS
As the chart below demonstrates, recent mergers have seen Norton Rose add a dual South African presence to its listing in this edition, and when its contingent is combined with that of Macleod Dixon in the next edition the combined firm will gain significantly in terms of both number of market leading experts and geographical spread – Norton Rose lawyers do not currently appear in any of the six countries in which Macleod Dixon partners earned inclusion.
Elsewhere in the research, other leading firms are also expanding the scope of their representation in our findings. Fasken Martineau DuMoulin is a multiple winner of our Mining Law Firm of the Year Award, and has added a presence in France and South Africa in recent years, while Baker & McKenzie has also broadened the geographical scope of its presence in our research. Stikeman Elliott and Davis Graham & Stubbs have also performed consistently well in Canada and the US.
Latin America is also a key region for this work, and its tradition of mining projects has allowed the legal market to develop to such an extent that five of the top 10 most highly regarded lawyers in our research overall are based in Chile and Argentina.
All in all, the marketplace is more active than many other practice areas, both in terms of levels of work and movement of firms. As one lawyer noted, this also coincides with a time when “some of the legends of mining law are coming to the end of their careers” – Paul Schlauch, inaugural winner of our Mining Lawyer of the Year Award in 2005, retired from Holland & Hart this year to take up a directorship at Rare Element Resources – “and it will be interesting to see how the market develops from here”.
