Ten Above-Ground Legal Risks That Can Sink Your Project: What They Are and Tools to Assess and Mitigate

Abstract

Risk Assessment is crucial to extractive project success, but yet the main above-ground risks are frequently either unknown or ignored, often because they are difficult to quantify. Top Above-Ground Risks that need to be assessed by a mining project, whether in Canada or abroad: 1. Risks related to Indigenous People claims. These risks have recently increased dramatically as a result of Canada’s signing the UN Assembly Declaration on the Rights of Indigenous People in 2016. 2. Bribe Demands by government. 3. Direct Expropriation Risks. 4. Indirect or creeping expropriations by government. 5. Regulatory changes which adversely affect the company’s operations. 6. Improper actions by governments in making environmental assessments of projects resulting in denial of permits. 7. Disputes with a government for which there is no legal mechanism to settle the dispute, or courts of the host state are ineffective, so government controls the outcome. 8. Reputational risks that affect the company’s future prospects (many reputational risks have little or no effect on the company, but some risks can be huge). 9. Nullification of agreements entered into with governments to stabilize the operations of the project. 10. Legal disappearance of a counter-party involved in the project (particularly government parties). The paper will discuss each of these risks as well as potential tools to mitigate these risks. The tools will include: 1. Political Risk Insurance - understanding this type of insurance and benefits of using various insurers such as World Bank, commercial insurers, export credit agencies. 2. Financing through lenders with sufficient political or economic power to provide protections against many of the risks. 3. Using International Investment Agreements to protect the project (even if the project is in Canada). 4. Due Diligence using experts in the particular field of investigation. 5. Obtaining advice from experts who really understand these issues in depth. 6. Ensuring existence of international arbitration provisions to settle disputes. The paper is based largely on research done by the author, as the developer and teacher at of courses on international legal business risk management Athabasca University Executive MBA program. Over 100 company managers participated in the research.