Securities • Issues & Advocacy

Delaney says poor leadership is fuelling the loss of head offices and investment

ANDY HOFFMAN

From Friday's Globe and Mail

May 25, 2007 at 4:12 AM EDT

TORONTO — — Canada has squandered its title as the centre of global mining finance, says the chairman of Sherritt International Corp., who warned that only a Herculean effort on Ottawa's part to stimulate investment will reverse the decline of the storied Canadian industry.

Ian Delaney, the executive chairman of Sherritt, one of Canada's largest miners, said poor policy decisions have cost Canada its crown as the best place in the world for mining companies to raise capital.

"It's a national issue all right. We are bereft of any intelligent people making policy anywhere in this country. It's really disgusting," Mr. Delaney said in an interview yesterday, after his company's annual general meeting.

"We're done. It's over. Unless we mount some Herculean effort to recover, it's just going to continue to drain," he said.

Sherritt chairman Ian Delaney says poor policy decisions have cost Canada its crown as the best place in the world for mining companies to raise capital. (Tibor Kolley/The Globe and Mail)

For decades, Canada has been the top destination for international companies looking to finance mining projects. Canada's own rich natural resources created an investor class much more informed than in other jurisdictions about the risks and rewards inherent in mining investment.

But Mr. Delaney said London has now become the top mining hub, usurping the place of Toronto and Vancouver.

That's because the British government has implemented policies to attract and retain industry investment, Mr. Delaney said.

At the same time, partisan Canadian politics, which Mr. Delaney described as "Mickey Mouse" have created a void in policy making from Ottawa that is friendly to financing mining ventures.

"It's a shame. We had it and lost it because of a complete policy vacuum and a leadership vacuum," he said.

His comments follow the recent loss of some of Canada's biggest mining firms. Last year, nickel stalwart Inco Ltd. was snapped up by Brazil's Companhia Vale do Rio Doce and Falconbridge Ltd. fell to Anglo-Swiss miner Xstrata PLC.

Another Toronto nickel miner, LionOre Mining International Ltd., is now the subject of a bidding war between Xstrata and Russia's MMC Norilsk Nickel.

Earlier this month, Alcoa Inc. launched a $28-billion (U.S.) takeover bid for rival aluminum maker Alcan Inc. that has been rejected by the Canadian company's board.

Many industry players, including Peter Munk, chairman of the world's largest gold company, Barrick Gold Corp. of Toronto, have warned that the loss of mining company head offices in Canada will have a negative financial impact in other areas of the economy. For example, fewer major mining head offices will mean less work for well paid investment bankers and lawyers.

Mr. Delaney said Britain and other jurisdictions have superior tax policies to attract mining companies in search of a head office location. Corporate taxes have been cut more aggressively in Britain than in Canada.

He called Finance Minister Jim Flaherty's recent plan to end tax breaks for companies that invest abroad "nonsense," and another example of Ottawa's failure to grasp the needs of his sector.

"You talk about people who are way adrift on their policy sense," Mr. Delaney said. If it successfully completes a $1.4-billion (Canadian) takeover of Dynatec Corp., Sherritt plans to invest billions more to build a nickel project in Madagascar.

He pointed in particular to friendly tax policies and less-burdensome regulatory requirements on the London Stock Exchange and the Alternative Investment Market, or AIM, as another one of the ways that Britain has gained the lead.

"What we need are things that stimulate this as a head office culture. The Brits have done this and have just eaten our lunch," Mr. Delaney said, adding that "there is nothing in the structure of the Canadian capital markets that would cause someone to say, let's put our office in Toronto instead of Zurich. That's the problem."

The government's inability to create a national securities regulator was also sharply criticized by the 63-year-old mining industry veteran, whose company produces nickel and oil in Cuba as well as coal in Canada.

The balkanized system means Canada is one of the few countries in the developed world that does not have a national commission and requires companies to deal with separate regulators in each province.
"We can't get our national securities legislation in order, we can't get our jurisdictional issues straightened out, and that business is migrating in droves to London. That's a policy issue," he said.

London is quickly gaining on Toronto as mining finance centre, raising $10.8-billion compared with $12.5-billion in Canada.

There are still far more mining companies listed on Canadian markets than in London. So far this year, for example, Toronto Stock Exchange and TSX Venture Exchange mining companies have raised $3.45-billion compared with roughly $1-billion by mining companies listing on London's AIM market.

The TSX and Venture Exchange have attracted 41 new mining listings so far this year, compared with eight on the AIM.

Toronto versus London

In the fight for junior miners, the TSX Venture Exchange is particularly dominant over the AIM. But London is gaining ground when it comes to the amount of mining equity capital raised. And global giants such as BHP, Rio Tinto and Xstrata give London the edge when it comes to the value of mining shares traded.

SOURCE: TSX, LSE AND AIM (TSX ANALYSIS OF PUBLIC INFORMATION)

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