The COVID-19 pandemic is rapidly evolving bringing with it a flurry of mining and exploration project shutdowns in response to restrictions imposed by various governments. Managing the health and security of the workforce and communities, minimizing mine operations and the management of the short-term cash flow are matters that are top of mind for all mining businesses. In these turbulent times, mining companies should also not lose sight of their ongoing regulatory compliance and contractual obligations and managing the medium- and long-term consequences of those requirements.

Although mining businesses should try to avoid possible contractual defaults and regulatory non-compliance, they should also be prepared to respond in the event breaches and non-compliance occur. The following regulatory and contractual issues should be considered, keeping in mind mining companies will have issues that are specific to their operations that can supplement those listed.[1]

RENEWAL AND MAINTENANCE OF MINERAL RIGHTS

Mining companies may have difficulty complying with fee, work and administrative requirements to maintain and renew mineral rights as a result of the COVID-19 situation and may risk automatic expiry and loss of rights.

In Quebec, the Ministry of Energy and Natural Resources (MENR) announced an exceptional measure for mining titles registered in the Public Register of Real and Immovable Mining Rights of Québec (for surface and underground mineral substances other than oil and gas). Other measures may follow depending on how the COVID-19 situation evolves.

To address the potential expiry of mining titles caused by slower processing times because of the COVID-19 situation, as of March 19, 2020, and until further notice, certain mining titles[2] and prospecting permits that are due to expire during the period of emergency measures will keep their active status. The measure should not be viewed as an exemption from the obligation to pay annual fees or renewal fees or to submit renewal applications. If in doubt, the MENR or the relevant regional county municipality (for non-exclusive mining leases) should be contacted. This measure does not extend to mining claims, which have a term of two years.

MANDATORY MINIMUM WORK AND REPORTS

To reduce processing times for assessment work reports, as of March 12, 2020, MENR decisions to refuse assessment work (mandatory minimum exploration work conducted to maintain mineral rights in good standing) no longer include a notice indicating the ability to appeal the refusal decision. The MENR will instead send a draft notice of the decision to refuse work and give the holder 15 days to provide comments before making a final decision. Holders of mining claims should ensure their contact information with MENR is up to date and respond diligently to such notices.

LEASES OF PUBLIC LAND FOR MINING OPERATIONS
 
Public land leases issued by MENR for administrative and industrial buildings, tailings sites and other mine infrastructure are often renewable annually with rent paid in advance. Although MENR typically sends payment notices at least 30 days prior to expiry, businesses should be mindful of renewing leases on time regarding the anticipated slowdown in government processing times.
 
INSURANCE MATTERS
Businesses should review insurance policy terms to determine if coverage is available for losses related to potential disruption caused by COVID-19. Insured parties should also verify the notices to insurers’ requirement under their policies and keep in mind their obligation to mitigate losses.

TEMPORARY OR PERMANENT SUSPENSION OF MINING ACTIVITIES

As mines in Quebec have moved into a care and maintenance status, it is useful to note that the operator must provide notice of the suspension of activities to MENR and the Quebec Ministry of the Environment and Fight Against Climate Change (MELCC) at least 10 days before a six-month suspension of mining operations.

Within four months of the suspension, operators must provide the MENR and MELCC with a copy of plans of the underground works, surface mines, ground facilities and tailing dumps certified by an engineer or a geologist and also provide to the MENR plans showing geological and geophysical findings, a record of all drill holes and a report on the quantity and nature of the unmined mineralized deposits.

ENVIRONMENTAL MATTERS

As the COVID-19 crisis advances, compliance with environmental regulatory requirements will present challenges for businesses. Although environmental management systems designed to maintain regulatory compliance may be in place at resource-based operations, full adherence with all legal requirements may, at some point, become difficult to achieve because of the legal and practical impediments created by the COVID-19 response. Please see our Blakes Bulletin: Environmental Regulatory Compliance During the COVID-19 Pandemic on this subject.

CONTRACTUAL NON-PERFORMANCE AND POTENTIAL DISPUTES

With the temporary shutdown of mining operations, supply chain disruptions, commodity price decline and the reduction of liquidity reserves triggered by the COVID-19 pandemic, claims for breach of contract are expected, and businesses are likely to face default notices and proposals that may require a quick response. More importantly, defaults or failures to exercise rights within prescribed delays could lead to loss of rights.

Businesses should first identify contracts that may be impacted as a result of the COVID-19 situation and prioritize agreements that are financially significant and critical to the business operations. Verbal contractual relationships should also be considered.

Those key contracts should then be reviewed to identify the provisions that could be relevant in the circumstances, such as force majeure clauses, material adverse effect clauses, priority rights, payment terms, fixed periods or dates to perform, duration and renewal clauses, insurance requirements, default provisions, termination rights, indemnities, dispute resolution mechanisms, and notices.

As a planning tool, see our sample chart for monitoring contractual obligations. For businesses having to review a substantial number of contracts, artificial intelligence tools should be considered for increased efficiency.

Creating an inventory of contracts should help a business to:

• Identify and understand its areas of greatest exposure (operational, financial or otherwise)

• Anticipate potential non-performance on its part or its counterparty or other circumstances that could result in an early termination or loss of rights and remedies

• Review its priority rights (options, rights of first refusal, call rights, etc.)

Regarding key contractual relationships, the results of this analysis will be critical in the development and implementation of a business continuity and recovery plan that should contain:

• A plan for communicating with counterparties, including to solidify important business relationships and limit the risk of non-performance

• Alternatives to existing relationships where the counterparty is more likely to be severely impacted by the crisis

• Mitigating strategies if the business might find itself in default of its contractual obligations

• A plan to preserve legal rights and remedies

• A strategy to manage multiple potential disputes, considering its business interests and priorities and its anticipated financial means and negotiating power, as well as individual strategies for high-priority potential disputes