Mineral exploration is inherently a high-risk, high-reward business, and that risk-reward ratio can increase when a company is operating in a jurisdiction where the rule of law is dubious.
What do you do, for example, when the country you are operating in suddenly decides to nationalize resources, or otherwise moves the legal goalposts to expropriate claims, tenures and licences?
Suing a sovereign nation can be complicated and expensive. It’s perhaps no surprise, then, that a number of companies that have resorted to litigation financing happen to be mineral exploration companies.
Toronto-based Montauk Metals, for example – operating in Columbia – and Vancouver’s Montero Mining and Exploration Ltd. (TSX-V:MON), with claims in Tanzania – have both resorted to the financial litigation services of Omni Bridgeway (ASX:OBL), an Australian company that specializes in financing complex legal battles.
Litigation financing is a third-party financing arrangement for legal claims, wherein a company with significant legal expertise assumes some of the risk of a lawsuit in exchange for a share of any legal awards.
“It’s a sophisticated source of capital for companies who are looking to advance major commercial litigation claims or arbitrations,” said Paul Rand, managing director and chief investment officer for Omni Bridgeway Canada.
Omni Bridgeway has a lot of legals experts on its payroll, but the company does not litigate on behalf of clients – it merely provides the capital needed to try these cases before courts and tribunals. The company has about $2.5 billion under management.
“By and large, we are all lawyers, but we’re not practising as a law firm,” Rand said. “So we’re not providing the legal services to our funded clients. We’re really a source of capital.”
Should the company succeed at trial or tribunal, finance litigation companies like Omni Bridgeway will take 20 per cent to 40 per cent of the award. If the company fails to get an award, it gets nothing.
“It’s often very similar to what a lawyer who is prepared to act on contingency to advance a case what they might expect,” Rand said.
In Canada, mining companies in particular are increasingly using litigation financing.
“They’re operating in a space that involves a significant amount of risk,” Rand said. “They also, I think, have a natural understanding of the value of risk transfers, and so they will see a litigation financing strategy as being quite logical.
“Mining companies will often find themselves with very significant claims, because of the nature of their projects and because of the nature of things that go wrong on those projects from time to time. And that includes state intervention in foreign investments.
“The nature of our investment is non-recourse, so it’s very helpful to companies that are either looking to manage risk or who may be managing cash, which is also often a consideration for venture type mining operations.”
Omni Bridgeway has funded several cases for mining companies operating in Eastern Europe, Africa, and Latin America that have had their projects expropriated by local governments.
One of Omni Bridgeway’s Canadian clients is Vancouver’s Montero Mining and Exploration, which has been fighting the Government of Tanzania over a rare earth mineral claim that was effectively expropriated through a change in Tanzania’s mining act.
Montero began exploration in 2008 in Tanzania under a prospecting licence, and applied for a retention licence in 2014. A retention licence was granted in 2015 for a five-year period, but in 2017 the Government of Tanzania announced amendments to its mining act, which essentially cancelled the retention licence.
Rights to the area under claim were transferred to the Government of Tanzania. Montero is now suing the government via a bilateral investment treaty between Canada and Tanzania, with financing from Omni Bridgeway. Montero is seeking $90 million in compensation.
It’s one thing to get a court or tribunal to rule in favour of a company, but collecting the award can sometimes require its own round of litigation.
“Another significant part of our business is helping our clients with enforcement,” Rand said. “Our company has, over more than 30 years, developed a real expertise in what we refer to as judgment or award enforcement.”
Omni Bridgeway has a success rate of around 80 per cent, Rand said.
“That speaks to the fact that we’re very selective in the cases that we choose to invest in.”
