CHAPTER 5 ACCESSING NORTH AMERICA CAPITAL

• Jurisdiction: Derecho Internacional

International Mining and Oil & Gas Law, Development, and Investment
(Apr 2011)
CHAPTER 5
ACCESSING NORTH AMERICA CAPITAL
Vitale A. Santoro (Moderator) ¹
Osier Hoskin & Harcourt
Montreal
Giovani Ribeiro Loss ²
Mattos Filho Veiga Filho Marrey Jr. e Quiroga
Rio de Janeiro
Jason Comerford ¹
Osier Hoskin & Harcourt
New York
Paulo Mendes
Morgan Stanley Brazil
Sao Paulo

VITALE A. SANTORO is a partner in the Business Law Department in the Montreal office of Osler, Hoskin & Harcourt LLP. His practice covers many areas of corporate and securities law with an emphasis on corporate finance and mergers and acquisitions. He also has expertise in mining and public-private partnerships, alternative financing and procurement. Vitale was named by Lexpert as one of Canada's leading lawyers under 40 and is a recommended expert (Corporate Finance & Securities) in the Canadian Legal Lexpert Directory. He received his undergraduate degree in Economics from Concordia University and received his law degree from the Université de Montreal. Vitale was admitted to the Quebec Bar in 1998 and also has affiliations with the Canadian Bar Association and the International Bar Association. He is also a member of the Board of Directors with the EAST Foundation, a community based charitable organization that assists families with special needs children.

GIOVANI LOSS is a partner at Mattos Filho, Veiga Filho, Marrey Jr. e Quiroga Advogados. Giovani concentrates his practice in Oil & Gas transactions, as well as in capital markets and M&A transactions related to the Oil & Gas industry. Giovani has worked several farm-in and farm-out operations, Joint Operating Agreements (JOA), Joint Bidding Agreements (JBA), Gas Supply Agreement(GSA), oil, natural gas and biofuels transport and sales agreements, structuring of oil & gas traders, purchasing and charter of vessels, EPC and O&M agreements. Giovani holds a Law degree from the School of Law at the University of Minas Gerais - UFMG, a Master's Degree in Administrative Law at the University of Sao Paulo - USP, and received his LL.M. in Corporate Governance & Practice at Stanford University, where he had a grant from Ling Institute. Giovani was an attorney with Fulbright & Jaworski LLP in Houston (2007-10). He is licensed to the practice Law in Brazil, New York and England (Solicitor). He is an author of Natural Gas Sector Regulatory and several articles on topics of Oil and Gas. He is a member of the Board of the Brazilian Institute of Energy Law - IBDE.

JASON COMERFORD is a partner in the New York office at Osier, Hoskin & Harcourt LLP. Jason's primary emphasis is on assisting Canadian and U.S. clients with U.S. corporate finance and mergers and acquisitions transactions. He has advised Canadian and U.S. issuers, underwriters and placement agents with U.S. debt and equity offerings, including initial public offerings and other U.S. registered offerings and Section 4(2), Regulation D, Regulation S and Rule 144A transactions and has also acted as counsel in M&A and private equity deals. In addition, he has worked on exchange offers, consent solicitations, tender offers and "going private" transactions. Jason advises clients on U.S. corporate governance matters, assists public companies with their periodic reporting obligations under the U.S. Securities Exchange Act of 1934 and compliance with New York Stock Exchange and NASDAQ regulations. Jason went to undergraduate school at the University of Alberta and received his law degree from Dalhousie University. He has been admitted to the bar in Ontario (1999) and New York (2001). Jason has been a part of numerous publications including "Raising Capital in the United States: A Guide to Using MJDS for U.S. Public Offerings and Periodic Reporting".

PAULO MENDES is a Managing Director and Head of Equity Capital Markets in Latin America for Morgan Stanley. Prior to Morgan Stanley, Paulo worked at J.P.Morgan Investment Banking in Sao Paulo for 8 years, where he was lastly responsible for the coverage of the Energy, Telecom, Industrial, Logistics and Education sectors in Brazil. Prior to J.P.Morgan, Paulo was a senior finance officer at Brasil Telecom (now Oi). Paulo holds a MBA from The University of Edinburgh, a Post-Undergraduate degree in Business Finance from Fundaçao Getúlio Vargas and a Bachelor in Computer Engineering from PUC-RJ.

Access to Capital Markets in Canada and the United States for Resource-Based Issuers

March 2011

1. INTRODUCTION

Deciding whether to access the capital markets in Canada or the United States requires an understanding of the opportunities that each market offers a resource-based issuer and the different steps an issuer must take in order to raise capital in either country. The required steps are based on rules and regulations of each country that can differ significantly in certain areas and it is essential for a resource-based issuer to understand these differences in order to make a well-informed decision.

2. OVERVIEW OF THE INDUSTRY AND REGULATORY FRAMEWORK

2.1 Mining and oil and gas industries in Canada, United States and Brazil

2.1.1 Canada

A large portion of Canada's economy is based on energy and natural resources. The mining and oil and gas industries are two of the largest industries in Canada and two of the most important sectors found on the Toronto Stock Exchange ("TSX") and the TSX Venture Exchange ("TSXV"), the principal exchanges in Canada, in terms of number of listed issuers as well as total market capitalization. In March 2011, of the 3,508 listed issuers on the TSX and the TSXV, the metals and mining sector accounted for 1,441 issuers (41.1%) with a market capitalization of CAD$458.5 billion, which equals approximately 19.6% of the total market capitalization of the TSX and TSXV. The oil and gas sector accounted for 550 issuers (15.7%) with a market capitalization of CAD$651.4 billion, which equals approximately 27.8% of the total market capitalization of the TSX and TSXV.³

2.1.2 United States

The United States is the world's largest and most diversified economy. While the mining and oil and gas sectors in the United States are not as dominant in relation to overall

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gross domestic product as they are in Canada, the absolute numbers are significant. In recent years, the mining sector contributed US$188.9 billion⁴ to the U.S. gross domestic product while the oil and gas sector contributed over US$1 trillion.⁵ In March 2011, companies in the metals and mining and oil and gas sectors accounted for 413 (14.0%) of the 2,921 issuers listed on the New York Stock Exchange (the "NYSE") and the NYSE Amex (the "NYSE Amex"), which together comprise the primary listing venues for resource-based issuers in the United States. The oil and gas sector represents 285 (9.8%) of the NYSE and NYSE Amex listed issuers and a total market capitalization of US$4.0 trillion, and the metals and mining sector represents 128 (4.4%) of the issuers on those exchanges and a total market capitalization of approximately US$1.4 trillion.⁶ Many of these industries' largest and most important companies, such as BHP Bilton, Vale S.A. and Royal Dutch Shell, are listed on U.S. exchanges, even though these issuers are based outside the United States.

2.1.3 Brazil

Mining and oil and gas companies' shares are among the most traded shares on the Brazilian Stock Exchange ("BM&FBovespa"). Out of the twenty most-traded shares on BM&FBovespa, six were issued by oil and gas and mining companies.⁷ According to a report published by BM&FBovespa, the oil and gas and biofuels sector represents a market value of US$293.1 billion while the mining sector represents a market value of US$176.8 billion, both collectively representing approximately 30% of the total market value of the companies listed in BM&FBovespa.⁸

The global importance of the Brazilian oil and gas sector increased considerably with recent discoveries in the pre-salt layer. Brazilian oil production increased by 6.9% in 2009, reaching 2 million barrels/day. In 2009, Brazil was ranked as the 14th top oil producer in the world.⁹

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Brazilian mineral production, which amounted to US$24 billion in 2009, reached US$40 billion in 2010.¹⁰ Brazil is the world's largest producer of niobium (accounting for 96% of the world's production and 96.9% of the world's reserves), the world's second largest producer of iron ore (16% of the world's production) and manganese (18% of the world's production) and the world's third largest producer of bauxite (14% of the world's production).¹¹

2.2 Securities regulation in Canada, United States and Brazil

Securities are regulated by the provinces and territories in Canada. Although securities regulation does vary from province to province, provincial regulatory authorities work together through the Canadian Securities Administrators to create a cohesively regulated Canadian securities market and have enacted National Instruments that apply throughout Canada.¹²

In the United States, securities markets are regulated at both the federal and the state level. The two principal U.S. federal statutes, which are administered by the Securities and Exchange Commission ("SEC"), are the U.S. Securities Act of 1933, as amended (the "Securities Act"), which governs the offer and sale of securities, and the U.S. Securities Exchange Act of 1934, as amended (the "Exchange Act"), which, among other things, governs the subsequent trading of those securities in the secondary market, imposes periodic and current reporting requirements on public companies and establishes various requirements for the directors, officers and significant shareholders of those companies.

Publicly held companies in Brazil are listed on the BM&FBovespa, and their operations are regulated by the Securities and Exchange Commission of Brazil (Comissão de Valores Mobiliários - "CVM") and the CVM regulations, pursuant to Federal Law No...