OceanaGold PH addresses legal concern ahead of IPO offer period
OceanaGold PH [OGP 13.33 pre-IPO] [link] was forced to make an unusual clarification last week after news dropped that the Legal Rights and Natural Resources Center (LRC) filed a petition to cancel OGP’s Financial or Technical Assistance Agreement (FTAA), under the theory that the renewal of OGP’s FTAA unfairly excluded local stakeholders and communities from the consultation process. OGP clarified that it hasn’t received a copy of the petition, but said that it believes “the claims in the petition do not appear to have merit” based on the “information provided in the news article.” OGP underlined that its prospectus already disclosed the risk that the “validity of FTAA would be challenged” in the Risk Factors section, and even included information about a separate ongoing case challenging the constitutionality of the Philippine Mining Act. OGP said that it would add a specific mention of this new case to the Risk Factors section.MB BOTTOM-LINE: In mining the FTAA acts like a congressional franchise. It’s like OGP’s permit to operate and conditions of operation all wrapped up in one agreement. So, while attacking the validity of the FTAA could pose an existential threat to OGP’s business model and should certainly be listed in the Risk Factors section of OGP’s prospectus, the key here is the weight given to that risk’s likelihood of coming “true”. We don’t have a lot to go on, and even OGP hasn’t had a chance to become fully acquainted with the ins and outs of the challenge that it’s facing, but these sorts of challenges are a common pushback against companies that disrupt the environment to extract natural resources like mining and renewable energy. I don’t know that we can use the commonality of these kinds of challenges as a proxy for the strength of this particular challenge’s claim. The interests of capital (and the government in receiving taxes) don’t always prevail. I mean, they usually do. But not always.
