MAC: Mines and Communities

New mining fund for Canada's First Peoples - a hedge too far?

Published by MAC on 2009-03-16

Announced last week was the establishment of a new hedge fund to assit Canada's First Nations to partiicipate in corporate mining equity and project funding.

On the surface this might appear a positive move - especially when compared with customary dereliction by numerous mining companies of their obligations to Indigenous communities.

However, it raises some awkward questions. Why is this investment vehicle constituted as a hedge fund - implying a lack of transparency, tendency to autocratic control, and propensity to "go short" (bet against a rising share price) characteristic of such funds? Indeed, what participation - if any - will native bands be offered in the fund itself?

How will decisions over investment be made where conflicts between pro- and anti- mining groups exist within a community?

And what confidence can be given to an initiative dependent on money provided by sovereign wealth (state-controlled) funds - especially those managed by the Chinese and South Korean governments, whose recognition of Indigenous Peoples' rights is hardly above suspicion?

Asian investors back native bands

Hedge fund focused on developing aboriginal land popular in China, Korea

by Joe Friesen

The Globe and Mail

9th March 2009

Chinese and Korean investors are pouring $200-million into a hedge fund focused on resource development on aboriginal land, further evidence of Asia's appetite for Canadian raw materials and a growing interest in business partnerships among aboriginal people.

The aboriginal-themed fund is described as an opportunity to cash in on the vast oil and gas, mineral and forestry wealth that lies in territory claimed by Canada's native people. It is the result of a trade mission to China last year led by Vancouver lawyer Calvin Helin, whose goal was to initiate nation-to-nation talks between aboriginal groups and Asian leaders in the hope they would spur investment.

He said the fund allows investors to buy into projects with the assurance that native groups will be partners, rather than opponents.

Recent Supreme Court of Canada rulings have emphasized the Crown's duty to consult and accommodate aboriginal people on development that occurs on their traditional territory, a process that can delay natural-resource projects for years.

But Mr. Helin said that won't be a problem if native bands are given significant roles, with seats on the corporate boards overseeing these projects and jobs for locals accustomed to high unemployment rates.

"It will allow aboriginal people to have equity in their own projects," he said. "In the past it may have been white business owners in Toronto extracting all the wealth, whereas this will give them a lot more control."

Native bands have also complained that their environmental concerns are not typically treated as a priority. Mr. Helin said that won't be the case with these investments.

"It's important to have aboriginal people within the corporate structures of whatever entity is developing the resource assets because they will make sure it's done responsibly," he said. "They have to live in the area long after the project is finished."

The fund will be split in two parts, both of which will be managed by Vancouver's RCI Capital Group.

John Park, chairman of RCI Capital, said the initial investment commitments come from institutions that manage Chinese and Korean sovereign wealth funds.

He will also be taking a road show to Japan, Taiwan and Singapore and expects to do at least $500-million in business, largely because Canada's natural resources are attractive to Asians.

"They all come from emerging markets and can understand emerging market opportunities, such as in aboriginal communities in Canada, better than mainstream investors in Canada," Mr. Park said.

The fund will invest primarily, but not exclusively, in aboriginal projects, he said.

The structure of such deals could take many forms, he said, using the example of an unidentified B.C. band involved in a mining negotiation.

"The band is leveraging their consultation and accommodation rights to negotiate an equity position. The trouble is, the band doesn't have the funds to take that equity position.

"We hope to bridge those gaps by offering funds to those bands as a loan. Obviously, we're looking for a return, but our overall mandate isn't just maximizing investment dollars. It's to bridge corporate Canada and aboriginal Canada," Mr. Park said.

The group expects to raise $2-billion in total from Asian and Canadian investors.

RCI Capital makes its pitch for aboriginal-themed mining funds

Company already raised $180 million in Asia

By Peter Koven, Financial Post

4th March 2009

A Canadian asset manager announced the launch of two aboriginal-themed mining funds Tuesday that hope to raise $1 billion each in an innovative effort to get aboriginal communities invested directly in the mining sector.

Vancouver-based RCI Capital Group Inc. announced the launch of the funds at the Prospectors and Developers Association of Canada (PDAC) conference in Toronto. They are probably the first mining-focused investments that have any kind of ethical mandate. Their goal, besides making money, is to drive economic activity in aboriginal communities, and give them an opportunity to get seriously invested in their own projects.

"Getting aboriginal assets going can create more wealth than almost anything else Canada can do," said Calvin Helin, an aboriginal affairs expert who launched the funds alongside RCI president John Park.

To raise money, the two men travelled to Asia, where they found plenty of willing investors in Chinese and South Korean sovereign-wealth funds.

"The Chinese disclosed to us that they're investing $30 billion US in Africa, which is fraught with political peril, and only $3 billion US in Canada. They'd much rather invest in an environment where the rules are very clear and very stable," Helin said.

RCI, which manages $1.6 billion of immigrant investor capital, has raised an initial $180 million for the funds from the Asian investors. It's now scouting Canada for more investors before the funds launch next month.

One of them is a standard Canadian Resources Opportunities Fund, which will focus on mining companies and development projects in Canada that emphasize aboriginal participation. The other one is principal-protected, and Park is hopeful it will draw in more risk-averse investors.

"We think the valuations to get into these deals will be lower than even basic market valuations. It is a way to pick a bottom," he said.

A big focus at the PDAC conference every year is aboriginal participation. Seminars focus on many issues: hiring, training, land-sharing and conflict resolution, among others.

Part of that process is finding creative new ways to get aboriginal people personally invested in the mining sector. These funds are the latest example.

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