Vancouver-based South American Silver Corp.(TSX:SAC) is rolling out a plan to regroup after its Malku Khota mine in Bolivia was nationalized.
Over the past weeks, president and CEO Gregory Johnson resigned and a new CFO, Matias Herrero, has been appointed. While South American Silver stated that Johnson stepped down to "pursue other interests," analyst Paolo Lostritto with National Bank Financialtold Business in Vancouver that the company's board likely triggered the change.
"There's a mandate for a CEO to navigate a company through the trials and tribulations and, I guess, the board felt it was time for a change."
The company could not be reached for comment by press deadline.
South American also announced that it will expand activities at its Escalones copper-gold project in Chile, while "aggressively pursuing all options to maximize value from the Malku Khota project."
Experts say, in the face of nationalization, companies need to fight to extract value from the project – and reassure investors.
Fred Pletcher, partner and chairman of Borden Ladner Gervais LLP's (BLG) National Mining Group, said prior to asset nationalization, a firm will often face "sabre rattling" from a foreign regime and will need to take pre-emptive action.
"Oftentimes it can come like a bolt from the blue – a black-swan event. It's some press release or some article in the local newspaper that the government is mulling taking your property."
Pletcher said,at that point, previous efforts to gain community support might pay off.
"[The government] may mistakenly assume that the public at large is in favour of taking a project and, when they discover that some constituency isn't, they may rethink that issue."
Pletcher said a company can bolster its negotiating position by rallying local industry support against project nationalization.
"It's important to try and make it an industry card rather than a foreigner card."
Pletcher added that a firm can seek Canadian diplomatic support and trigger international pressure on the regime if the project is financed by multi-lateral lenders.
When a regime moves from sabre rattling to outright nationalization of an asset, BLG partner Cameron Mowatt, said a company will want the protection of a bilateral investment treaty.
"Going in, look around and see what the treaty coverage is, and if Canada doesn't have a treaty, examine the question of whether one can pick one up through investing through the States or the Netherlands or the U.K."
Mowatt added that companies can obtain additional protection with political risk insurance. He said the World Bank's Multilateral Investment Guarantee Agency (MIGA) is particularly effective at resolving disputes because the insurer is directly connected with the country's lender – and therefore well-placed to apply pressure to the regime.
Mowatt said if negotiation fails, the company can file a treaty claim, but added that that should be a last resort. "It usually takes about three years to get through a case, and it's not cheap."
He said companies that pursue a treaty claim should consider claim funding: investment funds that finance a treaty claim in return for a large part of the return.
He noted that both Vancouver-based Rusoro Mining Ltd. (TSX-V:RML) and Toronto-based Crystallex International Corp. are using claim funding to fight for compensation for seized Venezuelan assets.
But Mowatt added: "The problem with these things is collecting. Argentina has dozens of claims against it that have been proven, but they've never paid. I can foresee problems with Venezuela down the road in that regard."
Pletcher added that, as firms struggle for compensation, they should be alert to opportunities from regime changes.
"Politicians, like fish, have a shelf life," he said. "And oftentimes that shelf life is much shorter than the shelf life of a company and a CEO." •
