# Should foreigners be allowed to buy our natural resources



## sags (May 15, 2010)

I read an article about the Alberta government mulling over the idea of setting aside 32% of the oil rich lands around Fort McMurray, some of which is already owned by foreign oil companies. The land would have to be confiscated with compensation paid.

There was another story on the possibility that a Chinese national company may put in a bid for the Potash Corp. China harvest only half as much from their land and desperately needs a steady supply of potash to feed their 1.6 billion people.

A recent deal that almost came to fruition with Rio Tinto would have had the Chinese take over ownership of certain iron ore properties in Australia and they wanted a guaranteed of 30% of the production to be shipped to China.

These stories really give me pause. Are we selling away the future of Canada when we let foreign companies purchase our natural resources? It seems these days that everybody wants their piece of Canada. Maybe we should be thinking of our own future.

My brother in law is a farmer in Saskatchewan and commented that some of the area farms are owned by foreign investors who allow the farmer to stay on the land and "rent" it from the investor group.

It concerns me that we are so willing to easily part with our natural bounty.

What do you think? Should Canada be "open for business" or are we giving away our future?


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## humble_pie (Jun 7, 2009)

thank you sag for starting this topic. It's a massive one, capable of generating an entire library of books & studies.

for several years now, i've been deeply involved in a related issue, which is the implantation of canadian extraction industries (mining, oil) that are seeking or already own production facilities in 3rd world countries. One might say it's the mirror opposite of the concern you're raising, but both have to do with foreign capital and/or foreign know-how arriving to extract irreplaceable natural resources, and with the eventual effect upon the host nation.

i think that a bright light should be shone day & night upon this broad story. The struggle for control of the world's resources is on, and it's fierce. Every nation should know, and honour, and cherish its natural resources. Should work towards an idea of how to price these 100 years into the future. In the meantime, who to let in and who to partner with are crucial issues. Often, in both rich nations like canada & in 3rd world impoverished countries, the foreign exploiter arrives loudly & crassly touting its employment potential or its short-term tax benefits for the host nation. In 3rd world nations, its bribes. Overlooked is the fact that, at the end of 20 or 30 years, the millenia-old resources will be gone forever.

moreover, the story is never black-and-white. I was interested to learn recently that the president of potash is an american who lives & works in chicago, which is actually POT's de facto head office, and this gentleman has never lived in saskatchewan. From a business point of view this makes sense. Chicago is ag capital to the world (hog capital, as the poet once put it.) Potash sells minimally to canadian farmers and hugely to asia, south asia & the US. In fact, potash is not really a canadian company any more & has not been for years.

there are good & bad aspects to stories like this. For starters, though, it's important for canadians to intimately know & respect the heritage they own before deciding who they'll share it with.

i'd be interested to hear more about your brother-in-law's neighbours who have sold to foreign ag investors and who are now tenant farmers. What will happen to their children. Will they grow up to the trade, so to speak, or will they move to the city. Our farmers are fast disappearing, although they have been storied leaders in bringing about pioneering social legislation in canada. Can we as a nation afford to lose our independent farming profession. What will happen in the next food-scarce century when the offshore agricultural managers say Hey We Need All Of The Food In Asia/Europe/Wherever, and by then canada will have totally lost her food security and her independence.


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## crazyjackcsa (Aug 8, 2010)

Foreign content and ownership is an incredibly divisive issue, with many shades of grey.

As was pointed out, what is a Canadian company? Is Potash a Canadian company? Does it have to be founded in Canada? Head office in Canada? Majority of shareholders canadian? Who knows anymore.

What's the difference in selling a foreign nation a product, or selling them the raw resource and letting them refine it. Often with canadian workers in the country of Canada?

How do you feel about the reverse? Canadian companies going out and purchasing foreign companies? (I'm thinking mainly of the big banks, Scotia in particular)

For better or for worse it's a global market, and borders are blurry when it comes to commerce.

And then some people see it as a matter of national pride, or heritage, or whatever, but I never really bought into that. It's basically just protectionist justification.


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## andrewf (Mar 1, 2010)

Why not? Charge a high royalty.


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## OhGreatGuru (May 24, 2009)

crazyjackcsa said:


> F..
> As was pointed out, what is a Canadian company? Is Potash a Canadian company? Does it have to be founded in Canada? Head office in Canada? Majority of shareholders canadian? Who knows anymore.
> 
> What's the difference in selling a foreign nation a product, or selling them the raw resource and letting them refine it. Often with canadian workers in the country of Canada?
> ...


Generally speaking mineral resources, including potash and tar sands are owned by the province - they cannot be "bought" by a company, foreign or otherwise. Companies purchase a lease to exploit the resources, either in exchange for lease payments or royalties. It is perhaps a subtle distinction, when a handful of companies have purchased such exploitation rights for an area or product. But it does mean provincial governments can step in and exercise ownership rights if a company is operating in a manner detrimental to overall Canadian interests.

Trying to define those interests, however, can be problematic.

Potash corporation was originally a Crown Corp. When it was privatised, the bill establishing it requires that it HQ be in Saskatchewan. However, there are legal ways around this by maintaining a shell HQ (often in a legal office) while moving the real operational HQ elsewhere. There is plenty of precedent for this. According to Wikipedia, all of the Big Five banks have their operational HQs in Toronto; but 3 of them have their legal HQ in other cities (2 in Montreal, and 1 in Halifax)

I believe Potash Corp. is largely Canadian owned at present, but it is a public corporation whose shares can be bought by anyone.

I am concerned about the long-term effects of foreign ownership - this has been a recurring Canadian issue for decades. When you export ownership, you lose decision making power; you lose some ability to regulate or monitor responsible corporate management; you lose corporate jobs like top management and R&D; profits and dividends flow out of the country; etc. On the other hand I also agree that "national policies" are often a thinly disguised excuse for protectionism. And we Canadians would certainly object to other countries restricting our ability to invest in their industries. The pendulum has swung in favour of free trade and globalisation.

I don't know what the solution is.


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## humble_pie (Jun 7, 2009)

OGG how do the extractors - oil sands, oil shales, potash, copper, gold, iron ore & so on - get to "own" their resources if ultimate ownership remains with each provincial government & all that the extractor has bought is a lease with provision for royalty payments ?

are these typically 99-year leases or emphyteutic leases or what kind of longevity do they provide for the extractor ?

in the case of the alberta oil sands purchases that sags mentions, is it just the leases that are being bought back ? one has to assume the answer is yes.

one of the marked losses when a de facto head office is established in another country, as with potash, is that strategic planning, top-level decision-making & usually the direction of R & D if not the daily carrying-out of R & D will all flee the original head office location and establish themselves at the new de facto head office. In other word, the top brains & the top talent vacate the original emplacment. All this has an energizing effect upon the new location and a debilitating effect upon the old.

re present ownership of potash, here is a link to cnbc data. It shows that large US institutional holders of POT are in the majority, which is what i was expecting, although there are more large canadian institutional holders than i had anticipated. (go Jarislowsky !!) One has to keep in mind that there is no great data base in the sky that can analyze share ownership to perfection, so data in this or in any global ownership roundup is indicative but not necessarily 100% accurate.

http://data.cnbc.com/quotes/POT/tab/8


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## humble_pie (Jun 7, 2009)

here is a detailed list of institutional ownership in potash. Click on Total number of Holders. Non-canadians are predominant.

this data is taken from the US SEC. Surprisingly, it includes shares purchased on the tsx. In other words, SEC records include all north American trading in all interlisted securities (big brother is everywhere.)

http://www.nasdaq.com/asp/holdings.asp?symbol=POT&selected=POT


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## kcowan (Jul 1, 2010)

Here is the corporate makeup of Potash Corp. Not terribly Canadian to me.

What must all these countries think of the foreign ownership?


> *Name of Entity - Formation*
> 101070338 Saskatchewan Ltd. Saskatchewan
> 175360 Canada Inc. Canada
> 628550 Saskatchewan Ltd. Saskatchewan
> ...


Their CEO, William Doyle, lives in Winnetka, Illinois, and there is only one director from Saskatchewan.


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## humble_pie (Jun 7, 2009)

these are the subsidiaries of potash. This is potash' global footprint. It's the routine, standard footprint of a typical multinational.

close to half, as one will note, are in tax haven or tax-favoured jurisdictions. This profile is typical of all multinationals. (Potash lawyers certainly appear to favour incorporating in delaware.)

far more important is share ownership; where this is distributed; and who are the owners.

in canada, securities regulations require insiders to report all transactions and also require arms' length parties owning 10% or more to report all transactions.

in the US, SEC reporting requirements begin at 5%.

in both countries, it is therefore common for interested parties to hold shares through a number of nominees, each of whom holds less than 5% or less than 10%, thus disguising the identity of the interested parties.

glancing through the SEC list of potash institutional owners showed few or no chinese names, one korean name, marked absence of south asian, thai & singapore names. Nevertheless i would tend to believe at least some major investors in asia & south asia do hold interests in potash that are concealed through nominees.


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## OhGreatGuru (May 24, 2009)

I stand corrected on the current ownership of Potash Corp. I was thinking of another corp. (Trans Canada Pipelines), that I was reading about lately.

I think it is a cause for worry when a "controlling interest" in a nominally publicly held corporation is acquired by a single company, instead of it being held by a wide range of institutional & private investors. That is when the mangement of the new owner can make decisions about how and where the company operates in future. From a strategic resource point of view it also gives the new company more control over supply and pricing. 

At some point corporate concentration undermines the free market economy. How much do you think we would be paying for gasoline if Exxon-Mobile, Chevron, BP, and Shell were all owned by one company? We hear enough rumours/stories about price fixing with the current oligarchy.


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## xs114 (Aug 20, 2010)

i believe that it's just so-called "globalization". 

Canada, same as China, with vast land area and various kinds of minerals, of course will become the target countries for resource-hunting companies. the influence of economic globalization, conducted by governments and international firms, will inevitably spread to all fields, and finally to our common life.

i've learnt that there are several groups of people who are not satisfied with this trend, 'cause they believe that this trend harms their surrounding environmental benefits, i.e. farms, woods, mines, waters. but in China, there are little apparent opposition to this trend, ' cause most people thought it's "good" for us to be globalized. only in recent years environment deterioration led by over-exploitation did gradually begin to enter public concerns, which i think is a little bit late. 

so i believe China shares the same problem with Canada. take the recent case of *rare earth resource* for example, China began to control and tighten the export of rare earth minerals. but it cause Japan's objection right away. of course it involves many complicated issues from many aspects. but i don't think the living environment of common people is one of the key concerns of their consideration.

i don't know what can average people do to this and doubt the effect....

P.S.: plz forgive that my english typing may not easy to read, and my opinion may be obscure.


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## humble_pie (Jun 7, 2009)

OGG i would like to go back, if i may, to the question of crown title to underground resources such as oil, gas and minerals. You're certainly right when you say the provinces retain ownership; and the provinces issue leases - for exploration, then for exploitation - to various companies that apply.

what i'd be happy to know is how long are the leases, generally speaking ? my best guess would be that an exploitation lease would have to be at least 20 years, better 30 or 40, or well beyond the expected life of the resource, in order to guarantee stability to the miner or the energy company that is contemplating an investment as huge as the building of a new mine or oil or gas field.

stability is a blockbuster issue in 3rd world countries where revolutions, army coups, changes of government and sometimes nothing at all can cause a government to cancel a permit or even shut down operating mines and energy fields. I'm more familiar with the terms of exploitation leases in some 3rd world countries than i am with the same in canada.

if, as sags posted, alberta is truly considering buying back some leases that it has already granted, the only reason must be that alberta believes it can re-let such leases for far higher royalties at some time in the future. It's a legitimate and low-cost way of keeping a resource asset in ground storage until prices rocket skyward again. What's perhaps not so legitimate is the confiscatory aspect. An oil company already owning such a lease would be outraged to have it taken back at a price the alberta government might deem to be fair today, which could be a relatively low price based on today's anticipated royalties.


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## kcowan (Jul 1, 2010)

humble_pie said:


> (Potash lawyers certainly appear to favour incorporating in delaware.)..


Delaware is the preferred state for corporate registration because it has the least severe requirements for shareholder communications. Nevada has even less requirement.

A company like Potash does not need severe communications requirements imposed on its subsidiaries.

On CBC they said that the ownership of POT was 50% US, with the largest shareholder as an LA-based fund.


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## kcowan (Jul 1, 2010)

OhGreatGuru said:


> I...At some point corporate concentration undermines the free market economy. How much do you think we would be paying for gasoline if Exxon-Mobile, Chevron, BP, and Shell were all owned by one company? We hear enough rumours/stories about price fixing with the current oligarchy.


Yes we seem to be in a one price society for gasoline with a few exceptions.


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## humble_pie (Jun 7, 2009)

with all due respect, incorporation in delaware has nothing to do with shareholder communications.

none of the subsidiaries communicate directly with potash shareholders.

delaware is a tax haven jurisdiction within the US for foreign corporations not operating within the state. So is nevada.


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## kcowan (Jul 1, 2010)

humble_pie said:


> with all due respect, incorporation in delaware has nothing to do with shareholder communications.
> 
> none of the subsidiaries communicate directly with potash shareholders...


The shareholder in these cases is Potash Corp. Granted it is an easy requirement to satisfy. In Nevada, there is no requirement for an annual shareholder meeting.


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## Robillard (Apr 11, 2009)

humble_pie said:


> with all due respect, incorporation in delaware has nothing to do with shareholder communications.
> 
> none of the subsidiaries communicate directly with potash shareholders.
> 
> delaware is a tax haven jurisdiction within the US for foreign corporations not operating within the state. So is nevada.


As I understand it, Delaware is the preferred location for corporate registration in the US because of its corpus of corporate law and legal institutions. Typically corporate legal disputes are settled by the Delaware Court of Chancery, which is a court of equity, not common law. Cases are heard by judges, not juries. The internal affairs doctrine of the United States ensures that corporate internal affairs are subject to the laws where they are incorporated, not where they are headquartered. Delaware corporate law does not require a minimum number of directors and officers. Also, under Delaware's corporate law, all such offices can be held by a single person, who can be non-resident and anonymous. 

Delaware also does not charge any state income tax on corporations that are registered there but do not have operations in the state.


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## humble_pie (Jun 7, 2009)

_" ... Delaware also does not charge any state income tax on corporations that are registered there but do not have operations in the state."_

there you go.

other perks like no agm, simplified forms of legal dispute resolution etc. are typical tax haven perks. All tax havens offer such perks to the multinationals that seek to incorporate within their jurisdictions. Even delaware's provision that all directors & officers can be one non-resident anonymous person is part of the standard tax haven recipe mix. But the core & essence of the delaware attraction, just like the barbados & the cayman attraction, is low or no corporate income tax.

btw the main topic of this thread - should canada sell its resources to foreigners - and its obverse, which is should canada try to acquire resources dirt-cheap from increasingly-resentful 3rd world countries - is so much more interesting than this little tiff about potash subsidiaries in delaware. It's a good topic, why not stick to it ...


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## sags (May 15, 2010)

[btw the main topic of this thread - should canada sell its resources to foreigners - and its obverse, which is should canada try to acquire resources dirt-cheap from increasingly-resentful 3rd world countries - is so much more interesting than this little tiff about potash subsidiaries in delaware. It's a good topic, why not stick to it ...[/QUOTE]

It is interesting to note that many other countries are not selling off their resources as readily as Canada seems to be. I haven't heard of any company going into China and buying any of their natural resources.

Most of the oil reserves left in the world are held by countries that have nationalized their oil companies. Russia, Iran, Venezuela, the OPEC nations, and others aren't selling.

It makes me wonder if we aren't the last chicken left in the coop with a dozen hungry foxes checking out the food supply.


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## humble_pie (Jun 7, 2009)

generally speaking free trade policies work better than protectionism. However, all is a matter of compromise, adjustment, constant tweaking here & there imo.

what i find after years of observation is that the majority of companies behave worse once they are outside their national boundaries. Environmentally, politically, socially, morally, labour-standards-wise, everything tends to slide down a notch or two. Not only do we see companies like BP drilling dangerously & sloppily in the gulf, but canadian companies, too, often compromise home-grown canadian standards once they're operating in central asia or africa.

home laws don't apply to multinationals outside the homeland. The laws of a host country apply instead. Many small 3rd world countries hosting valuable resources are still not able to defend their interests properly. The famous clinton-giustra-nursultan deal that snagged what would later become uranium one was widely reported, even in illustrious newspapers like the new york times, but still the celebrity principals got away with the near-scandal lock, stock & barrel. One can safely doubt that the deal ever did one particle of good for the average citizen in kazakhstan.

in canada, we'll never spot clinton flying in to pick up a gold mine or an oil field over dinner with a provincial premier, but we do have an interesting situation because so many in-ground assets are located in the north & the far north. Raw materials prices are just beginning to reach levels where extracting these assets is becoming more viable. In the north, first nations have enormous power to control who goes on the land to do what. So there are complicated relationships between foreign resource buyers, federal government, provincial governments & surprising number of first nations. A people whose downstream water supply could be affected - harming fishing rights, for example - can object to a contemplated mining project hundreds or even a thousand miles upriver.

in recent years asians have shown great skill & diplomacy at quietly forging critical relationships with first nations in canada's north. Mostly chinese companies, but i can think of at least one japanese-owned uranium miner.

personally i think canadians should keep a watchful eye on everything. These are the resources we are supposed to steward for our children & grandchildren.


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