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Molten copper is poured at Xstrata's Kidd Creek facility in Timmins, Ont.
Molten copper is poured at Xstrata's Kidd Creek facility in Timmins, Ont.

Takeovers

Broken promises mark foreign mining deals Add to ...

Cuts at the former operations and headquarters of Alcan came even faster following Rio Tinto's blockbuster $38-billion (U.S.) takeover in the summer of 2007. By December of 2008, the new Rio Tinto Alcan halted more than $7-billion of spending to build and upgrade smelters in Quebec and British Columbia in response to the global financial crisis. The spending commitments had been part of Rio Tinto's undertakings to Industry Canada to win approval for the takeover.

By January, 2009, Rio Tinto Alcan was cutting jobs including 300 in Quebec and closing smelters in the province. By April of that year, 18 per cent of the head office jobs at the company's "Maison Alcan" headquarters in Quebec were chopped. Rio Tinto also decided to halt a $50-million expansion of the headquarters that would have seen the renovation of a historic former church next door to the Alcan offices. Today, the church, one of the last architectural jewels from Montreal's storied "Golden Square Mile" along Sherbrooke Street, remains largely unchanged from when Alcan bought the property in 2007.

Rio Tinto Alcan's Montreal office now has 700 employees, according to a recent speech given by the division's CEO Jacynthe Côté. In 2007, before the Rio Tinto takeover, it had 854 employees, according to regulatory filings.

"The decision to reduce our work force was difficult but necessary. It complies with both the terms of the continuity agreement signed with the Government of Quebec and commitments made to the Government of Canada when Alcan was acquired by Rio Tinto," Bryan Tucker, a company spokesman, said in a statement.

John Manley, who served as industry minister from 1993 until late 2000 and oversaw a number of foreign takeovers of Canadian companies, says commitments made under the Investment Canada Act are problematic because a shift in economic fortunes can make them untenable.

"It is always in the minister's mind that an undertaking is only effective as the business conditions allow it to be. When you have a major downturn in the economy and the business prospects of the Canadian branch are in decline, the ability to fulfill some undertakings is going to be compromised from the outset," Mr. Manley said.

Only once in the 25-year history of the Investment Canada Act has the federal government tried to use the act's legal powers to force a company to live up to its commitments. Ottawa sued U.S. Steel for shutting down Stelco's operations and cutting jobs and reneging on spending commitments. But the case is still inching its way through the courts and it is unclear if the government will be able to force the American company to change course.

Both Mr. D'Allesandro and Mr. Manley believe that BHP's attempted acquisition of a Canadian global champion such as Potash Corp. may finally invoke a different response from the federal government rather than its usual takeover rubber stamping and willingness to allow vague and difficult to enforce commitments.

"If I were in BHP Billiton's position, I would not presume that this is a done deal. I would presume that there is a lot of work to be done to convince everybody. Any day is a potential election day and in that environment this could be easily politicized," Mr. Manley said.

When reviewing BHP's application, Ottawa might also want to consider comments made in 2008 by BHP's chairman at the time, Don Argus. Calling on his fellow Australians to continue investing in domestic mining assets, he cautioned that Australia's resource sector was at risk of becoming globally irrelevant - just like the mining sector of another former British colony.

"If we fail to remain competitive," the BHP chairman warned, "Australia will incur a substantial opportunity cost and in the worst-case scenario, our resources will fall into overseas hands and we will also become a branch office - just like Canada."

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