Focusing on ESG in M&A

This is a conversation with Casey Nalt, Senior Vice President, General Counsel and Chief ESG Officer at Core Mining. He has nearly 25 years of experience as a corporate and securities lawyer at large public companies and law firms. In this interview we discuss ESG and M and A. We discussed the importance of ESG in the mining industry. What does ESG diligence look like in M and A Common Red Flags from ESG Perspective Advice for practitioners Hope you enjoy this conversation. This podcast is sponsored by our product lines, Firm Room and Deal Room. Take a minute to learn about them.

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Products and services we developed to support world class M and A teams or want to get involved with our community of forward thinking M and a practitioners, visit mascience.com you can start by subscribing to our free weekly newsletter for the latest insights and events. Again, that's mascience.com I'm your host Kisam Patel, CEO and founder of M&A Science. Joining me today is Casey Nalt, Senior Vice President, General Counsel and Chief ESG.

Officer at Core Mining.

Core Mining is a US based, well.

Diversified growing precious metals producer with a.

Focus on gold and silver.

Core Mining is an environmental steward and a recognized ESG leader with a target of reducing its GHG emissions by 35%.

In net intensity by the end of 2024.

Traded on NYSE under CDE they were in Talk about mining, M and A.

And how ESG comes into play on those type of deals. AC how are you doing today?

Pretty good, thanks. Thanks for having me.

Hey, thanks for taking the time to hang out. You're the first person actually come hang out in our studio in Chicago because I built this thing during COVID and it was always remote interviews. Thanks for getting some use out of this in person over here.

Yeah, sure. Glad to be here. We're just down the street so it's easy to come by and you have a nice space here and it's better to do it in person.

Can we kick things off with a little bit about your background?

I started at big law firms. I was at big law firms for about six years in Los Angeles. I was lucky enough to work at a firm primarily that had a broad corporate department. I didn't have to specialize into a silo early on, which meant that I got to do a lot of everything. Public M and A, private M and A corporate finance, from mature companies to startups and venture capital. So a broad range. And during that time I found that the small private M and A deals were the most interesting and the best ones to learn on and I got to do a lot of those as a junior associate. Then I moved in house. My first in house job was with Starbucks in Seattle and that was a great position. Starbucks was in a rapid growth mode at the time. Part of that was M and A. And so we had some regional acquisitions of coffee chains and also some new product and brands that we added like Ethos Water while I was there. Moved on from there to Washington Mutual, which you might recall was one of the largest financial institutions to go under in the financial crisis. So that was interesting to watch that happen. And then bounced back to a law firm after that where did a lot of general corporate again a lot of bank focused M and A. Ended up getting this position at Core Mining where I've been for over 11 years. And we're a very busy M and A shop. Probably like a lot of companies, the deals that actually make it all the way and get announced are just a small portion of the deals that we work on and look at. So there's always something going on and it keeps it interesting.

So how many deals does it end up being typically per year or what's the range?

We've had some years where we've had a couple of pretty significant deals and then other years where maybe we won't have any. The ecosystem for mining M and A broadly speaking, there's maybe three different categories of targets. One would be a very early stage. Basically it's a mineral resource deal where you've had a company, a small public company. A lot of these are listed in Canada. There's a great Canadian market for mining companies, in particular junior companies. And you'll have a team that's principally geologists and investor relations and a CEO and a cfo. And they raise money and they spend it all on the ground proving up a big resource. And their whole model is to grow it to the point that a producer like us will come along and buy it. So that's one category we've done some of those you could buy an asset from another mining company where a company has four or five different mines and they decide that one of them doesn't fit their strategic plans anymore and they put it up for sale. And we've had some of those both on the buy and the sell side. And then you could have a traditional sort of corporate deal where maybe there's a merger partner or an acquisition target that has a number of operations and some exploration properties. It's a busy M and a shop and team. It makes it a lot of fun.

Now you've worked across a lot of different industries. I've never touched a mining deal or even came close to it. What is it like working on those deals? What are the maybe things that make.

Them unique on the business side? One of the main Risks and opportunities is that in a commodity industry you're always pricing your assets based on what you expect the commodity price will be. And that tends to be driven by what the price is today. If we were looking at, let's say a producing gold mine right now that was, let's say there's a process being run to sell somebody else's mine, we would value that asset based on the number of years of mine life that it has left based on reserves and how quickly they mine those reserves. For example, if a mine has a million ounces of gold in reserve in the ground and it produces a hundred thousand ounces a year, it's a ten year mine life. So you apply the cost structure and you apply a gold price assumption and come up with a valuation. The gold price has fluctuated in the last seven, eight years. The gold price has gone from under $1,200 an ounce to over $2,000 an ounce. You price the asset based on analyst consensus for where they expect prices to be in the future. But those analysts expectations are almost always wrong because it's such a volatile market. Valuation, risk and opportunity is a key factor in mining M and A. These are highly capital intensive operations with typically long lives. And so if you buy a gold mine with an expectation that gold's going to trade at $2,000 over the life of the mine and then there's a price crash and gold trades at 1300, you're looking at a huge impairment and a terrible deal. On the other hand, if you're lucky enough to acquire an asset at the bottom end of the price cycle, it can be a huge winner regardless of factors like how well you operate or how well you control costs.

Wow, that's interesting in terms of your market considerations and how that feeds into how you evaluate those deals. What about the structure of those deals itself that you find anything unique?

A lot of times it's a cross border deal. It's in fact it's a rare deal in our industry that is not cross border. And the reason for that, public mining companies typically are based in either Canada or Australia or South Africa. For some reason, that's just where mining capital has concentrated over the years. Canada being clearly a leader in the Western hemisphere. Almost every public mining company is Canadian. So straight out of the gate, regardless where the assets are, you're probably dealing with a Canadian company. We're one of the only US listed precious metals mining companies. There's only a handful. The assets could be located anywhere. Our footprint is North America. So we have assets in Mexico, us, Canada. In the past we've had assets in Bolivia, Argentina, Chile, Australia. And it's quite typical for mining companies to have assets in jurisdictions that are all over the world. And that jurisdictions where as a traditional M and a professional, you may not have ever done a deal involving an asset, it's not unusual to have at least three different jurisdictions involved in every transaction. Again because you have parent company probably based in Canada, the asset based wherever it is, and we're a US Company, those kinds of cross border deal mechanics pretty much always apply in our situation.

Really unique, you got a lot of unique factors about just the nature of these transactions, how you value them, and then the jurisdiction, I'm sure add some fun complexities to it.

Yeah.

And depending on the jurisdictions where the assets are located, there can be elevated risk and due diligence around things like FCPA compliance. There's a saying in mining that you can't control where the minerals are. A lot of the richest mining projects in the world are in some pretty difficult countries to do business in. Corruption's very high. The risk of nationalism of resources is very high. And if you're looking at acquiring, there might be a gold asset in a country that has fantastic grade, which means that your unit costs are going to be really low and maybe it has a long mine life and you can develop quite an attractive cash flow model for this asset. But if it's in a country that has recently had a military coup, the new military government steps in like just happened in Mali in West Africa and says up until now the government has taken a 20% share of mining project profits and as of now it's going to be 35%. And in those situations it can be very difficult to negotiate your way back to what the original deal was. You have to take into account political risk both on the business side and also on the legal compliance side.

What's FCP stand for?

FCPA Foreign Corrupt Practices Act. Basically bribery. In a lot of countries, governments and government officials expect to get paid along the way as they process your permit application or renew your operating license or any number of government touch points. And for a company like us that's based in the US that has the highest compliance and ethics standards. We can't operate that way, we won't operate that way. It's important to due diligence on assets in those countries to determine, number one, have the prior owners engaged in that kind of behavior. You don't know if you're buying from a private ownership group or if you're buying from an ownership group that's based in a country where they're not as strict about ethics or where they don't have anti corruption laws. The prior owner may have just paid those bribes when they were asked. And as a US Company, if you step into that, you could potentially incur that liability. You certainly will incur the liability if you don't conduct an investigation and immediately report anything that you find. It's not a unique risk to mining, but it's an elevated risk for mining. Because these projects are so capital intensive that you could have a half a billion dollars sunk into a project. If you run into any sort of political or regulatory trouble and everything stops, then could be game over.

I can see the sense of doing your own diligence for the sake of doing diligence on the deal, but then to stay in compliance with fcpa. Is there certain protocols around that? Do they have certain information you need to provide or is more. These are sort of expectations in how you're transacting and then as long as you follow it, you don't have any issues.

Yeah, it's. There are requirements. M and A is really just an application of fcpa. It's not really an M and A law. It's anytime you're operating anywhere outside the United States, it's a criminal offense not only for the company, but for its executives. If there's any bribe to any government official. And bribe is defined broadly anything of value. So it doesn't have to be money. There are cases of companies arranging for internships for the sons and daughters of government officials who need to award a contract. So it doesn't have to be money, it's really anything of value. The company's obligation is to have a proactive training and compliance program where you're training your people on what's permitted and what's not and where you have an audit program where you actually go and look for potential issues on a periodic basis. The only way for a company to avoid direct liability if an event happens is to convince the US Government that the company has taken all reasonable measures to prevent this kind of activity from happening. So it's a little like insider trading laws in that way where both the individual and the company can be held criminally liable. And the only way for the company to absolve themselves of liability is to show that they really did everything they could to prevent it.

Is getting people drunk considered bribery?

That sounds like a law school exam question. I suppose you could come up with a very extreme example where maybe it would be There is an exception for ordinary commercial hospitality. If it's normal when you're meeting with government officials, you buy dinner afterwards, that's not necessarily going to be an FCPA violation. But again, I think you could probably come up with an extreme example where that could be an issue.

Yeah, that's just curious. You know, the way we get deals done is, tends to be, hey, let's meet up for a drink and hammer this out. But then if you gotta get these other stakeholders, the rules change here. Let's talk about the importance of ESG and get that sense of it and then maybe break it down into what's like real versus what's inflated when people talk about ESG today, in many ways.

ESG has always been important. It's a relatively new acronym. It's a relatively new label for a kind of broad range of issues and priorities that companies have paid attention to for a long time. Of course, in the current moment, there's a lot of political and even media noise about esg. My opinion, my view is that most of that noise is because some people when they hear the acronym esg, something comes to their mind that in their view is an extreme issue that is unrelated to anything that a for profit corporation should be concerned about. The people who are making the most noise and saying that companies shouldn't consider esg, it's probably misguided because if you unpack it, and I'll just use our industry as an example, if you unpack it, there are a whole host of issues under the acronym that represent real risk and real impact on long term value. So just taking the E, for example, environmental. A lot of people when they hear esg, the first thing they think about is climate change and decarbonization. And to them that's esg. It's reducing greenhouse gases. That's a key issue now for all companies in large part because it's a key issue for stakeholders. You can say that's not something that a company should be concerned about. But I come back to the people who own our company say it's a priority. If you imagine that instead of being publicly held, that there was a single person who owned your company and they came to visit you and said, okay, as you're preparing next year's operating plan, I want you to focus on this issue because this is one of the most important issues to me and I want to make sure that you're doing what you can to address it. You can have your own opinion about whether that should be an issue that you should be concerned about. But if the owner of your company comes to you and says this is what I want you to focus on, I think you better listen. And I think it should be a priority. That's a little digression on greenhouse gas emissions. But other more traditional and longer standing environmental issues for mining companies are things like tailings dam integrity. A lot of mines store tailings, which is basically like crushed rock that has gone through the processing to extract the minerals and now it's just leftover rock, basically. And a lot of companies have tailings storage facilities that are big lakes behind dams. And there have been some catastrophic tailings dam failures where the integrity of the dam has been broken, the water and material that's been behind the dam has been released. Sometimes it has flowed into downstream communities and had huge negative impacts on local communities. Tailings dam integrity and proper management of tailings is a significant issue in the mining industry and it has been for decades. And that also falls under esg. That's just one example of how it's a significant risk. It is directly tied to valuation because companies that have a major tailing stand failure see their valuations kneecapped overnight because typically the mine has to shut down. There's enormous liability. There could be criminal liability depending on the host jurisdiction. It's a real game changer and could be game over. Other ESG issues that are tied to risk and valuation are workforce. There's a talent shortage in the mining industry, just like in a lot of industries now are. Strategic advantage, we think, is being an employer of choice. And part of that means casting your gaze as widely as you can to find talented people wherever they may be, whatever their backgrounds may be. We're looking to bring in people wherever we can find them. Our diversity, equity and inclusion initiatives are not because it's part of someone else's woke agenda. It's because we're trying to find good people wherever they may be and whoever they may be. Just a couple of examples as to how ESG is important and why it's related to risk and valuation.

Why are they bundled together? Because they're pretty different things. The environment and the social.

It's a great question and I think what you may be seeing, we may be on the verge of disaggregating them because the acronym has become a lightning rod in the us. I don't think it's the same the rest of the world, but the US is big enough to influence. Even earlier this year, there was some attention paid to the annual letter from BlackRock on they call it stewardship. But I think somebody pointed out that the acronym ESG doesn't appear anywhere in the letter this year because BlackRock has become a lightning rod for the kind of anti ESG investing crowd. Because Blackrock has been a leader for the last five, 10 years in driving companies to have better. Whether you call it sustainability or responsibility or stewardship or these factors that can drive or impact negatively impact long term value, we may be on the verge of calling it something different or stop bundling it all together and just take each of these categories as they stand individually. For the longest time companies have been rated on their governance. Do you have good governance or not? And that's been viewed as a valid and important investment criterion. And suddenly if you bundle it under the ESG acronym then you draw negative attention and you have people holding press conferences and trying to introduce legislation saying you shouldn't be allowed to consider that it's form over substance. But maybe we'll just stop calling it esg.

That would make more sense to me. When we look at sustainability and you look at the marketplace, what does that sort of variance look like from one extreme to the other and also trying to get it how important it is to be sustainable today there are a.

Range of ways to evaluate. There are some leading third party rankers and raters who will give you a rating as a public company. In large part it's based on your own disclosures. In some part it's based on the raters assessment of your risk exposure. For example, the mining industry is viewed as inherently high risk. No matter how well we do at managing those risks, we are not going to have as high of an ESG rating as some other companies who maybe just aren't exposed inherently to the same level of risk like a tech company or a financial services company. The other way that you can plot companies along a spectrum as far as how good they are or not on ESG is just what's their performance on the issues that have been identified by the leading stakeholders as most important. So mentioned a few minutes ago, greenhouse gas reduction, carbon footprint. This is a key issue for investors around the world. Despite again the political and media noise these days There are over 5,000 signatories to the principals for responsible investing. There's a group called the Net Zero Asset Managers Coalition that has over 300 signatories and they manage over $59 trillion in assets. And as the name implies, they have committed to have a net zero portfolio. Despite the noise, we're still hearing from our own investors. And in the macro investment landscape, that these issues are still important. The issues that those investors lay out as important, whether it's greenhouse gas reductions, DE&I in the workforce, good governance, community relations, indigenous relations, all these issues that have been identified as the most important ones that we should be focused on in our sector. It's fairly easy to judge just based on company's own disclosures and track records. How are you doing on those?

I want to get into that part of just how do you put these considerations around diligence? But before that, I'm still trying to wrap my head. I'm thinking of the balance scale and you have your sustainability and what you can actually achieve and then you have profitability. On the other hand. Yeah, I just feel like one's going to counter the other. Like Dan, how do you think through that?

I think there are some situations where it's a trade off and there are many situations where it's directly aligned. One of the leading risk surveys in mining is done by EY. Every year everyone looks at it EY Top 10 Risks in Mining. They've been doing it for a long time. It's a comprehensive survey. They get input from mining company executives around the world. The most recent version, ESG risks, are three of the top four in the mining industry. Number one is just called esg. Number three is climate change. Number four is a phrase called social license to operate, which is common in the mining industry. So if you don't do those things well, then your profitability, your valuation is going to be negatively impacted and sometimes brought to zero. Just a few examples. There's a project that straddles the border between Chile and Argentina. It's a massive gold, copper, silver, polymetallic deposit way up high in the Andes. One of the largest gold companies in the world has invested $5 billion in this project to date. And it came to a halt several years ago because its environmental permit was challenged by an environmental group and the environmental permit was revoked and the project has been stuck ever since. That relates to the ESG component of community relations of to some degree, indigenous relations, making sure that your host communities support the project, that they see long term benefits from the project. And then this gets to your question about diligence. This is a key area of diligence when you're doing a deal is to look at that. But that's an example where without good ESG your business can be dead in the water. If a major, a $5 billion project can just be stopped.

Yeah. So it's funny, the factor around the valuation that you aren't doing these things, it'll impact your valuation and then you got a bigger risk of it potentially putting your deal at risk or effort. And then I guess the other part I was thinking when you mentioned that is being a public company, you're probably falling under more likeliness of just scrutiny in general, if you get those kind of things associated back to you when you're publicly going about your ESG initiatives.

Exactly. And like most public companies, probably half of our shares are owned by about five large institutions. And they have their own sets of ESG priorities. They hold us accountable for those. They want to see progress. Every year it gets to the point of being investable. You could take the company private and decide on your own what you think is important. But as long as you're publicly held, you have to respond to the priorities of your largest investors.

Can you walk me through? When you look at a deal, how do you look at esg? Maybe we break it down a little bit, but how do you start looking at that and putting consideration around it?

Sure.

From the beginning, when you start looking.

At companies, when we first start looking at a potential deal, before we really use a lot of internal resources and deploy all the subject matter experts within the company, there's sort of a desktop analysis as it relates to esg. That desktop analysis will involve things like reading the responsibility report or the sustainability report or the ESG report, whatever companies call it. Most companies now publish an annual report where they say how they're doing on all these issues. Those reports are at this time unregulated. They're subject to the general securities laws. You have to be truthful and you can't be misleading. But there's no standard, legally required set of disclosures that have to be made. So you have to fit for purpose, take what's published and apply your own kind of lens to it. There are some international frameworks that companies like us report to that are helpful in that regard. But in general, it's a voluntary disclosure document, so you have to again, tailor it to your own areas of focus. So that first step is desktop use, publicly available information. A lot of times, if there's a red flag in esg, there will be some media about it. So we'll read media reports or analyst reports about the company or the asset involved. I mentioned community relations issues a couple times. That's a big one. You check and see, does this company appear to be welcome in the communities where they operate? Are there controversies? Are there people who have showed up to protest against the Construction of the mine or the continued operation of it, or challenging whether the company's operating responsibly, those kinds of things. If we get to a deeper stage where we've signed an LOI and it looks serious, then we get subject matter experts involved internally in all these different areas that fit under that ESG umbrella. So we have an environmental team, of course, that oversees our own assets and making sure that we operate them in an environmentally responsible way and satisfy all legal requirements and permit requirements. So that team will look at the assets that we're looking to acquire. In many cases, do a site visit to actually inspect things. Like I mentioned, tailings, dams and water treatment is a big deal because mines use water just like any industrial facility. And when you're done with the water, it has to be discharged in a clean state. And so water treatment's a big deal. Same kind of on the ground and media diligence will occur for workforce issues. Make sure they don't have any allegations of unfair treatment or human rights issues. For example, again, in some of these countries where rich mineral endowments are found, there can also be a history of child labor or just various forms of poor labor practices. You need to be sure that the asset or the company that you're about to step in the shoes of doesn't have a bad history. HR is a key ESG diligence component to check whether there have been any culture surveys done. What's the feedback from those culture surveys? Any red flags in terms of employment liability that you might be stepping into? This gets back to ESG being the lightning rod of an acronym, because going back decades, any M and A professional would say, yes, you should do employment diligence to make sure that there's no issues there. That's something that fits under the ESG umbrella now. And you could consider it part of ESG diligence, when in fact it's just traditional corporate deal diligence.

All these things you mentioned sound expensive.

It's probably similar to industrial M and A in general in the sense that if a big portion of the asset value is a physical asset somewhere, chances are you're going to send people there at some point to inspect it firsthand. It's not just going to be desktop. Some of the experts that we pull in sometimes we'll pull in a third party environmental firm to do a review, take soil samples, et cetera, water samples. That can add up. But you'd be foolish not to for certainly any deal to acquire operating sites.

You've been at this company for about 10 years now.

Yeah.

How have you seen that approach to.

ESG diligence evolve over the 10 years?

A lot of the traditional areas of risk that I described, they always would have been covered in diligence. But now this sort of external facing ESG profile of a company is a key factor. When we look at potential M and A targets, we have to take into account some of these very topical and recently emerged issues. For example, talking about greenhouse gas emissions, if there are two projects roughly equal, one of them runs on clean hydropower and one of them runs on diesel generators, the carbon footprint of those two assets are going to be very different. And we have our own public goals. Everyone is under pressure and an expectation to continue to decarbonize their footprint. And it's not that. Again, greenhouse gas emissions is everything in esg. But that's a key issue these days and it's something that we take note of as part of the initial screening of an asset. Not that it's the most important factor. It's not what necessarily drives whether we do a deal or not. But at the same time that we're looking at some of the more traditional financial metrics now, right alongside that, we're also looking at what is the ESG impact going to be of this asset or these assets on our portfolio. Is it going to make us better or is it going to set us back?

Yeah, that sounds like a pretty big variable. It's not. Just check the boxes and hey, this is good enough. There's bigger things of the overall strategy and some of these long term considerations. If you're doing this form of diligence on a deal, what are these things that you're asking for right off the bat? Because it sounds like a lot of these organizations are already creating public facing reports. Are you specifically asking for that? Is there any of a third party vendor score? What are you asking for right off the bat?

We'd be asking in many cases for the data behind the reports. Like a lot of companies, we publish data on emissions, on water usage, on all kinds of issues. And so we would look for the data behind what they publicly report. In all cases we would conduct management interviews and probe on how they're achieving their goals. What incidents have they had, if any, in the past that may not have made it into public disclosures? What sort of pushback, if any, have they gotten from local communities? Again, some of this is you can and you should look at media reports, social media, things like that. But we would also ask management directly and quite often subject to Negotiation, of course, but try to get some rep and warranty coverage for these issues.

What are the red flags that you're looking for? What's going to make you stop and.

About Phase A big one is community support. And in situations where it's relevant, Indigenous community support. That can be a big showstopper for any mining project. Again, it could have a great mineral resource, high grade by whatever price assumption you have, and come up with a really robust cash flow and nav model for the asset. But if there's trouble with the community, which in many cases can attract attention from outside NGOs, which can in some cases become very high profile and very well funded opposition campaigns, that's an ESG risk that could be a showstopper for a deal. There's an example, a project called pebble in Alaska. It's one of the largest proven gold deposits in the world. Undeveloped, but it's in a very sensitive area. It's in the Bristol Bay watershed in Alaska. The current owner of the project has invested an enormous amount of money over the years. They've had JV partners before that have backed out. It's been tied up in controversy for years and probably will remain. So before you invest in or buy an asset like that, you better be comfortable that if there has been community opposition, that it's been addressed. If there have been Indigenous communities locally, we have an asset in remote British Columbia up near the Yukon border, where there are two first nations with territorial claims in the area. And we made sure that in doing diligence on that asset, that the formal agreement that was signed with the First Nation was being honored and that they were happy with the project and that there's a good relationship there because it doesn't matter how rich the deposit is in many parts of the world, if there's community opposition, and especially Indigenous opposition, the project isn't going to go anywhere.

What are other ESG issues you encounter that make you want to stop doing the deal?

Certainly anything on the compliance front. We talked before about fcpa. If there's any whiff of past impropriety in terms of getting the permits that were needed to build or operate the mine, that could be a showstopper. You just don't want to step into that situation because again, your legal obligation under the US FCPA is to conduct an internal investigation as soon as you close on the deal to affirmatively determine that there's been no issues. And if you uncover something as the successor, it's your problem to deal with. If there was a significant compliance issue, whether it's bribery or some other compliance issue, I think we'd stay away from it. Similarly, and this sort of relates to the Me Too movement. If there was a significant pattern or indication of impropriety in the workplace, discrimination, harassment, that would be a huge red flag and potentially a showstopper.

Those are great examples. Is there someone specifically in charge of sustainability?

It varies across companies. I think it depends a little bit on industry, a little bit on org structure. There's no sort of clear and obvious answer. The surveys I've shown say that maybe in a plurality of cases it reports up through legal, which is I wear both hats. I think it can also report up through hr, depending on the size of the organization. If it's a really huge company, it may report up through communications, but it's pretty typical for it to report up through legal.

So you're in charge of it for your company. How does that hat come in play when it comes to M and A? You get the whole diligence checklist around sustainability and have to manage that. How does that end up unfolding?

It's a bit of a shared responsibility because again, in mining, a lot of what is now put under the acronym and the umbrella of ESG has been happening for a long time. Before the era of esg, you would have had environmental experts doing diligence to make sure that the target was conducting itself responsibly and not polluting the water and not polluting the air. And in many respects, those traditional subject matter experts continue to be the ones responsible in diligence. I certainly don't have the expertise to assess whether a water treatment plant is operating the way it should be or if a tailing stem is structurally sound. But you're right in the sense that I do have responsibility more for the overarching ESG profile of the company. And what does that mean when you roll up all those different aspects of ESG into an overall profile and rating? And how are we viewed would be my team that looks at the public disclosures of the target, that makes an assessment of are they where they should be or where we want to be. As far as some of these key issues like decarbonization, Biodiversity is another big one. Protecting the biodiversity of the area where you're operating. It's a shared responsibility and we have a lot of experts that contribute to the overall effort. But the overlay is certainly something new in the last few years. And that falls in large part on.

My team adding cross border to all this, because you have this and I was thinking why you described it is there's got to be such a big variance of expectation around sustainability efforts in general. Then you mix in these cross border deals. How does that come in play in balancing the complexity? Assuming there's a level of expectation for what you're going to encounter to begin with, obviously you're wearing the big ESG hat. I'm just curious learning from that experience of managing and what type of complexities do you specifically counter on those cross border deals?

Cross border deals have some complexity that is going to apply in any sector, any subject matter we mentioned employment considerations. Local laws can be different in many respects, including in esg. For example. A lot of companies in Canada have subscribed to this framework called Towards Sustainable Mining and it requires asset level disclosures about a whole host of issues. And if you acquire an asset that has already committed to a report under tsm, then in some ways you're bootstrapping your whole company into reporting under that framework. Because it would be odd as a company with a portfolio to have only one of your assets reporting under a portfolio. Cross border can in some ways change your external profile in that sense from a diligence focus. Again, you would look at the history with the local communities. What does that look like for you going forward? Post closing, do you have or can you retain from the target or can you bring into your team the appropriate local expertise to make sure that you understand the nuances and that you're attuned to the potential risks that may not be obvious from operating in the US or in a jurisdiction like Canada? That's a lot like the US I.

Was just thinking like how do you mitigate risk? Or there's things that you specifically end up negotiating in a PA agreement when working on these kind of international deals as opposed to domestic. Let's get legal.

Come on.

Yeah. It can be complex again because a lot of times there's multiple jurisdictions, there's where the asset is and where the parent company is. And of course, like any good M and A professional, everybody points to precedent. If you're doing a top level corporate deal, you're generally still going to just be relying on the public disclosures and the reps and warranties of the parent company. A little more flexibility. If it's a private deal, of course you can allocate risk much more bespoke. You can also have longer and more protracted negotiations because of that. You can have carve outs and contingent payments and things like that to structure around the risk. But it depends on the sophistication of the counterparty and what they're willing to accept and ultimately what we're willing to live with. Like any company, we have to make trade offs between urgency of closing. How good of a deal do we think we're getting on the headline consideration that impacts how much tail risk you're willing to take in the deal structure.

Fair point. And I take it you work with quite a few local council.

It's a long working group list. Again using the example. And we had one of these acquisitions. We bought a public company in Canada that owns a big project in Mexico. And for a deal like that you've got obviously your main outside M and A council which for us is a US firm. We have a close relationship with the Canadian firm because almost all of our targets are Canadian. And then we have a Mexican firm because the assets in Mexico, everybody has to work together and they do. Our team works very well together. Again, a long working group list and a lot of people on the all hands calls.

Yeah, imagine segment, first deal, it's not going to be international, but any I guess sort of final advice for somebody pursuing their first M and A deal for just considerations around ESG so they don't come back with a gotcha.

Make sure that what issues are important? Some issues are going to be important in every deal, but some are going to be more deal specific. Again, to use a mining industry example, if you're looking at an asset that sits in the traditional territory of an indigenous community, you better make sure that the indigenous community supports the deal. I would say don't think of it as ESG risk, just think of it as business risk. A lot of that is going to fall under the umbrella of esg.

And finally, what's the craziest thing you've seen in M and A?

Can I give you two quick ones?

Sure, let's do it.

I've got two quick ones. One is so a deal I was working on the buy side has a lot of deals came down to like one issue and both deal teams had been working toward a target date where okay, we've got our press releases teed up. Everything's teed up. The integration teams are ready to go. We're working toward this arbitrary deadline that we're going to sign on X date. And there was this one issue that was outstanding. It was a risk management allocation issue and both sides were pretty dug in. We were not going to budge. The target and their counsel were being pretty clear that they were not going to budge and that they were ready to Elevate this and potentially delay the sign and announce date. I was actually going back and forth with the lawyer for the target when on my news alert I see that they issued a press release saying that they had just entered into a deal with us, which meant that the PR firm that was managing the release just wasn't well connected with the deal team. And they were operating under the instruction that, okay, you know, at 4:05, issue the press release. And nobody told them that the deal wasn't done yet. So as soon as that release went out, we were literally on the phone when it went out. And I said, I guess you're caving on this now because somebody calls us and asks us if we have a deal, the answer is no. That was pretty crazy. And they did have to cave on the issue.

Oh, wow.

So I guess the lesson there, and I've only seen it once in 25 years, so it doesn't happen that often, but the lesson there is just to make sure that everybody knows that you don't release the announcement, you don't trigger the integration teams or anything until you've gotten final word from either the corp dev lead or the lead counsel that it's actually done. And then the other one was just I mentioned that I spent a little bit of time at Washington Mutual. It was one of the largest financial institutions that failed in the 2008 financial crisis. And in the lead up to that, you wouldn't be surprised to hear that they were running a traditional sort of auction process to see if anybody wanted to acquire them in a traditional way. At the same time, because of the mortgage problem that was facing the company, the bank regulators were closely watching and imposing more and more requirements on the institution. And it was getting close to the edge where at some point the FDIC just steps in and seizes the assets. We were trying to get something done before that happened. And like in any corporate transaction, you have a data room and there's a lot of activity and there's follow up requests coming in and you're arranging management calls and things like that. There's just a lot going on. And then at some point it all just stopped. And it was just crickets. And nobody was in the data room, nobody was calling, nobody wanted anything from us. And two days later the FDIC stepped in and seized the bank and they were running their own auction. So in hindsight we knew that the point where everything stopped is when the FDIC started their process and told all the other potential acquirers that the FDIC was now the seller basically. So that was pretty eerie. I wouldn't wish that on anybody, but it was. In hindsight it was really interesting experience.

Yeah, that's like a real run against the timeline.

Yeah.

Other story was interesting too. Made me think of best practices on keeping your working group list and in check and making it as leak proof as possible.

It's incumbent on the people running the deal again corp dev legal to just be very clear that the instruction is not to issue the press release post market. The instruction is issue the press release when you hear from us. And I think sometimes that message can be muddled. If people are teed up to get the announcement out and make investor calls, there can be a disconnect with in this case favorable consequences for us as the choir because they had to punt on the last issue. But I'm sure it was an awkward moment for them.

This has been great. I'm glad you came through. I'm glad we got to do this in the studio. Yeah and hopefully get more interviews out here. Thank you for helping me become a better M and A scientist. Enjoyed this conversation. Learned a lot about both the mining industry and esg. Till next time, here's to the deal.

Foreign.

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