Mining Mindset: Myroslav Chwaluk - Protecting Resources Like Never Before

Myroslav Chwaluk explains that developed countries are taking a much more protective stance on their mineral resources - something not seen in the past. Canada has a legislative scheme allowing review of incoming transactions for national security, and this mechanism is now used far more frequently than before, especially regarding critical minerals.

Whenever a company invests in or acquires assets on Canada's critical minerals list, a much more stringent review applies. This creates significant uncertainty for transactions, and practitioners need to lay the groundwork carefully since the government's final decision cannot be fully predicted.

China remains the biggest producer of critical minerals and has been making substantial outbound investment globally. In Canada specifically, state-owned enterprises from China making investments - whether small strategic stakes or full acquisitions - face the greatest scrutiny. The Canadian government has even reversed completed transactions in some cases, after parties had negotiated deals, covered expenses, and secured shareholder approval.

In contrast to Canada's protective approach, developing countries tend to welcome foreign investment regardless of its origin. These jurisdictions prioritize who offers the highest price and who can provide expertise to develop assets domestically.

Countries like Chile, Argentina, and African nations have seen significant Chinese investment in mining assets. The focus in these regions is more about attracting capital and technical know-how rather than protecting domestic supply chains.

A major recent shift involves Canada's expanded jurisdiction - the government now treats assets owned by Canadian companies outside of Canada as subject to national security review. This means a transaction involving a Canadian company's assets in Argentina, Chile, or Africa can still be reviewed and potentially blocked by Canadian regulators. This extraterritorial posture was virtually unheard of even five years ago.

The principal legal concern in international mining transactions is mineral tenure - how rights to land are held and whether those rights will be protected. Canadian lawyers engage with local experts in each jurisdiction to navigate these issues, while clients build on-the-ground relationships through in-country staff, government relations specialists, and community engagement.

Companies need to evidence their rights to a project through title opinions and proper documentation. Telling investors "I talked to the minister and he said I could drill" is not sufficient. Formal government documentation is required, especially when raising capital and facing due diligence from potential investors.

Permitting delays vary by country and region but share some common drivers. In Canada, Chwaluk points to a wide bureaucracy where officials are reluctant to make decisions. If a government official permits a mine and something goes wrong, they bear perceived responsibility - so decisions often get deferred to the next government cycle.

Canada's constitutional duty to consult with indigenous peoples adds another layer. There is limited clarity on what this duty means in practice, and some indigenous groups may feel it gives them the right to block projects entirely. This creates constant tension between developers, government, and indigenous communities.

In South America, similar dynamics play out around environmental concerns, community opposition, and resource competition. Chile, as a notably dry country, faces particular challenges around water permits - mining operations require large volumes of water that may be diverted from local communities.

On ESG compliance, Chwaluk sees genuine benefits in less carbon-intensive operations. Electric vehicles on mine sites are generally better than diesel alternatives, and the trend toward cleaner power generation is positive for the industry.

However, the costs of these changes have not always caught up to make them realistic for all operators. When companies feel regulated into more expensive options, they perceive regulation as working against their interests. As costs for electric vehicles, solar energy, and clean power decrease, the burden becomes more manageable.

For early-stage exploration companies, ESG regulation is not the primary reason most fail to reach production. Greenfield exploration is relatively low in carbon intensity - companies rent equipment, drill a few holes, and perform basic remediation. The principal driver of exploration failure is geological - what you find (or don't find) in the ground.

Early-stage exploration companies have essentially one financing option: equity. Debt implies repayment, and companies with zero revenue and no projected revenue for 10-15 years cannot realistically service debt. No bank will lend a million dollars to an exploration company that will put it into the ground and capitalize it on the balance sheet.

At later stages, companies face a more nuanced decision. If they can grow at 10% while paying 5% on debt, taking on debt makes sense to avoid diluting existing shareholders. The critical question is whether the company can realistically handle repayment - and this is where many companies run into trouble, overestimating their ability to service obligations.

Price fluctuations add another layer of risk. Companies using aggressive commodity price assumptions to finance projects may face regulatory scrutiny. Qualified persons play a key role in ensuring reasonable assumptions, sometimes outsourcing pricing analysis to specialists because a geologist may not be the best person to forecast the price of cobalt in five years.

For operating mines in low-price environments, the response is operational - cut costs, potentially put the mine on care and maintenance, and manage the downstream effects on existing debt and obligations.

Multiple factors determine whether exploration companies reach production. A strong geological asset will typically attract financing because investors can recognize value. Beyond geology, management quality has an outsized effect - companies may have excellent land but lack the skills, experience, or motivation to advance the project.

External factors can also prevent development. A project on environmentally sensitive land may have outstanding geology but face insurmountable opposition. The reality is that the exploration business requires throwing many darts, and the success rate is inherently low.

Chwaluk shares two anonymized experiences. In one case, a company entering a partnership with another entity triggered an unexpected tax assessment from the state government - unrelated to any written legislation. Emergency discussions with government representatives and in-country contacts were needed to resolve the issue.

In another case, a Canadian-organized company wanted to sell an international asset to a state-owned enterprise from China. Shareholders opposed the transaction, believing it undervalued the company. Combined with government notification requirements, the deal involved satisfying multiple constituencies simultaneously. Ultimately shareholders voted to approve the transaction, and the national security review was deemed unnecessary. However, the media reaction to this deal contributed to subsequent tightening of critical minerals review processes.

Chwaluk, a grandchild of Ukrainian immigrants and active in the Ukrainian-Canadian community, sees potential in Ukraine's mining sector but acknowledges significant hurdles. A TSX-listed company with a known deposit in Ukraine has been unable to gain real traction, largely due to rule of law concerns and uncertainty about property rights protection.

The path forward requires a pioneer - one company or one success story that demonstrates how mining investment can work in Ukraine. Once that proof of concept exists, others will follow. Until then, concerns about sanctions, rule of law, and jurisdictional stability will keep most investors on the sidelines.

Ukraine has advantages that many developing countries lack - a skilled domestic tech services industry, an independent and resourceful population, and an underdeveloped resource base that could become a source of national wealth. Post-war reconstruction will create opportunities across multiple sectors, and mining should be part of that economic rebuilding, providing materials and revenue for Ukrainian development.