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François-Philippe Champagne responds to a question during Question Period in the House of Commons on Nov. 3, 2020.Adrian Wyld/The Canadian Press

François-Philippe Champagne, the federal Minister of Innovation, Science and Industry, will go before a federal committee as early as next week and answer questions about why Justin Trudeau’s Liberal government is allowing the acquisition of Canadian lithium firm Neo Lithium Corp. by a state-owned Chinese mining company without conducting a formal security review.

On Thursday, a federal committee on industry and technology made up of Liberal, Conservative, NDP and Bloc Québécois members passed a motion that compels Mr. Champagne to testify next week on the matter. Also providing testimony at the hearings will be critical mineral industry experts and academics.

In October, Zijin Mining Group Ltd., which is controlled by the Chinese government, announced its intentions to buy Toronto-based Neo Lithium for $960-million. The junior Canadian company is developing a high-grade lithium brine project in Argentina, and it plans to supply the silvery white critical mineral to the electric-vehicle industry.

All foreign takeovers of Canadian companies are subject to a security screening by Ottawa. If the federal government suspects the transaction could be a threat to national security, the deal undergoes a more thorough review under Section 25.3 of the Investment Canada Act, and could ultimately be blocked. The act also gives the government leeway to block deals if the acquisition in question threatens the economic security of Canada with regards to critical minerals.

Over the past decade, China has come to dominate a wide range of critical minerals used in the transition to the low-emissions and high-tech economy. The superpower dominates the lithium industry, with a 60-per-cent share of processing of the mineral. Lithium is widely used in electric-car batteries and energy storage. Canada currently has no lithium mines, no lithium processing plants and no lithium ion battery plants.

The Globe and Mail reported last week that the acquisition of Neo Lithium by Zijin of China was not subject to a formal review.

The lack of a review surprised several well-regarded security experts, and sparked a backlash from the Conservatives, who argued that allowing the takeover of Neo Lithium, without significant due diligence, potentially weakens Canada’s ambitions to develop a domestic supply of lithium.

While the specifics around the Trudeau government’s decision have not been made public, the Department of Innovation, Science and Economic Development told The Globe last week that the deal was “systematically and thoroughly scrutinized.” The department made its decision after factoring in the nature of Neo Lithium’s mineral deposit, and whether Canadian supply chains are likely to be able to exploit the final product.

It also took into account the company’s marginal presence on Canadian soil. While Neo Lithium trades on a Canadian stock exchange, its management team and the vast majority of its employees are based in Argentina.

In the meeting of the industry and technology committee on Thursday, Liberal MP Andy Fillmore offered added insight into the government’s decision, saying that since Neo Lithium is planning on producing lithium carbonate, as opposed to the more valued lithium hydroxide, the asset isn’t relevant to Canada’s national security.

Tracy Gray, a Conservative member of the committee, countered that lithium carbonate is routinely converted to hydroxide for use in electric-car batteries, therefore making the asset strategic to Canada. She added that Canadians need to hear more from Mr. Champagne and the Canadian Security Intelligence Service as to why the acquisition was allowed.

Wesley Wark, senior fellow at the Centre for International Governance Innovation in Waterloo, Ont., had been convinced the Neo Lithium deal would merit an in-depth review from the government and be scrutinized against the backdrop of supply fears over the critical mineral in North America, as well as worries about the potential loss of intellectual property to China.

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