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Critics of the recent move cite the fact that in 2019, the federal government allowed the same Chinese investor, Sinomine, to buy the Tanco mine in Manitoba, the only lithium mine in Canada.George Penner/Handout

This past summer, Power Metals Corp. PWM-X chief executive officer Johnathan More fielded questions from the federal government about the roughly 5-per-cent equity position Chinese state-owned Sinomine Rare Metals Resources Co. held in his tiny exploration company. What struck him was how naive some of the queries were.

“They were coming at us saying, ‘Oh, they’re buying your company, they’re taking you over?’” he said.

“I’m like, ‘no.’ This is how uneducated the government is.”

Patiently, Mr. More explained that Sinomine owned a tiny, non-controlling stake, worth a mere $1.5-million. He told the government the same thing anyone with an internet connection and the most basic grounding in finance could ascertain in a couple of minutes: Power Metals is a very early-stage exploration company, drilling holes in the ground, and there is no guarantee it will ever become a critical minerals producer. (According to the Colorado School of Mines, only about one in 750 exploration projects becomes a mine.)

At the end of the correspondence with Ottawa, Mr. More was pretty sure that the matter was closed and that he’d never hear from anyone in the government again.

Suffice to say, when federal Industry Minister François-Philippe Champagne last month announced he was ordering Sinomine to sell its stake in Power Metals, owing to national security concerns, Mr. More was dumbfounded.

In the announcement, Mr. Champagne gave almost no information on why Ottawa targeted Power Metals and two other small exploration companies, other than the vague statement that the government came to the decision after a national security review of a number of investments in Canadian critical minerals companies, and the review involved “rigorous scrutiny by Canada’s national security and intelligence community.”

Mr. More said he doesn’t believe politicians understand the issue. “I don’t think they even understand how a supply chain works,” he said.

Mr. Champagne declined multiple requests for an interview over the past month.

Mr. More was particularly incensed because Justin Trudeau’s Liberal government in 2019 allowed the same Chinese investor, Sinomine, to buy the Tanco mine in Manitoba. Tanco is the only lithium mine in Canada, and Sinomine currently sends the critical mineral back to China for use in the country’s electric-vehicle industry, the very scenario that Canada purports to be trying to prevent.

Power Metals wasn’t the only small critical minerals explorer that was blindsided last month. Mr. Champagne also ordered Chinese investors to divest themselves from Ultra Lithium Inc. and Lithium Chile Inc.

The decision to target Lithium Chile, which has lithium projects in Chile and Argentina, was particularly puzzling. Earlier in the year, Mr. Champagne justified his department’s decision to allow the sale of Neo Lithium Corp., a Canadian lithium development firm, to China’s Zijin Mining Group Co. Ltd. on grounds that Neo Lithium was only a Canadian company in name.

“The operations of the company are in Argentina, and all but a handful of its employees are based in Argentina,” Mr. Champagne said in testimony to a parliamentary committee in January. Since Neo Lithium’s project in Argentina was located far away from Canada, it wasn’t something Canada’s EV battery supply chain could benefit from, he argued.

Lithium Chile CEO Steven Cochrane wrote in an e-mail that after Mr. Champagne’s order that it rid itself of its Chinese investor, the company was “caught completely by surprise.” Furthermore, Mr. Cochrane said, when Chengze Lithium International Ltd. took its stake in his company, the government told Lithium Chile that it was “compliant with all the rules.”

The Liberals in their decision last month also left completely untouched ginormous Canadian companies with huge critical minerals mines in operation that have accepted tens of billions of dollars in investment from China over the past decade. In turn, there’s potential for influence by the Communist Party of China. These companies include Ivanhoe Mines Ltd. IVN-T, Teck Resources Ltd. TECK-B-T Ltd. and First Quantum Minerals Ltd. FM-T

Also, if Ottawa’s objective was to zero in exclusively on small Canadian critical minerals companies with Chinese investors, then Vancouver-based Nickel North Exploration Corp. NNX-X should have been targeted. It lists Sinotech Hong Kong Corp. as its top investor. In fact, Sinotech owns about half the equity in the development firm, and has funnelled in around $6-million over the past decade.

However, Nickel North’s CEO, Tony Guo, a Chinese-born Canadian, said he hasn’t heard anything from the government about any potential forced divestment from Sinotech.

Mr. Guo also pointed out that a representative with the Ministry of Natural Resources attended a ceremony celebrating the investment from China in Nickel North in 2012.

“Canada was promoting itself to try to attract investors from China,” Mr. Guo said.

It would appear that Mr. Guo can rest easy because the federal government doesn’t have the ability to scrutinize the investment even if it wanted.

Laurie Bouchard, spokeswoman for Mr. Champagne, wrote in an e-mail to The Globe and Mail that the orders for divestitures “were the result of reviews that were in front of our national security experts at that time.” She added that reviews “cannot be conducted retroactively.”

It is unclear whether Ottawa has ever thought about changing the Investment Canada Act to allow it to conduct security reviews retroactively. It’s a direction other more forward-thinking resource nations are headed.

Australia has been far more aggressive on Chinese investment into its resource sector, and the country updated its rules last year in this regard. It introduced a new “last resort” power, under which the government can review previously approved transactions if national security risks emerge at a later date and, if necessary, impose new restrictions and limitations on investments.

When it comes to decisions around national security, the Canadian federal government’s continued lack of transparency is troubling, said Wesley Wark, senior fellow at the Centre for International Governance Innovation.

“There’s no transparency requirements imposed on the minister or the Governor in Council to provide some minimal explanation for either foreign direct investment that is approved when it is controversial, or FDI that is blocked, or where there’s a divestiture order,” he said.

The process is “embedded in this unnecessary secrecy,” he said.

Follow Niall McGee on Twitter: @niallcmcgeeOpens in a new window

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