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Canada’s SRG Mining Inc. SRG-X is planning on moving to the Middle East in an attempt to skirt a Canadian national security review into a key financing deal with China-based Carbon ONE New Energy Group Co. Ltd.

Last summer, when Montreal-based SRG announced that China’s C-One was buying a 19.4-per-cent stake for $16.9-million, it warned the deal would be scrutinized by Ottawa on national-security grounds. Late in the year, SRG flagged that it was looking at redomiciling the company, and on Monday said in a press release that it plans on relocating to the United Arab Emirates, where it will have “expanded strategic optionality.” The legal manoeuvre, the company said, removes the requirement for a security probe by the federal government.

“They are skirting around it in a bit of a cunning fashion,” said Christopher Ecclestone, principal and mining strategist with London-based Hallgarten & Co. “It doesn’t have a good look to it.”

SRG declined an interview request.

Hans Parmar, a spokesperson for Federal Industry Minister François-Philippe Champagne said in a statement to The Globe and Mail that the government is aware of SRG’s intention to redomicile and “will make its own determinations on the applicability of the Investment Canada Act.”

Mr. Parmar added that the government “will not hesitate to take action on transactions that would be injurious to Canada’s national security.”

Mr. Champagne in late 2022 said he would only allow investments in Canadian critical minerals miners by entities tied to the Chinese state government to occur under exceptional circumstances. As part of that mandate, he ordered three China-based companies to immediately divest themselves from three Canadian critical minerals companies which held mining assets overseas.

Ottawa has come down hard on Chinese investment into critical minerals, owing both to Canada’s weak positioning in the sector globally, and because of the Asian superpower’s growing dominance. According to the U.S. Geological Survey, China produces 65 per cent of the world’s graphite, a key input into electric car batteries.

Relations between North American governments have deteriorated with China over the past five years in the face of human rights abuses by President Xi Jinping’s authoritarian regime. Against this backdrop, Canada, the United States and Europe are attempting to build up their own industries in critical minerals to reduce their dependence on China.

If the SRG deal with C-One closes, it could trigger many more resource companies operating in the critical minerals sector to flee the country in order to avoid potential financing restrictions under the Investment Canada Act, Mr. Ecclestone said.

“There will be a stampede,” he predicted.

Even though SRG plans to leave Canada, it intends to retain its listing on the TSX Venture Exchange. However, the exchange has to approve the transaction to redomicile. SRG shareholders must also approve it in a vote slated for the second quarter this year.

The move to the Middle East for SRG also comes with financial incentives because the UAE has a taxation and investment treaty in place with the Republic of Guinea, where SRG’s graphite project is located.

China-based resource giants are once again wading into the Canadian critical minerals sector, after a fallow period in the wake of the 2022 crackdown. Last month, Vancouver-based Solaris Resources Inc. said that Zijin Mining Group Co. Ltd. of China plans to acquire a 15 per-cent stake worth $130-million. The deal is subject to a security review by Ottawa. If the transaction goes ahead, Solaris plans to use the funds raised from Zijin to advance its Warintza copper project in Ecuador. Zijin is already deeply embedded in the Canadian mining sector, with joint ventures in place with Ivanhoe Mines Ltd. and Barrick Gold Corp.

Mr. Ecclestone says that an added negative for Canada, in the event that SRG leaves, would be the loss of future tax revenue if the company’s Lola graphite project in Guinea eventually goes into production, as those revenues would go to the UAE instead.

There is almost no publicly available information about privately-held C-ONE, its management or its investors. C-ONE was founded in 2022 by chairman Yue Min, the holder of more than 300 patents in the battery industry, and the co-founder of BTR New Material Group Co. Ltd., a major China-based producer of electric car battery materials.

Law firm Norton Rose Fulbright is working as a tax adviser with SRG in connection with its move to the UAE.

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