China-based resource giants are once again making inroads into the Canadian critical minerals sector, despite a crackdown by Ottawa over national security concerns that had made it almost impossible for such transactions to occur.
Solaris Resources Inc. SLS-T on Thursday said that Zijin Mining Group of China plans to take a 15-per-cent stake worth $130-million in the Vancouver-based copper development company.
Based in China’s Fujian province and valued at US$43.8-billion, Zijin is one of the giants of the global resource industry, and already deeply embedded in the Canadian mining sector, with joint ventures in place with Ivanhoe Mines Ltd. and Barrick Gold Corp.
Solaris plans to use the funds raised from Zijin to advance its Warintza copper project in Ecuador.
If the deal closes, Zijin would be entitled to a seat on the board, thus giving it influence over the strategic direction of the Canadian mining company.
But Zijin’s proposed investment into Solaris is far from a fait accompli. It is subject to a national security review by the Canadian government.
“The government has not hesitated and will not hesitate to take action on transactions that would be injurious to Canada’s national security,” Andréa Daigle, a spokesperson for Innovation, Science and Economic Development Canada (ISED) wrote in an email to the Globe and Mail.
Industry Minister François-Philippe Champagne in late 2022 said that he would allow investments by foreign state-owned companies into Canadian critical minerals companies under exceptional circumstances only.
As part of that tougher mandate, Mr. Champagne ordered Canadian companies Power Metals Corp., Lithium Chile Inc. and Ultra Lithium Inc. to divest themselves from their Chinese investors.
The federal government cracked down on China because the superpower has used its dominance in critical minerals to exert economic pain on the West. In October, China announced restrictions on exports of graphite in a move that could hurt Western automakers.
The tougher stand against China also followed years of lax oversight over foreign ownership of the Canadian critical minerals sector.
In early 2022, Mr. Champagne allowed Canadian lithium development company Neo Lithium Corp. to be acquired by Zijin without conducting an in-depth national security review under Section 25.3 of the Investment Canada Act. The acquisition precipitated parliamentary hearings and put Mr. Champagne on the defensive for months.
Ottawa also allowed China’s Sinomine to buy the Tanco lithium mine in Manitoba in 2019. Sinomine exports lithium mined in Canada to China for use in its electric-vehicle industry. A Sinomine executive told The Globe and Mail last year it is planning a major expansion of Tanco to harness cesium, a rare earth element of which China has close to 100-per-cent market share.
Despite the ostensibly tougher investment climate, a recent Globe investigation revealed that over the past six months, China-based companies have once again started putting money into the Canadian critical minerals sector.
Montreal-based graphite development company SRG Mining Inc. in July announced that privately held China-based Carbon ONE New Energy Group Co. Ltd was taking a 19.4-per-cent stake. Initially, SRG flagged that the deal would be scrutinized by Ottawa under national security grounds, but later it announced plans to redomicile outside of Canada to sidestep a review by Ottawa.
In October, Vital Metals Ltd. announced a sale of up to 18.1 per cent to a subsidiary of China-based Shenghe Resources Holding Co. Ltd. in a deal worth about $13.3-million. Vital owns Canada’s only operating rare earths mine: the Nechalacho project in the Northwest Territories.
Even though Vital is based in Australia, Ottawa had the jurisdiction to reject the deal under national security grounds, because Vital’s critical minerals assets are located in Canada. Vital in December said that it had completed its transaction with Shenghe and had agreed to sell its rare earth stockpiles to the Chinese company.
Michelle DeCecco, chief operating officer of Lithium Chile, one of the companies that was hit by Canada’s restrictions on investment by China-based companies, said in an interview that she would love to see Ottawa give the blessing to Solaris’s deal with Zijin.
She said the restrictions had gone too far, and with SRG’s decision to redomicile outside of Canada, Ottawa’s policies are “hurting industry and the economy.”
The investment environment had deteriorated so much over the past year that when new mining executives come to her, asking whether they should set up shop in Canada, her default answer has been “no, absolutely not.”
Niall McGee