There have been significant recent developments related to the treatment of foreign investments in the critical minerals sector, particularly by foreign state-owned enterprises (SOEs) and foreign-influenced private investors.
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November 2, 2022 , the government announced that it had ordered the divestiture of three investments by Chinese investors in Canadian critical mineral companies. The relatively small size of these investments, along with the fact that one of these investments concerned operational assets located exclusively outside ofCanada , is a signal from the government that no investment in the Canadian critical minerals sector is too small to warrant further consideration. The fact that the government made this announcement is itself a further notable development, as historically, the government sought to limit the disclosure of information related to the outcome of specific national security reviews. - the nature and strategic value to
Canada of the mineral assets or supply chain involved; - the degree of control or influence an
SOE would likely exert on the Canadian business, the supply chain and the industry; - the effect the transaction may have on the ability of Canadian supply chains to exploit the asset or access alternative sources (including domestic supply); and
- the current geopolitical circumstances and potential impact on allied relations.
- Sinomine (
Hong Kong )Rare Metals Resources Co., Limited is required to divest itself of its investment inPower Metals Corp. Chengze Lithium International Limited is required to divest itself of its investment inLithium Chile Inc. Zangge Mining Investment (Chengdu) Co., Ltd. is required to divest itself of its investment inUltra Lithium Inc. - Going forward, investments in Canadian critical minerals sectors across all stages of the development (e.g., exploration, development and production, resource processing and refining, etc.) will be subject to heightened scrutiny standards, irrespective of (1) the value of the investment, (2) whether direct or indirect, (3) whether controlling or non-controlling, and (4) whether the operational assets are located in
Canada or abroad. - It remains to be seen whether the government would use new investments as a toehold to try to unwind older investments which would otherwise not be subject to review under the ICA.
- It also remains to be seen whether these developments will have a chilling effect on investment in
Canada's critical minerals sectors by foreign SOEs and foreign-influenced private investors, particularly fromChina , although this seems likely. If there is a class of investment that the government no longer views as desirable for projects in the Canadian critical mineral sectors, it is unclear what the plan will be to encourage investment from desirable investors to fill the potential investment gap. - It is more important than ever that investors and Canadian businesses alike obtain legal and government relations advice as early as possible to assess and navigate these uncertainties.
These developments represent a noteworthy shift in how the Canadian government will assess Chinese and potentially other foreign
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Under the ICA, the minster must approve proposed acquisitions of control from foreign investors, including SOEs, where the value of the Canadian business is above the defined threshold. The Policy states that applications for acquisitions of control of a Canadian business involving critical minerals by a foreign
All investments, regardless of whether they involve an acquisition of control, may be subject to a national security review. The Policy further states that all foreign
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the size, scope and location of the Canadian business;
Divestiture Order
Shortly after the publication of the Policy, the government announced that it had ordered the divestiture of the following investments by foreign investors in Canadian critical mineral companies:
Notably, none of these investments appear as if they would have been subject to mandatory notification under the ICA. The investment by Chengze Lithium in
Prior to these divestiture orders, there had been no divestiture of investments related to
Accordingly, these recent divestiture orders can be viewed as a message by the Canadian government that (1) no investment is too small to warrant further consideration, (2) non-controlling interests are sufficient to warrant significant scrutiny, and (3) the operational assets of a Canadian company do not need to be located in
Transparency
The Minister has also confirmed that going forward, it plans to release certain details related to the outcome of national security reviews subject to decisions-similar to what was published in relation to the three recent divestiture orders.
This practice aims to increase the transparency of government decision-making on foreign investment reviews and represents a stark deviation from the government's former practice. In the past, the government provided nearly no information related to national security reviews other than what was provided, in anonymized form, in its annual reports. This change in practice seemingly aligns with the INDU Committee's recommendation for enhanced transparency regarding the national security review process.
Voluntary Regime
This Policy and the recent divestiture orders came on the heels of the implementation of a voluntary regime for the notification of investments that may raise national security concerns under the ICA. Prior to this change, there was no formal mechanism to make voluntary filings for non-notifiable investments.
More importantly, the changes made at the time of implementation of the voluntary regime have also significantly increased the amount of time the government has to review any investment that has not been notified. In particular, any minority investments that are not formally notified can be reviewed on national security grounds for up to five years after the investment is completed (up from 45 days). This increased timing is in part meant to encourage investors to consult at least 45 days in advance of implementing any investment.
Key Takeaways
These developments represent a notable shift in how the Canadian government will assess "hostile or non-likeminded" SOEs and foreign-influenced private investment in
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Prior to these divestiture orders, there had been no divestitures of investments related to
footnotes
1 The only mining transaction blocked on national security grounds was Shangdong Gold's proposed acquisition of TMAC in 2020. But that investment was likely blocked by the Canadian government because of TMAC's strategic location and other factors, not necessarily its gold mining operations. Gold in any event, does not constitute a critical mineral in
2 For more information, please see our previous insight, Canada Announces the Critical Minerals List.
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