A top security expert has predicted that a planned Chinese takeover of a Canadian critical minerals development company would trigger a full security review under the Investment Canada Act following the China release of both Canadians Michael Kovrig and Michael Spavor last weekend. Tension between the countries has increased.
China’s contemporary Amperex Technology Co., Ltd. is looking to acquire junior Canadian battery metal exploration company Millennial Lithium Corp. $376 million. But before the deal can close, it must pass a security check by Ottawa.
Vancouver-based Millennial Lithium is developing a project for metal mine in Argentina. Lithium is one of a select list of important battery metals that has seen its demand explode in the past decade with the increasing popularity of electric vehicles. and the government’s commitment to reducing carbon emissions.
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The mining industry will pay close attention to any clues Canada is taking a tough stance against China following the release of the two Michaels. Ottawa’s decision on the acquisition would set a precedent that could either encourage more Chinese takeovers of Canadian companies or stifle deal activity.
Both Michaels returned home after spending nearly three years in prison in China. Huawei Technologies Co Ltd was detained by Canada after it was accused of spying in apparent Chinese retaliation. Chief Financial Officer Meng Wanzhou On a US extradition request in 2018 related to bank and wire fraud charges.
The Canadians’ release last weekend comes after Washington and Beijing cut a deal that allowed Ms Meng to return to China as part of the US. Deferred Prosecution Agreement.
All foreign acquisitions of Canadian companies are subject to preliminary security checks by Ottawa. If the government suspects that the transaction may be a threat to national security, a more thorough review of the deal is warranted under Section 25.3 of the Investment Canada Act.
“The Canadian government, despite Michaels’ release, will look very negatively on a Chinese acquisition of a significant mineral developer or supplier,” said Wesley Wark, senior fellow at the Center for International Governance Innovation in Waterloo, Ont. “I would imagine it would go [a formal security review] Because this is a preliminary test case with a new strategy that the government is developing on critical minerals.”
Last year, Ottawa and Washington finalized a joint action plan on critical minerals. The two governments have made it clear that they plan to cooperate in building secure domestic supplies of minerals such as lithium and cobalt, as fears of China’s growing sway over supplies intensify.
Canada has in recent days rejected acquisition deals over national security concerns.
Late last year, the federal government rejected a planned acquisition of junior gold miner TMAC Resources Inc. by China’s state-controlled Shandong Gold Mining Co., Ltd. In that instance, the location of TMAC’s gold mine in the Arctic raised concerns. Expressed. The mine site is a little more than 100 kilometers from a NORAD North Warning System radar station in Cambridge Bay, Nunavut; Part of a series of installations across the north that collect military information.
Matthew O’Keefe, an analyst at the US-owned investment firm Cantor Fitzgerald in Toronto, says Millennial Lithium acquisition does not present nearly the same level of security risk as its main project is in Argentina, not a strategic Canadian location.
“There’s no reason to block it,” said Mr. O’Keefe.
But Prof. Wark disagrees.
“The fact that this is a Canadian company, based in Vancouver, probably has a fair amount of intellectual property that would be lost to a Chinese buyer. That would be a concern of principle,” he said.
Millennial Lithium President Graham Harris declined to comment for this story.
At the moment, Canada is a slight player in battery metals. There are currently no lithium mines operating in country. Canada is a major producer of nickel, which is also used in batteries, but production of the metal is sent to domestic refineries for use in the steel industry.
And while Canada ranks in the top 10 worldwide for cobalt production, it is sent abroad for processing, as there is no Canadian supply chain for electric vehicles.
There are areas of growth in the country that point to the eventual emergence of a short domestic supply chain. Junior development company First Cobalt Corp hopes to build a refinery in Ontario that will supply the electric-car industry.
Quebec-based Nemasca Lithium Inc. is moving forward on its plan to develop a mine in the province. The company was forced into creditor protection in 2019, wiping out public shareholders. The Quebec government has funneled hundreds of millions of dollars into Nemaska over the years.
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