Ottawa raises bar for foreign entry into critical minerals industry

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Prime Minister Justin Trudeau’s government raised the bar that foreigners must clear to join Canada’s critical minerals industry, saying any attempt by a state-owned enterprise to purchase assets in the sector can now trigger Part IV.1 of the Investment Canada Act (ICA), which could require an extended review of any deal on grounds that it could be “injurious to national security.”

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In addition, “significant transactions” by foreign state-owned enterprises in Canada’s critical minerals industry will “only be approved as of likely net benefit on an exceptional basis,” Industry Minister François-Philippe Champagne and Natural Resources Minister Jonathan Wilkinson said in a press release on Oct. 28.

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The minister said they “continue to welcome foreign direct investment,” but that “Canada will act decisively when investments threaten our national security and our critical minerals supply chains.” And in an echo of Deputy Prime Minister Chrystia Freeland’s recent embrace of “friendshoring,” Champagne and Wilkinson added that, “Canada must build strategic resilience in the North American critical minerals supply chain with like-minded partners at home, within North America, and around the world.”

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While all foreign investments are subject to a review under the ICA, the minister can recommend an extended review if he or she believes that the deal could harm national security.

Patricia Mohr, an economist and former vice-president at Scotiabank, said the move was on the cards.  

“The asset values for Canadian critical mineral deposits are increasing substantially — increasing the likelihood of a surge in foreign takeovers,” she said. “I am not surprised that Canada is strengthening its review procedures.”

The policy shift comes after a parliamentary committee in March said Canada should launch a full security review for every investment by a company influenced by an “authoritarian state,” since that meets the ICA’s threshold of potentially being “injurious to national security.”

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The Commons industry committee said the minister should invoke Section 25.3 from Part IV.1 of the act to launch a formal national security review in “all such cases.” The minister’s decision to opt against doing so over Chinese miner Zijin Mining Group Co. Ltd.’s acquisition in January of Neo Lithium Corp., a mining company formerly listed in Canada that owned a lithium project in Argentina, led to controversy.

Former Conservative leader Erin O’Toole criticized the federal government for allowing Zijin Mining to acquire Neo Lithium since the demand for critical minerals such as lithium needed for electric batteries was rising. He said the government had not done a proper security review.

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Champagne said at the time that the deal was thoroughly reviewed and that it wasn’t going to be injurious to national security. He also said Neo Lithium’s project would not be mining for lithium hydroxide but lithium carbonate, which Canada would not be relying on to produce electric batteries.

The statement by Champagne and Wilkinson comes as democratic countries in North America and Europe band together to offset China’s dominance of the battery supply chain for electric vehicles, the demand for which has been on the rise in recent years as nations look to meet their climate targets.

Washington’s recently passed Inflation Reduction Act (IRA) offers a US$7,500 subsidy meant to encourage the production of EVs in North America, while Freeland used a series of speeches in the past few weeks to stress the need for “friendshoring,” an idea that would see democratic allies build supply chains through each other’s economies and tackle the influence of authoritarian regimes in the energy sector.

China dominates the EV supply chain through its refining and processing industries even though most of the metals required by EVs, such as lithium, nickel and cobalt, are mined outside the country.

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