Federal government stiffens guidelines on foreign involvement in Canada’s critical mineral sectors

The federal government immediately plans to significantly tighten the approval process for major transactions by foreign state-owned enterprises (SOEs) in Canada’s critical minerals sectors.

In a joint news release issued Friday, François-Philippe Champagne, Minister of Innovation, Science and Industry, and Natural Resources Minister Jonathan Wilkinson said that under the updated guidelines for how the Investment Canada Act is applied, the transactions “will only be approved as of likely net benefit on an exceptional basis.”

“As well, should a foreign state-owned company participate in these types of transactions, it could constitute reasonable grounds to believe that the investment could be injurious to Canada’s national security, regardless of the value of the transaction,” the ministers said.

Spotlight on foreign entities

Foreign involvement in Canada’s natural resources sector has come under increased scrutiny in recent years, especially as Russia’s invasion of Ukraine highlighted the vulnerability of energy supplies controlled by countries regarded as hostile.

And in late 2020, the Canadian government rejected Chinese state-owned miner Shandong Gold Mining’s $150-million bid to acquire TMAC Resources, now owned by Agnico Eagle (TSX: AEM; NYSE: AEM), and its Doris gold mine in Hope Bay, Nunavut, following a national security review.

Friday’s statement added that in recognizing critical minerals as strategic assets for defence and high technology which contribute to Canada’s national security, some investments by SOEs might be motivated by “non-commercial imperatives” contrary to the country’s interests.

The statement did not identify any particular foreign enterprises or countries.

“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,” the ministers said.

“While we continue to welcome foreign direct investment that supports this goal, Canada will act decisively when investments threaten our national security and our critical minerals supply chains.”

Net benefit for Canada

In outlining how “net benefit” would be determined with regards to proposed investments, the new guidelines will consider how a foreign state would exercise direct operational and strategic control over the Canadian business through the transaction; and the level of competition in the sector and potential for concentration of foreign ownership in it as a result of the transaction.

They will also consider the corporate governance and reporting structure of the SOE and whether it follows Canadian standards of governance and in line with Canadian law and free market principles; and whether the Canadian business to be acquired will continue to operate commercially.

Other considerations will include where products will be exported or processed, the participation of Canadians in its operations, the impact of the investment on productivity and industrial efficiency in Canada, and the levels of capital expenditures to maintain the Canadian business in a globally competitive position.

National security issues

The national security implications of foreign SOE transactions will be assessed under the updated guidelines focusing on the size, scope and location of the Canadian business; the nature and strategic value to Canada of the mineral assets or supply chain involved; the control or influence an SOE would likely have on the Canadian business, the supply chain and the industry; the effect the transaction might have on the ability of Canadian supply chains to exploit the asset or access alternative sources; and the geopolitical circumstances and potential impact on relations with allies.

The joint statement added that Friday’s updates come as the federal government finalizes its Critical Minerals Strategy, an almost $3.8 billion investment in the sector that was announced in April as part of Budget 2022.  

Details of how the multi-billion dollar investment would be allocated have yet to be released, although a public consultation period on the strategy ended on Sept. 15.

The announcement of the guidelines on foreign participation in the sector comes just three days after Wilkinson unveiled in Toronto his ministry’s Regional Energy and Resource Tables consultation process to streamline the transition to clean power using critical minerals.