Confusion and consternation on critical minerals

What started out as optimism two years ago when the federal government turned its eye to critical minerals, introducing a strategy, incentives and funding, and pledging faster permitting for mines, has turned into confusion and consternation. 

In a classic case of ‘be careful what you wish for,’ the industry fears the government’s new attentions could actually end up hurting the sector. 

“We’ve always been asking for (the federal government) to become more involved and recognize the importance of mining,” Dean McPherson, head of global mining with the TMX Group told The Northern Miner in July. “But we didn’t anticipate that they would be taking so many unilateral decisions and policies that lacked consultation and sort of provided more uncertainty to the industry. 

“I would say over the past two years we’ve had a lot of reasons to be concerned about the future of Canada’s dominance in the mining space.” 

What are these unilateral changes?  

Investment overhaul

The industry has complained about surprise changes to the capital gains tax and flow-through funding rules this year. But the most consequential are changes to the Investment Canada Act (ICA) that allow Ottawa to restrict funding from foreign state-owned enterprises or companies connected to them.  

Seemingly, no deal involving Chinese critical minerals has been too small to escape the feds’ notice under the ICA. Fed scrutiny and the prospect of a drawn-out approvals process forced SRG Mining and Solaris Resources to cancel their respective $16.9-million and $130-million deals with Chinese companies.  

The deals would have given Carbon ONE New Energy Group and Zijin Mining equity stakes of under 20% and representation on the juniors’ boards (two seats in SRG’s case and one in Solaris’s). SRG, now known as Falcon Energy Materials, has since redomiciled to the United Arab Emirates where it anticipates fewer barriers to financing. 

Meanwhile, Chinese funding has in the past given Teck Resources and First Quantum Minerals – both among Canada’s largest miners – a lifeline in tumultuous commodities markets, plugging the funding hole at times when interest from other investors has flagged. 

It’s not as though Ottawa hasn’t warned repeatedly that Chinese investment in critical minerals, at a time when the West is trying to build capacity lost to China decades ago, is a no-go. 

“We’ve been pretty clear that we are not interested in investment generally from state-owned enterprises,” Jonathan Wilkinson, minister of natural resources said at this year’s PDAC in response to a question from The Northern Miner’s Colin McClelland.  

That was just after changes to the ICA, which can be applied regardless of transaction size, came into force in March. At the conference, Wilkinson extended that further, saying the feds would be looking at all deals with Chinese SOEs and related companies, including offtake agreements. 

Need for clarity

McPherson and others say that while Canada has to protect its national interests, it’s unclear why the feds are applying national security regulations to projects outside of Canada.  

“After Solaris, it became a different discussion because that was an example which nobody could understand,” Krisztian Toth, a partner at law firm Fasken said, noting the project’s location in Ecuador. “It was not a controlling position, it was a very simple investment.” 

More recently, Minister of Innovation, Science and Industry François-Philippe Champagne introduced even more uncertainty when a July 4 statement he issued seemed to cast doubt on the approval of any foreign takeovers of large Canadian miners with critical minerals assets. 

Champagne’s statement, intended to clarify Canada’s stance on foreign investment in the sector, instead provoked more questions. 

While Wilkinson clarified in a press conference a day later that this would apply to “a very few” Canadian companies – those that are headquartered here, carry out research and development in-country, and have large-scale operations in Canada – McPherson notes that the guidance hasn’t yet been formalized. 

“Being someone who has worked in the in the industry for a while, I do know that something that’s not put on paper and recorded officially cannot be taken to the bank,” McPherson said. “So while I take this clarification with goodwill, it would be great to see Minister Champagne come out and provide the clarification that the market is asking for.” 

The Northern Miner has emailed Champagne’s office to ask whether it plans to issue additional guidance, but had not received a response by press time. 

It’s not too late for Ottawa to address the industry’s concerns. After a tough 2023, financing figures for this year on the TSX and TSXV are looking up, according to TMX Group figures. 

But if the sector is really as strategically important to Canada’s economic, climate and national security goals as the government says, it needs to do a better job of communication and coordination with the industry it’s depending on to deliver.