Canada's miners push limits on foreign investment rules, testing new deals amid tighter regulations
Nearly two years after Canada imposed restrictions on foreign investment in its mining sector, mineral explorers and developers are testing the boundaries of these rules, according to BNN Bloomberg.
In 2022, the Canadian government tightened regulations on mining deals involving foreign state-owned entities, a move perceived as targeting China’s influence in the global critical minerals supply chain.
However, these restrictions risk depriving smaller miners and developers of crucial financing sources. The government has not set specific limits on the levels of foreign investment allowed.
Mining firms are now probing these limits, with at least nine deals involving Chinese companies proposed since the new measures took effect. Investment bankers and corporate development teams are closely watching the government's responses to these test cases to inform future transactions.
Despite Canada’s scrutiny, the effort to attract Chinese capital continues, highlighting the difficulties faced by global mineral explorers and mine-builders, many of which are based in Canada.
Junior miners often struggle to secure domestic investment for high-cost, high-risk projects that can take years or even decades to complete. Chinese firms, with their long-term strategic approach to raw material investments, remain vital funding sources for the sector.
“Given how broadly the government is interpreting its mandate here, there’s certainly a lack of clarity around the edges in some specific circumstances,” said Braden Jebson, a partner and mergers and acquisitions lawyer at Torys LLP.
“Even when the government is setting out what looks like a red line, they’re often leaving themselves discretion so that there aren’t hard-and-fast rules.”
Canada’s Ministry of Innovation, Science and Economic Development, which reviews takeovers, has wide discretion to approve or reject them. The ministry did not immediately provide a comment when contacted.
A recent deal involving Montage Gold Corp. is viewed as a potential test case. The company, which owns a gold deposit in Ivory Coast, accepted a $57.3m investment from China’s Zijin Mining Group for a 9.9 percent stake in mid-July.
Montage believes the transaction, expected to close in August, won’t require government approval since Zijin would own just under 10 percent of the Vancouver-based company.
This investment follows Solaris Resources Inc.’s decision two months earlier to cancel a financing deal with Zijin, which would have given the Chinese company a 15 percent stake and a board seat. Solaris withdrew after a lengthy government review.
Montage’s deal with Zijin is unlikely to face the same scrutiny, partly because gold is not on Canada’s critical minerals list and the company’s assets are outside Canada, said chief executive officer Martino De Ciccio.
“They don’t have any special shareholder rights agreement, they hold no board seats, and they have no representation within the management team,” he added.
Other deals involving Chinese buyers are also in progress, such as Yintai Gold’s $368m takeover of Osino Resources Corp. The Vancouver-based company, which has a gold project in Namibia, indicated it doesn’t need Canadian government approval and is awaiting clearance from Namibian regulators.
Montreal-based SRG Mining Inc., developing a graphite mine in Guinea, attempted to move outside Canada earlier this year to avoid Canadian scrutiny of Chinese investment before abandoning the plan.
Since 2022, Canada has further tightened its rules. Measures announced in July stipulate that foreign takeovers of Canadian mining companies involved in critical minerals will only be permitted in “the most exceptional of circumstances.”
In November 2022, Canada enforced its foreign restriction rules by compelling three Chinese firms to divest from three Canadian junior lithium explorers with assets primarily in Latin America.
Nonetheless, last year Saudi Arabia was allowed to purchase a 10 percent stake in Vale SA’s base metals unit, acquiring part ownership of nickel operations in Ontario.
Canada and its Western allies are increasingly focused on securing critical minerals for products such as electric-vehicle batteries and electronics. They are striving to develop supply chains to reduce China’s global dominance in the industry.
The Canadian government’s decisions are mainly driven by the strategic importance of the minerals involved, according to Jebson from Torys.
“The general understanding is that the government’s not likely to approve an investment in critical minerals from a foreign state-owned entity that does not share similar interests and values as Canada,” he noted. “Outside the critical minerals space, there’s probably more opportunity.”
