Column: Canada slams the door on China in critical minerals race: Andy Home

Power Metals

04/11/2022 14:11

By Andy Home
       LONDON, Nov 4 (Reuters) - Canada has just upped the ante
in the global competition to secure critical minerals.
    The Canadian government this week ordered Chinese companies
to divest their holdings in three Canadian-listed junior mining
companies planning to develop lithium deposits. 
    The ban comes within days of Canada announcing a tougher
policy on investment in the minerals sector by state-owned
entities, particularly those from China, which dominates the
processing of key energy transition metals such as lithium,
cobalt and rare earths. 
    The order to divest follows what the government said was a
"multi-step national security review process, which involves
rigorous scrutiny by Canada's national security and intelligence
community."
    It promised to continue to "act decisively when investments
threaten our national security and our critical minerals supply
chains, both at home and abroad."
    The move marks a hardening of geopolitical battle-lines in
the metals sector and raises the question of what Canada and its
metallic allies might do next in the name of national security. 
    PROTECTING THE PIPELINE
    The three impacted Canadian companies - Power Metals Corp
 PWM.V , Ultra Lithium Inc  ULT.V  and Lithium Chile Inc
 LITH.V  - are sitting on lithium deposits in Canada, Argentina
and Chile respectively. 
    Power Metals' properties in Ontario also contain tantalum
and caesium, both of which are also classified as critical
minerals by Canada and the United States. 
    All are next-generation projects, part of a growing pipeline
needed to feed the world's hunger for lithium. 
    And all have recently announced strategic investments by
Chinese players offering not just money but processing expertise
and off-take commitments. 
    Sinomine, one of the world's largest rare earth producers,
took a 5.7% stake in Power Metals for C$1.5m in a January
fund-raising round.
    Zangge Mining Co, a major Chinese lithium and potash
producer, lifted its interest in Ultra Lithium to 14.2% in May
and in June entered into an agreement to finance development of
the Laguna Verde lithium project in Argentina. 
    Chengxin Lithium used a private placement by Lithium Chile
in May to boost its stake to 19.4% for C$28 million. 
    All three Chinese companies have fallen foul of Canada's
newly beefed-up Investment Canada Act and must now divest their
holdings. 
    The three abandoned brides will have to find new partners
with the government proviso that suitors "share our interests
and values."
    WIDENING THE NET
    Canada's new policy on critical minerals investment is
wide-ranging and far-reaching. 
    It's not just China's state-owned players that will come in
for extra scrutiny, but also any private investors "assessed as
being closely tied to, subject to influence from, or who could
be compelled to comply with extrajudicial direction from foreign
governments."
    The policy covers not just mining but all stages of the
minerals processing chain. 
    It extends, most obviously in the case of Ultra Lithium and
Lithium Chile, to overseas assets as well as domestic. 
    Canada's critical minerals list, updated in March this year,
is extensive, covering not just the esoteric rare earths family
and energy-transition inputs such as lithium, cobalt and nickel
but also mainstream industrial metals such as aluminium, copper
and zinc. 
    These are currently highly globalised markets, pivoting
around China as the world's largest user of industrial metals. 
    Canada, for example, has for many years been a supplier of
mined copper concentrates to China, shipping 430,000 tonnes last
year. 
    Such mine off-take deals may not be immune from Canada's
national security considerations. 
    "We will need to be very thoughtful going forward about what
we are willing to allow," said Canadian Natural Resources
Minister Jonathan Wilson in a June interview with the Globe and
Mail. "It is not just true of ownership, but I think we also
have to be looking at things like long-term off-take
agreements," he added. 
    Canada's overriding priority, Wilson explained, is one of
"protecting itself in an area that is clearly strategic and
ensuring that those supply chains will be robust for our
allies."
    METAL BLOC
    Canada's clamp-down on Chinese investment in critical
minerals should be seen in the context of an emerging metallic
NATO of like-minded countries looking to reduce their dependence
on the China and Russia. 
    The Minerals Security Partnership (MSP), launched in June
this year, includes Australia, Canada, Finland, France, Germany,
Japan, the Republic of Korea, Sweden, Britain, the United
States, and the European Commission.
    The nascent alliance is still fractious. 
    The United States' Inflation Reduction Act, linking electric
vehicle subsidies to domestically-produced metals, has
infuriated both the European Union and South Korea. 
    Heated negotiations are currently taking place between U.S
Trade Representative Katherine Tai and the European Commission,
which is looking for some form of exemption for friendly
countries. 
    Assuming the current spat can be smoothed out, there is the
clear potential for other members to halt Chinese investment
into their respective mineral sectors. 
    Australia is already doing so. In April it blocked an
attempt by the Chinese state-owned Baogang Group to take a 13%
share in Northern Minerals  NTU.AX , which owns the Browns Range
rare earths deposit in Western Australia. 
    In the same month it also blocked Yibin Tianyi Lithium
Industry from taking a stake in AVZ Minerals  AVZ.AX , which has
lithium projects, with associated tin and tantalum, in the
Democratic Republic of Congo.
    Canada's definition of domestic critical resources to
include any company listed on its stock exchange will resonate
amongst both the heavyweight mining companies in Britain's
FTSE-100 and the many junior resource companies listed on
London's AIM market.
    All will need to heed the Canadian government's advice to
its companies that they "carefully review their investment plans
to identify any potential connections to (...) or entities
linked to or subject to influence by hostile or non-likeminded
regimes or states."
    The metallic uncoupling of China and the rest of the world
has just entered a new, more aggressive phase as governments
overrule free markets to defend their supply chains. 
    Canada's three-pronged attack on Chinese investment is just
the start of the next chapter in the great critical minerals
game of nations.
($1 = 1.3736 Canadian dollars)
    The opinions expressed here are those of the author, a
columnist for Reuters
 (Editing by David Evans)
 ((andy.home@thomsonreuters.com, 44-207-542-4412 and on Twitter
https://twitter.com/AndyHomeMetals))