Why No National Security Review of Purchase by PRC SOE of Canadian Lithium Mining Company?

Further to this post where the transaction is noted near the end,

Lithium and Batteries for EVs look like just another Canadian Hi-Tech Pipedream

1) A piece at the Toronto Star via the Macdonald-Laurier Institute:

Ottawa looks on as China buys Canadian lithium operations

Given Canada’s own critical minerals list, and what we already know about China’s determination to achieve global high-tech dominance, there were clear reasons for reviewing the Neo Lithium purchase, writes Jeff Kucharski. 

Efforts to strengthen Canada’s supply chains for critical minerals were undermined last week when our own government decided not to conduct a national security review into the purchase of a Canadian lithium producer by a Chinese state-owned enterprise.

The decision is bizarre. Lithium, which is on a list of 31 minerals that Ottawa says are critical to Canada’s economy [emphasis added], is imperative to modern manufacturing, including large-scale battery storage needed for clean energy transition and, significantly, batteries for the flourishing electric vehicle (EV) industry.

Now the Zijin Mining Group Ltd is cleared to buy Toronto-based Neo Lithium Corp.

China is establishing global dominance of high-tech manufacturing, including EVs, by having state-owned enterprises acquire foreign intellectual property, technologies and assets. Securing access to critical minerals is essential to that mission [see this post: “The PRC’s Rare Earths Squeeze…“].

China already controls a quarter of the world’s supply of lithium-ion batteries, and Canada is a target for acquisitions. In 2018, Vancouver-based Lithium X was purchased by NextView New Energy Lion Hong Kong. That same year the Chinese company Tianqi bought a 23.8 per cent share in a Chilean lithium mine from Canada’s Nutrien. Last November, Vancouver-based miner Millenial Lithium narrowly missed being acquired by China’s Contemporary Amperex Technology Co., which was outbid by an American buyer.

In the case of Neo Lithium, were elected officials advised that a security review was unnecessary? If so, for what reasons? Did the PMO veto a review so as not to offend China? If so, should Canada be making security decisions based on whether other countries will be displeased?

China is known to use economic coercion for political purposes; in 2010 it halted critical mineral supplies to Japan over a territorial dispute. Against this backdrop, Canada and other countries have joined the U.S.-led Energy Resource Governance Initiative to develop alternative supply chains for critical minerals and reduce dependence on China.

It would have been surprising enough if the Neo Lithium bid had undergone a security review and was cleared, but the deal never even triggered a review [emphasis added] under the Investment Canada Act, which assesses significant investments in Canada by non-Canadians, with an eye to promoting economic growth and employment opportunities that benefit Canada.

Some observers feel a review wasn’t ordered because Neo Lithium’s mine is in Argentina and not in Canada, however this alone would not preclude a review [emphasis added]. The legislation cites a range of concerns, including whether an investment by a state-owned enterprise could harm Canada’s national security.

Given Canada’s own critical minerals list, and what we already know about China’s determination to achieve global high-tech dominance, there were clear reasons for reviewing the Neo Lithium purchase.

Canada currently has no lithium mines, and a review of the latest takeover could have identified any number of risks to national security, including that Canada and its partners will now have reduced access to vital lithium stocks [emphasis added], since production from Neo Lithium’s mine will now likely be exported to China to further its dominance in the sector [but even if the mine had stayed in Canadian hands the company might well still have sold its output to the PRC].

Canada’s national security interests don’t end at our borders. Resource firms should be considered as contributors to advancing Canada’s national security interests, irrespective of where their activities and assets are located. While Ottawa shouldn’t be exerting undue control over the commercial activities of Canadian firms, it does have an interest in ensuring those activities preserve Canada’s national — including economic — security. This latest acquisition raises serious questions about how effectively Canada’s national security review process is aligned with our critical mineral strategies.

The government needs to reduce the discretionary nature of the current legislation and provide clearer guidance on what types of investment situations would automatically trigger security reviews [emphasis added, I wouldn’t place any bets on serious action].

Canada’s economic security requires that we have access to resources that are needed to develop clean energy technologies and stronger resource supply chains. Allowing major suppliers of critical minerals to be bought up by Chinese state-owned firms does the reverse, putting Canada at a competitive disadvantage in the energy and resource sectors that will be critical to our success in the 21st century.

Jeff Kucharski is an energy policy specialist, a senior fellow at the Macdonald-Laurier Institute and adjunct professor at Royal Roads University.

2) And from an article at the Globe and Mail (in the business section as all too frequently happens, not the main news section):

Champagne to face federal committee hearings as state-owned Chinese firm buys Canadian lithium company

Niall McGee Mining reporter

François-Philippe Champagne, the federal Minister of Innovation, Science and Industry, will go before a federal committee as early as next week and answer questions about why Justin Trudeau’s Liberal government is allowing the acquisition of Canadian lithium firm Neo Lithium Corp. by a state-owned Chinese mining company without conducting a formal security review.

On Thursday [Jan. 20], a federal committee on industry and technology made up of Liberal, Conservative, NDP and Bloc Québécois members passed a motion that compels Mr. Champagne to testify next week on the matter. Also providing testimony at the hearings will be critical mineral industry experts and academics.

In October, Zijin Mining Group Ltd., which is controlled by the Chinese government, announced its intentions to buy Toronto-based Neo Lithium for $960-million. The junior Canadian company is developing a high-grade lithium brine project in Argentina, and it plans to supply the silvery white critical mineral to the electric-vehicle industry…

The lack of a review surprised several well-regarded security experts, and sparked a backlash from the Conservatives, who argued that allowing the takeover of Neo Lithium, without significant due diligence, potentially weakens Canada’s ambitions to develop a domestic supply of lithium.

While the specifics around the Trudeau government’s decision have not been made public, the Department of Innovation, Science and Economic Development told The Globe last week that the deal was “systematically and thoroughly scrutinized [emphasis added].” The department made its decision after factoring in the nature of Neo Lithium’s mineral deposit, and whether Canadian supply chains are likely to be able to exploit the final product.

It also took into account the company’s marginal presence on Canadian soil. While Neo Lithium trades on a Canadian stock exchange, its management team and the vast majority of its employees are based in Argentina…

Oh well, I guess. A relevant earlier post:

Premier Ford Touts Ontario EVs[good luck]

Mark Collins

Twitter: @Mark3ds

3 thoughts on “Why No National Security Review of Purchase by PRC SOE of Canadian Lithium Mining Company?”

  1. Now an editorial a the Globe and Mail (further links at original):

    ‘Canada has a strategy for a critical minerals. But there are some critical issues

    Canada has big ambitions in clean technology – to become “a world leader” in critical minerals and batteries, Prime Minister Justin Trudeau said in December.

    The goal, however, exists mostly on paper. Canada is barely out of the starting blocks. There’s ambition, but it doesn’t always jibe with actions.

    An important agreement was struck between Canada and the United States in early 2020. The U.S. had a list of 35 minerals it deemed “critical to economic and national security.” Canada is an important supplier of 13, notably potash and aluminum. It also provides a quarter of U.S. uranium. And it has the potential to be a player in lithium, which is essential to the batteries in electric vehicles, and may hold the key to power storage in an overhauled electrical grid.

    Among the things the two allies agreed to work on were “efforts to secure critical minerals supply chains for strategic industries.” Left unmentioned in the official press release was the cause of concern in Washington and Ottawa: China. It is already dominant in much of clean tech, including in the global lithium and battery businesses. And while Canada is a major supplier of 13 of 35 critical minerals to the U.S., China is the top supplier of 10 and an important supplier of 10 more.

    Lithium is abundant but deposits are concentrated in a few countries, led by Chile, Argentina and China. Canada has prospects but, at present, zero lithium mines, zero lithium processing plants and zero battery factories. All those zeroes do not add up to Canada becoming a world leader in the field.

    With all the talk of global ambitions and strategic challenges from China, there was widespread surprise when Ottawa did not review a $960-million takeover of Neo Lithium, a Canadian startup, by China’s state-owned Zijin Mining. Ottawa could have reviewed the deal on national security grounds. However, Neo Lithium’s connection to Canada is somewhat nominal – it trades on the TSX Venture Exchange, but the company’s management is based in Argentina, where its as-yet undeveloped lithium assets are located. Ottawa cited these reasons in declining to review the deal.

    And even if the company remained Canadian-owned, and it one day became, as it advertises, “the next major lithium producer,” it would be under no obligation to ship its Argentinian output to Canada. But in a global race for critical minerals, Ottawa closed its eyes by ceding a Canadian-incorporated company to the Chinese government.

    The opposition has questions, and Innovation Minister François-Philippe Champagne is expected to soon face a House of Commons committee. The grilling will be retrospective, the window for a review having passed, but the government must explain why its promise to secure critical minerals supply chains didn’t apply here.

    Watching China buy a Canadian domiciled company with a possibly major overseas lithium deposit is one thing. The bigger and more challenging issue is the building of a domestic lithium industry. There are contenders dreaming on the future, but today, no lithium miner is about to open.

    A Globe and Mail feature this month enumerated the problems..

    Canada’s ambitions are the right ones, at least on paper. The trick is moving beyond blueprints.’
    https://www.theglobeandmail.com/opinion/editorials/article-canada-has-a-strategy-for-a-critical-minerals-but-there-are-some/

    Mark Collins

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