Chinese companies cut from holdings in Canadian critical mines

Ottawa has ruled three Chinese groups to get rid of their stakes in Canadian critical mineral companies after intelligence authorities reviewed their money posed a threat to national security.

The announcement mirrors a notable hardening of Canada’s stance towards China. In particular, the government instructed Sinomine (Hong Kong) Rare Metals Resources, Chengze Lithium International and Zangge Mining Investment to unwind investments and exit stakes in Canadian resource developers and miners.

What is more notable, industry minister François-Philippe Champagne, who is responsible for foreign-investment policy, announcing the divestitures said Canada welcomed foreign direct investment from companies that “share our interests and values”. “While Canada continues to welcome foreign direct investment, we will act decisively when investments threaten our national security and our critical minerals supply chains, both at home and abroad,” Champagne said. Last week, Ottawa said it is going to create a resilient critical minerals supply chain with “like-minded partners”.

“The federal government is determined to work with Canadian businesses to attract foreign direct investments from partners that share our interests and values,” Champagne said.

The decision comes as the government recently announced that it would allow only state-owned entities to invest in its critical mineral companies on an “exceptional basis”, signaling a tougher appealing on Chinese companies. Canada`s officials claimed critical minerals were “essential to powering the green digital economy” and presented Canada with a “generational economic opportunity”.

The move would not immediately touch Chinese lithium supply since Canada was not a large supplier, experts said. However, it was significant because it marked a shift in national security policy of western countries from traditional national security risks to critical supply chain risks. China should be worried about the direction and decisiveness of tendency, since Washington subtly urges allies to abrupt their reliance on Chinese industry.

In recent years US government seems to be consistent in pursuing a policy of withdrawal from addiction on China for the refinement of critical minerals. Such minerals are crucial in manufacturing everything from missiles to green products. For decades, Chinese business has been among the most aggressive purchasers of access to minerals that constitute the clean tech transition. For instance, Chinese refiners process far more than half the lithium global supply, while mere 13% of its mining occurs in China. Although Australia is still the main supplier of raw materials with about 18.3 thousand tons of ore mined per year, and lithium raw materials are also supplied by Chile (14.1 thousand tons per year), total market share can reach up to 80%.

Given lithium mining and processing has been defined one of the national priorities by China`s Communist party, the shear battle for resources is just heating up. Global lithium demand will rise tenfold in coming two decades, according to the IEA. The growth is driven by a general shift away from fossil fuels to electric-powered transport and energy storage.

Canada has large deposits of critical minerals like nickel and cobalt, which are essential for clean energy transition and other technology innovations. Earlier this year, Canada, US, Britain and other allies set a new partnership for securing the critical minerals supply. Canada and the US have both determined minerals and metals they deem essential to their future sustainable economic development, pointing the instability created by Europe’s dependance on Russia`s oil and gas after the invasion in Ukraine, and kindling tensions with China, which extracts most of the world’s rare earths, as grounds to close supply chains mostly in the hands of friends and allies.

US Treasury Secretary Janet Yellen called it as “friend-shoring” during a trip to Ottawa in June. “So friend-shoring is the idea that countries that espouse a common set of values about international trade, conduct in the global economy, should trade and get the benefits of trade so we have multiple sources of supply and are not reliant excessively on sourcing critical goods from countries where we have geopolitical concerns,” she said.

The Investment Canada Act subjects foreign investments to review for national security concerns and Champagne said critical mineral investments get “enhanced scrutiny”, and any transaction that involves the transfer of control of critical minerals—essential for the production of electric vehicles, cellphones and wind turbines—to foreign entities could be subject to a national-security review.

In fact, it will touch everything from exploration and development to mining, refining and processing.