The move, which says future deals will only be approved “on an exceptional basis,” comes as Canada continues to market itself as the “global supplier of choice” for critical minerals

Canadian critical minerals are now subjected to more stringent foreign investment rules as the government looks to keep tighter control over the country’s resources.

The federal government announced late last week that it’s applying existing Investment Canada Act rules to the critical mineral sector. The news comes against a backdrop of increasing foreign activity in Canada’s mineral sector as OEMs and battery makers around the world look to secure raw material supplies to feed battery manufacturing and the EV supply chain.

“Starting today, significant transactions by foreign state-owned enterprises in Canada’s critical minerals sectors will only be approved as of likely net benefit on an exceptional basis,” reads a joint statement from François-Philippe Champagne, minister of Innovation, Science and Industry (ISED), and Jonathan Wilkinson, minister of Natural Resources.

“While we continue to welcome foreign direct investment that supports this goal, Canada will act decisively when investments threaten our national security and our critical minerals supply chains.”

Limiting ownership

Under the Investment Canada Act (ICA), a state-owned enterprise includes companies that are owned or influenced by any federal, state or municipal levels of government as well as any individuals that may be controlled, influenced by or report directly to a government.

The rules apply to complete takeovers or majority-stake controlling interest purchases as well as the establishment of new companies.

“Should a foreign state-owned company participate in these types of transactions, it could constitute reasonable grounds to believe that the investment could be injurious to Canada’s national security, regardless of the value of the transaction,” reads the statement.

The government has in the past pointed to examples where state-owned foreign ownership of Canadian companies has been disallowed, including blocking Chinese ownership of the TMAC Resources Inc. mine in Nunavut in 2020 and Chinese state-owned China Mobile (not related to the critical mineral sector), which was ordered to divest its Canadian assets in 2021.

Response to scrutiny?

In January 2022, minister Champagne was summoned before the Standing Committee on Industry and Technology to explain why the government approved the purchase of Canadian-headquartered Neo Lithium by Chinese state-owned Zijin Mining in a $960-million cash transaction.

The purchase was permitted by ISED apparently after being “reviewed by the government and national security experts, full stop,” said Champagne at the inquiry.

Committee members repeatedly expressed concerns that sufficient checks were not carried out and that lithium, as a critical mineral, is of strategic importance to Canada as the transportation sector transitions to battery-based vehicles.

The review of the Neo Lithium takeover that was conducted was based on “consultations” with security and intelligence as well as Canadian allies, explained Champagne.

After the consultations about the Neo Lithium take over by Zijin Mining, “There was sufficient information to make a determination at that stage of the review that no national security harm could arise as a result of this transaction,” said Champagne.

That determination cleared the way for the transaction to proceed and bypass a more protracted review under section 25.3 of the ICA, which is part of the “multi-phase” national security review and only occurs when during the consultation process a transaction is found to be “injurious to Canada’s national security.”

“In the case of Neo Lithium, we looked at the mineral, the location of the operation, and the impact on the supply chain,” said Champagne to the committee. “I am happy to repeat that the Neo Lithium transaction has been reviewed…When we conclude that the transaction poses no threat to national security, we terminate the investigation.”

The joint statement between Minister Champagne and Minister Wilkinson now reflects that just the involvement of a state-owned entity in a transaction may, in and of itself, constitute a national security threat.