A South African gold company’s agreement this week to buy a Toronto-based miner for $2.16 -billion isn’t expected to raise national security concerns from Ottawa. Gold is valuable, but it isn’t critical. Today, as the federal government weighs another foreign bid for a Canadian copper company, we explore the difference.
Up top
- Former CFO sues RBC: Former Royal Bank of Canada chief financial officer Nadine Ahn is suing the bank for nearly $50-million, claiming RBC wrongfully terminated her employment four months ago after an internal investigation allegedly found she had an undisclosed personal relationship with a colleague that led to preferential treatment.
- Branching out: Bank of Nova Scotia announced it will pay US$2.8-billion in cash for a 14.9-per-cent stake in KeyCorp, which operates roughly 1,000 branches across 15 states under the name KeyBank National Association. But as Scotiabank bets big on the U.S., investors are slow to applaud.
- More power: Canadian engineering giant WSP Global Inc. has struck a deal to acquire U.S. consulting firm Power Engineers Inc. as it bulks up its capabilities in the North American energy sector.
- Pumping up the tires: Goodyear Canada Inc. announced a $575-million project to modernize and expand its plant in southeastern Ontario, including tires for electric vehicles, with federal and provincial government funding of as much as $64-million.
In focus
A decision looms large over Canada’s mining industry
An electric sedan from Chinese automaker BYD on display in Shanghai. Fast-growing demand from the electric vehicle and renewable energy sectors has made copper a critical part of Canada's place in the global supply chain.Ng Han Guan/The Associated Press
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BHP Group Ltd.’s proposed acquisition of 50 per cent of Filo Corp. is among the first deals to be scrutinized by Ottawa under new, tougher takeover rules aimed at protecting the domestic critical minerals industry from foreign incursion. Mining reporter Niall McGee walks us through why the deal’s outcome will set an important precedent in Canada’s mining industry.
Why does the Canadian government have rules around foreign investment in the mining sector here?
The rules are there to make sure that these takeovers make economic sense for Canada and guard against any national security threat.
Why are these minerals considered critical?
A critical mineral is one that is considered essential to economic well-being, one that there are supply concerns around and one that is used in the move to lower carbon energy sources. Gold is not a critical mineral because there is plenty of supply and there are very few industrial uses. Lithium is a critical mineral in Canada because it is used in electric car batteries, and China dominates the supply chain while Canada produces very little.
Why are those rules coming into more focus now?
In recent years, national security has become a major focus because of the rise of China in critical minerals. China dominates the supply chain in many critical minerals such as lithium, cobalt, graphite and, more recently, nickel. All of these minerals are used in energy sources that are less environmentally destructive than fossil fuels such as coal and oil.
What are the global implications of China’s rise?
Governments around the world have made it a priority to shore up domestic supplies of these metals, or at the very least source them from countries where the relations are friendly. Western countries like Canada do not want to rely on China. This is the very definition of a national security threat. So, Canada in 2022 essentially outlawed any takeovers of Canadian critical minerals companies by Chinese firms. And since then, the government has indeed shot down several attempts by Chinese firms to acquire Canadian critical minerals assets.
What else has the federal government done since then?
What really surprised a lot of people was last month Ottawa went one step further and said it will only approve foreign takeovers of “important Canadian mining companies engaged in significant critical minerals operations” under the most exceptional of circumstances. By doing this the government was sending the message that Canada’s biggest critical miners can’t be sold to just anyone, including Canada’s allies.
Under what “exceptional” circumstances would the government allow investment?
We can look to recent history for clues because the government has not spelled that out. On national security grounds, the government so far has nixed quite a few proposed investments by Chinese firms into Canadian critical minerals companies. Those include Zijin Mining Group Co. Ltd.’s proposed deal with Solaris Resources Inc. and Carbon One New Energy Group Co. Ltd.’s proposed transaction with SRG Mining Inc.
And what about exceptions under the new net benefit rules?
There hasn’t been a test yet of what the government may be prepared to tolerate. But we will know a lot more soon because there is a live deal that we believe is currently undergoing a net-benefit review: BHP’s joint bid for Canada’s Filo.
If this transaction had been announced even two months ago, I think that few people would have been concerned about the government blocking a large Australian mining company from investing in Canadian critical minerals assets, but with the new rules in place, it’s not clear what will happen.
What are the arguments for these regulations?
The “for” argument is easy to understand around national security. Few people think it’s a good idea to sell Canadian critical minerals assets to the Chinese. China is not on good terms with many Western countries and is already abusing its dominant position in critical minerals. For example, this year the price of nickel has crashed because China, in conjunction with Indonesia, is flooding the market with cheap supply, causing great pain for many Western nickel producers, including Canadian operators.
And against?
There are some good reasons for allowing Chinese investment. The Chinese have very deep pockets and are willing to stick it out for decades before seeing a return, unlike many Western publicly traded investors, who want to see returns quickly.
Also, if you are a small Canadian critical minerals company and a rich Chinese investor wants to acquire you at a 30-per-cent premium to market, this may be considered a great outcome, particularly if you are a shareholder or an executive of the company, who may get a huge “change of control” payout if the firm is sold.
💡 Recommended reading: Canada wants to be a global leader in critical minerals. Why is Australia eating our lunch? Plus: A commodity rout is brewing, and Canada will be at the centre of any fallout.
Charted
Since Constellation Software Inc. went public in 2006, the stock has generated a compound total return, after factoring in dividends, of 36.3 per cent annually. That’s better than any other TSX name over the same time frame, Tim Shufelt writes.
The outlook
Today: U.S. reports its Producer Price Index for July – a key measure of inflation at the wholesale level. Earnings include Franco-Nevada, Cargojet, Home Depot, HudBay Minerals, Silvercorp Metals, Superior Plus, Algoma Steel.
Tomorrow: U.S. consumer prices for July will command the market’s attention and could add more pressure on the Federal Reserve to move more aggressively on its lending rate.
To Russia: About US$2.3-billion in dollar and euro bills have been shipped to Russia since the United States and the EU banned the export of their banknotes there in March, 2022.
With love: What time is sex again? Stress, burnout and the toxicity of busy life are testing the limits of desire, Zosia Bielski writes. A good place to start: Put it in the calendar.
Morning markets
Japanese stocks rallied amid mixed markets ahead of a slew of data this week, including U.S. inflation numbers tomorrow that could clarify the Federal Reserve’s policy outlook after volatile markets last week. Nasdaq and S&P futures pointed higher while TSX and Dow futures were in the red.
Overseas, the pan-European STOXX 600 was 0.2 per cent lower in morning trading. Britain’s FTSE 100 declined 0.08 per cent, Germany’s DAX slid 0.17 per cent and France’s CAC 40 gave back 0.3 per cent.
In Asia, Japan’s Nikkei ended the session 3.45 per cent higher, after being closed yesterday for a holiday, while Hong Kong’s Hang Seng rose 0.36 per cent.
The Canadian dollar traded at 72.81 U.S. cents.