Conservatives call on Trudeau government to conduct formal security review on Chinese takeover of Canadian lithium firm

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The Conservative Party of Canada is calling on Prime Minister Justin Trudeau’s Liberal government to conduct a formal national security review on the pending acquisition of Canadian lithium development company Neo Lithium Corp. by Chinese state-owned Zijin Mining Group Ltd.

In October, Zijin announced its intention to buy Toronto-based Neo Lithium for $960-million. Neo Lithium is developing a mine in Argentina and hopes to eventually supply the silvery white mineral to the electric-vehicle industry for batteries.

Last year, Canada designated lithium as a critical mineral, meaning it is essential to the economy. Ottawa and Washington in 2020 finalized a joint action plan on critical minerals, with commitments by both governments to build secure North American supplies of battery minerals, as fears of a growing stranglehold by China on global supplies intensify.

All foreign takeovers of Canadian companies are subject to an initial security screening by Ottawa. If the government suspects the transaction could be a threat to national security, the deal undergoes a more thorough formal review under Section 25.3 of the Investment Canada Act, and could ultimately be blocked.

The Globe and Mail this week reported that the federal government did not conduct the formal review, paving the way for the deal to close.

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Earlier in the week, Neo Lithium spokesperson Carlos Vicens said the government had 45 days after the announcement was unveiled to launch the formal review, but that did not happen.

The Conservatives expressed concerns over the lack of a formal review in a statement on Thursday.

“Canada is falling behind in developing its critical mineral industries, and allowing the foreign takeover of companies like Neo Lithium without due diligence could further weaken our strategic interest in developing a domestic supply of lithium and other critical minerals,” the party said.

“That’s why Canada’s Conservatives are calling on the Liberals to immediately conduct a national security review of the takeover under the Investment Canada Act and to explain why a national security review was not completed in the first place.”

Sophy Lambert-Racine, spokesperson with the federal Ministry of Innovation, Science and Economic Development, wrote in an e-mail to The Globe that “investments in critical minerals are systematically and thoroughly scrutinized by the Investment Review Division in concert with the responsible government departments and Canada’s security and intelligence community, and through consultations with foreign allies wherever appropriate.”

She added that every foreign takeover of a Canadian firm is reviewed on its merits. “Considerations can include such factors as the nature of the mineral deposits involved, since some forms of a critical mineral are of greater or lesser strategic value to Canada; the ability of Canadian supply chains to exploit the asset; and the nature of the Canadian business and whether it has operations in Canada, or, for example, is principally domiciled here for regulatory or other reasons, with few – if any – local staff or assets.”

Neo Lithium is listed on the TSX Venture Exchange, but its management team and operations are based in Argentina. Several analysts had said that, for this reason, the purchase of the firm by China doesn’t present an obvious security threat to Canada.

Still, the lack of a formal security review by the government on the Neo Lithium deal took some security experts by surprise.

Wesley Wark, senior fellow at the Centre for International Governance Innovation in Waterloo, Ont., had been convinced the deal would merit an in-depth review, and be scrutinized against the backdrop of supply fears over the critical mineral in North America, and worries about the potential loss of intellectual property to China.

In an e-mail to The Globe on Thursday, he called the outcome on Neo Lithium a “total head scratcher.”

Neo Lithium did not immediately respond to a request for comment for this story.

At the moment, Canada has no lithium mines, no lithium-ion battery plants and no lithium-processing facilities. The country is an also-ran compared with the United States, Chile, Australia and especially China, which processes about two-thirds of global lithium output.

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