The federal Industry Minister is defending the government’s decision to allow Canada’s Neo Lithium Corp. to be acquired by state-owned Chinese mining giant Zijin Mining Group Co. Ltd. without a formal national security review, saying the process was rigorous.
“This transaction was absolutely reviewed to make sure there was no security risk,” François-Philippe Champagne said in an interview. “It was even subject to enhanced scrutiny based on the guidelines issued last March.”
That’s when the government updated the Investment Canada Act (ICA) to specify that all acquisitions made by state-owned firms must merit closer attention. The government also in March added that it would scrutinize deals through the lens of whether they threatened Canada’s supply chain of critical minerals.
In October, Zijin Mining announced it was buying Neo Lithium for $960-million. The Toronto-based development company plans to build a high-grade lithium mine in Argentina. Neo Lithium’s 3Q project has enough reserves to produce battery-grade lithium for 50 years.
All foreign takeovers of Canadian companies are subject to a security screening by Ottawa, a process that can involve the Canadian Security Intelligence Service (CSIS), and consultation with allies such as the United States. If the federal government suspects a transaction could be a threat to national security, it undergoes an in-depth review under Section 25.3 of the Investment Canada Act (ICA). That typically takes many months, and can result in a deal being blocked.
No such review transpired with Neo Lithium. In fact, despite the added checklist from the March guidelines, the dislocation of a federal election in the fall that left Parliament suspended until late November, and the worsening COVID-19 pandemic, the government gave the Neo Lithium deal the nod 45 days after it was announced. It was the fastest possible timeline for approval.
Over the past few years, Zijin of China has made steady inroads into the Canadian mining sector, acquiring copper company Nevsun Resources Ltd. for $1.9-billion, Continental Gold Inc. for $1.4-billion, and Guyana Goldfields for $323-million. Zijin also owns a 39.6-per-cent stake in Ivanhoe Mines Ltd.’s Kamoa-Kakula project, one of the world’s biggest new copper mines.
When asked if the federal government has taken too light an approach with Zijin as it accumulates Canadian mining assets. Mr. Champagne said the acquisitions are assessed case by case, and that the process is rigorous.
After The Globe and Mail reported that the Neo Lithium acquisition did not merit a formal security review, the Conservatives accused the Liberal minority government of weakening Canada’s position in lithium and playing into China’s hands.
Canada currently has no lithium mines, no lithium processing plants and no lithium battery plants.
China dominates the industry. It is among the biggest miners of the metal, and has a 60-per-cent share in refining. Purchasing Neo Lithium will further strengthen its position.
But Mr. Champagne maintains that keeping Neo Lithium a Canadian company would not benefit Canada. Since the mine is far away in Argentina, the lithium is unlikely to make it into the domestic supply chain. Mr. Champagne also said the lithium carbonate the company plans to produce is not of strategic value to Canada. More important, Mr. Champagne said, are companies that produce lithium hydroxide, because batteries that use this form of the metal last longer.
“Definitely this is the one that is preferred by battery manufacturing suppliers in North America and Europe,” he said.
While lithium hydroxide has its supporters, not all experts agree it is superior to carbonate.
Caspar Rawles, chief data officer with Benchmark Mineral Intelligence in London, said lithium carbonate is extremely valuable and, in fact, is more widely used than hydroxide in the industry. At the moment, carbonate is trading at a premium to hydroxide because of a supply shortage, and some companies are even paying to turn hydroxide into carbonate, he said.
The lithium company in Canada that is closest to production is Nemaska Lithium Inc., which has financial backing from the Quebec government. Nemaska is building a large mine and processing plant in Quebec, aiming to produce lithium hydroxide. The privately held company is majority-owned by British private-equity firm Pallinghurst Group. Pallinghurst acquired Nemaska after an earlier iteration of the company was forced to seek creditor protection because of operational stumbles. First production at the newly capitalized Nemaska is about three years away.
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