The Teck Resources logo on a podium before the company's special meeting of shareholders in Vancouver on April 26, 2023.DARRYL DYCK/The Canadian Press
Ottawa is making foreign investment in critical minerals more restrictive as the mining industry seeks capital to develop the raw materials that will be key to a low-carbon economy.
Industry Minister François-Philippe Champagne approved Glencore PLC’s US$6.9-billion acquisition of Teck Resources Ltd.’s TECK-B-T metallurgical coal-mining business on Thursday, attaching a series of conditions following a net-benefit review. Teck said the deal will free up billions of dollars to reward its shareholders and speed up development of its copper production.
Along with the approval, Mr. Champagne imposed a stricter policy for net-benefit reviews of foreign takeovers of miners with sizable critical-minerals operations. Under the Investment Canada Act, the ministry conducts such an examination of economic, employment and industrial impact when a foreign player launches an bid of at least $1.3-billion in enterprise value for control of a Canadian entity.
As part of its multibillion-dollar critical minerals strategy, the government listed 31 minerals it deems as important to the transition to a low-carbon economy, such as copper, lithium, cobalt and molybdenum. Steel-making coal, such as that acquired by Swiss-based Glencore, is not on the list.
Mr. Champagne said acquisitions of companies with large-scale operations in critical materials will now only pass a net-benefit test under “the most exceptional circumstances.” The move shows the level of importance the government places on protecting the sector, he said in a statement.
On Friday, his colleague, Natural Resources Minister Jonathan Wilkinson, said the government is confident that the more stringent provisions will not limit capital available to the industry. Instead, they will ensure the operations remain under Canadian control, he said.
The directive will affect only companies with large-scale production, and not early-stage miners and explorers. Those can still seek foreign capital, he said at a news conference in Calgary, during which he discussed how Ottawa is prioritizing critical minerals.
“What it says is, those companies that are headquartered in Canada, their head offices are in Canada, their research and development is done in Canada, are important,” Mr. Wilkinson said. “It’s important for Canada to have flagship enterprises in an area that is strategic, and so it affects only a very few companies.”
The more stringent measures may not have an immediate impact on acquisition and financing activity in the Canadian mining industry, said Jim Dinning, a lawyer at Davies Ward Phillips & Vineberg LLP in Toronto, who specializes in Investment Canada reviews. However, it could limit the number of smaller mining companies that may seek to list their shares on the Toronto Stock Exchange – a concern raised as a result of tougher national-security reviews imposed in recent years, he said.
“That’s an open question here as well. If the goal is to grow big, and perhaps one day attract investment from outside of Canada, which might be necessary, this might – to the extent that the policy is enforced – limit the ability of companies to do that,” Mr. Dinning said.
Despite expectations for surging demand for critical minerals in a global race for dominance in electric vehicles and energy storage batteries, as well as wind and solar and all of the electronic gear to run it, junior miners in Canada have struggled in recent years to attract capital to develop projects.
In the past few years, security concerns have upended plans to fund critical minerals development. In a recent example, Solaris Resources Inc. SLS-T called off a financing deal with China’s Zijin Mining Group Co. Ltd. in May after failing to receive regulatory approval from Ottawa.
With its approval for Glencore’s coal acquisition, the government insisted that business must keep a Canadian head office in Vancouver and have a majority of Canadian directors for at least 10 years. As well, at least 66 per cent of executives and senior managers must be Canadian. Glencore committed to maintain significant levels of employment in the business over the next five years.
Glencore also agreed to invest an additional $350-million in mine rehabilitation and closings over five years. Further, it will be responsible for payment of all environmental obligations under Canadian law stemming from the acquisition through to 2050, even if it subsequently sells the coal business to another party.
The government also took the unusual step of securing a commitment from Teck, as seller of the assets, to reinvest a significant amount of the deal proceeds into its copper mines, as it also buys back stock, pays a special dividend and reduces debt by up to $2.75-billion.
The company said the commitment does not mean it is letting the government dictate its capital spending plans. In fact, it had already told its investors that the copper operations would be a major beneficiary of the sale of the coal business, Teck spokesman Dale Steeves said in an e-mail.
“This is fully in line with our existing and very public focus on transforming Teck into a pure-play energy transition metals company with industry-leading copper growth,” Mr. Steeves said.
Jonathan Price, Teck’s chief executive officer, said the company aims to double its copper production this year when it ramps up its Quebrada Blanca project in Chile. It could increase output another 30 per cent as early as 2028 by advancing other developments in British Columbia, Peru and Mexico. All the capital investments could total as much as $4.9-billion.