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Ian Purdy, the chief executive of Paladin, said that meetings earlier this week with government officials about the transaction had gone well.Christopher Katsarov/The Globe and Mail

Australia’s Paladin Energy Ltd. PALAF is confident its proposed acquisition of Canada’s Fission Uranium Corp. FCU-T will clear a national security probe, as Ottawa makes enquiries about CGN Mining Co. Ltd., a China-based state-owned deal stakeholder.

Perth-based Paladin last month said it had reached a friendly agreement to buy Kelowna, B.C.-based Fission in an all-stock transaction worth $1.14-billion.

Fission is developing the Patterson Lake South (PLS) uranium project in the Athabasca Basin region of Saskatchewan and hopes it will be in production by the end of the decade.

Before a deal can close, the transaction must be cleared by Industry Minister François-Philippe Champagne, who is currently conducting a national security review.

Ian Purdy, the chief executive of Paladin, said in an interview that meetings earlier this week with government officials about the transaction had gone well.

“The feedback from the government departments was very positive and very supportive of the deal in all aspects,” he said.

The company earlier said the deal could close by the end of September, but that timeline could be pushed out if the 45-day initial security probe gets extended.

Fission’s biggest shareholder is CGN, whose parent is state-owned China Uranium Development Co. Ltd. CGN has a seat on Fission’s board and an offtake agreement to secure a certain amount of the uranium production from PLS over the duration of the mine’s life.

The CGN investment dates back to 2016 and came six years before Ottawa unveiled stringent measures aimed at preventing any future investment from China into Canadian critical minerals companies.

Mr. Champagne in 2022 said he would only allow acquisitions of Canadian critical minerals companies by Chinese state-owned enterprises under exceptional circumstances. The move was motivated by China’s relentless incursion into critical minerals that has seen the country carve out a dominant global position in battery minerals such as lithium, cobalt and graphite.

Mr. Purdy said that government officials have asked about the mechanics of the CGN investment in light of the proposed acquisition by Paladin.

Canada risks losing mining capital because of government opacity around Chinese investment in critical minerals sector

If the transaction goes ahead, the Chinese investor’s influence will fall dramatically. CGN will not have a seat on Paladin’s board, Mr. Purdy said. The offtake agreement will only last for three years, and CGN’s equity ownership will fall from a 12 per cent holding in Fission to about a 2.5 per cent stake in Paladin, he added.

“In terms of the dilution of the ownership, I think that was particularly important to the government officials we spoke to yesterday,” said Mr. Purdy.

The Globe and Mail reached out to Mr. Champagne for comment on the security review.

Audrey Milette, spokesperson for Mr. Champagne, declined to comment, citing confidentiality provisions of the Investment Canada Act.

Ottawa earlier this month raised the bar on allowing acquisitions of Canadian miners with significant critical minerals operations, saying those deals would be approved only under the most exceptional circumstances.

The value of Fission deal falls below the threshold for an automatic net benefit review by Ottawa in addition to the national security probe, meaning it won’t be impacted by that change in the government’s policy.

Paladin trades on the Australian Securities Exchange, and it plans to list on the Toronto Stock Exchange if the deal is approved. The decision to seek a secondary listing was in part to retain Fission’s significant Canadian retail shareholder base.

The projected market value of Paladin after the acquisition of Fission will be about US$3.5-billon, far below industry heavyweight Cameco Corp., which is worth $30.5-billion. But it will be sandwiched between NexGen Energy Ltd., which is worth $5.4-billion, and Denison Mines Corp. at $2.6-billion.

Paladin’s share price has ebbed and flowed over the years in line with the volatile uranium price. The industry went into a severe downturn after the 2011 meltdown of the Fukushima nuclear power plant in Japan. Many nuclear projects were cancelled after the disaster. Paladin in 2018 shut down its Langer Heinrich Mine in Namibia.

Investor interest started picking up again about five years ago, and the commodity went into another bull market. Nuclear power is increasingly pitched as a clean energy source because it generates no CO2 emissions.

Driven in part by speculative demand, uranium hit a multiyear high of US$106 a pound in February. Paladin earlier this year started up its Namibia mine again. In recent months, the commodity has fallen by about 19 per cent to around US$86 a pound.

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