Innovation, Science and Industry Minister Francois-Philippe Champagne rises during question period in the House of Commons on Parliament Hill in Ottawa on Oct. 31.Sean Kilpatrick/The Canadian Press
Investors are unsure whether Australia-based Paladin Energy Ltd.’s proposed acquisition of Fission Uranium Corp. FCU-T will succeed, as Ottawa conducts a make-or-break national security review on the transaction, with Chinese influence under scrutiny on both sides of the deal.
In June, Paladin 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, which is projected to eventually account for about 5 per cent of global supply.
When Paladin announced the transaction, it had hoped to close the deal by the end of September because it banked on it not raising any red flags during the initial security review period by Ottawa. But in October, both companies announced that the deal was being subject to an extended review by Canadian Industry Minister François-Philippe Champagne under section 25.3 of the Investment Canada Act, which means he believes there are reasonable grounds the transaction could be injurious to national security.
In 2022, Mr. Champagne toughened his oversight over acquisitions of Canadian critical minerals companies by firms with ties to Chinese state-owned enterprises, saying such deals would only be approved under exceptional circumstances. The move was motivated by China’s ability to carve out a dominant global position in battery minerals such as lithium, cobalt and graphite. Since then, the Industry Minister has vetoed several attempted acquisitions by Chinese investors into Canadian critical minerals companies.
Paladin has strong ties to China. Its Langer Heinrich Mine in Namibia is 25-per-cent owned by CNNC Overseas Uranium Holding Ltd., a subsidiary of the state-owned China National Nuclear Corporation. CNNC is also Paladin’s biggest customer, with an offtake agreement with the company to buy a quarter of the uranium output from Langer Heinrich.
At a uranium conference earlier this year, Paladin chief executive officer Ian Purdy said CNNC “is very keen for as much production as we can send their way.”
Ottawa is also scrutinizing Chinese influence on the other side of the deal. Fission’s biggest shareholder is CGN Mining, whose parent is state-owned China Uranium Development Co. Ltd. It also has an offtake agreement to purchase up to 35 per cent of the uranium production from PLS over the duration of the mine’s life, as long as it maintains a certain equity threshold in Fission.
The acquisition of Fission by Paladin would see CGN drop below that minimum threshold because of the share swap arrangement. In July, Mr. Purdy told The Globe and Mail that CGN would go from holding a 12-per-cent in Fission to a roughly 2.5-per-cent stake in Paladin. Mr. Purdy said CGN would lose its offtake agreement on PLS after three years as a result. In fact, Mr. Purdy stressed this fact to government officials in the summer, as it lobbied to try to convince Ottawa to approve the deal.
As is typical during national security reviews, Mr. Champagne is giving nothing away about which way he is leaning. Riyadh Nazerally, his spokesperson, wrote in an e-mail to The Globe that the decision will be based on facts and evidence, and on the advice of Canada’s security and intelligence community and other government partners.
“While Canada continues to welcome foreign direct investment, the government will act decisively when investments threaten Canada’s national security,” he added.
Mr. Champagne was also asked at a recent public forum what appeared to be a veiled question about the deal. In a webcast with BMO, he was probed about how he would view an acquisition of a Canadian uranium company if the acquirer is from a Five Eyes country, an intelligence alliance that includes both Canada and Australia.
Mr. Champagne replied that such a deal would be evaluated on a case-by-case scenario and command a high level of scrutiny, and that national security would be a major consideration.
“I cannot prejudge anything,” he added.
As uncertainty persists over the deal, trading in Paladin’s shares has been volatile, with arbitrage traders in particular making bets on the outcome. The company has also seen an uptick in short-selling activity in its stock, Paladin recently said in a regulatory disclosure.
Investor interest in the uranium sector has picked up over the past few years. Nuclear power is increasingly pitched as a clean energy source because it generates no carbon emissions. Still, worries persist over the challenges of the long-term storage of radioactive waste and the possibility of another accident at a power plant.
Uranium went into a protracted slump after the 2011 meltdown of the Fukushima power plant in Japan after an earthquake and tsunami. Many nuclear power projects were cancelled after the catastrophe.