Ottawa allows Chinese acquisition of Canada’s Neo Lithium to pass with no formal national security review

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Ottawa did not conduct a formal security review on the pending acquisition of Canadian lithium company Neo Lithium Corp. by Chinese state-owned firm Zijin Mining Group Ltd., paving the way for the deal to close.

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 metal 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.

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 to the United States, Australia and especially China, which processes about two-thirds of global lithium output.

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

According to Neo Lithium, no such review transpired.

“The law states they have 45 days after announcement to start a review if they believe there is a specific concern,” Carlos Vicens, spokesperson with Neo Lithium, wrote in an e-mail to The Globe and Mail. “The timeline passed in early December and no review was done.”

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Sophy Lambert-Racine, spokesperson with the federal Ministry of Innovation, Science and Economic Development, wrote in an e-mail to The Globe that every foreign investment is reviewed on a case-by-case basis. “This process is undertaken in consultation with Canada’s national security and intelligence agencies,” she wrote. Ms. Lambert-Racine added that the government is committed to protecting Canada’s national and economic security, “which includes strong consideration for critical mineral assets.”

Several security experts had told The Globe the deal would likely trigger a formal review.

Wesley Wark, senior fellow at the Centre for International Governance Innovation in Waterloo, Ont., said the deal would 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.

He said the federal government “would look very negatively” on a Chinese acquisition of a Canadian critical minerals developer. “I would imagine that this would go to [a formal security review] because it’s an early test case with the new strategy that the government is developing on critical minerals.”

While some national security experts had expected a security review from Ottawa that might ultimately result in it nixing the deal, several analysts thought otherwise.

Puneet Singh, an analyst with Industrial Alliance Securities Inc., wrote that the risk of the federal government blocking the deal was low, given that Neo Lithium’s project is located overseas and therefore presents no blatant national security concern for Canada.

Last year, Ottawa blocked the proposed sale of Canadian gold miner TMAC Resources Inc. to China’s Shandong Gold Mining Co. Ltd. That deal was kiboshed because the gold mine in question is located on strategically sensitive land. TMAC’s Doris mine is only about 100 kilometres from a NORAD North Warning System radar station in Nunavut, part of a chain of installations across the North that gather military information.

“The TMAC issue was different, since the Nunavut project area was strategic to Canada,” Mr. Singh said.

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