Investment deal sends stockpiled minerals from NWT rare earths mine to China

Click to play video: 'Ottawa monitoring Chinese investment in domestic rare earths mine'
Ottawa monitoring Chinese investment in domestic rare earths mine
WATCH ABOVE: Ottawa monitoring Chinese investment in domestic rare earths mine – Dec 16, 2023

The federal government says it’s monitoring a Chinese investment in a struggling Australian firm that owns Canada’s only operating rare earths mine.

According to a release on the company’s website, the first stage in Shenghe Resources Holding Co., Ltd’s investment in Vital Metals was completed as of Monday, in shares issued to raise roughly $5.3 million.

The deal also means Vital Metals will sell stockpiled rare earth material from its Nechalacho mine in the Northwest Territories to Shenghe for $2.3 million, a sale the company expects to be completed by early next year.

According to the Australian rare earths miner, the material was originally destined for processing at its facility in Saskatoon. But the subsidiary behind that plant, Vital Metals Canada Limited, was placed into bankruptcy in September.

Click to play video: 'Construction paused on Saskatoon critical minerals processing facility'
Construction paused on Saskatoon critical minerals processing facility

On its website, Vital Metals says, “Shenghe has no preferential rights over future production from Nechalacho.”

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Multiple requests for comment from Global News to both Shenghe and Vital Metals went unanswered.

The announcement of the intended investment back in October has set off ripples of concern in the North American critical minerals sector, with industry insiders and politicians alike warning of the potential risk to the output from Canada’s first operating rare earth mine.

Rare earth elements (REEs) are essential to the so-called green economy, used to make permanent magnets for everything from smartphones and tablets to electric vehicles and wind turbines.

Last year, the federal government released a $4-billion plan to boost a locally-sourced supply chain for REEs, in order to avoid “vulnerabilities in emerging markets such as critical minerals,” said Minister of Natural Resources Jonathan Wilkinson at the time.

Canada and its allies have focused in recent years on diverting the critical minerals supply chain away from reliance on China, the dominant player in the global market.

“This is a non-existent supply chain in Canada, there isn’t a permanent magnet supply chain,” said Ahmad Hussein, director of government relations for Halifax-based Ucore Rare Metals. The company has been commercializing its proprietary critical mineral separation process, with a demonstration plant in Kingston, Ont., and a larger facility in the works south of the border.

Hussein is among those in the industry worried about the Chinese investment in Vital Metals.

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“China has demonstrated over and over again that they have no regard for international fair commerce,” says Hussein. “As we’ve seen in Japan, as we’ve seen in the United States and now we’re seeing with AI semi-conductor manufacturing, they’re limiting exports of product based on political reasons as opposed to commercial reasons.”

“Once a product leaves North America and is destined for China, you no longer see that product coming back, you only see the final product, a phone, a car, a wind turbine — you would never see the actual material come back,” Hussein adds.

Click to play video: 'Canada eyes ‘generational opportunity’ with new critical minerals strategy'
Canada eyes ‘generational opportunity’ with new critical minerals strategy

Last week, opposition members of the Standing Committee on Industry and Technology passed a motion calling on the minister of Innovation, Science, and Industry to block the Shenghe investment.

“China is increasingly taking over our critical minerals, our mining assets,” said Rick Perkins, a Nova Scotia PC MP and shadow minister for Innovation, Science, and Economic Development.

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Perkins says the Investment Canada Act gives the minister authority to act.

“As soon as those acquisitions are proposed by entities headquartered in China, there should be an automatic review by this minister, and the minister should stop them from happening,” he added.

Perkins says Shenghe is 14 per cent owned by the Chinese government and accused it in a news release of “attempting to acquire significant holdings in Vital.”

In response to a Global News request for an interview with Minister François-Philippe Champagne, the department would only offer a short statement by email stating the department was “aware” of the transaction and that it “would not hesitate to take action on transactions that would be injurious to Canada’s national security.”

“The Investment Canada Act provides for a national security review of any foreign investment into Canada, regardless of its value,” the statement says. “The confidentiality provisions of the Investment Canada Act mean the government cannot comment on reviews under the Act.”

In November last year, the federal government reviewed Chinese investments in lithium mining and ordered the companies to divest their investments in three Canadian critical mineral companies.

That move came after Ottawa faced criticism for allowing another Chinese firm, Zijin Mining, to take over Neo Lithium Corp. without a security review.

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Canada’s Guidelines on the National Security Review of Investments state that non-Canadian “acquisitions of all or part of an entity carrying on operations in Canada” can be subject to a review.

“It’s been a hard two years for Vital Metals,” said Heather Exner-Pirot, a senior fellow and director of the Natural Resources, Energy and Environment department at the Macdonald-Laurier Institute. “Canadian junior miners are starved of capital right now, and it’s counter-intuitive.”

Exner-Pirot says despite the government’s focus on the transition away from fossil fuels and into green energy, “a lot of investment mining is at historical lows.”

She says what the industry needs is more domestic private capital or public funding.

“How is it that we are still relying on a Chinese investor to come with, again, 6 million, 9 million, 15 million dollars, to save a Canadian rare earths project from facing demise?” she asks.

But Exner-Pirot believes there are legitimate security concerns in this case. “The Chinese have already shown that they’re willing to use their market dominance in a lot of critical minerals and a lot of processing for their own interests and their own ends, as you would expect them to do.”

“You have to wonder on the Canadian side and with our allies, why we’re not playing a longer, smarter game here,” she adds.

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A second stage in the investment by Shenghe into Vital Metals gives the Chinese firm the option to subscribe to further shares to raise an additional $8.9 million.

Together, the two stages of investment could give Shenghe an 18 per cent stake in the Australian company.

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