A Chinese company’s plan to acquire a stake in the owner of the NWT’s Nechalacho rare earths mine should trigger a national security review, some MPs say.
Shenghe Resource Holdings said in October one of its subsidiaries had agreed to purchase shares worth up to $13 million in Vital Metals, which owns Nechalacho.
On the one hand, investment from a large rare earths player like Shenghe is a welcome boost. On the other, it reads like a betrayal of Vital’s stated aim to challenge Chinese market dominance – and is making Canadian politicians nervous.
On Thursday, members of the House of Commons’ Standing Committee on Industry and Technology passed a motion by six votes to five urging industry minister François-Philippe Champagne to review the Shenghe transaction – and potentially intervene.
Some MPs are concerned that China, already dominant in the rare earths industry, is attempting to gain leverage over a project in Canada that was designed to loosen China’s grasp on critical minerals, not bolster it.
But what, exactly, Canada can do appears to be more complex than some politicians are suggesting. And the NWT’s chamber of mines wonders whether the size of the stake in question – 18 percent – is worth the fuss.
What can Canada do?
The wording of the motion that narrowly passed on Thursday, put forward by shadow industry minister and Nova Scotia MP Rick Perkins, was as follows:
“Whereas the company Shenghe Resources, which is 14-percent owned by Beijing, is attempting to acquire significant holdings in Vital Metals, a Canadian-owned [rare earth] company, the committee calls the minister of industry to invoke a national security review under the Investment Canada Act over Beijing’s takeover of Vital Metals.”
There are problems with that wording. One, can you call 18 percent a takeover? We’ll come back to that.
Two, Vital Metals is not Canadian-owned.
Vital is headquartered in Australia, registered in Australia, has a board primarily featuring Australians, was until earlier this year listed on the Australian Securities Exchange, formatted its 2023 annual report to comply with Australian law, banks in Australia, and is audited by Australian auditors.
In a press release issued after the committee passed its motion, shadow minister Perkins said his Liberal counterpart should use the Investment Canada Act to “block Beijing’s acquisition of Canada’s only rare earth mining company.”
Yes, Vital Metals calls itself Canada’s first rare earths mining company (it does this in very big letters on its website, and it is indeed the only company running a rare earths mine in Canada). But Vital Metals itself is not Canadian.
That complicates Canada’s relationship with Shenghe’s attempt to purchase up to 18 percent of Vital. Ordinarily, one nation has little to no power to intervene in transactions involving the companies of two other nations.
But Vital does – through Canadian subsidiary Cheetah Resources, which is registered in the NWT – own a Canadian mine, Nechalacho.
Section 25 of the Investment Canada Act gives the federal industry minister the power to intervene where there’s a national security concern and an entity has “assets in Canada used in carrying on the entity’s operations.”
Vital meets that definition.
The legislation reads: “If the minister has reasonable grounds to believe that an investment by a non-Canadian could be injurious to national security, the minister may, within the prescribed period, send to the non-Canadian a notice that an order for the review of the investment may be made.”
In other words, if the minister doesn’t like the look of Shenghe (14-percent owned by a wing of the Chinese government) acquiring an 18-percent stake in Vital Metals, the minister can order a review.
Is a review under way?
We asked Innovation, Science and Economic Development Canada – the industry minister’s department – for comment.
The department said it was “aware” of the proposed transaction but confidentiality provisions in the same legislation mean it can’t comment on any reviews, even to confirm they exist.
In general, a departmental spokesperson said, “the government has not hesitated and will not hesitate to take action on transactions that would be injurious to Canada’s national security.”
So we don’t know if the Shenghe transaction is actually being reviewed or not.
Kenny Ruptash, David Connelly, Paul Gruner, Ernest Betsina, Cheetah, Vital, mine, metals, industry
Canada’s power to compel a Chinese firm not to take a stake in an Australian firm appears limited. But if Canada didn’t like Vital selling a stake to Shenghe, the legislation does seem to equip the minister to order that Vital get rid of any Canadian assets and essentially stop doing business here.
Given the whole point of Shenghe’s investment is the Nechalacho mine, that threat would likely have the effect of killing the deal. Shenghe has far less reason to invest in Vital if Vital doesn’t have Nechalacho in its portfolio.
Such an outcome would also be awkward for Nechalacho’s future, as it would mean Vital having to sell the mine to anyone prepared to bid for it.
We asked Perkins’ office and the Conservative shadow cabinet how the party imagines the law being used to police a transaction involving Chinese and Australian businesses.
Sam Lilly, a shadow cabinet spokesperson, said by email: “The committee has signalled for the minister to invoke a national security review process – it will be up to the process to determine.”
Some of the committee’s MPs thought the motion was meaningless in the circumstances, which is why they voted against it.
The committee’s chair said he thought the committee had “no bearing” on whether or not the minister orders a review of a transaction, and Liberal MP Peter Fragiskatos said he wasn’t “sure the committee would have the ability” to have any influence on the minister’s decision-making. The motion does not bind the minister.
China, the last resort
Neither Vital Metals nor Shenghe returned requests for comment.
However, Shenghe has previously noted the prospect of this sort of government intervention.
In a document announcing the Vital proposal, issued by its board of directors on October 23, Shenghe included a “risk analysis” section that lists this outcome as one of the most obvious risks.
Vital also has operations in Tanzania. Shenghe’s directors wrote: “This transaction is an overseas investment, and the countries involved in the project include Australia, Canada, and Tanzania … There is a question of whether the relevant filing, registration and approval can be successfully obtained during the transaction review by the host country’s government regulatory agencies.”
A view of part of the Nechalacho mine site from the air. Ollie Williams/Cabin Radio
Meanwhile, the NWT and Nunavut Chamber of Mines has questions from a Northwest Territories perspective.
Tom Hoefer, the chamber’s executive director, told Cabin Radio he found Shenghe’s investment in Vital “a bit puzzling,” given Vital’s prior objective of rivalling China.
But Hoefer also pointed out that an 18-percent stake isn’t a controlling interest in the company.
Canada has used its legislation before to shut down Chinese investment in the North, cancelling the sale of Nunavut’s Hope Bay gold mine to a Chinese company in 2020. But in that instance, Hoefer said, Shandong Gold was proposing a full buyout of a Canadian company, not a partial stake in an Australian one.
“That’s a little different,” he said. “I don’t think 18 percent is that uncommon for some other shareholder to acquire.”
It is, of course, possible that Shenghe could look to increase its stake in future if it gets to 18 percent without much trouble.
Hoefer said he assumes Vital has “a game plan” but wants the company to provide clarity on whether “there’s a limit to the Chinese investment they would be looking for” that might reassure Canadians concerned about national security.
“The other big question here,” Hoefer said, “is why are we not seeing Canadian companies investing in projects like this? Part of it is looking inwards at ourselves and trying to understand why companies are reluctant to come up to the North and invest here. It’s almost like the Chinese are the last resort, the ones that have more risk tolerance.”
He continued: “There’s a big disconnect between all the hype we’re hearing – and it’s not just hype, but all the realities of the demand for critical minerals that we need to address climate change … and yet here at the front end, these companies have to go and find the stuff and see if they can create a mine around it, and they struggle to raise money.
TORONTO – Canada’s main stock index was up more than 100 points in late-morning trading, helped by strength in the base metal sector, while U.S. stock markets were also higher.
The S&P/TSX composite index was 143.00 points at 24,048.88.
In New York, the Dow Jones industrial average was up 174.22 points at 42,088.97. The S&P 500 index was up 10.23 points at 5,732.49, while the Nasdaq composite was up 30.02 points at 18,112.23.
The Canadian dollar traded for 74.23 cents US compared with 74.28 cents US on Wednesday.
The November crude oil contract was down US$1.68 at US$68.01 per barrel and the November natural gas contract was down six cents at US$2.75 per mmBTU.
The December gold contract was up US$4.40 at US$2,689.10 an ounce and the December copper contract was up 13 cents at US$4.62 a pound.
This report by The Canadian Press was first published Sept. 26, 2024.
Switching to an online-only bank more than a decade ago was just another way Jessica Morgan was trying to save money at the time as a new grad.
“Saving money was the main motivator,” Morgan, now a financial educator and founder of Canadianbudget.ca, recalled.
“After graduating, you no longer qualify for student rates where you might get free banking and I didn’t want to go back to paying fees for giving the bank my money to hold.”
Digital lenders have grown in popularity in recent years, with more players popping up in the sector and traditional banks beefing up their online offerings. But some Canadians may still be hesitant to bank with a financial firm that doesn’t have physical branches where you can talk to an employee face-to-face.
Natasha Macmillan, director of everyday banking at Ratehub.ca, says some of that hesitancy to switch to an online lender is loyalty.
“There’s a large portion of Canadians who have had the same bank account for many years … they’re just hesitant to switch because it’s what they know.”
Tedious paperwork to switch banks can also discourage many Canadians from making the move despite the ease of opening online-only bank accounts, Macmillan added.
“There’s that aspect of you still need to sit down, do your research and then pick that online-only bank,” she said.
Data security concerns have also sowed seeds of doubt among many who are contemplating the switch, and prefer to continue to work with traditional banks with long-established reputations, Macmillan said.
Morgan said she often hears concerns from her clients — “What if I need help? Is this bank safe to use?” or more logistical questions, such as having access to an ATM or getting certified cheques.
One of the only major snags she personally recalls running into with her online lender was when she was purchasing a home.
“I needed to get a certified cheque, like, right away if I was going to put in an offer,” Morgan said. “You can get a certified cheque but it takes three days or so. They courier it to you.” She ended up going to her husband’s traditional bank to get day-of service.
Most online-only banks tend to offer banking products, such as savings accounts, with higher interest rates compared with traditional banks. Many also offer access to cash through any bank ATM without charge.
“Digital banks have generally a lower cost structure than a traditional bank and those savings will be passed on to the customer,” said Mahima Poddar, group head of personal banking at EQ Bank. For example, EQ offers a high-interest chequing account with no fees on everyday banking and unlimited transactions.
But customers should be aware they can’t deposit cash into their account and they can only withdraw bills, not coins.
“We don’t offer depositing of cash, but all of our research has shown that the use of cash is really diminishing,” Poddar said. “There are very few reasons why you need to urgently deposit.”
Customers also have to get used to doing all their banking by phone or through the company’s website or app.
Poddar added she thinks Canadians are more open to change, especially after the COVID-19 pandemic, which accelerated the need for better online banking services.
While trust in traditional institutions plays a strong role in choosing a bank, Poddar said EQ has the same level of protection and is governed by the same regulators as the big six banks in the country.
Lisa Brandt, 61, switched to online-only Manulife Bank more than five years ago. She says she has benefited from the move and has saved a lot of money over time on various banking fees.
“It puts me in the driver’s seat,” she said.
However, she did run into an issue once with depositing a cheque after she sold her home.
“If you’re going to deposit a couple hundred thousand dollars from a house sale, you’ll have to courier (the cheque) to them,” she said.
“It’s not quite as simple as walking into a branch and saying, ‘Give me my money.'”
While many online-only banks have been growing their consumer banking product offerings, traditional banks tend to have more financial product options, not only for individuals but also for small businesses.
“What we have heard from some Canadians is while they might be moving their chequing, savings and GIC accounts to those (online-only) spaces, they’re still maintaining a mortgage with the big players,” Macmillan said.
It’s not about moving all assets to one bank but weighing options on an individual basis, such as picking a bank with the lowest fee on a chequing account but moving investments to another bank for a better return, she explained.
“We’re starting to see that flexibility where people are shopping around for the best opportunity that can give them the most bang for their buck,” Macmillan said.
She added it is important for people to identify why they’re thinking of switching and find an online-only bank that aligns with their goals.
“It’s finding that happy medium where you do feel trust and security, that lower cost and fees and also the convenience and accessibility,” Macmillan said.
This report by The Canadian Press was first published Sept. 26, 2024.
TORONTO – Strength in the energy and base metal stocks lifted Canada’s main stock index higher in late-morning trading, while U.S. stock markets also climbed higher.
The S&P/TSX composite index was up 78.80 points at 23,973.51.
In New York, the Dow Jones industrial average was up 89.81 points at 42,214.46. The S&P 500 index was up 2.55 points at 5,721.12, while the Nasdaq composite was up 21.24 points at 17,995.51.
The Canadian dollar traded for 74.24 cents US compared with 74.02 cents US on Monday.
The November crude oil contract was up US$1.06 at US$71.43 per barrel and the November natural gas contract was down two cents at US$2.83 per mmBTU.
The December gold contract was up US$18.10 at US$2,670.60 an ounce and the December copper contract was up 15 cents at US$4.49 a pound.
This report by The Canadian Press was first published Sept. 24, 2024.
