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 down more than 200 points in late-morning trading, weighed down by losses in the technology, base metal and energy sectors, while U.S. stock markets also fell.
The S&P/TSX composite index was down 239.24 points at 22,749.04.
In New York, the Dow Jones industrial average was down 312.36 points at 40,443.39. The S&P 500 index was down 80.94 points at 5,422.47, while the Nasdaq composite was down 380.17 points at 16,747.49.
The Canadian dollar traded for 73.80 cents US compared with 74.00 cents US on Thursday.
The October crude oil contract was down US$1.07 at US$68.08 per barrel and the October natural gas contract was up less than a penny at US$2.26 per mmBTU.
The December gold contract was down US$2.10 at US$2,541.00 an ounce and the December copper contract was down four cents at US$4.10 a pound.
This report by The Canadian Press was first published Sept. 6, 2024.
TORONTO – Canada’s main stock index was up more than 150 points in late-morning trading, helped by strength in technology, financial and energy stocks, while U.S. stock markets also pushed higher.
The S&P/TSX composite index was up 171.41 points at 23,298.39.
In New York, the Dow Jones industrial average was up 278.37 points at 41,369.79. The S&P 500 index was up 38.17 points at 5,630.35, while the Nasdaq composite was up 177.15 points at 17,733.18.
The Canadian dollar traded for 74.19 cents US compared with 74.23 cents US on Wednesday.
The October crude oil contract was up US$1.75 at US$76.27 per barrel and the October natural gas contract was up less than a penny at US$2.10 per mmBTU.
The December gold contract was up US$18.70 at US$2,556.50 an ounce and the December copper contract was down less than a penny at US$4.22 a pound.
This report by The Canadian Press was first published Aug. 29, 2024.
The crypto market has recently experienced a significant downturn, mirroring broader risk asset sell-offs. Over the past week, Bitcoin’s price dropped by 24%, reaching $53,000, while Ethereum plummeted nearly a third to $2,340. Major altcoins also suffered, with Cardano down 27.7%, Solana 36.2%, Dogecoin 34.6%, XRP 23.1%, Shiba Inu 30.1%, and BNB 25.7%.
The severe downturn in the crypto market appears to be part of a broader flight to safety, triggered by disappointing economic data. A worse-than-expected unemployment report on Friday marked the beginning of a technical recession, as defined by the Sahm Rule. This rule identifies a recession when the three-month average unemployment rate rises by at least half a percentage point from its lowest point in the past year.
Friday’s figures met this threshold, signaling an abrupt economic downshift. Consequently, investors sought safer assets, leading to declines in major stock indices: the S&P 500 dropped 2%, the Nasdaq 2.5%, and the Dow 1.5%. This trend continued into Monday with further sell-offs overseas.
The crypto market’s rapid decline raises questions about its role as either a speculative asset or a hedge against inflation and recession. Despite hopes that crypto could act as a risk hedge, the recent crash suggests it remains a speculative investment.
Since the downturn, the crypto market has seen its largest three-day sell-off in nearly a year, losing over $500 billion in market value. According to CoinGlass data, this bloodbath wiped out more than $1 billion in leveraged positions within the last 24 hours, including $365 million in Bitcoin and $348 million in Ether.
Khushboo Khullar of Lightning Ventures, speaking to Bloomberg, argued that the crypto sell-off is part of a broader liquidity panic as traders rush to cover margin calls. Khullar views this as a temporary sell-off, presenting a potential buying opportunity.
Josh Gilbert, an eToro market analyst, supports Khullar’s perspective, suggesting that the expected Federal Reserve rate cuts could benefit crypto assets. “Crypto assets have sold off, but many investors will see an opportunity. We see Federal Reserve rate cuts, which are now likely to come sharper than expected, as hugely positive for crypto assets,” Gilbert told Coindesk.
Despite the recent volatility, crypto continues to make strides toward mainstream acceptance. Notably, Morgan Stanley will allow its advisors to offer Bitcoin ETFs starting Wednesday. This follows more than half a year after the introduction of the first Bitcoin ETF. The investment bank will enable over 15,000 of its financial advisors to sell BlackRock’s IBIT and Fidelity’s FBTC. This move is seen as a significant step toward the “mainstreamization” of crypto, given the lengthy regulatory and company processes in major investment banks.
The recent crypto market downturn highlights its volatility and the broader economic concerns affecting all risk assets. While some analysts see the current situation as a temporary sell-off and a buying opportunity, others caution against the speculative nature of crypto. As the market evolves, its role as a mainstream alternative asset continues to grow, marked by increasing institutional acceptance and new investment opportunities.
