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Good Morning!
This Sunday morning, here in Cleveland Heights, Ohio, I am looking out on around six inches of pristine snow. We have been hit by part of a large storm complex that has already dumped some six feet of snow or more in northern New York State, in particular Buffalo. It “ferocity” is the result of something called the “lake effect”. With the Great Lakes now warmer, … I don’t think I need to go any farther, you probably all get it.
Why Ohio, when I always used to write from New York City? Well, after nearly 30 years there, I decided to eschew the outrageous expense. and we have moved just up the road from Case Western Reserve University here in Cleveland. It is wonderful (except, perhaps, for the weather) and I rue not one second.
But, on the metals front, it is what’s been going on over the (now very near) border that has caught my eye recently. I am trying to think of how to describe a recent action by the Canadian government in Ottawa: “volte face”, “bouleversement”, “change in direction” or just “U-turn”. Hmm!
If you think back to January this year, you may remember that, having received Canadian government approval, Zijin Mining group (a Chinese state-owned operation) closed its deal and paid some $770 million (C$960 million) to acquire Canadian lithium miner Neo Lithium Corp. For those who follow such things, this may have appeared, for two reasons alone, somewhat anomalous. First, back in January 2020, the US and Canada had finalized their plan to secure critical metal supply chains. And, second, in March last year, the Canadian government updated its National Security Review Guidelines. In addition to noting its concern about investments by state-owned and/or -influenced entities, the guidelines also listed lithium as a critical mineral. We were certainly left with food for thought.
Then, in early November, we were provided with another serving! Following a national security review, and describing them as threats to national security, the Canadian government demanded the divestment by three Chinese groups of their stakes in various companies involved in critical minerals. (This, we were told, followed an intelligence and defense review.) These were: Sinomine (Hong Kong) Rare Metals Resources’ shareholding in Canadian lithium miner Power Metals; Chengze Lithium International’s stake in Lithium Chile; and Zangge Mining Investment (Chengdu)’s stake in Canadian developer Ultra Lithium.
One really has to wonder what has changed between then and now. OK, Canadian Innovation, Science and Industry Minister François-Philippe Champagne’s November announcement did come soon after he had announced that the country would be limiting foreign state-owned companies’ involvement in the critical minerals industry and that “while Canada continues to welcome foreign direct investment, we will act decisively when investments threaten our national security and our critical minerals supply chains, both at home and abroad.” (On 28 October, in its statement “Policy Regarding Foreign Investments from State-Owned Enterprises in Critical Minerals under the Investment Canada Act,” the Canadian government provided “additional clarity about how the Investment Canada Act will be applied to investments in Canadian entities and assets in Critical Minerals sectors from foreign state-owned enterprises (SOE).”)
However, I am still not sure quite how to square his position then with his position now vis-à-vis Neo Lithium. Back in January, he was reported as saying that, with assets in Argentina, directors in the UK and only three Canadian employees, the company was “really not a Canadian company.” The metal was still lithium and the company’s involvement in it part of the supply chain of a critical mineral!
Does this actually mark a major shift in Canadian policy? Or is the part of a progression, the rest of which I have not recognized? Was the decision in January regarding Neo Lithium “wrong”, or has the country come under increased pressure from its allies, to wit, the US? Perhaps only time will tell. Either that, or we may, perhaps, gain more “clarity” sooner, when the country reveals its critical minerals strategy.
Thinking about it further, I do believe it is a U-turn. I think, also, that it may indicate an acknowledgement on Canada’s part that, now, there can (must?) be quite significantly different extents to which the country is “open” to inbound foreign investment—especially when defense and intelligence issues are involved. The thing is, nowadays, when are these last not involved?
With that, I should like to bid you farewell from a snowy Cleveland Heights, for another month.
And I remain, as always
Yours
Tom Butcher
©2022 Tom Butcher
Tom Butcher is a Director at Van Eck Associates Corporation (“VanEck”). The views and opinions expressed herein are the personal views of Tom Butcher are not presented by or associated with VanEck or its affiliated entities.