SRG Mining Inc. has called off its financing deal with a privately held Chinese company, after Canada’s Industry Minister publicly chastised the miner for trying to skirt a national security review related to the agreement.
Last summer, China-based Carbon One New Energy Group Co. Ltd., also known as C-One, proposed buying a 19.4-per-cent stake in SRG’s Lola graphite project in West Africa for $16.9-million. For the first few months after the deal was announced, Montreal-based SRG told its investors that the deal was subject to a national-security review by the Canadian federal government.
SRG eventually announced that it was planning on redomiciling in the Middle East, a legal manoeuvre it said would negate the requirement for the security review.
“It’s never smart to try to circumvent the rules,” Minister of Innovation, Science and Industry François-Philippe Champagne told The Globe and Mail on Monday. The federal government is prepared to use “every tool at our disposal” to make sure Canadian law is respected, he added.
Less than 24 hours after Mr. Champagne’s comments, SRG announced that it had terminated its financing deal with C-One. SRG chief executive Matthieu Bos said in a Tuesday news release that the decision to call off the deal was “challenging,” but made in the interest of safeguarding shareholders.
The critical-minerals sector had been monitoring the SRG situation closely, because if the deal had been allowed to proceed it would have offered a potential loophole for executives to use in raising money from China and other jurisdictions Ottawa has deemed national-security threats. Under the Investment Canada Act, the federal government has the power to review and ultimately block foreign investments in Canadian companies.
Some market watchers were surprised that the saga had played out so publicly and that Mr. Champagne had taken action.
“It’s stunning,” said Christopher Ecclestone, principal and mining strategist with Britain-based Hallgarten & Co.
“I mean, Canadians don’t do that kind of thing. A minister with some gumption. It’s quite amazing.”
For Canadian mining companies that have tentative financing transactions with China-based entities, the implications of Mr. Champagne’s actions on SRG are clear, Mr. Ecclestone said: “Thou shall not sell thyself to the Chinese. And if you do, we’re not going to like it.”
SRG now finds itself with a capital hole to fill, as it works to put its graphite project, located in the Republic of Guinea, into production. The company did not respond to a request for an interview.
After critics accused Ottawa of allowing too many Canadian mining companies to be sold to Chinese buyers from 2019 through the early part of 2022, the federal government clamped down in late 2022.
That’s when Mr. Champagne said he would not allow investments in Canadian critical-minerals miners by entities tied to state-owned enterprises, except under exceptional circumstances. He also ordered three China-based companies with ties to the Chinese government to divest themselves immediately of their stakes in three Canadian critical-minerals companies.
Over the past decade, China has built a dominant position in car battery metals such as lithium, cobalt and graphite. It is now concentrating on crushing its global competition in nickel.
China has used its power in critical minerals to exert economic influence over the West. In October, China announced restrictions on exports of graphite, a move aimed at Western automakers. Natural Resources Minister Jonathan Wilkinson said in an interview with The Globe late on Tuesday that he is concerned about the potential for China to manipulate the nickel market, owing to its growing control of supplies of the metal coming out of Indonesia.
Investors are now watching to see what Mr. Champagne might do about other pending financing deals between Canadian mining companies and China-based buyers that are subject to national-security reviews.
One of those deals involves Vancouver-based Solaris Resources Inc., which earlier this year announced that Zijin Mining Group Co. Ltd. planned to acquire a 15-per-cent stake in its business, worth $130-million. Solaris plans to use the funds raised from China-based Zijin to advance its Warintza copper project in Ecuador.
Niall McGee