New rules for critical minerals foreign investments

Category: Blog

The Government of Canada has taken a step further in its critical minerals strategy with the vision to boost the supply of these types of minerals to grow domestic and global value chains for the green and digital economy. Industry Minister Francois-Philippe Champagne and Natural Resources Minister Jonathan Wilkinson announced a new approach to this sector.

The Government of Canada provided additional details 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), restricting the involvement of these companies in this sector amid a global rush for resources. Companies and countries around the world are moving to secure critical minerals such as aluminum, lithium and cobalt since they are vital for electronics and low-carbon technologies.

In a discussion paper published a few months ago, the Government of Canada highlighted that critical minerals are essentials to advance the economy toward renewable energy and clean technology applications. They are necessary, for example, for advanced batteries, permanent magnets, solar panels, wind turbines, and small modular reactors, as well as advanced manufacturing applications, including defense and security technologies, semiconductors and consumer electronics, and critical infrastructure.

Once some investments into the country by SOEs can be motivated by non-commercial imperatives that are contrary to Canada’s interests, the government disclosed this new framework for the review of such investments to handle the so-called “inherent risk to Canada’s growth, prosperity and security.”

“Increasing demand and constrained supply of these all-important minerals are presenting Canada with a generational economic opportunity, and the government of Canada is committed to seizing that opportunity while delivering on its ambitious climate goals,” the ministers said in a statement disclosed on October 28. “While we continue to welcome foreign direct investment that supports this goal, Canada will act decisively when investments threaten our national security and our critical minerals supply chains.”

The new measures will make it more difficult for foreign SOEs to buy or invest in the industry since the government plan to set a higher bar for whether such an investment is considered beneficial to Canada.

Among the factors that will be examined to determine whether an investment would be of net benefit are the extent to which a foreign government might have control over Canadian business in the transaction; the degree of competition in the sector; the corporate governance of the foreign SOE; whether the deal might endanger Canadian security; and if the Canadian business to be acquired is likely to continue to operate on a commercial basis.

Strategy and investments expected

Since the public consultation period for the discussion paper closed on September 15, the federal government is expected to release by the end of 2022 Canada’s Critical Minerals Strategy. With five core objectives – support economic growth and competitiveness; promote climate action and environmental protection; enhance global security and partnerships with allies; advance Indigenous reconciliation; and foster diverse and inclusive workforces and communities -, the strategy seeks to position Canada as a global leader in supplying the resources to industries and other countries.

Laila Hawrylyshyn, the co-chair of the Brazil-Canada Chamber of Commerce Ottawa (BCCC Ottawa), explains that the development of Canada’s first Critical Minerals Strategy is backed by $3.8 billion CAD in Federal Budget 2022 in support over eight years, on a cash basis, starting in 2022-23. “This will create thousands of jobs, grow the economy and make Canada a vital part of the growing global critical minerals industry.”

Of that total amount, up to $1.5 billion CAD for infrastructure development for critical mineral supply chains, with a focus on priority deposits, and up to $1.5 billion CAD ($1 billion CAD in new funding and $500 million CAD from existing funds) for the Strategic Innovation Fund to support critical minerals projects, with prioritization given to manufacturing, processing, and recycling applications.

Mining sector key figures

One of the main world players in the mining sector, Canada already produces over 60 minerals and metals. A leading global producer of many critical minerals, including nickel (ranked sixth in the world mine production), potash (the world’s largest exporter of potash), aluminum (the world’s fourth-largest primary aluminum producer), and uranium (the world’s second-largest producer), Canada currently has a list of 31 critical minerals. The minerals sector, which includes exploration, mining and related support activities, primary processing, and downstream product manufacturing, has an important role in the economy and are the building blocks for a clean and digitized economy.

In 2021, the direct contribution of Canada’s minerals and metals sector to Canada’s gross domestic product (GDP) was $97 billion CAD, which represented 4% of Canada’s total GDP. The indirect effects from the minerals and metals sector added a further $35 billion CAD to the GDP, for a total contribution of $132 billion.

WRITTEN BY: Adriano Macedo


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