Government of Canada Orders Chinese Investors To Divest $36 Million From Lithium Juniors
The Government of Canada places its stamp on private investment as three Canadian junior mining companies are ordered to find alternative sources of funding while they have yet to turn a profit or begin meaningful mining operations beyond exploration.
Ottawa has ordered Canadian mining companies to have Chinese firms divest interest. The government’s decision falls under the efforts of the Investment Canada Act (ICA).
The decision applies to Power Metals Corp (TSXV: PWM), Lithium Chile (TSXV: LITH), and Ultra Lithium (TSXV: ULT).
The three Canadian companies range in market capitalization from $12 million to $125 million. Attracting new investors may not be all that easy in this case. Presently all three are not profitable and only one, Ultra Lithium, has begun mining operations for gold extraction.
What is the Investment Canada Act? The government defines the purposes of the act as "to provide for the review of significant investments in Canada by non-Canadians in a manner that encourages investment, economic growth and employment opportunities in Canada and to provide for the review of investments in Canada by non-Canadians that could be injurious to national security."
The last point regarding national security is the most notable. In a press release from François-Philippe Champagne, Minister of Innovation, Science and Industry, he referred to these specific investments, all from Chinese-owned companies, as threats to Canadian national security and critical minerals supply chains, both at home and abroad.
Power Metals Corp, based out of Vancouver, British Columbia, first signed a letter of intent with Beijing-based Sinomine Resource Group in September 2020. The Vice President of Sinomine, Frank Wang currently serves as the Director of Power Metals Corp.
Johnathan More, Chairman & CEO of Power Metals stated in a press release, "While we are surprised by Canada's stance towards Chinese investment into Canada's critical minerals industry, it clearly shows that they see the opportunity and assets of Power Metals as too valuable for such foreign investment.”
Sinomine took a 5.7% stake in the company in December 2021. With a market valuation of just over $31 million, Sinomine holds roughly a $1.8 million equity investment. In 2021, Power Metals Corp. had an operating loss of $846,000.
Power Metals Corp. is noted as being a Canadian mining company with a mandate to explore and develop high quality mining projects. Presently, the company has three projects to mine cesium, lithium and tantalum in northern Ontario.
Lithium Chile is headquartered in Calgary, Alberta and features properties exclusively in Chile and Argentina to mine for lithium and gold. Lithium Chile is also in the exploration phase and has yet to begin mining operations.
Lithium Chile has a market capitalization of $125 million, and with a 19.35% stake in the company, Chengze Lithium International Limited’s investment is valued at roughly $24 million.
In 2021, Lithium Chile reported an operating loss of $3.1 million and has yet to demonstrate profits, while its stock price is down 20% in the last five years.
In the case of Lithium Chile and its overseas properties, if it struggles to retain future investments as a result of Ottawa’s forced divestitures, Lithium Chile will have the ability to redomicile as a means of retaining its investment with Chengze.
Ultra Lithium is based out of Vancouver, B.C. and holds lithium exploration projects in Ontario, Nevada and Argentina, while also holding gold mining and exploration projects in Argentina.
Ultra Lithium is the smallest company involved in Ottawa’s enforcement at a market valuation of $12 million. Zangge Mining Investment (Chengdu) Co., has agreed to pay US$10 million to Ultra Lithium, while also investing US$40 million for a 65% stake in a subsidiary of the company, Ultra Argentina S.R.L.
Last year, Ultra Lithium reported a $683,000 operating loss and is projected to be even further in the red in 2022. The company’s stock price is down 67% in the past year and 89% in the last five years.
While Ultra Lithium loses a substantial investment and development partner for its projects, with a relatively small market valuation and poor financials, the likelihood of it obtaining other means of funding remains doubtful.
In a press release, Ultra Lithium stated it is surprised by the policy and “the announcement has been detrimental to the company’s many Canadian shareholders.”
Ultra Lithium is urging the federal government to follow through on its promise to identify alternative sources of capital that the company desperately needs.
In sum, the announcement will remove $36 million of Chinese investments from three Canadian mining companies.
The Chinese government has responded to the divestment order. According to the Xinhua News Agency, the Chinese commerce industry has accused Canada of “politicizing economic and trade relations.”
Foreign investors will take note of the federal government’s decision, especially as Canada is a global mining hub, with 43% of the world’s public mining companies listed on the Toronto Stock Exchange. Will the nationalization of private investment be a continued theme?
The question remains whether Ottawa’s actions will accelerate the removal of Chinese companies in Canadian operations, such as telecommunications firm Huawei, which is banned in the United States, or even TikTok’s parent company, ByteDance, which was the focus of a looming ban under the Trump Administration.
(Top photo of a Lithium mining operations located in northern Chile via Twitter / @TomHegen)
