Lack of Federal Mining Investment Oversight Leaving Arctic Vulnerable to China: Macdonald-Laurier Institute

The Canadian Coast Guard's medium icebreaker Henry Larsen in Allen Bay during Operation Nanook in Canada's Arctic in a file photo. The Canadian Press/Sean Kilpatrick

The federal government’s critical minerals strategy not only fails to procure investment in Canada’s north, it leaves the Arctic vulnerable to security risks from Beijing and other bad actors, according to a recent report.

Chinese state-owned enterprises seeking to “gain a foothold” in Canada are turning to the acquisition of junior mining companies in a bid to dominate the earth’s supply of rare minerals, says a paper from the Macdonald-Laurier Institute.

China is taking advantage of Canada’s minimal regulatory supervision of foreign investment, the report says, noting the gaps left by the division of responsibilities between Ottawa and its provincial or territorial counterparts. Combined with an “acute shortage” of North American investment capital, the gaps in oversight provide China with a clever way to obtain what it truly wants: access to the Arctic.

“Chinese state-owned enterprises are hiding in plain sight in this country,” reads the report penned by former Assistant Deputy Minister of Northern Affairs Stephen Van Dine.

“If left unattended, Canada’s critical minerals strategy will be undermined, and its Arctic backdoor will be left open.”

China’s most recent ploy to gain access in the Canadian Arctic came through its purchase of an 18.1 percent share in Vital Metals, an Australian-based mining company that owns Canada’s only operating rare earth mine: the Nechalacho project based in the Northwest Territories.

A subsidiary of Chinese company Senghe purchased the stocks but, because it was below the level of “triggers” set out in the Canadian Investment Act, the transaction wasn’t challenged by Ottawa, the report says.

Obtaining stocks in Vital Metals allowed Senghe to “get to the front of the line with a supply agreement to acquire the existing stockpile of the only rare earth minerals mined in Canada,” Mr. Van Dine writes.

“The move added to China’s already global dominance in the supply of rare earths, removed supply from North American and European manufacturers, and placed another speed bump in Canada’s embryonic rare earth processing capability. All of these factors could undermine Canada’s Critical Minerals Strategy, which was announced in December 2022.”

Investment Canada Act Issues

The federal department of Industry, Science and Economic Development Canada (ISED) administers the Investment Canada Act, which is designed to police foreign investment in the country.

The act gives the federal government the option to “step in, halt the purchase, and possibly rewind the clock,” the report says, but the move would likely be heavily protested by a struggling junior mining sector that is “hungry for investment.”

The act is currently undergoing its most extensive update since 2009. It currently sits before the Senate in the form of Bill C-34.

The act does not give provincial and territorial governments the authority to deal with issues related to foreign investment or any resulting national security issues.

“All three territorial governments are facing challenges related to Canada’s critical minerals strategy on the one hand, and the demands for investment in their territories on the other,” Mr. Van Dine writes. “Compounding the complexity is the absence of a complete picture of the scale of Chinese involvement in northern mining projects.”

In another Northwest Territories project located a few hundred kilometres from Yellowknife, Fortune Minerals’ NICO critical minerals project received $11.7 million from Chinese-owned Procon, an international engineering, procurement and construction firm based in Beijing, the report notes.

Mr. Van Dine says the NICO investment, along with the Vital Metals situation, shows there is a dire need for a northern projects registry that includes foreign direct investment information.

“While the government of Canada’s ambitions in the critical minerals strategy are clear, its strategy seems to be lacking coherence, which is leaving Canada’s Arctic backdoor open to foreign investment that might be working at odds with Canada’s national interests,” he writes.

He suggests Ottawa implement a critical minerals approach that improves the access of junior mining companies to capital, strengthens investment regulatory oversight, and encourages a higher level of intergovernmental cooperation and coordination.

Risks

Canada’s critical minerals strategy must protect national interests and address potential security risks, the report says. Failure to do so means Canada will no longer control access to its own critical metals and rare earth resources and will become even more dependent on products made from them in China such as microchips and processors.

Access or ownership of property in Canada’s north would also give China the ability to install listening devices or equipment on those properties “whenever they want,” the report points out.

Mr. Van Dine says increasing understanding about national security levels in the territories and increased coordination between Ottawa and territorial and indigenous governments are essential next steps in addressing the issue.

He also suggests government agencies involved in decision making streamline oversight of the mining sector by reviewing the processes of each agency and removing duplication. Doing so, he says, will enable regulators to rely on common information and substantially cut review time.

He also suggests Ottawa address current critical minerals strategy shortcomings by passing Bill C-34 and improving access to capital.

“Attracting investors who support Canada’s critical minerals strategy and the nation’s national security cannot be passive,” he says. “There is no time to waste.”