A subsidiary of a Chinese state-owned mining company says Canada is mistakenly considering national security reviews in a deal to buy a gold and copper mine in Peru.
In May, Vancouver-based Pan American Silver Corp. said it had signed an agreement to sell its stake in Peru’s La Arena gold mine to Jinteng (Singapore) Mining Co., a subsidiary of China’s Zijin Mining Group, for about $300 million.
Pan Am said at the time that the agreement was “subject to customary conditions and regulatory approvals.”
But Canadian Industry Minister François-Philippe Champagne subsequently determined the deal “may be harmful to national security” and told the company in late June that he “may order” a formal review under the law.
Certain types of foreign investments involving Canadian companies are reviewed for national security reasons, and Zinten voluntarily notified Canada’s director of investment at Innovation, Science and Economic Development shortly after the agreement was announced.
The federal government maintains a list of about 30 critical minerals that are “essential to Canada’s economy and national security,” and the screening of investments involving foreign companies like Zijin is a safeguard to maintain Canadian control over materials essential to the “green and digital economy.”
Natural Resources Minister Jonathan Wilkinson unveiled the Liberal government’s new critical minerals strategy, which includes plans to accelerate mining of materials for clean energy technologies.
Zijin is partly owned by the Chinese government and overseen by members of the Chinese Communist Party.
Canada’s critical minerals strategy outlines how European allies have “experienced the consequences of relying on countries with different perspectives on strategic materials.”
In a request for judicial review filed in the Federal Court in late July, Zinten argued that the minister “lacked the authority under law” to order a national security review of the La Arena deal.
“The targets are Peruvian companies. They have no establishments in Canada, they do not conduct business in Canada and they have no individuals employed or self-employed in Canada. [assets] “It is being used to carry on business in Canada,” the application states.
National security experts have warned about the geopolitical implications of allowing foreign powers to buy Canadian companies in the sector, and Zinten’s move to circumvent the national security review process is a test of Ottawa’s influence over companies that are incorporated in Canada but do not operate in the country, existing only to hold foreign assets.
A story that’s “actually very simple”
Despite voluntary notice being sent to Ottawa about the transaction, Zinten argued that the transaction did not involve a “Canadian business” as defined in the Act because the target companies and their assets, although owned by Pan American subsidiaries incorporated in British Columbia and Ontario, were located in Peru.
In its application, the company argues that the minister’s decision is “based on an unacceptable and unreasonable interpretation of the law and is therefore legally incorrect.”
Aaron Shull, managing director and general counsel at the Ontario-based Centre for International Governance Innovation, said the case is “really a very simple story, but it’s a pretty complicated story.”
He said the transaction involved a Canadian parent company selling its Peruvian assets to a Chinese company, and that the subsidiary structure involved could be for a variety of reasons, including liability avoidance or tax purposes.
Schall said the Canadian government intends to scrutinize foreign investments, such as strategic minerals, that involve “adversary countries” and “take a tougher stance.”
“Especially from state-owned enterprises and companies with very close ties to the state,” he said.
He said the deal not only covers the gold mining assets, but also nearby gold and copper mines and electricity transmission facilities.
“You could make a pretty compelling argument that this is part of a strategic move by China in Latin America,” he said.
“There’s been a lot of clamoring from the Canadian government, the U.S. government and many other governments to take a tougher stance on these kinds of issues, and I think what we’re seeing here is an example of that kind of military intimidation in action in such a contentious geopolitical environment.”
Jinten’s Canadian lawyer did not respond to a request for comment.
Canada’s Department of Innovation, Science and Economic Development also declined to comment on Zinten’s federal court filing.
“The Government of Canada does not comment on matters pending court review. Confidentiality provisions in the Investment Canada Act prevent the government from commenting on specific transactions,” the agency said in an emailed statement.
The federal government announced “significant changes” to the law in March this year.
“Foreign investment is essential to a thriving economy, but the Investment Canada Act is a critical tool that enables the Government of Canada to take swift and decisive action when foreign investment threatens national security,” the department said at the time.
“As the world changes and threats evolve, Canada needs new tools to protect our economy and keep Canadians safe.”
Schall said the case files did not indicate what specific national security concerns the minister had, but he would be closely watching how the case played out.
He said if the company is successful in evading a national security investigation, it could give foreign companies the means to structure deals outside the legislative system with “just creative lawyering” and put Canada in a “strange position.”
