Building ‘local mining champions’ gets tougher as Ottawa raises bar for foreign investment again

Government needs to find new funding for mining industry starving for capital, say insiders

“They want to protect Canadian resources, but they need a better framework for capital creation and they don’t have that,” said Peter Grosskopf, chair of SCP Resource Finance LP, an independent broker specializing in mining. “We know the mining sector is dreadfully undersupplied with capital in this country.”

Ottawa in October 2022 said investments from foreign state-owned companies in Canadian critical minerals would only be approved on an exceptional basis and could also be considered injurious to national security. A few days later, the government ordered three Chinese companies to exit Canadian lithium firms.

Some analysts, such as Theo Yameogo, who heads EY Americas’ metals and mining section, say the reason behind the announcement could be political.

“We all know that since that byelection in Toronto, there could be an election coming up,” he said. “Part of me believes that they need to say it so that when they go into the election, somebody doesn’t say that they are selling Canadian resources to foreigners.”

Yameogo said the government’s decision to approve the sale of Teck’s coal unit to Glencore should calm the nerves of many in the mining industry who were anxious about how long it was taking to receive Ottawa’s nod. The deal was announced in November and approved about nine months later.

“It was scary how long it took them,” he said. “The fact that it took that long sent concerns in the community.”

SCP’s Grosskopf also said miners would be relieved, but they would be nervous about the new statement since it indicates more intervention from the government.

“We want Canada to control its resources, too,” he said. “We are working towards the same goal, but less intervention and more support is what the industry wants to see.”

Aside from government support, the veteran miner wants the government to create a framework that might encourage Canada’s pension plans to invest in the mining sector.

One of those ways could be for the government to provide financial security for miners, according to Chris Doornbos, who founded Alberta-based E3 Lithium Ltd. This would make it easier for mining companies to get funds.

He said there’s just “too little information” to know how the government’s latest restriction will play out.

Analysts covering the critical minerals sector echoed a similar sentiment this week. Bank of Nova Scotia’s Orest Wowkadaw said in a note on Monday that the new policy “significantly compresses” options for mergers and acquisitions.

But Wowkadaw said several questions remain. For example, how does the government define a “large” company? Will investments from close allies such as the United States, Europe and Australia be treated differently than those from China, India and Saudi Arabia? Could this policy drive earlier-stage companies to re-domicile outside Canada?

Whether the impact of the new policy is as serious as the title of Wowkadaw’s Monday note — Foreigners No Longer Welcome to Canada’s Critical Minerals — is something that the answers to these questions can provide.

But one thing is certain, according to Grosskopf: there won’t be much progress without access to more capital.

It will be “much tougher to create local mining champions that are backed locally,” he said.

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