One-half of the critical minerals story

“The world has vastly changed in the last few years”

— Innovation Minister Francois-Philippe Champagne

While it is not clear the world has changed, a recent frenzy of activity demonstrates the way Ottawa sees the world has vastly changed. Observers of Canada have borne witness for many years to many foreign and state-owned enterprises (SOEs) sizing up middle powers like Canada with increasing appetite. The Government of Canada has come to the public revelation that critical minerals are, for lack of a better word, critical to economic growth, energy transition and transformation and the security of Canada and its allies.

New announcements, and new questions

On Oct. 28, 2022, the federal government published its policy update on SOE investments in critical minerals. This policy makes it clear that going forward, the government will closely scrutinize investments by foreign SOEs and foreign-influenced private investors in Canada’s critical minerals sectors, across all stages of the value chain. In particular, the policy states that significant transactions by foreign SOEs in Canada’s critical minerals sectors will only be approved (on the basis that they result in a net benefit to Canada) on an exceptional basis. More generally, all investments (irrespective of size) by foreign SOEs and foreign-influenced private investors involving a Canadian business or entity operating in the critical minerals sector in Canada are more likely to face scrutiny under the Investment Canada Act’s (ICA) national security regime.

On Nov. 2, 2022, the rubber hit the road with the announcement that divestiture orders had been issued for three investments by Chinese investors. Notably, the Canadian target businesses in all three cases are relatively small and engaged in exploration and development activities. In fact, one of these investments comprised a minority interest in exploration properties located exclusively outside of Canada. We view this as a signal from the government of the new standard that will be applied for these types of investments under the ICA.

What we do not know is how this will apply to different classes of what an observer might see as an SOE or a “foreign-influenced private investor.” There are many investors that presumably fall within this definition. We do not yet know the full extent of what entities need to be most concerned about this pivot.

We also presume, but do not have clarity on whether new investments may give rise to new risks. An SOE making a fresh investment that follows on prior commitments may result in risks rising that a new investment provides a window to review and repudiate a history of investment.

A welcome change

On top of additional constraints on capital, Canada’s mining industry has been held back by an inefficient federal impact assessment regime. Current permitting timelines under the federal regime are simply too long and deter investment. While the Impact Assessment Agency’s website says that a mine project is expected to take about five years to complete, the permitting process and recent experience shows that actual permitting times are much longer, easily surpassing eight to 10 years. In addition, there is significant uncertainty regarding the outcome of the process.

However, the industry received an early Christmas gift on Dec. 9, 2022, with an announcement that the federal government will initiate a review of permitting processes to attempt to speed up critical minerals’ projects in Canada. This is a welcome change after 10 years of reforms to the process that have resulted in regulatory timelines that frighten even the most optimistic of developers.

To the extent that Canada can refine the impact assessment process so as to materially shorten current permitting timelines and provide proponents with greater clarity regarding the applicable regulatory standards, this will be welcomed by project developers. In addition, the national benefits sharing framework announced by Canada in the 2022 fall economic statement, if done properly, may help Canada and proponents effectively address Indigenous concerns. If this framework runs in parallel to a more efficient permitting regime, this could add significant certainty to the regulatory process and materially shorten permitting timelines, without sacrificing environmental protection.

Looking ahead

New standards will clearly drive new scrutiny on investments into Canada. While the implications of these policies continue to develop, we watch hopefully for progress on permitting, approvals and replacement capital sources. All these issues need to be addressed if Canada is going to succeed in developing its significant natural resources, including critical minerals.

Sander Grieve is a partner, head of mining at Bennett Jones LLP. Steven Bennett is a partner, M&A, at Bennett Jones LLP. Zirjan Derwa is a partner, competition and foreign investment, at Bennett Jones LLP. Martin Ignasiak, K.C. is co-head of regulatory practice at Bennett Jones LLP.

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