Foreign Investment in the Critical Minerals Sector to Face Enhanced Scrutiny | Holland & Knight LLP


In recent months, the vital minerals sector has been at the top of the government’s legislative and regulatory agenda and has received media attention. “Important Minerals” is a collective term that refers to a list of minerals and metals considered essential to the transition to a low-carbon energy economy, renewable energy development and infrastructure, and national security. While there is no definitive global list of “important minerals,” minerals such as aluminum, lithium, nickel, cobalt and rare earth elements are common because they are essential for electric vehicles (EVs), wind turbines and electricity. considered an “important mineral” by Networks, consumer electronics, defense and security technology.

Over the past few years, Chinese companies have attempted to expand access to lithium mines around the world to meet the growing global demand for batteries. Demand for lithium, a key ingredient in battery production, is expected to soar in the coming years as the automotive industry phases out internal combustion engines and rolls out EVs.1

Foreign companies operating in or investing in critical minerals and mining sectors expect increased scrutiny as U.S. and allied governments move to prioritize domestic critical mineral supply chains is needed. Chinese and other foreign investors have already faced intense scrutiny in the United States and Australia, and similar treatment is expected in Canada based on recent sales and new guidance issued by the Canadian government.

US approach

Since President Joe Biden took office in January 2021, the Biden administration has taken steps to strengthen domestic industrial supply chains. These efforts include several initiatives aimed at expanding and protecting critical US mineral supply chains. In February 2021, Biden issued an Executive Order on America’s Supply Chains. It called for a comprehensive, whole-of-government approach to addressing U.S. supply chain vulnerabilities resulting from threats to critical mineral supplies and other key sectors such as semiconductors, pharmaceuticals and information. and communication technology. In June 2022, the United States and key partner countries established the Mineral Security Partnership (MSP), dubbed “Metals NATO,” to further strengthen the critical minerals supply chain.2

In September 2022, Biden detailed key factors and key industries and business sectors that the Committee on Foreign Investment in the United States (CFIUS) should consider when considering a transaction for national security risks. signed an Executive Order (EO) stating:3 (See Holland & Knight Alert, “New Executive Order Creates Roadmap of Heightened CFIUS Scrutiny for Cross-Border M&A,” dated September 20, 2022.) Instruct CFIUS to consider how it will affect force. chain. The EO notes that foreign investments that transfer ownership, title or control of critical mineral resources to foreign nationals may pose a threat to the national security of the United States. These considerations include the degree of diversification by alternative suppliers throughout the supply chain, including suppliers located in allied or partner countries, supply relationships with the U.S. government, and concentration of foreign ownership or control in particular supply chains. It is included.

CFIUS also seeks to protect US technology in areas that impact US national security, including microelectronics, artificial intelligence (AI), biotechnology and biomanufacturing, quantum computing, advanced clean energy, and climate adaptation technology. Consider how it affects organizational leadership.

In addition, EO directs CFIUS to examine investment trends and investment patterns across the board to identify transactions that compromise national security.

Australian policy

Australia is the world’s number one producer of lithium and rutile, and the number two producer of zircon and rare earth elements. Therefore, like the United States, Australia has sought to tighten regulations on foreign investment and transactions involving the important minerals sector. The Foreign Investment Review Board (FIRB), which reviews certain proposed foreign investments and makes recommendations to the Australian Government, has identified the extraction, processing or sale of key minerals as a significant national security concern. I’m here. Accordingly, FIRB in its Guidance Note considers investments in Australian companies or entities involved in the extraction, processing or sale of rare earth elements, lithium, graphite, cobalt, vanadium, copper, nickel, silicon and high purity alumina. Encourage foreigners who are Get government approval first.Four In the absence of voluntary notice, the FIRB could unilaterally initiate a national security review, impose unfavorable terms and, in extreme cases, a sale within 10 years of the completion of the transaction. may command.

Specifically, in 2020, FIRB will make a $20 million investment backed by Baogang Group Co. Ltd., a Chinese state-owned enterprise (SOE) and major steel producer, in North Minerals Limited, which owns significant deposits of rare earth minerals. blocked. In April 2020, FIRB approved another Chinese investor, Yibin Tianyi Lithium Industry Co. Ltd., to invest in his AVZ Minerals Limited (AVZ Minerals) after the Chinese investor proposed This was after he agreed to reduce the amount of investment made to him from A$14.1 million to A$10.7 million. The new amount represents his less than 10% stake in AVZ Minerals.

Growing Canadian Scrutiny

On November 2, 2022, the Canadian government ordered the sale of three Chinese investors in Canadian companies engaged in the critical minerals sector in Canada and abroad after concluding that these transactions threatened national security. I was.Five

  • Sinomine (Hong Kong) Rare Metals Resources Co. Limited (Sinomine), a subsidiary of Sinomine Resource Group Co. Ltd. (China), has been ordered to sell its investment in Power Metals Corp (Power Metals). Sinomine will acquire a 5.7% interest in Vancouver-based Power Metals and, in March 2022, an offtake agreement for all lithium, cesium and tantalum produced from Power Metals’ Case Lake property in Ontario. has been concluded.6 Lithium, Cesium and Tantalum have been identified by the Government of Canada as important minerals.
  • Chengxin Lithium Group Co. Ltd. (China) subsidiary Chengze Lithium International Limited (Chengze) has been ordered to sell its investment in Calgary-based Lithium Chile Inc. (Lithium Chile). In 2022, Chengze acquired his 19.86% interest in Lithium Chile. Lithium Chile owns the world’s largest reserves of high-grade lithium and is primarily involved in the acquisition and development of mining facilities in Chile and Argentina.
  • Zangge Mining Investment (Chengdu) Co. Ltd. (Zangge Mining) has been ordered to sell its investment in Vancouver-based Ultra Lithium Inc., a subsidiary of Zangge Mining Co. Ltd. (China). Zangge Mining has agreed to pay. $10 million in phased payments and $40 million investment to acquire a 65% stake in a lithium exploration and development project in Argentina in June 2022.

Under guidance issued by the Government of Canada on October 28, 2022, Canada restricts significant minerals investments in Canadian entities and Canadian assets, including domestic and foreign assets, to all stages of the mineral processing chain. (e.g., exploration, development and production, processing and refining of resources, etc.) by private investors linked to foreign state-owned enterprises or foreign governments. For such investors, applications to obtain control of Canadian operations containing critical minerals are only approved on an exceptional basis. Other investments, including greenfield and minority investments, whether direct or indirect, are subject to national security reviews regardless of their value. There are reasonable grounds to believe that the participation of a foreign state-owned enterprise or entity associated with or influenced by a hostile or unsympathetic regime or nation would pose a threat to national security. corroborating the findings.7

Similarly, on December 7, 2022, Canada’s Minister for Innovation, Science and Industry introduced a national security review of the Investment Modernization Act.8 Amending the foreign investment screening regime under the Canadian Investment Act to align Canada’s screening process more closely with CFIUS and the UK’s National Security Investments Act. Acting directly or indirectly in certain “prescribed business activities,” including pre-closing notice requirements proposing some substantial amendments to the The list of these regulated business activities has not been made public, but may include sensitive sectors such as critical minerals, critical infrastructure, advanced technology and the defense sector.

These efforts follow the Canadian government’s prioritization of critical minerals as a key component of the green energy transition and other key sectors such as AI, agriculture and microelectronics. On December 9, 2022, Canada announced its new Critical Minerals Strategy.9 Backed by approximately C$4 billion in funding, the Critical Minerals Strategy sets a vision for Canada to become a global supplier of Critical Minerals and the clean digital technologies it enables. Under this strategy, the Government of Canada will increase investment, accelerate mining, strengthen regulatory oversight, and coordinate policies with allies, while keeping in mind the increasing national security considerations associated with critical mineral supply chains. hope to reconcile.

Canada’s tough stance on Chinese investment in the critical minerals sector reflects the broader geopolitical risks associated with its dependence on minerals and the convergence of the United States and its closest allies’ treatment of foreign investment in the critical minerals sector. is an example of China is a major global player in the refining of strategic minerals and holds her 78% of the world’s EV battery cell manufacturing capacity.Ten Going forward, the United States, Australia, Canada, and allies are expected to do more to counter China’s dominance in this area, including through foreign investment screening. Holland & Knight closely monitors relevant regulatory changes and the latest developments related to the supply chain of critical minerals.

Note

1 Joe Wallace and Hardeeka Singh, Demand for Electric Vehicles Pushes Lithium Price to Record, wall street journal (September 21, 2022).

2 MSP partners include Australia, Canada, Finland, France, Germany, Japan, South Korea, Sweden, United Kingdom, United States, and the European Commission.

3 See EO 14083, Ensuring Secure Consideration of Evolving National Security Risks by the Commission on Foreign Investment in the United States, 87 Fed. Registration 57369 (September 15, 2022).

Four See Foreign Investment Review Board, Guidance 8 – National Security (12 April 2022).

Five See Innovation, Science and Economic Development Canada, Government of Canada Orders Sale of Foreign Investment in Canada’s Important Minerals Company (2 Nov 2022).

6 See Power Metals, Power Metals completes offtake deal with Sinomine (17 March 2022).

7 See Innovation, Science and Economic Development Canada, Update Policy About Foreign Investments from State-Owned Enterprises in Critical Minerals under the Investment Canada Act (October 28, 2022).

8 See Bill C-34, Act to Amend the Canadian Investment Code, 1st Session, 44th Congress, 2022.

9 See Government of Canada, The Canadian Critical Minerals Strategy, From Exploration to Recycling: Powering the Green and Digital Economy for Canada and the World, December 9, 2022.

Ten Rodrigo Castillo and Caitlin Purdy, China’s role in supplying minerals critical to the global energy transition: What does the future hold? development results (August 1, 2022).



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