Canadian government orders Asian companies to divest holdings in lithium companies

The government of Canada has ordered two Hong Kong-based companies and another in China to divest their shares in three lithium miners based in the North American country

Sinomine (Hong Kong) Rare Metals Resources Co Ltd is required to divest itself of investment in Canada-based Power Metals Corp, which is exploring cesium, lithium and tantalum assets in Canada.

Chengze Lithium International Ltd, based in Hong Kong, has been ordered to divest its investment in Lithium Chile Inc, a Canada-based company with lithium projects in Chile.

And China’s Zangge Mining Investment (Chengdu) Co Ltd has been ordered to divest its investment in Ultra Lithium Inc, which has lithium projects in Argentina, Canada and the US.

The China and Hong Kong-based companies have been told to divest their investments within 90 days from November 3, according to individual statements from each one.

All three Asian companies also said that the divestitures were expected to have limited effects on their finances, should they be finalized, because the three Canadian companies’ projects were still in preliminary phases.

If the companies intend to divest but fail to meet the deadline, they can apply for an extension, according to the companies’ individual statements.

Canada’s minister of innovation, science and industry, Francois-Philippe Champagne, said that the orders were issued under the authority of the Investment Canada Act (ICA) and on the basis of national security.

“While Canada continues to welcome foreign direct investment, we will act decisively when investments threaten our national security and our critical minerals supply chains, both at home and abroad,” Champagne said.

“In accordance with the ICA, foreign investments are subject to review for national security concerns, and certain types of investment, such as those in the critical minerals sectors, receive enhanced scrutiny,” he added.

Lithium Chile said that the investments in the company were made earlier this year, following the Canadian Investment Act guidelines and policies, and that its assets were owned through its South American subsidiaries.

The investments from Chengze into Lithium Chile did not equate to a control position, the company said.

“It is important to note that, while the investment made by Chengze has given the company a significant cash position, the outcome of this order does not affect the ownership and/or value of the company’s assets and/or lithium resources,” it said.

In October, Ultra Lithium terminated an equity subscription with China-based Ya Hua International Investment & Development Co Ltd, a move “based on the parties’ assessment of the current international environment and its potential effects on the mine development cycle.” The company had not responded to an email query at the time of publication,

Jonathan More, chairman and chief executive officer of Power Metal, said that the move by the Canadian government was unexpected. Sinomine made an equity investment of C$1.5 million ($1.10 million) into Power Metals.

“While we are surprised by Canada’s stance toward Chinese investment into Canada’s critical minerals industry, it clearly shows that they see the opportunity and assets of Power Metals as too valuable for such foreign investment,” More said.

More added that the Canadian government’s order was made on national security grounds due to the “strategic importance” of the company’s deposits of lithium, cesium and tantalum at Case Lake.

The Chinese government said that the Canadian move goes against the principles of an international market economy.

“This does not help the development of relevant industries and is detrimental to the stability of the global industry and supply chain,” Lijian Zhao, deputy director and spokesperson at the Chinese Ministry of Foreign Affairs, said in a press conference on Thursday.

“China urges Canada to stop the undue suppression of Chinese companies and instead to provide a fair, just and non-discriminatory environment for their operations in Canada,” he added. “The Chinese government will continue to firmly defend the legal rights of Chinese companies.”

National security-driven localization

Localization of battery raw material supply has become a focal point in the industry with Western countries such as the US looking to consolidate their supply chains, partially because of national security concerns.

The US Department of Energy (DoE) has announced $39 million in new subsidies intended to help develop the country’s domestic “critical minerals” supply chain, as part of an initiative to “strengthen” national security.

And European Commission President Ursula von der Leyen has announced the introduction of the European Critical Raw Materials Act to secure the raw materials needed for energy transition, such as cobalt, lithium and graphite.

The push to localize supply chains has come with global lithium prices already at record highs and governments seeking to become more self-reliant in critical energy transition materials to meet decarbonization goals.

Fastmarkets assessed the price of lithium hydroxide monohydrate, LiOH.H2O 56.5% LiOH min, battery grade, spot price, cif China, Japan & Korea, at $82.00-84.00 per kg on November 3, up by 137% from the beginning of the year.

Projects and new supply in Western jurisdictions, however, have been slow to come online due to permitting and regulatory hurdles, leading to a tight market in which demand has continued to grow.

Fastmarkets research forecasts demand for 698,900 tonnes of lithium carbonate equivalent (LCE) in 2022, increasing to 884,400 tonnes of LCE demand in the following year.

Supply was forecast to increase from 679,400 tonnes of LCE in 2022 to 895,900 tonnes in 2023, leaving the market in a slight surplus.

Want to find out more about our Fastmarkets NewGen forecasts? Click here

Market participants told Fastmarkets during LME Week at the end of October that regulatory and permitting issues have made financing more difficult, in projects throughout the battery raw material supply chain, because of uncertainties about when projects would come online and start producing.

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Join us for a webinar where we will be discussing whether this is a sign of the times, with more companies moving their supply chains closer to home and assessing their domestic capabilities. The expert team will also be analyzing risks and possible innovations in the European and US battery and EV markets on November 15, 2022 at 10:30am EST / 3:30pm GMT.

We’ll discuss:

  • Expected supply and demand balances for different battery materials
  • The different global and regional realities as supply chains become more regional in nature
  • The battery cost challenge and what that may mean for mass EV adoption
  • The apparent conflict between holistic ESG and commercial priorities
  • Options to connect the dots: scenarios that can mitigate supply and price risk and unleash the full potential of the European and US markets

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