The Canadian Ministry of Innovation, Science, and Economic Development released a formal notice on November 2 that orders the divestiture of several Chinese investments in Canadian mineral companies. These Canadian companies are involved in the development of critical mineral resources, specifically lithium-related resources. The Chinese investors that have received this order are the following mineral companies listed on their domestic stock exchanges: Sinomine (Hong Kong) Rare Metal Resources Co. Ltd., Chengze Lithium International Ltd., and Zangge Mining Investment (Chengdu) Co. Ltd. Sinomine Rare Metal Resources is a subsidiary of Sinomine Resource Group Co. Ltd., Chengze is a sub-subsidiary of Chengxin Lithium Group, and Zangge Mining Investment is a subsidiary of Zangge Mining Co. Ltd.
Due to concerns about national security and the maintenance of the supply chain for critical minerals, the Canadian government has ordered the followings: Sinomine Rare Metal to divest from Power Metals Corp., Chengze to divest from Lithium Chile Inc., and Zangge Mining Investment to divest from Ultra Lithium Inc. These investment targets are based in Canada but possess mining projects around the world. The three Chinese mining companies issued their respective responses on November 3.
According to Sinomine’s response, Sinomine Rare Metal entered an offtake agreement with Power Metals in March 2022. Under the agreement, Sinomine Rare Metal purchased 7.5 million newly issued share units in Power Metals for CAD 1.5 million. With this transaction, Sinomine Rare Metal now holds around 5.72% of the total share capital of Power Metals. Furthermore, Sinomine Rare Metal also inked an underwriting agreement for all lithium, cesium, and tantalum products that come from Power Metal’s Case Lake mining property.
Sinomine said the rights of Power Metals over the Case Lake mining property are within the initial exploration stage. In compliance with the order from the Canadian government, Sinomine Rare Metal will sell its shares in Power Metals and terminate the underwriting agreement. Sinomine stressed that these actions will not significantly affect Sinomine’s financial results for 2022 and the years after.
Also, in 2021, Sinomine Rare Metal acquired Tantalum Mining Corporation of Canada in order to have access to the Tanco Mine project in southeastern Manitoba. In its response, Sinomine especially pointed out that the divestiture order will not affect this existing arrangement because the Canadian government already approved the acquisition of Tantalum Mining Corporation following a national security review.
In response to a related inquiry from a reporter working for Shanghai Securities News, Chengxin said the divestiture order was unilaterally announced by the ministry, and it has not received any advanced notice about the decision. Through Chengze, Chengxin has invested in only one Canadian mining company so far. Earlier this year, Chengze acquired around 19% of Lithium Chile’s outstanding common shares. This transaction allowed Chengxin to have indirect control over Lithium Chile’s mining project located in Argentina. Furthermore, according to Lithium Chile, Chengze’s investments followed the regulations stipulated under the Investment Canada Act and was greenlighted by the TSX Venture Exchange. Chengxin told the reporter that the mining project in Argentina is now at the exploration stage. Chengxin is reviewing the divestiture order and considering its legal options. However, the worse-case scenario would be to sell all of its shares in Lithium Chile and instead directly invest in the mining project.
In response to another related inquiry from a reporter working for a Chinese financial news website, the secretary to the chairperson of Chengxin said a total of around CNY 100 million was committed into Lithium Chile. More has been spent on an investment in the supply chain. Furthermore, the mining project that Chengxin is jointly developing with Lithium Chile is located in Argetina’s Salar De Arizaro, one of the world’s largest salt lakes. Exploratory wells have been drilled, but actual production has yet to begin. Presently, Chengxin does not believe the divestiture order has a significant effect on the progress of the project. However, Chengxin will continue to closely monitor the situation.
In January 2022, Chengze subscribed to 4.2857 million shares in Lithium Chile through a private placement. The price of the transaction was CAD 0.7 per share. Upon the completion of the deal, Chengze has a 2.89% stake in Lithium Chile.
Zangge announced on November 3 that it has received the divestiture notice from the ministry and will exit Ultra Lithium within 90 days upon the receipt of the notice. This means that Zangge will be giving up all rights under the partnership with Ultra Lithium and cease all business activities in the furtherance of this investment. If Zangge cannot divest from Ultra Lithium within this deadline despite having the intention to do so, it may request in writing for an extension.
This February, Zangge Mining Investment entered into a share subscription agreement (also known as a strategic cooperation agreement) with Ultra Lithium. Under the agreement, Zangge Mining Investment or a designated entity would purchase 23 million newly issued share units in Ultra Lithium for CAD 4.14 million. Each unit would comprise one common share and one half of one common share purchase warrant. In total, Zangge acquired 23 million common shares and 11.5 million strike shares in Ultra Lithium.
The deal, which was closed this May, has enabled Zangge to work with Ultra Lithium in the exploration and development of the latter’s Languna Verde Brine Lithium Project in Argentina. Zangge said the project is still in the early part of the survey and exploration phase. Furthermore, if Zangge complies with the divestiture order and sell off its stake in Ultra Lithium, this action is not expected to a have notable impact on its financial results for 2022 and the years after.
This article is a translation of a Chinese article posted by TrendForce. It contains information that is either sourced from other news outlets or accessible in the public domain. Some Chinese names are transcribed into English using Hanyu Pinyin.