New Restrictions and Divestment Orders Send a Clear Warning to Foreign SOE Investments in Canada’s Cri


Author(s): Shuli Rodal, Michelle Lally, Kaeleigh Kuzma, Danielle Chu, Chelsea Rubin, Reba Nauth, D’Arcy White

November 3, 2022

On October 28, 2022, the Honorable François-Philippe Champagne, Minister for Innovation, Science and Industry (the Minister), together with the Honorable Jonathan Wilkinson, Minister for Natural Resources, issued a new one politics in relation to the treatment of investments by foreign State-Owned Enterprises (SOEs) in Canada’s Critical Minerals Sector (Guideline) under the Investments in Canada Act (ICA).

The policy comes into effect immediately. It identifies minerals that the government has determined are essential to Canada’s prosperity in emerging low-carbon and other technology sectors, or that contribute to Canada’s national security, as vital defense and high technology inputs. The policy is intended to preserve Canada’s access to critical minerals and support that of the government Critical Minerals Strategywhich in turn is designed to position Canada as the global supplier of choice for critical minerals.

The policy applies to any direct or indirect investment by a foreign SOE in a Canadian company operating in the critical minerals sector value chain, regardless of the size of the investment or whether such an investment is screened under the ICA’s general net benefits framework can be. In summary, the policy states that if the Minister needs to determine whether an investment of this type has a “net benefit to Canada”, it will only exceptionally. Further, Everyone foreign SOE investments in the critical minerals sector, regardless of size or value, are subject to increased scrutiny under discretionary national security clearance regulations.

Less than a week after issuing the policy, the minister announced that the federal government has ordered divestitures of three separate investments in Canadian critical minerals companies involved (among other things) in lithium mining activities both inside and outside of Canada. The divestment orders represent a significant change in both approach and tone compared to recent cases such as the recent acquisition of Neo Lithium (a lithium miner headquartered in Canada with assets in Argentina) by Zijn Mining (a Chinese state-owned miner) , which was allowed without considering a full national security clearance. While the questions raised (including before the Standing Committee on Industry and Technology) on this decision may have played a role in formalizing a more rigorous approach to investment in the critical minerals sector, the Canadian government has viewed such investment as a strategic area importance for some time. The policy also builds on the increased scrutiny applied by the government as part of the revised version Guidelines for National Security Screening of Investments since early 2021 as discussed in our earlier update.

The divestiture announcement is also significant in its transparency on government actions under national security clearance regulations. In the past, the federal government has not routinely announced the outcome of cabinet-level national security reviews. The announcement includes a statement that to ensure transparency, the federal government will announce the results of final cabinet decisions (i.e. no approvals or conditional approvals) going forward.

Type of foreign investment affected by the policy

The policy applies to all investments by a foreign SOE in a Canadian company operating in the critical minerals sector value chain, regardless of the size of the investment or whether such an investment can be verified under the ICA’s overall net benefits framework . In order to understand the implications of the directive, it is important to decipher some of the key terms.

  • A foreign state-owned enterprise includes not only an enterprise that is directly or indirectly owned or controlled by a foreign government, but also an entity that is “directly or indirectly influenced” by a foreign government. In addition, the ICA provides that the Minister can determine whether a company is actually controlled by an SOE.
  • In addition, the Directive also applies to investments by private foreign investors who are considered to be closely linked to, or could be forced to comply with, extrajudicial orders from foreign governments, particularly non-like-minded governments.
  • The foreign direct investor does not have to be a state-owned company itself. Rather, indirect ownership of the investor by a foreign SOE is also recorded.
  • While the focus is clearly on non-like-minded governments, the Directive’s application is not limited to just specific countries.
  • Canadian companies for purposes of the ICA and the Policy do not have to be Canadian-owned or domiciled in Canada.
  • Critical Minerals refers to those minerals that are “critical to the sustained economic success of Canada and its allies,” as set out on Canada’s List of critical mineralsreleased on March 11, 2021. It contains the following 31 minerals:

List of critical minerals

  • aluminum
  • antimony
  • bismuth
  • cesium
  • chrome
  • cobalt
  • copper
  • fluorspar
  • gallium
  • germanium
  • graphite
  • helium
  • indium
  • lithium
  • magnesium
  • manganese
  • molybdenum
  • nickel
  • niobium
  • platinum group metals
  • potash
  • Rare earth deposits
  • scandium
  • tantalum
  • tellurium
  • tin
  • titanium
  • tungsten
  • uranium
  • vanadium
  • zinc

The critical minerals sector includes all stages of the value chain (e.g. exploration, development and production, resource processing and refining, etc.).

New Rules for SOE Foreign Investments in the Critical Minerals Sector

Net performance system – only in exceptional cases

When an investment by a foreign SOE (or a foreign-influenced private investor as described above) results in a direct “acquisition of control” of a Canadian entity and exceeds the applicable threshold for ministerial review before closing under the general net benefits framework of the ICA , approval is only granted “by way of exception”. Factors to consider in determining whether a proposed investment would likely provide a net benefit to Canada include:

  • the extent to which a foreign government is likely to exercise direct operational and strategic control over the Canadian business as a result of the transaction
  • the level of competition in the industry; and the potential for a significant concentration of foreign ownership in the industry as a result of the transaction
  • the corporate governance and reporting structure of the foreign SOE
  • whether the Canadian business to be acquired is likely to continue to operate on a commercial basis

The reference to the granting of a permit “by way of exception” is reminiscent of the language in 2012 SOE Policies as they relate to foreign SOE investment in the oil sands, and is similarly clearly intended to prevent and limit significant control of the critical mineral sector by foreign SOEs.

National security regime – increased risk

The directive says so Everyone Investments by foreign SOEs (or foreign-influenced private investors, as described above) in which a Canadian company or entity active in a critical mineral sector in Canada has an interest provide the basis for determining that the investment “is harmful to national security ” could. The use of this term indicates that all foreign investors with direct or indirect SOE investments making an investment of any size in the critical minerals sector in Canada should expect to receive notice under Section 25.2 of the ICA that it is a cabinet-level national security review of the investment can ordered. This is an intermediate step in the national security clearance process and in many cases no further action is taken. However, the issuance of a 25.2 notice will serve as a bar on completion if it has not already been done until the government confirms that no further action will be taken.

While a pre-closing filing may cause delays, the government’s recent divestment orders highlight the risk of a post-closing review and possible remedial actions to address national security concerns in cases where an investor elects to submit a mandatory notification to a Submit closing after closing than before closing (for acquisitions of control that do not trigger the net utility test) or choose not to voluntarily report the investment (for investments that do not involve a acquisition of control, as discussed in our previous update).

The policy provides a list of factors that may be considered by the government as part of their national security review:

  • Size, scope and location of the Canadian company
  • the nature and strategic value of the affected mineral resource or supply chain to Canada
  • the level of control or influence that a state-owned company would be likely to exercise over the Canadian company, the supply chain and the industry
  • the impact the transaction could have on the ability of Canadian supply chains to use the asset or access alternative sources (including domestic supplies)
  • the current geopolitical circumstances and possible implications for relations with the alliances

For more information on the guidelines or any other questions related to Canada’s foreign investment screening regime, please contact members of Osler’s Competition and Foreign Investment Group.


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