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Ottawa, Saskatchewan Research Council step in to prevent sale of Canadian rare earth metals to Chinese buyer

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The federal government and the Saskatchewan Research Council (SRC) are stopping Canadian rare earth metals from falling into the hands of a Chinese buyer, after facing backlash from critics who argued that allowing the deal to proceed was antithetical to Canada’s critical minerals policy.

Australia-based Vital Metals Ltd. in December announced it was selling its stockpile of rare earths that were mined at the Nechalacho Project in the Northwest Territories to China’s Shenghe Resources Holding Co. Ltd.

China on multiple occasions has allegedly engaged in dumping of critical minerals to squeeze international competitors. China accounts for roughly 70 per cent of global rare earths mining and 90 per cent of refining, according to the Oxford Institute for Energy Studies.

Nechalacho at one point was the only rare earths mine in operation in Canada, and was promoted by Ottawa as part of this country’s solution to Chinese domination of critical minerals.

In a reversal of its earlier strategy, Vital Metals on Monday said it will not sell its rare earth metals stockpile to Shenghe, but to the SRC, an entity that is owned by the provincial government. The sale price is $3-million, or roughly 3.3-million Australian dollars, which is higher than the previous 2.6-million Australian dollar deal that Vital Metals had with Shenghe.

Vital Metals in a statement said the new deal was facilitated by Natural Resources Canada.

Heather Exner-Pirot, senior fellow and director of natural resources, energy and environment at the Macdonald-Laurier Institute, had been a major critic of the earlier deal between Shenghe and Vital Metals. She told The Globe and Mail earlier this year that it was “crazy” that Canada was planning on selling its only rare earths stockpile to the Chinese.

In a Monday interview, she said that she was delighted at the revised deal between SRC and Vital Metals.

“This was the right thing to do,” she said.

“Instead of coming with sticks, and stopping people from working with China, they came with a carrot,” she added.

The stockpile transaction between Vital and SRC was conceived by federal Natural Resources Minister Jonathan Wilkinson because he was alarmed at the prospect of the rare earths going to China, a government source said.

In pitching the idea to Vital Metals, Mr. Wilkinson made it clear to the company that if it turned down the deal, the chances of it receiving future government incentives would be reduced, the source said.

Vital in 2022 already received $5-million in funding from Ottawa for its rare earths processing plant in Saskatchewan.

The Globe is not identifying the source because the person was not authorized to speak publicly.

Prime Minister Justin Trudeau, in a visit to Vital Metals’ processing plant in Saskatchewan in 2023, praised its efforts to set up a Canadian supply chain in rare earth metals, as he pointed out that China is a “challenging partner at the best of times.”

Vital Metals is now working on developing the economic case for mining a new region of the Nechalacho property called Tardiff. The stockpiled minerals came from a different area of the mine called North T.

Vital in the past had worked with the SRC when the company was building its processing plant. The SRC provided technical support to Vital, as well as crushing materials mined from Nechalacho.

Last October, Vital announced that Shenghe was taking an equity stake in the company worth 5.9-million Australian dollars that also allowed the Chinese buyer to gain a seat on the board. It is unclear whether Ottawa could still move to order a divestment from Shenghe in Vital Metals.

Geordie Mark, chief executive officer of Vital Metals said in an interview that while creating a North American supply chain in rare earths “makes a lot of sense,” he declined to comment on what Ottawa might do regarding Vital’s recent equity investment from Shenghe.

Hans Parmar, a spokesperson for Innovation, Science and Economic Development Canada, wrote in an e-mail to The Globe that owing to the confidentiality provisions of the Investment Canada Act, the government can’t comment on the equity financing deal between Vital Metals and Shenghe.

“The government has not hesitated and will not hesitate to take action on transactions that would be injurious to Canada’s national security,” he added.

Federal Industry Minister François-Philippe Champagne in late 2022 said that he would only allow Chinese companies to finance Canadian critical minerals companies on an exceptional basis. Ottawa tightened the rules in large part because China has become so powerful in controlling the supply chain of many critical minerals, particularly battery metals such as lithium, cobalt and graphite.

Canadian critical minerals company Solaris Resources Inc. last month called off a planned $130-million financing deal with China’s Zijin Mining Group Co. Ltd. after failing to receive regulatory approval from Ottawa, which had been vetting the transaction on national security grounds.

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