Solaris had planned to use funds from a proposed financing deal with China’s Zijin Mining Group Co. Ltd. to advance its early stage Warintza copper project in Ecuador. Copper, alongside nickel, lithium and graphite, is used in electric vehicle batteries and other lower carbon energy sources.PATRICK T. FALLON/Getty Images
Canadian critical minerals company Solaris Resources Inc. SLS-T has called off its 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.
Vancouver-based Solaris in January said that Zijin intended to pay $130-million for a 15-per-cent equity stake in the company.
Solaris had planned to use the funds to advance its early-stage Warintza copper project in Ecuador. If the deal had been approved, Zijin would have been entitled to a seat on Solaris’s board, giving it influence over the strategic direction of the company. Copper, along with nickel, lithium and graphite, is used in electric-vehicle batteries and other low-carbon energy sources.
Federal Industry Minister François-Philippe Champagne said in late 2022 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.
Despite the political environment, Solaris had signalled to its investors that the deal with Zijin was likely to close earlier this quarter. Solaris had been confident the deal would be approved because its copper project is located abroad (as opposed to in Canada), because the deal involved a Chinese investor taking a minority stake (instead of the entire company) and owing to the transaction revolving around copper, not lithium or graphite.
On Tuesday, after voluntarily walking away from the pact with Zijin, Solaris criticized the government’s handling of the situation. In a news release, the company said the deal proceeds were earmarked for the growth of a Canadian-controlled company’s main project, albeit one in a foreign jurisdiction. Solaris added that given that the deal couldn’t be completed in a reasonable time frame, the failure signals that “Canada’s critical minerals policy is counterproductive in relation to foreign assets.”
Shares in Solaris fell by 3.5 per cent to close at $5.24 apiece on the Toronto Stock Exchange on Tuesday.
There are precedents over the past few years of Ottawa rejecting proposed financings of small Canadian critical minerals companies that hold critical minerals assets abroad. In late 2022, Mr. Champagne ordered Chinese divestment from several Canadian critical minerals companies that had projects overseas.
Earlier this year, SRG Mining Inc., which owns a graphite project in Africa, called off a proposed $16.9-million financing deal with a privately held China-based company after Mr. Champagne publicly chastised the Quebec graphite company for attempting to redomicile in order to skirt a national security review.
The tougher stand that Ottawa has taken against China recently follows years of relatively lax oversight over foreign ownership of the Canadian mining sector. Zijin had already been deeply embedded in Canada, with joint ventures in place with Ivanhoe Mines Ltd. and Barrick Gold Corp. Mr. Champagne also allowed Canadian lithium development company Neo Lithium Corp. to be acquired by Zijin in 2022 without conducting an in-depth national security review. The acquisition precipitated parliamentary hearings and put Mr. Champagne on the defensive for months.
While Ottawa’s crackdown has drastically slowed investment from China into the Canadian mining sector, it has also left a gap in funding for small, risky companies that often require hundreds of millions for projects that have long timelines for a potential payoff.
To that end, the United States and Canada last week started jointly investing directly in Canadian critical minerals companies in an attempt to fill the funding void left by China and bolster North American supply chains of critical minerals. Ontario cobalt developer Fortune Minerals Ltd. and Quebec graphite company Lomiko Metals Inc. were awarded about $32.4-million in combined funding, the U.S. and Canada said in a joint statement last Thursday.
The U.S. last week also imposed new tariffs on imports of Chinese critical minerals, calling out China for its unfair trade practices. The nickel market, in particular, has been devastated this year by an onslaught of China-controlled production coming out of Indonesia. U.S. tariffs for a long list of critical minerals, including graphite, ferro-nickel, cobalt, aluminum, chromium and tantalum, are rising from 0 per cent to 25 per cent on Chinese imports into the country.