Lithium Chile, Others Forced By Government Of Canada To Have Chinese Firms Divest Interest

The Government of Canada this evening decided it is ready to enforce provisions under the Investment Canada Act. The decision to enforce actions relates to the investment by foreign entities into critical mineral supply chains of Canadian companies.

In particular, the Government of Canada is providing “enhanced scrutiny” into certain companies within the critical minerals sector.

“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. Therefore, we reviewed a number of investments in Canadian companies engaged in the critical minerals sector, including lithium,” said the Government within a news release issued on the matter.

Directly, the decision to force divestures by foreign entities applies to three Canadian companies. Power Metals Corp (TSXV: PWM), Lithium Chile (TSXV: LITH), and Ultra Lithium (TSXV: ULT) are the three entities targeted by the decision, all of whom have investment from Chinese firms.

In the case of Power Metals Corp, Sinomine (Hong Kong) Rare Metals Resources Co., Limited is being forced to divest its interest in the firm. In late December 2021, Power Metals entered into an agreement with Sinomine for an off-take arrangement for its Case Lake Project, which is found in Northeastern Ontario. At the same time Sinomine took a 5.7% stake in the company at $0.20 per unit. The VP of Sinomine, Frank Wang, also serves on the firms board of directors. Power Metals currently has a market valuation of $31.3 million.

Lithium Chile meanwhile saw Chengze Lithium International Limited invest $27.9 million in the company just months ago in May 2022, at $0.95 per share. Prior to the financing, the Chinese firm held 5.14% of the company, with the financing bumping that stake up to 19.35%, while Chengze also provides technical expertise in exploration and development of certain properties. Interestingly, Lithium Chile, while a Canadian company, features properties exclusively in Chile and Argentina, making the case for the company to possibly redomicile as a means of retaining its investment from the Chinese firm. With a market capitalization of $137.7 million, it was the largest entity in terms of valuation targeted by the Government of Canada’s action.

Lastly, Ultra Lithium will see Zangge Mining Investment (Chengdu) Co., Ltd. forced to divest its investment from the company. This appears to be the messiest divesture between the three outlined this evening, given that Zangge has agreed to pay US$10 million to Ultra, while investing $40 million for a 65% stake in a subsidiary of the company, Ultra Argentina S.R.L.

The payment is to come via work commitments for the firms Laguna Verde Project, which is based in Argentina, under an arrangement entered into back in June 2022. What’s more, is Zangge in July then pledged a collective $290 million towards the development of the Laguna Verde Project, with the additional $250 million committed towards a lithium carbonate processing plant that would later be constructed. The implication is that the company will lose a significant development partner its its project, as well as the related work that would certainly advance the project dramatically. What’s more, with a market valuation of just $13.5 million, the ability of Ultra Lithium to obtain other funding for such development remains questionable.

“The government’s decisions are based on facts and evidence and on the advice of critical minerals subject matter experts, Canada’s security and intelligence community, and other government partners. .. To ensure transparency, we will continue to announce outcomes of such orders going forward,” continued the Government of Canada.

None of the affected companies have yet commented on the order, or how they will choose to respond to the decision.

Information for this briefing was found via the Government of Canada, Sedar, and the companies mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.