Canada orders Chinese companies to sell stake in lithium miners

The Canadian government is ordering several Chinese companies to sell their stakes in three small Canadian lithium miners, arguing that the investments pose a threat to national security.

Sinomine (Hong Kong) Rare Metals Resources must sell its shares in Power Metals; Chengze Lithium International must divest from Lithium Chile, and Zangge Mining Investment must sell its ownership in Ultra Lithium. Those mining companies are trying to set up lithium mining operations in Argentina, Canada, and Chile. Ultra Lithium and Power Metals said in statements that they are reviewing legal options.

The order to divest follows other successful investments by Chinese companies in recent years. In February of this year, Zijin Mining Group paid $719 million to acquire the Canadian lithium miner NeoLithium. The Canadian government didn’t see that acquisition as a national security threat, though some members of the Canadian parliament raised concerns. When Agrium and PotashCorp merged to form the Canadian fertilizer giant Nutrien in 2018, antitrust regulators in India and China required the new company to sell its 24% stake in Chile’s SQM, one of the world’s biggest lithium miners and a producer of fertilizer chemicals. China’s Tianqi Lithium bought those shares for about $4.1 billion. And in 2017, China’s Gangfeng Lithium acquired a 20% stake in Canada’s Lithium Americas, and owns nearly half of the company’s mining project in Argentina. It’s not clear what the divestment order means for those companies.

China has been a major player in the lithium market for years, especially when it comes to processing lithium chemicals and making batteries. Now other countries are now trying to catch up. The US government is spending billions of dollars to build up its lithium-ion battery industry through the Inflation Reduction Act and Bipartisan Infrastructure Law. Canada is also developing a critical minerals strategy, and hopes to play a larger role in battery supply chains. BASF, Umicore, and General Motors all have plans to build factories for battery materials in Canada, but mining projects have been slow to materialize.

Howard Klein, president of the lithium advisory firm RK Equity, says ordering Chinese firms to divest themselves from three small companies doesn’t advance Canada’s ambition to participate in the battery supply chain. He says the move might scare off future Chinese investors. That could make it harder for Canadian firms to raise money, especially since North American investors are wary of mining projects. He would rather see Canada commit to large levels of public funding for battery projects, as the US has done. “There are sticks against China,” he says. “Where are the carrots to fund homegrown projects?”