In January 2022, the Canadian government allowed a Chinese state-owned investor, Zijin Mining Group, to acquire Canadian lithium miner Neo Lithium Corp (“Neo Lithium”) for approximately $960 million. As the decision comes in the wake of two significant recent developments, the finalization in January 2020 of a Canada-US plan to secure supply chains for critical minerals; and the issuance in March 2021 of updated National Security Review Guidelines that list critical minerals, including lithium, as well as investments by state-owned or state influenced actors as areas of key concern for the Canadian government, it is a noteworthy development in Canadian foreign investment policy.

In recent years, Canada has cited national security concerns in deciding to block several high profile transactions involving Chinese state-owned investors and sensitive Canadian industries. This includes Shandong Gold Mining’s 2020 bid to acquire TMAC Resources Inc., which owned a gold mine in Canada’s Arctic and China Communications Construction Company International Holding Limited’s 2018 bid to acquire Aecon Group Inc., one of Canada’s largest infrastructure construction companies. At the end of 2021, Canada also required China Mobile to divest its Canadian affiliate, CMLink, over national security concerns.

The government’s decision to allow the Neo Lithium acquisition to proceed is notable for a number of reasons.

First, despite recent policy developments that created an increased potential for challenges in obtaining the required approvals, it signals that Canada is not closed to state-owned investors in certain scenarios, even in critical economic sectors, and that the policies are not intended to prohibit otherwise non-problematic investments.

Second, it highlights the fact that the national security process is extremely fact-specific and a number of factors will be taken into account, with none being dispositive in and of itself. Although the Canadian government releases very little public information related to the national security review process and the factors considered in specific cases, recent comments by the federal Minister of Innovation, Science and Industry François-Philippe Champagne are informative. The Minister stated that the review determined Neo Lithium is “really not a Canadian company” as its assets are in Argentina, its directors are in the United Kingdom and it only has three Canadian employees.

Third, while still at heightened levels, there seems to be a significant reduction in diplomatic tensions and rhetoric between Canada and China following the release of two Canadian citizens from Chinese prison and the return of Chinese national Meng Wanzhou to China in late 2021 after an agreement was reached with US law enforcement to end a criminal prosecution against her. Importantly, tensions with China were cited as a factor in rejecting the TMAC Resources transaction, and it can, therefore, be expected that the state of diplomatic relations between Canada and investor states will continue to factor heavily into the national security review process.