On July 4, 2024, Canada's Minister of Innovation, Science and Industry (the "Minister") released a Ministerial Statement on Net Benefit Reviews of Canadian Critical Minerals Companies (the "Ministerial Statement"). The Ministerial Statement impacts how investments by non-Canadians in "important Canadian mining companies engaged in significant critical minerals operations" will be assessed under the Investment Canada Act's (the "ICA") economic review regime. The ICA's suspensory economic review regime applies to direct acquisitions of control by non-Canadians of Canadian businesses with an enterprise value above specified monetary thresholds, and requires the Minister to be satisfied that the investment is of "net benefit" to Canada.
The Ministerial Statement notes that, with respect to "important Canadian mining companies" with "significant critical minerals operations", the Minister will find investments to be of "net benefit" to Canada only "in the most exceptional of circumstances". The precise scope of the policy is unclear. It is far from obvious what constitutes an "important Canadian mining company", or what comprises "significant critical minerals operations". While the Ministerial Statement explicitly acknowledges that "foreign capital will continue to play an important role", given the potentially expansive scope of this position and absent further Ministerial guidance, the Ministerial Statement may well have an unintended chilling effect on vital foreign investment in Canadian mining and minerals businesses.
Background on the ICA
A direct acquisition of control by a non-Canadian of a Canadian business is subject to economic review under the ICA, provided certain financial thresholds are met. The Minister must determine that the investment is of "net benefit" to Canada before the transaction can close. The "net benefit" assessment is multi-faceted, and considers the transaction's effect on Canada's economy, productivity, efficiency, technological development, innovation, and competitiveness, among other factors.
The economic threshold to trigger the review of an acquisition of a non-cultural Canadian business depends on the identity of the investor. For 2024, for foreign investors who are not state-owned enterprises, the enterprise value threshold for a "trade agreement investor" (a person or entity from countries with which Canada has specified trade agreements) is C$1.989 billion, whereas the threshold for a "WTO investor" (a person or entity from countries that are members of the World Trade Organization) is C$1.326 billion.
Implications of the Ministerial Statement
In general, according to the Ministerial Statement, non-Canadian investors contemplating a direct acquisition of a Canadian company with 'substantial' critical minerals operations should anticipate additional scrutiny of their investment if it is subject to review. The Ministerial Statement has several key implications for investors:
- Only Investments Subject to the "Net Benefit" Regime are Captured. The Ministerial Statement provides guidance on how transactions will be assessed under the ICA's economic review regime. However, this regime does not apply to control acquisitions that do not meet the relevant economic threshold, indirect acquisitions in the mining and minerals space, or minority investments. That said, these investments remain subject to review on national security grounds at the government's discretion.
- An "Important" Canadian Business. The limitation of the Ministerial Statement to "important Canadian mining companies" is unclear given the context. As detailed above, for an acquisition to be subject to the ICA's economic review regime, the Canadian business must have a relatively high enterprise value and, for that reason, may impliedly be "important". Further guidance as to what constitutes an "important" mining company would greatly assist investors in understanding the scope of the Ministerial Statement.
- "Significant Critical Minerals Operations". It is not obvious what constitutes "significant critical minerals operations". For example, if critical minerals operations comprise only a limited portion of the business of the target company, they may not appear "significant" vis-à-vis the business as a whole; alternatively, the Canadian business may be a relatively small player in the global industry and, in that sense, may not be "significant". Separately, many Canadian mining and minerals companies carry on substantially all of their operations outside of Canada. Given the stated purpose of the policy is to protect "Canada's strategic interests while supporting the development of Canada's resources", it stands to reason that the application of the Ministerial Statement should be limited to investments of significance for the critical minerals supply chain in Canada. However, the wording of the statement is ambiguous.
In the near term, uncertainty regarding the scope of the Ministerial Statement may have a chilling effect on foreign investment in a crucial sector for Canada's economic future. In the longer term, an unwelcoming foreign investment climate may damage Canada's status as a premier jurisdiction for mining and minerals businesses, limiting the desirability of headquartering in Canada and listing on Canadian stock exchanges.
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