Canadian exchange warns intervention threatens capital flows that Canadian mining companies rely on
A federal government order that forced three Chinese corporations to sell their shares in Canadian producers of essential minerals has provoked criticism from the Toronto Stock Exchange, which called on the Canadian government to do more to make up for lost capital.
The move by Justin Trudeau's administration might disrupt the free flow of capital that mining firms rely on to explore and develop resources, according to Dean McPherson, head of business development for mining at TSX operator TMX Group Inc. in an article published by the Financial Times.
“Keeping out the capital flow from China only on the basis of a critical minerals strategy is concerning,” he told the Financial Times. “We think it’s important for them to come up with ways to replace that capital — you can’t say ‘you can’t have that capital but we’re not going to do any program to put funds into those companies.'”
Tensions with Beijing heated up when Ottawa demanded that three Chinese companies let go of their stakes in junior mining companies Ultra Lithium Inc., Lithium Chile Inc. and Power Metals Corp., after a review found their investments posed risks to Canada’s national security.
The combined market valuation of US$558 billion in public mining investment housed within the TSX and TSX Venture Exchange – they represent 43% of all publicly traded mining companies, and have more metal extraction companies than any other exchange in the world – makes them crucial to the mining sector.
“The federal government is determined to work with Canadian businesses to attract foreign direct investments from partners that share our interests and values,” Industry Minister François-Philippe Champagne said at the time of the decision.
The government’s five-year budget delivered in 2022 included US$1.5 billion earmarked for critical mineral projects, as well as a 30% tax credit for the exploration of 15 critical minerals such as copper, nickel, and lithium. McPherson applauded this as a solid first start to promote investment in Canada’s mining industry.
The federal divestment order has not sparked a wider pullback among other Chinese investors, but McPherson still expressed disappointment that Ottawa has targeted businesses with holdings outside of North America. Both Ultra Lithium and Lithium Chile own mines in Latin America.
“The bigger concern for us is this is not done on a broad-brush basis,” he said.
While he conceded that the government’s decision was “totally understandable” from a geopolitical standpoint, he argued that “[excluding] projects outside of North America” from the order would have been “a logical approach.”