Ottawa blocks Chinese takeover of Nunavut gold mine project after national security review

A $230-million deal for a Chinese company to purchase a gold mine project in Nunavut is off.

TMAC Resources Inc. made the announcement in a news release posted to its website Monday.

The company says the federal government rejected the proposal to sell all TMAC Resources shares and its Hope Bay gold mining project to Shandong Gold Mining Co. Ltd. The deal was approved by 97 per cent of TMAC shareholders on June 26.

The deal, according to TMAC president and CEO Jason Neal, "did not receive Canadian regulatory approval and will not proceed."

Shandong Gold Mining is a state-owned Chinese gold mining company. The deal was subject to a national security review of investments under the Investment Canada Act.

On Tuesday, a spokesperson for Innovation, Science and Economic Development Canada — the federal department responsible for the Investment Canada Act — told CBC in an email that under the act, "all foreign investments are subject to national security review. Reviews are conducted on a case-by-case basis as part of a rigorous and evidence-based process. Due to the confidentiality provisions of the Investment Canada Act, the government cannot comment further."

The spokesperson did not explicitly confirm or deny the government had quashed the sale, but he did point to a Twitter post made by Dan Vandal, Minister of Northern Affairs, that says: "Our government recognizes the importance of the mining industry to the economic prosperity of the North. We will continue to build a prosperous future for Northerners through the ANPF [Arctic and Northern Policy Framework] where decisions are made by the North for the North."

News the offer had been rejected — and the government's decision not to make a formal statement — did not come as a surprise to Mark Warner, principal counsel with international business law firm MAAW Law.

In an interview with CBC News, he said potential Chinese investment in the Arctic is complicated by tense relations between U.S. and China, which Canada finds itself embroiled in because of the possible extradition of Huawei chief financial officer Meng Wanzhou and the imprisonment of two Canadians in China.

"In addition to the hardening climate on a bipartisan basis in terms of U.S.-China relationships, I couldn't see how we would approve a Chinese miner's acquisition ... in the Arctic, in Nunavut. I couldn't see how that could happen," Warner said.

"Even if gold isn't a critical mineral itself, the Arctic is a critical, objective, strategic objective of China, and it [the sale] would certainly be a poke in the eye to Americans."

'Patient capital'

Gordon Houlden, director of the China Institute at the University of Alberta, was also not surprised.

He said the rejection of the deal is a "strong negative signal" for China on future investments in Canada's northern mineral resources. He said he suspects that a bid from a company based in the U.S. or Europe might have had a different outcome, but said few companies sit on the cash resources necessary to develop a mine in the North.

Resources in the ground in the far north will probably be worth a bit less than they would have been if it was feasible for China to invest.- Gordon Houlden, China Institute director, University of Alberta

"If you take China off the board, that is they can't invest or build, you're ... taking away the country that supports more mineral resources than any other, combined with a country that has deep pockets, more available capital for deployment than any other, including patient capital — capital is prepared to be invested for the very long term — and can build the mine, build the port and take the product," Houlden said.

"It's not easy to substitute that. And it does mean that resources in the ground in the far north will probably be worth a bit less than they would have been if it was feasible for China to invest."

The deal appeared to be on track until Monday, even if the security review was delayed by measures around the COVID-19 pandemic. On June 21, TMAC Resources stated in a news release that certain regulatory hurdles to the sale had been cleared: the Ontario Superior Court of Justice had approved the transaction, and the Commissioner of Competition filed no objection and terminated a waiting period early, satisfying "the Competition Act approval requirement."

On Nov. 27, the company announced an extension of the timeline around the national security review, and reaffirmed that the deal had "received all the required regulatory approvals from the government of the People's Republic of China."

According to the press release that TMAC Resources issued Monday, the company has cash on hand to cover the 2021 resupply by sealift,  but not enough to "fully repay maturing debt recently extended to June 30, 2021."

In a statement Tuesday, the Kitikmeot Inuit Association (KIA) — the regional organization that speaks for Inuit interests — stated that it was aware of the federal decision to deny the sale, and that it had participated in the Investment Canada Act review. 

But the organization hopes the failed deal is not the final chapter for the Hope Bay gold project.

"KIA expects that Canada will work with KIA, TMAC, and other stakeholders to ensure the continued development and prosperous future of Hope Bay for the benefit of Canadians and Kitikmeot Inuit," KIA president Stanley Anablak said in the news release. 

The Hope Bay gold project is in Nunavut's Kitikmeot region, about 125 kilometres southwest of Cambridge Bay. 

The area's gold deposits could produce nearly 150,000 kilograms of gold and have been owned by three different mining companies since they were first identified more than 30 years ago.

In 2012, TMAC acquired it from Newmont Mining and, three years later, signed a 20-year land tenure agreement with the KIA and the territorial Inuit land claim organization Nunavut Tunngavik Inc.

The property produced no gold for commercial sale until 2017, and in the time since its purchase, TMAC has poured more than $450 million into developing the deposits.

A pre-feasibility study published last March explored the possibility of more than doubling its output of ore, estimating the cost of expanding operations at more than $683 million.

On May 8, TMAC announced a "definitive agreement" to sell to Shandong Gold Mining for around $230 million.

The deal valued TMAC at $1.75 per share — about 30 cents more per share than its listed price before the announcement. On June 26, when the deal was approved by a majority of TMAC shareholders, company stock closed at $1.65 per share.

As of 2 p.m. ET, Tuesday TMAC shares were listed at $1.26 on the Toronto Stock Exchange.