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Canada tightens rules to protect domestic mining industry

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2024-07-09

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Canada has again tightened rules, making it even harder to take over the country’s remaining big miners.

Under the new rules, Canada will only approve foreign takeovers of large domestic mining firms with "significant" critical minerals operations "in the most exceptional of circumstances."

The rules were revealed late last week, but only now have investors realized their importance.

According to Canadian Industry Minister François-Philippe Champagne, the rules were tightened to protect the country’s key energy transition metals such as copper, lithium, nickel, and zinc.

“This high bar is reflective of the strategic importance of Canada’s critical minerals sector and how important it is that we take decisive action to protect it,” Champagne said in a statement with the announcement.

It is the latest in a string of announcements going back to 2021 that have seen the government impose more restrictions on mining deals in renewables.

The move appears to insulate domestic companies from takeovers when the world’s biggest mining firms have looked to mine the market, which is cheaper than looking for new deposits.

The new rules will apply to large Canadian-headquartered companies including Cameco Corp (uranium), Teck Resources (copper and zinc), Ivanhoe Mines (copper and nickel in Central Africa), and Lundin Mining Corp (base metals).

Other companies named were First Quantum Minerals Ltd (copper and in trouble after its huge Panamanian copper mine was closed late in 2023), Hudbay Minerals (copper and zinc), Capstone Copper Corp., and Ero Copper Corp.

Industry giants such as Glencore, BHP Group, and Rio Tinto have all sought to boost their exposure to metals like copper through big acquisitions.

Glencore bid for Teck two years ago and then abandoned that to do a deal to buy Teck’s coking coal operations. BHP made several abortive attempts to buy Anglo American in April and May of this year and may still bid again later in 2024.

The Canadians approved the $6.9 billion sale of Teck's coal assets to Glencore last Thursday, while also setting new criteria for future foreign mining deals.

Teck is one of the few large Canadian metals producers that survived a wave of industry takeovers nearly two decades ago, which saw nickel and copper giant Inco bought by Vale, the big Brazilian iron ore miner.

Teck is still on the watch lists of its foreign rivals for its high-quality copper and zinc assets spread across the Americas.

Canadian analysts say Teck is expected to become an acquisition target when founder and top investor Norman Keevil gives up control of the company in the coming years.

The directive "significantly compresses M&A optionality and potentially restricts financing options for Canadian miners," Scotiabank analysts wrote in a Monday note.

"As a result, we now anticipate most Canadian miners to trade at lower valuation multiples versus global peers.”

Other analysts point out that the new rules go even further than a crackdown on foreign takeovers from state-owned entities that started back in October 2022.

Minister Champagne’s ministry has thwarted several recent attempts by Chinese companies to make inroads in Canada’s critical minerals sector through takeovers or major investments, as has the Australian government, especially in rare earths.

But Thursday’s statement signals that the federal government is wary of foreign takeovers even from companies in friendly nations. Prime Minister Justin Trudeau is in a close race for the next Canadian national election, which is expected by October 2025.

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