Solaris Resources Inc., a copper company based in Vancouver, terminated its financing agreement this week with Zijin Mining Group, a Chinese miner, after enduring a prolonged review process by Canadian authorities. The decision aligns with Canada's efforts to limit foreign state-owned investments in its natural resources sector.

In January, Solaris had revealed plans to sell a 15 per cent stake to Zijin for C$130 million. The announcement came amid Canada’s stringent measures against Chinese government-linked firms investing in the critical minerals sector. The Canadian government has stated that such transactions will only be approved "on an exceptional basis."

In 2022, three Chinese investors were ordered to divest their holdings in three Canadian lithium companies, and in March junior graphite explorer SRG Mining Inc. reversed its plans to secure $17 million from a Chinese firm for a 19.4 per cent stake in the Montreal-based company, following criticism from Canada’s industry minister the previous day.

Beijing’s significant role in global mining supply chains — particularly concerning critical minerals essential for electric vehicles and military hardware — has prompted Western countries to seek greater reliance on domestically produced materials or imports from allied countries.

"It's well documented that the Chinese control the big critical minerals ... They’re the world’s biggest miner [of some of them], but even when they don’t control the mining, they control the processing … We are seeing them weaponize that to make their products cheaper, to not allow Western companies to compete on a lot of the renewables and the batteries," said Heather Exner-Pirot, director of natural resources, energy, and environment at the Macdonald-Laurier Institute.

The geopolitical shift away from China threatens the growth trajectory of Zijin, which has acquired copper and gold mines from Canada to Africa and ventured into lithium to become a pivotal player in battery materials. But it hasn’t stopped all Chinese investment in the sector. In March, Ganfeng Lithium Group Co. Ltd. secured a 15 per cent stake in Vancouver-based Lithium Americas Argentina Corp.’s Argentinian subsidiary and in February, Yintai Gold agreed to purchase gold explorer Osino Resources Corp. for $368 million.

Restrictions on foreign investment

For Solaris and other junior miners, the main concern isn’t China’s grip over critical minerals, but rather the regulatory uncertainty surrounding such deals, which they call detrimental to investors and a negative impact on share prices.

 “That this transaction cannot be completed in a reasonable time frame signals that Canada’s critical minerals policy is counterproductive in relation to foreign assets," Solaris CEO Daniel Earle said in a statement.

Exner-Pirot agrees, to a point. "It's not illegal for Chinese investors to invest in Canada. It's not illegal for Canadian buyers to sell to China. And yet, we do know that there's manipulation, there’s security concerns, and so we're trying to find our way forward. But it does start to feel like it's being done on a case-by-case basis – that there is no clarity, if you're headquartered in Canada, on what you can and cannot do – and it depends a little bit on the political winds at the time … That’s not good for making investment decisions."

Canada has been intensifying its scrutiny of foreign investments in critical minerals, artificial intelligence, quantum computing and space technology as part of a broader effort to bolster national security.

Industry Minister Francois-Philippe Champagne announced in March that non-Canadian companies will need to provide advance notice before investing in or acquiring Canadian entities in these critical technology sectors.

Despite these measures, Chinese companies have persisted in their interest in Canadian junior miners, with China’s ambassador to Canada indicating ongoing interest in the sector.

Some industry voices have criticized Canada’s restrictions on Chinese investments, arguing that such limits could impede the production of essential metals for electric vehicle batteries and the broader energy transition, while the federal government has highlighted the importance of investment from allies such as the U.S., Germany, Japan, and South Korea, noting recent critical minerals cooperation agreements with these nations.

Exner-Pirot says that despite what the government says about promoting those investments from allies, they need to do even more on that front. “The direction we have to go is to provide other sources of friendly investment that continue to invest, so that [Canadian miners] can continue to grow [and so] that they can have buyers that don't happen to be Chinese … 20 years in the future it will do none of us any good if our energy systems and our transportation systems depend on cheap Chinese goods."