Paladin Energy’s (ASX: PDN) proposed takeover of Canadian explorer Fission Uranium (TSX: FCU) has hit a roadblock after receiving a notice from the Canadian government informing the company the deal is now the subject of a national security review.
The Australian miner entered in June into an agreement with Fission Uranium to acquire it for C$1.14 billion ($846m), as strong prices for the fuel used in nuclear reactors has lit fire under market consolidations and deals.
Paladin, which would have become the third-largest publicly traded uranium producer with the planned acquisition, said it was considering the notice sent by Canada’s minister of innovation, science and industry, François-Philippe Champagne.
Ottawa has turned particularly strict on Chinese investment in natural resources over the past four years, and while Paladin’s acquisition of Fission is a deal between Australian and Canadian companies, there are Chinese state-owned entities involved on both sides of the transaction.
CGN Mining Company, a subsidiary of China General Nuclear Power, owns a 11.26% stake in Fission. It formally opposed the deal in late September, but its efforts to block the deal were unsuccessful.
A second Chinese state-owned entity, China National Nuclear Corporation, holds a 25% interest in Paladin’s flagship Langer Heinrich mine in Namibia, and is one of the company’s major lenders.
Paladin said it is exploring its available options and evaluating the prospects of obtaining an Investment Canada Act (ICA) clearance.
The matter is also before the Supreme Court of British Columbia, which is expected to issue a final ruling on the acquisition.
“There can be no certainty that the court will grant the final order, or that ICA clearance will be forthcoming, or that the arrangement will be successfully completed,” Paladin noted.
Foreign acquisitions of Canadian companies may be subject to a national security review, but investments from China have faced the most government scrutiny to date.
In 2020, the federal government blocked Shandong Gold’s bid for TMAC Resources due to the strategic Arctic location of its project. More recently, smaller investments by Chinese mining companies in critical mineral juniors, such as Solaris Resources (TSX: SLS) (NYSE: SLSR) and Falcon Energy Materials (TSX: SRG), were cancelled following national security review delays.
Paladin Energy chief executive officer Ian Purdy has said the acquisition of Fission would provide investors an alternative in an industry dominated by two major players — Canada’s Cameco and Kazakhstan’s Kazatomprom.
Fission’s asset is also attractive because of its proximity to Paladin’s major customer, the United States, offering the chance to create a hub with Paladin’s existing tenement in Canada — Michelin.
The combined group would be worth $3.5 billion, hold dual listings in Australia and Canada, and churn out 10% of global uranium output. This would be the result of combining the output of its recently restarted Langer Heinrich Mine in Namibia with Fission’s Patterson Lake South project in Saskatchewan, once completed.
Paladin has been hunting for growth options outside the home country, as Western Australia and Queensland ban uranium mining. The company believes there’s a shortage of primary production coming out of the ground and that the trend is set to continue.
“We’ve seen very strong demand for our Langer Heinrich product. And we expect that when we’re ready to bring our customers to underpin PLS later this decade, that demand (will) be extremely strong,” Purdy said during a July visit to Toronto.
Paladin shares dropped after the announcement, but climbed later in the day, closing up 0.51% at A$11.83 each, leaving the company with a market capitalization of A$3.54 billion ($2.44bn).
