Swapping aluminum for copper will maintain China’s resources, group says
China depends on overseas imports for 60% of its aluminum resources as opposed to 70% of its copper resources.
The graphite junior that redomiciled to the United Arab Emirates to access funding amid Canada’s clampdown on Chinese investment in critical minerals says it’s the first junior to do so, but it may not be the last.
SRG Mining, now Falcon Energy Materials (TSXV: SRG), completed its move to the Middle East in early July, after first disclosing its plan to relocate in November, and choosing UAE as its new home in February. It’s the first TSX-listed company to redomicile to the Emirates.
“We believe we can raise more money in the Middle East than we can in Canada. So that’s why we just decided to move on,” Bos said.
The London, U.K.-based executive, who spent eight years with Ivanhoe Mines (TSX: IVN) including a stint as EVP Africa advancing its Kamoa-Kakula copper mine, says “more than several” companies have contacted Falcon to ask questions about its redomiciling experience.
SRG decided to make the move after it became clear that a C$16.9-million financing that would have given China’s Carbon ONE New Energy Group (C-One) a 19.4% stake in the company wouldn’t necessarily receive a timely approval. The deal was originally announced in June 2023.
Under the Investment Canada Act, a federal national security review can take up to 200 days.
“In the end, the minister has discretion on what they approve of and what they want to keep reviewing.” Bos said. “But for a junior company, we don’t always have the time to wait for several quarters, a year, to get these kind of approvals.”
The irony is that SRG Graphite had planned – and still plans – to serve Western markets with production from its Lola project in Guinea, and planned anode facility in Morocco.
China’s control of both primary mined graphite supply and downstream processing of the battery material puts it in the same category as rare earths, Bos says.
“That’s why there’s a need for a company like ours that can decouple part of the supply chain from China.”
SRG turned to C-One because the funding and expertise it needed to execute those plans wasn’t available from North American markets. A feasibility study update last year showed the project would cost US$185 million to build and could produce 94,000 tonnes of graphite flakes in concentrate over a mine life of 17 years.
“It’s the funding, it’s the technology, it’s the offtakes, it’s the expertise. It’s a very complicated supply chain, way more complicated than people actually appreciate,” Bos said.
Although based in China, C-One’s investment and technical expertise would have helped the company to build capacity outside of China. With the lowest-cost production in China, any anode plant based elsewhere would have to serve Western markets, he notes.
According to the TSX, 40% of the world’s mining companies are listed on either the TSX or TSX Venture exchanges.
But the fed crackdown could encourage other juniors that need similar access to Chinese funding or expertise to redomicile and to a decline in Canada’s status as a top destination for mining listings and mining funding.
That’s especially so for companies with preproduction assets outside of Canada, warns John Turner, a partner in Toronto at Fasken and leader of the law firm’s global mining group.
“If we start losing these companies to the Middle East or Australia or (elsewhere), we’re killing one of the few industries where we have a global presence,” he said.
Turner noted that Canada’s got an extensive ecosystem of technical and environmental professionals, investment bankers, legal and accounting firms that support mining and are also sustained by the sector.
Sasa Jarvis, a Vancouver-based partner at McMillan whose practice focuses on corporate and securities law, says Canada could risk being removed from the equation for new companies choosing where to incorporate.
“It undermines the Canadian capital markets,” Jarvis said. “It encourages those companies with global assets to redomicile and, with other restrictions in Canadian securities regulation that discourage incorporation in non-traditional jurisdictions, makes Canadian stock exchanges less attractive for new projects when they’re selecting jurisdictions of incorporation.”
“So, with the ability to accept Chinese funding reduced or essentially eliminated, and no new alternative to that capital presented, companies will look at other jurisdictions to incorporate in,” she added.
“If capital is shifting away from Canada, it’s going to impact Canada’s mining industry, our capital markets, our investment community.”
For juniors considering redomiciling, there are a few things they should know.
Redomiciling to avoid the Investment Canada Act isn’t practical for established companies with operations and a significant workforce in Canada.
Companies would be subject to the ICA if they have full-time or part-time employees in Canada, including management, even if they move to another jurisdiction.
That could be a deal breaker for some executives who don’t want to uproot their lives or their families.
Working with Canadian-based consultants and contract employees who don’t work exclusively for the firm could be a workaround.
“Companies that are housed in Canada, run by Canadians, that have Canadian employees and operations in Canada, those are going to be more intertwined or interwoven into Canada, so it’s going to be a lot harder to fully move outside of the jurisdiction,” McMillan’s Jarvis said.
For publicly listed companies, redomiciling will also require shareholder approval.
In some cases where a stock has had a big runup, redomiciling could trigger capital gains for shareholders that are taxable, Fasken’s Turner said.
“A lot of the critical minerals stocks have been beaten up over the last couple of years, so that may actually make it easier for some of these companies to move,” Turner said.
The company will also need to consider tax implications. In Falcon Energy’s case, for example, the UAE has double taxation and bilateral investment treaties with Guinea, where its Lola graphite project is located.
Regulatory authorities on both sides will need to approve the move. That included the TSX for Falcon, as it remains listed on the TSX Venture Exchange.
Falcon’s Bos advises companies will need a good law firm that has experience in both jurisdictions.
He also notes that some jurisdictions are more compatible than others.
“If we were to move to France, it’s a different legal system, legal framework that would make regulation there while maintaining a TSX listing much more challenging,” he said. “This was a relatively smooth process because both legal systems are compatible.”
— This story was updated on July 26 to add comments from TMX Group.
