Shares of Canada’s critical minerals players took a hit on Monday as investors assessed the impact of new restrictions on large mergers and acquisitions in the sector.
On Thursday last week, Industry Minister Francois-Philippe Champagne approved Glencore’s (LSE:GLEN) multi-billion-dollar takeover of Teck Resources’ (NYSE:TECK) steelmaking coal division, adding that Canada would only allow similarly large deals in the future under “the most exceptional circumstances”.
Canada has a list of 31 minerals it considers critical for their use in modern technology, from wind turbines and electric grids to advanced weapons and electric vehicles.
Under the Investment Canada Act, the government can approve or reject mergers and acquisitions based on their net benefit to Canadians and the Canadian economy.
Champagne says a high bar will now be set when assessing the benefits of a deal involving critical minerals producers.
“Henceforth, such transactions will only be found of net benefit in the most exceptional of circumstances,” he says.
“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.”
Some of Canada’s largest mining companies are copper producers, meaning any foreign investment involving those miners would face intense scrutiny.
Over the last two years, Canada has taken a tougher stance on foreign investments in the critical minerals industry, specifically from China where it has asked investors to divest from Canadian companies due to their Chinese involvement.
However, not everyone has expressed support for the new high bar.
The directive “significantly compresses M&A optionality and potentially restricts financing options for Canadian miners,” Scotiabank analysts Orest Wowkodaw and Eric Winmill state in a note on Monday.
“As a result, we now anticipate most Canadian miners to trade at lower valuation multiples versus global peers.”
Meanwhile, Dean McPherson, head of global mining at the TSX, says the government’s announcement is not a “positive development”, describing the new policy as “concerning”.
Indeed, six critical minerals companies were among the top losers in early trading on Monday. Copper miners — including Capstone Copper (TSX:CS), Hudbay Minerals (TSX:HBM), Teck Resources, First Quantum Minerals (TSX:FM), and Ivanhoe Mines (TSX:IVN) — were all down by more than 3% as of 1:00pm local time.
Uranium miner Cameco (TSX:CCO) was down 2.26% at the close of trading.
“It looks to me like Ottawa is prepared to ring-fence the Canadian critical metals industry with this new directive,” Canadian financier Piere Lassonde says.
Write to Oliver Gray at Mining.com.au
Images: iStock
