Investment Canada Act update: first round of amendments now in force and recent enforcement and policy developments

Important amendments to the Investment Canada Act (the ICA) came into force this week. These amendments are largely designed to strengthen the Minister of Innovation, Science and Economic Development’s (the Minister’s) oversight of national security reviews. Other major amendments requiring implementing regulations are expected to come into force in the next 12 to 24 months. The amendments are part of a broader trend towards stricter foreign investment rules.

Meanwhile, recent enforcement activity and government statements reinforce the government’s opposition to Chinese investment in critical minerals and the government’s desire to promote Canadian critical mineral national champions' growth and protect them from foreign takeovers. 

What you need to know

• The Minister has new powers to impose interim conditions on investors during a national security review as well as share and communicate information to other foreign investment review agencies.
• Two recent cases demonstrate the Canadian government’s continued opposition to Chinese investment in Canadian critical minerals companies. In one of the cases, the Chinese investor is seeking a judicial challenge of the government’s jurisdiction under the ICA.
• The Minister issued a statement emphasizing that net benefit reviews of acquisitions of important Canadian mining companies engaged in significant critical minerals operations will be approved only in “the most exceptional of circumstances”. The Minister’s simultaneous clearance of a major (non-critical mineral) mining transaction with strict conditions reinforces the government’s view of the importance of mineral resources to the Canadian economy.

New Ministerial powers now in force

The Minister now has the following new national security review powers:

• Interim conditions. The Minister may now impose interim conditions on an investor during a national security review. These include limiting access to, or the transfer of, assets, intellectual property or trade secrets. This fills an important gap in the legislation. Until now, while transactions could not close pending a national security review, conditions could only be imposed at the end of the review process as part of a final order. An interim condition may be made permanent or removed at the end of a national security review.
• Binding undertakings. The Minister may now directly accept binding undertakings to mitigate potential injury to national security. Previously, this required a federal Cabinet order. As a practical matter, investments raising national security issues have to date rarely been approved with conditions—the last such instance occurred over five years ago.
• Extending national security reviews. The Minister may now unilaterally initiate the next phase of a national security review beyond the initial 45-to-90-day screening period. This, too, previously required a federal Cabinet order.
• Information sharing with allies. The Minister may communicate information about an investment with other foreign investment review agencies where there is a common national security interest. Previously, information about a specific investor could not be disclosed in this manner. Investors should therefore ensure they have a cohesive multi-jurisdictional government relations strategy with respect to multi-jurisdictional investments in sensitive sectors.

Other major amendments, including the introduction of a mandatory pre-implementation filing requirement for investments in certain sensitive sectors and a call-in power to review investments by state-owned or influenced entities under the net benefit review regime, have received Royal Assent and are expected to come into force in the next 12 to 24 months.

Recent national security review cases

Two recent cases demonstrate the Canadian government’s continued opposition to Chinese investment in Canadian critical minerals companies:

• In May, copper developer Solaris Resources announced it was not proceeding with a transaction to sell a 15% interest to Zijin Mining (Zijin) due to ICA “regulatory uncertainty”.
• In July, Zijin commenced an application on another transaction, challenging the government’s decision to advance the national security review process. Zijin’s position is that the government does not have jurisdiction to review its proposed acquisition of the La Arena gold (and copper) mine in Peru from a Canadian vendor.

The outcome of the Zijin litigation will likely influence transaction structuring on future deals. The government’s highly restrictive approach to Chinese investment has led Canadian businesses to consider structures that may avoid the application of the ICA. If Zijin is successful, that transaction may provide a roadmap for others to follow.

Ministerial statement on net benefit reviews of Canadian critical minerals companies

In July, the Minister issued a statement confirming that net benefit reviews of investments in “important Canadian mining companies engaged in significant critical minerals operations…will only be found of net benefit in the most exceptional of circumstances”. As a practical matter, the Minister’s statement is unlikely to affect most mining transactions, such as acquisitions that do not involve important Canadian mining companies engaged in significant critical minerals operations, acquisitions below the review thresholds (including virtually all acquisitions of junior mining companies), and debt and other non-equity financings. Net benefit reviews typically apply only to larger mining transactions. However, for a small handful of larger Canadian mining businesses, the new policy suggests a foreign takeover transaction will face increased regulatory review complexity.

At the same time, the Minister announced his approval of Glencore’s US$6.9 billion acquisition of Elk Valley Resources (EVR), Teck’s steelmaking coal business, under “strict conditions” following a lengthy seven-month review. These conditions included: 10-year commitments to establish and maintain a Canadian EVR head office in Vancouver, maintain EVR regional offices in Calgary and Sparwood, ensure a majority of EVR directors are Canadians, and ensure that at least two-thirds of EVR executive and senior management roles are filled by Canadians; a five-year commitment to maintain significant employment levels at EVR; undertakings to ensure commitment to environmental preservation and stewardship of liabilities; undertakings to maintain commitments to First Nations; and a commitment from Teck to reinvest a portion of the proceeds from the transaction into its copper growth portfolio. The approval is notable for numerous reasons, including the duration of the review itself (much longer than normal—typically 75-90 days) and the duration of several of the undertakings (also much longer than normal—typically three to five years).

Conclusion

Given the rapidly evolving Canadian foreign direct investment landscape, investors and Canadian businesses alike should engage counsel early on in the transaction planning process to assess filing requirements and risks.