Sale of Canadian gold miner to Chinese state-owned enterprise rejected on national security grounds

Firm bulletin goes over implications of Canada’s decision to prevent foreign acquisition

Sale of Canadian gold miner to Chinese state-owned enterprise rejected on national security grounds
The Canadian government recently rejected the sale of TMAC Resources to China’s Shandong Mining on national security grounds.

Canada’s decision to reject the sale of TMAC Resources Inc. to Shandong Gold Mining Co., Ltd. emphasizes the need for foreign investors to consider how the Investment Canada Act’s national security provisions may apply to their planned investments, a firm’s bulletin has said.

A bulletin authored by Anita Banicevic, John Bodrug, Mark Katz and Badar Yasin of Davies Ward Phillips & Vineberg LLP discussed a few lessons that foreign investors can learn from the federal government’s decision on this proposed transaction. Foreign investors are urged to conduct risk assessments for every transaction, particularly while Canada’s policy of enhanced security is still effective. These risk assessments can consider the location of the purchaser, the identity of major investors in the purchaser, whether the purchaser is a Chinese state-owned enterprise, the type of Canadian business that is sought to be acquired and whether the Canadian business is foreign-controlled, said the bulletin.

Foreign investors would also do well to investigate whether there are sensitive government facilities close to the Canadian business sought to be acquired or geographic sensitivities in connection with the location of the business, the bulletin said.

On May 8, 2020, Shandong, a Chinese state-owned enterprise, said that it would acquire 100 per cent of TMAC, a Canadian gold producer that holds a 100 per cent interest in the Hope Bay gold mining property in the Canadian Territory of Nunavut, for around $207 million. On June 26, 2020, 97 per cent of TMAC’s shareholders approved the proposed transaction.

The parties in the proposed transaction had to obtain certain approvals under the Investment Canada Act, which entailed a formal national security review process and a “net benefit to Canada” review process. On Dec. 21, 2020, TMAC announced in a press release that, by order of the Governor in Council, Shandong could not implement the plan of arrangement and could not proceed with the transaction. In the press release, Jason Neal, president and chief executive officer of TMAC, expressed disappointment with this result.

On Jan. 5, TMAC and Agnico Eagle Mines Limited, a Canadian gold miner, announced that Agnico had agreed to acquire all TMAC’s outstanding common shares at $2.20 per share in cash, which marks an increase of $0.45 per share, when compared with the Shandong’s offer price of $1.75 under the original agreement. The proposed transaction was effected by way of assignment to Agnico of the Shandong agreement dated May 8, 2020.

Davies, which is representing Agnico, noted in the bulletin that the Canadian national security review process lacks transparency. The federal government has not explained the specific rationale behind its decision to reject the proposed transaction between Shandong and TMAC, the bulletin said. The bulletin speculated that the decision may have been impacted by tensions in Canadian-Chinese relations or by the Canadian military’s concerns regarding the proposed acquisition’s possible effect on the continuing work to advance and to safeguard Canadian sovereignty in the Arctic, as reported by news sources.

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