Canadian critical minerals companies will need to consider how they raise foreign capital as Ottawa prepares to implement new Investment Canada Act rules that will require certain types of minority investments into a mandatory pre-closing filing regime.
The changes could have particular consequences for miners and developers that rely on strategic investors to finance exploration, feasibility work, and project development, Toronto- based partner in Cassels’ Competition & Foreign Investment Group Chris Hersh told MINING.COM in an interview.
The legislation underpinning the new regime was enacted in 2024, but key provisions requiring regulations are set to take effect in early 2027.
Under the coming rules, certain investments by non-Canadians in businesses operating in prescribed sensitive sectors will require notification before the transaction can be completed — and will target investments that do not involve an acquisition of control of a Canadian business.
Currently, acquisitions of control of Canadian businesses that fall below the applicable net-benefit review threshold generally require a notification that can be submitted up to 30 days after implementation, while minority investments that do not trigger a mandatory filing can be voluntarily notified to obtain greater certainty under national security review provisions of the law.
This is because the Investment Canada Act allows the government to review foreign investments on national security grounds regardless of their value or whether control is acquired.
The 2024 amendments will expand mandatory filings to certain non-control investments where the Canadian entity conducts a prescribed business activity and the foreign investor obtains rights including, those relating to access to material non-public technical information or material assets, together with certain governance or other special rights.
For mining companies, this means that a range of minority investments by foreign investors may be caught by the new regime and they will need to proactively consider how to factor this into their business planning.
“The new mandatory notification regime is not going to apply to every single transaction,” Hersh said. “But companies now need to consider how the Investment Canada Act applies not only to control transactions, but also minority interest transactions,” where the investment meets the conditions established by the new regime.
Exactly which businesses will be covered remains one of the biggest outstanding questions. Ottawa has yet to finalize the “prescribed business activities” that will trigger the requirement.
The federal government has said those activities will target sensitive sectors and will be informed partly by existing government policy statements and guidelines, including Canada’s Sensitive Technology List, as well as those relating to the application of the national security regime Critical minerals are already treated as a national security priority under Canada’s foreign investment policy.
Hersh expects critical minerals to be among the sectors affected, while emphasizing that the regime is considerably broader than mining.
“It’s not directed specifically at critical minerals, it’s directed at a range of sensitive sectors that includes critical minerals,” he said. “In short, investments across a broad range of sectors will be potentially affected by the new law.”
Financing timelines could stretch
For critical minerals companies, the immediate issue may be less whether foreign capital remains available than how quickly companies can access it.
Transactions caught by the new regime will have to file their notification before completion, meaning companies accustomed to bringing in strategic investors relatively quickly may need to build regulatory review timing into their financing schedules.
Hersh anticipates many transactions will make it through an initial 45-day national security screening period without further action, but investments that raise concerns could face a much longer review that can take up to 200 days, or longer.
“I do think that a majority of the deals caught by the new regime are likely to be subject to a 45-day screening period, following which the government will conclude that there are no problems,” he said.
The complication is that companies may not know at the outset whether their deal will fall into that relatively straightforward category.
For a junior miner that needs capital quickly, even the prospect of a mandatory waiting period could affect how investments are structured.
“It means that you can’t necessarily do quick transactions in the same way you can today,” Hersh said, adding that Canadian companies engaged in prescribed activities will have to consider both the timing and structure of foreign investments.
That could be particularly important for strategic investments in which a foreign company takes a minority equity position in exchange for board representation, access to technical information or other rights.
Companies doing deals that are caught by the new mandatory pre-close notification process will have to give themselves enough time to complete the Investment Canada Act process or design transactions, so they do not trigger the new filing requirement.
One possibility could be staged financing.
Hersh offered the example of a company needing an immediate cash injection completing an initial tranche that does not grant the investor the rights or information access necessary to trigger the regime, followed by a subsequent investment that goes through the required process.
“Maybe you do tranche one that is structured in a manner that is not subject to mandatory notification, he said, followed by “a secondary transaction where you would have to go through the regime.”
Such structures would need to comply with the final regulations and would not eliminate the possibility that the second tranche investment encounters national security concerns.
Still, the example illustrates how the rules could influence financing strategy well before a foreign investor actually writes a cheque.
Preventing forced divestitures
Ottawa’s rationale is that sensitive investments should be examined before foreign investors gain access to assets, intellectual property or confidential information that could create national security risks.
The government has explicitly said the new pre-implementation notification requirement is intended to prevent potentially irreversible national security harm while avoiding the disruption caused by ordering divestiture or other remedies that have a material economic impact on the investment after it has already occurred.
Canada’s critical minerals sector has already seen how disruptive that can be.
In 2022, Ottawa ordered three Chinese companies to divest their stakes in Canadian critical minerals companies following national security reviews.
Sinomine Rare Metals Resources had to sell its shares in Power Metals, Chengze Lithium International had to divest its stake in Lithium Chile and Zangge Mining Investment (Chengdu) had to exit its investment in Ultra Lithium Inc.
These orders demonstrated that minority acquisitions were not beyond the government’s reach, even after they had been completed.
The new regime could provide more certainty by forcing potentially sensitive transactions into the screening process before they close.
“The intention is to prevent situations like that, where somebody buys something, and then is told to divest after the fact,” Hersh said. “It does provide a degree of certainty that may not have existed unless somebody was prepared to make a voluntary filing.”
That certainty comes with a trade-off: transactions subject to the requirement cannot necessarily close as quickly.
Balancing attracting foreign investment with national security
The changes arrive as Ottawa is simultaneously trying to attract billions of dollars into Canadian critical minerals projects and accelerate development of mines, infrastructure and other projects deemed strategically important.
That creates an apparent tension between attracting foreign capital and increasing scrutiny of the investors providing it.
Hersh does not see the two objectives as contradictory.
“I think it’s an attempt to balance the desire to encourage foreign investment in critical minerals projects and other significant projects…with the need to protect national security,” he said.
How restrictive the regime becomes ultimately depends on how Ottawa handles transactions that fall between obviously benign investments and deals presenting clear national security risks.
“The real question is what happens in the middle to those transactions in the gray area that raise some, but not deal breaking concerns,” Hersh said.
These situations will test whether the government can manage legitimate security risks through the implementation of mitigation measures rather than simply blocking investments.
“The proof in the pudding is does the government manage to walk that line, or do they lean too far on one side or the other side?”, Hersh said.
For critical minerals companies, however, the practical message is already becoming clearer: foreign financing may require more advance planning.
Companies contemplating minority strategic investments may need to assess earlier whether proposed board rights, access to technical information or other investor protections could trigger a mandatory filing — and build the potential review period into their financing plans.
Despite the added scrutiny, Hersh remains cautiously optimistic that the rules will not materially undermine investment in the Canadian critical minerals sector.
“The reality is that there are only so many stable jurisdictions with significant critical mineral reserves and companies operating in the critical minerals sector,” he said. “We do have what the world wants.”