Canada rejects bid by China’s Shandong for Arctic gold mine on security grounds

Canada rejects bid by China’s Shandong for Arctic gold mine on security grounds


Tom Daly and Jeff Lewis

·2 min read  

FILE PHOTO: Gold nuggets are displayed at the PDAC annual conference in Toronto
FILE PHOTO: Gold nuggets are displayed at the PDAC annual conference in Toronto

By Tom Daly and Jeff Lewis

(Reuters) -Canada rejected Shandong Gold Mining’s bid for indebted TMAC Resources, the companies said, amid concerns about a Chinese state-owned entity operating in the country’s sensitive Arctic region.

Canada and Australia have increased scrutiny on deals by state-run Chinese miners this year amid economic dislocation caused by the coronavirus pandemic.

Ottawa’s decision could further strain Canadian-Chinese relations, already damaged by Canada’s December 2018 arrest of Huawei Technologies Co Ltd Chief Financial Officer Meng Wanzhou at the request of the United States.

“There were concerns about a Chinese state-owned enterprise taking over a mine in the far north and it was ultimately rejected,” an Ottawa source familiar with the matter said on Tuesday. The source declined to say what those concerns were.

Shandong Gold, owned in part by the province of Shandong and one of China’s biggest gold miners, said Tuesday it had received notice of a decision made by Canadian authorities on Dec. 18 that it should not proceed with the deal. It added that the sale was blocked on national security grounds.

Gold producer TMAC said late Monday it been informed of such an order under the Investment Canada Act.

TMAC shares fell as much as 16.2% Tuesday before recovering somewhat as investors worried about its ability to repay debt.

The miner said on Nov. 5 it had about C$99 million in cash on hand, short of the C$169.7 million of debt due in June.

“Given Canada’s sensitivities with the high North and more recent tensions between Canada and China, we had anticipated the Canadian government would not approve the proposed purchase,” Laurentian Bank analyst Barry Allan said.

TMAC now faces a potentially “messy refinancing which could ultimately hurt shareholders,” he said.

Shandong Gold said in May it would pay C$230 million ($179 million) to acquire TMAC, which operates the Doris mine in the Hope Bay region of the northern and strategically important territory of Nunavut.

Canada in October launched a national security review of the proposed acquisition that was extended last month.

Mineral-rich but thinly populated, Nunavut is seen by Canada as vital as retreating sea ice opens up potential new shipping routes.

Canada in May 2018 blocked a proposed C$1.51 billion takeover of construction company Aecon by China Communications Construction Co Ltd, also on national security grounds.

Prime Minister Justin Trudeau has faced pressure to toughen the country’s stance on China.

Canada’s department of Innovation, Science and Economic Development, which oversees foreign investment, said in a statement that Canada remains open to investment but declined further comment, citing confidentiality provisions.

TMAC has not decided whether to relaunch a sale process, a spokeswoman said, declining further comment.

($1 = 1.2865 Canadian dollars)

(Reporting by Tom Daly; additional reporting by Jeff Lewis in Toronto; additional reporting by David Ljunggren in Ottawa; Editing by Kirsten Donovan and Steve Orlofsky)