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Glencore’s Acquisition of Teck: Impact on the Future of Mining Transactions in Canada

By: Adria Leung Lim, Stephen Zolf and Russell J. Sanders

To listen to an audio recording of this article, click here.

Introduction

On July 4, 2024, the Canadian Minister of Innovation, Science and Industry, Francois-Philippe Champagne (the “Minister”), approved the acquisition (the “Transaction”) by Swiss-based Glencore plc (“Glencore”) of Elk Valley Resources (“Elk Valley”) under the Investment Canada Act (the “ICA”). Elk Valley is a metallurgical coal business carried on in British Columbia by Teck Resources Limited (“Teck”). The Minister is responsible for overseeing acquisitions of control of existing Canadian businesses by non-Canadians under the ICA. Direct acquisitions of control by non-Canadians of Canadian businesses with an enterprise value above specified monetary thresholds triggers a review under the ICA and requires the Minister to be satisfied that the investment is of “net benefit” to Canada.

The accompanying statement issued by the Minister was intended to provide acquirors “with a clear signal” about how “net benefit” Ministerial (economic) reviews under the ICA will be conducted with respect to “important Canadian mining companies” engaged in “significant critical minerals operations.” In particular, the Minister has clarified that foreign acquisitions of control of Canadian producers of critical minerals (including aluminum, copper, graphite, lithium and nickel)[1] would only be found to be of net benefit under the ICA in “the most exceptional of circumstances,” a high bar that is reflective of the strategic importance of Canada’s critical minerals sector.[2]

While the Canadian federal government confirmed that the “most exceptional circumstances” standard would only affect companies with large-scale production, rather than early-stage exploration and development companies, all potential acquirors and target mining companies with a Canadian footprint now face a degree of uncertainty as to what will qualify as “the most exceptional circumstances” in which “net benefit” approval would be granted.  

The Canadian Federal Government’s Ability to Review Foreign Acquisitions of Control

The ICA empowers the Canadian federal government to review direct acquisitions of control of Canadian businesses whose enterprise value exceeds relevant thresholds, provided that such acquisitions will result in a “net benefit” to Canada.[3] Statutory criteria for “net benefit” under the ICA considers the following factors:

  • The investment’s effect on the level and nature of economic activity in Canada, including employment, resource processing, and the utilization of parts, components and services produced in Canada, and on exports from Canada;
  • The degree and significance of participation by Canadians in the Canadian business;
  • The investment's effect on productivity, industrial efficiency, technological development, product innovation and product variety in Canada;
  • The investment's effect on competition within any industry in Canada;
  • Its compatibility with industrial, economic and cultural policies (taking into account provincial policy objectives); and
  • Its contribution to Canada's ability to compete in world markets.[4]

The objectives of the net benefit review are aimed at ensuring that Canadian businesses being acquired by non-Canadian acquirors maintain a significant presence in Canada, including ensuring continued Canadian economic activity, employment and management. Potential acquirors will need to consider the impacts of their investments with the above factors in mind when making their “net benefit” applications under the ICA. 

A key element of a “net benefit” review contemplates that the acquiror must put forward “plans” for the acquired Canadian business, namely information relating to the parties, assets and business involved, consultations with key stakeholders and provincial and territorial governments, and submissions in respect of the net benefit factors listed above. The plans must be filed with the Minister, and are generally crystallized through “undertakings” by the acquiror.  These will be taken into account when the Minister is making a final determination to provide their consent to a control acquisition of a Canadian business.

Notably, if an acquiror fails to comply with any undertakings given to the Minister in connection with their approval of an acquisition of control, the Minister can apply for a court order directing the acquiror to comply with such undertakings and even require that the acquiror sell its interest in the acquired business. Penalties may be imposed not exceeding $10,000 for each day on which an entity is in contravention of the ICA.[5] These fines will be increased to the greater of $25,000 and any prescribed amount for each day of contravention once recently passed amendments to the ICA come into force.[6]

Expanding Reach of Canadian Federal Government’s Net Benefit Review of Critical Mineral Transactions

Critical minerals are key building blocks for the future of Canada’s green and digital economy. They are used in various applications such as wind turbines, solar panels, electric vehicles and charging stations, drones and satellites, smartphones and laptops, data centres and mobile networks. Canada is a world leader in the critical minerals industry, as it is home to almost half of the world’s publicly listed mining and mineral exploration companies, which have a presence in over 100 countries.[7]

To be deemed a critical mineral in Canada, a mineral must meet the following initial criteria:

  • The supply chain of such mineral is threatened; and
  • There is a reasonable chance of the mineral being produced by Canada.

If the first two criteria are met, the mineral must also meet one of the following criteria to be deemed a critical mineral in Canada:

  • The mineral must be essential to Canada’s economic or national security; or
  • The mineral must be required for the national transition to a sustainable low-carbon and digital economy; or
  • The mineral positions Canada as a sustainable and strategic partner within global supply chains.

The current list of critical minerals in Canada was last updated in June 2024 and now includes high-purity iron, phosphorous and silicon metal. The Honourable Jonathan Wilkinson, Minister of Energy and Natural Resources of Canada, explained that by updating the critical minerals list, Canada is taking a proactive step to ensure that the list is informed by the most accurate market trends, geopolitical factors and science.[8]

Recent Foreign Acquisitions of Canadian Companies in the Critical Minerals Sector

The announcement of the more restrictive approval criteria for circumstances where foreign entities seek to acquire Canadian critical minerals businesses is a further development along the continuum in which the Canadian federal government is closely scrutinizing transactions in the critical minerals sector. This additional scrutiny also arises under Part IV.1 of the ICA, which allows the Minister to review transactions that might be injurious to Canadian national security.[9] In 2024, several other Canadian critical minerals companies have called off foreign investments or acquisitions due to stricter government oversight.

In March 2024, the acquisition by China-based Carbon One New Energy Group Co. Ltd. (“Carbon One”) of a 19.4% stake in SRG Mining Inc.’s (“SRG”) Lola graphite project was cancelled after the Minister made a public statement that the Canadian government was willing to use extraordinary measures to ensure that Canadian law is complied with after finding out that SRG was planning on relocating to the Middle East in order to thwart the requirement for a national security review of its transaction with Carbon One. In May 2024, Solaris Resources Inc. cancelled its plan to sell a minority stake of its business to Zijin Mining Group, which is partially owned by the Chinese government, purportedly out of concern that the transaction would not meet the more stringent foreign investment standards set by the Canadian government.

In May 2024, Vancouver-based Pan American Silver Corp. announced an agreement to sell its stake in Peru’s La Arena gold mine to Jinteng (Singapore) Mining, a subsidiary of Zijin Mining Group. The Minister determined that the agreement could be injurious to national security and informed the parties that it may order a formal review under the ICA. Jinteng has challenged the Minister’s jurisdiction in a judicial review application by contending that the targets are Peruvian entities – they do not have a place of operations in Canada or otherwise carry on operations in Canada, they do not have Canadians employed by their operations and they do not have any assets in Canada. The case may serve as a useful test on how far the Minister’s reach may extend in connection with a national security review.

Background to the Transaction: “Net Benefit” Conditions

In April 2023, Glencore originally pursued an unsolicited all-share US$23.1 billion takeover bid of Teck – a proposed transaction which caused great concern and stimulated a strong desire for the company to remain owned (or at least controlled) by Canadians. Key stakeholders of Teck (including its Chairman Emeritus and Sumitomo Metal Mining Co.) and the Government of Canada strongly objected to the takeover, and the takeover was ultimately rejected by Teck’s shareholders.

In November 2023, the sale of Teck’s entire interest in Elk Valley, through a sale of a majority stake (77%) to Glencore in exchange for US$7.3 billion, and a sale of a minority stake to Japan’s Nippon Steel Corp. (20%) and South Korean steelmaker Posco (3%), was announced.

Prior to closing, the Minister engaged in a seven-month review process for the Transaction. In his July 4, 2024 statement, the Minister announced that his approval of the sale of Teck’s coal business, which was a much narrower transaction than Glencore’s hostile takeover attempt in 2023, would come with strict conditions. The Minister outlined the following net benefit undertakings that Glencore would have to agree to in respect of its acquisition of Elk Valley in order to secure the Minister’s consent: 

  • For no less than 10 years, Glencore must maintain a Canadian head office for Elk Valley’s coal business in Vancouver, British Columbia. 
  • For no less than 10 years, Glencore must maintain Elk Valley regional offices in Calgary, Alberta and Sparwood, British Columbia. 
  • For no less than 10 years, Glencore must ensure that the majority of Elk Valley’s directors are Canadians. 
  • For no less than 10 years, Glencore must ensure that at least 66% of all executive and senior management roles at Elk Valley are filled by Canadians. 
  • For no less than 5 years, Glencore must maintain significant employment levels at Elk Valley. 
  • Glencore’s commitment to Elk Valley comes with significant environmental commitments and responsibilities through to 2050 (which would carry forward to a purchaser of Elk Valley in a scenario in which Glencore sells Elk Valley, unless the Minister is satisfied that the terms of the sale provide for assumption of the mandated environmental protections), with an additional $350 million investment in rehabilitation and closure activities over five years. 
  • Glencore must maintain and honour commitments made to the First Nations by Elk Valley and must work in good faith with the First Nations to increase First Nations’ participation in benefits from the activities from Elk Valley (including employment and procurement opportunities). 

The many criteria that Glencore needed to fulfil in order to receive the Minister’s approval for the Transaction emphasizes a balancing of protecting Canada’s economic and strategic interests, while supporting the development of Canadian resources. The Canadian federal government seeks to take decisive action to protect the Canadian critical minerals sector. If there are circumstances that might adversely impact Canada’s economic interests, the Canadian federal government currently appears willing to conclude that a potential acquisition is not of net benefit to the country and therefore the required consent would not be granted. Prospective foreign acquirors of critical mineral projects in Canada must account for these additional costs and considerations as part of their analysis in determining whether to proceed with acquisitions involving critical minerals with ties to Canada. 

Impact for Canadian Businesses

The Canadian federal government’s increased scrutiny over acquisitions of control of Canadian businesses in the critical minerals sector, including the subject target in the Transaction, leaves certain questions unanswered, including  what comprises an “important Canadian mining company,” what would be encompassed under the scope of “significant critical minerals operations” and what qualifies as an “exceptional circumstance” justifying such an investment to acquire control. The Minister’s July 4, 2024 statement illustrates that there are specific circumstances where there will be a “net benefit” to Canada following an acquisition of control by a non-Canadian acquiror, which would outweigh the negative impact of a sale to a foreign entity. This suggests that the Canadian federal government is trying to achieve a balanced approach to welcoming foreign investment while, at the same time, acknowledging the importance of ownership of Canada’s critical minerals sector to the future of Canada’s prosperity. 

Until such time as the Canadian federal government provides further guidance on these unanswered questions, acquirors contemplating transactions for the acquisition of control that triggers a “net benefit” review under the ICA should consider doing the following:

  • Conduct thorough due diligence to identify potential regulatory hurdles and commitments;
  • Proactively engage with Canadian federal and provincial regulators;
  • Engage with key stakeholders, including local communities, employees and environmental groups to build support for the transaction;
  • Be prepared for undertakings from the regulators in respect of financial, environmental, social and governance commitments;
  • Be familiar with the factors set out under the net benefit review, and be prepared to justify why the transaction would have an overall positive impact for Canadians; and
  • Develop contingency plans to address potential regulatory rejections or demands for additional commitments.

The Aird & Berlis Mines & Minerals Group will continue to monitor developments in the industry with respect to whether the Canadian government further clarifies its net benefit expectations for foreign mining acquirors. Please contact Adria Leung Lim, Stephen Zolf, Russell Sanders or any other member of our Mines & Minerals Group if you have questions or require assistance.[10]

[1] For additional background on the Canadian Federal Government’s approach to Critical Minerals, please see our article “Federal Government Unveils Canadian Critical Minerals Strategy (airdberlis.com).”

[2] Canada.ca, “Ministerial Statement on Net Benefit Reviews of Canadian Critical Minerals Companies” (July 4, 2024) online: Ministerial Statement on Net Benefit Reviews of Canadian Critical Minerals Companies - Canada.ca.

[3] Per the Investment Canada Act ss 14(3)-14(4), investments subject to review are those over $5 million in asset value for direct investments and $50 million in asset value for indirect transactions). 

[4] Canada.ca, “What is the Investment Canada Act?” online: What is the Investment Canada Act? | Investment Canada Act.

[5] Investment Canada Act s 40(2).

[6] Bill C-34 (An Act to amend the Investment Canada Act), received Royal Assent on March 22, 2024 and will come into force by order of the Governor-in-Council, which is anticipated to be later in 2024.

[7] Canada.ca, “The Canadian Critical Minerals Strategy” (2022) online: The Canadian Critical Minerals Strategy - Canada.ca.

[8] Canada.ca, “Government of Canada Releases Updated Critical Minerals List” (June 10, 2024) online: Government of Canada Releases Updated Critical Minerals List - Canada.ca.

[9] Investment Canada Act s 25.2(1).

[10] The authors would like to thank Jordan Mamelak, a 2024 Summer Student, for his assistance with this article.

 

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