Canada’s move to protect mining sector protects takeover targets

(Bloomberg) — Canada is making it harder for foreign companies to take over domestic mining companies, introducing measures that could shield major takeover targets from big global rivals.

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The Canadian government will only approve foreign takeovers of Canadian mining companies “in the most exceptional circumstances,” according to the latest guidance from Industry Minister Francois-Philippe Champagne. The directive issued Thursday is part of a broad effort by Prime Minister Justin Trudeau’s government to protect Canada’s critical minerals sector and national security interests.

The move appears to protect domestic companies from takeovers as the world’s largest miners hunt for metals that underpin a global shift away from fossil fuels. Industry giants such as Glencore Plc, BHP Group Ltd. and Rio Tinto Plc are seeking to increase their exposure to metals such as copper as appetite for large, transformational deals returns across the industry.

Canadian mining companies, meanwhile, have become attractive targets. Teck Resources Ltd. spent much of last year fending off a $23 billion takeover attempt by Glencore before the Swiss company decided to simply buy its steel and coal operations. The federal government approved the $6.9 billion deal Thursday, while also setting new criteria for future overseas mining deals.

“This high bar reflects the strategic importance of Canada’s minerals sector and the importance of taking decisive action to protect it,” Champagne said in a statement.

Foreign takeovers of mining companies have become a sensitive topic in Canada since a wave of deals 18 years ago eliminated some of the country’s biggest players, including nickel miner Inco Ltd. and aluminum producer Alcan Inc. When BHP proposed taking over Potash Corp. of Saskatchewan Inc. in 2010, then-Prime Minister Stephen Harper’s government blocked the deal, saying it would not deliver “clean value” to the country.

Teck is one of the few major Canadian metals producers to have weathered a wave of industry takeovers, despite long being coveted by foreign competitors for its copper and zinc assets spread across the Americas. The Vancouver-based company is widely expected to become a takeover target once founder and lead investor Norman Keevil relinquishes control of the company in the coming years.

“They’re basically telling Glencore not to bother coming back for the other half of Teck,” said Canadian mining financier Pierre Lassonde, who last year made a competing bid for Teck’s coal assets. “It looks like Ottawa is ready to wall off Canada’s critical metals industry with this new directive.”

The new directives go even further than a crackdown on foreign takeovers by state entities that began in October 2022. Champagne’s ministry has thwarted several recent attempts by Chinese companies to enter Canada’s critical minerals sector through acquisitions or large investments. But Thursday’s comments signal that the federal government is tired of foreign takeovers, even from companies in friendly countries.

Canada’s crackdown could also limit access to capital for companies that rely on foreign investment to fund exploration and mining projects. The government is “squeezing” funding for the industry with its “more aggressive statements,” said Shane Nagle, a metals and mining analyst at the National Bank of Canada. “If it’s hard, they’ll just go elsewhere.”

–With assistance from Laura Dhillon Kane.