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Canada-China trade not expected to change much amid critical mineral protectionism

China is a trade partner and export market that is simply too big to lose – including when it comes to Canadian copper
Federal Natural Resources Minister Jonathan Wilkinson said companies like Teck Resources and Ivanhoe need not worry the Canadian government will order their Chinese partners to divest | PDAC

The federal government’s decision last November to order Chinese companies to divest from three Canadian lithium junior exploration ventures may have sent a chill up the Canadian resource sector’s spine.

“What’s next?” mining and energy companies might well ask. “Will Chinese investors in Canadian uranium, potash or copper miners also be told to pack their bags and take their billions with them?”

Could Canadian producers of liquefied natural gas (LNG), metallurgical coal, iron ore, copper, pulp and canola eventually lose access to the massive Chinese market, as Canada goes courting more western-aligned trade partners through agreements and policies such as the Indo-Pacific Strategy?

At a recent Prospectors and Developers Association of Canada (PDAC) conference, held March 5 to 8, mining financier Robert Friedland worried out loud about Canada’s recent crackdown on Chinese foreign investment, warning it make it a lot harder to raise the capital needed to finance new discoveries and mines that produce the very minerals Canada wants to secure as part of its new green industrialization plans. 

Friedland has good reason to be concerned. Two Chinese companies – CITIC Metal Africa Investments and Gold Mountains (H.K.) international Mining Co. Ltd., an affiliate of Zijin Mining – are significant shareholders of his company, Ivanhoe Mines, which is a major copper and platinum producer.

There are more examples of Chinese companies that have large stakes in Canadian resource companies. The China Investment Corp., for example, owns 10 per cent of Teck Resources Ltd., Canada’s biggest metallurgical coal producer. PetroChina has a 15-per-cent take in the LNG Canada project. And China’s CGN Mining Company Ltd. owns 20 per cent of Fission Uranium, a Vancouver-based exploration company with uranium exploration properties in Saskatchewan.

In a recent interview with BIV, federal Natural Resources Minister Jonathan Wilkinson said companies like Teck Resources and Ivanhoe need not worry the Canadian government will order their Chinese partners to divest.

“We don’t intend to go backwards in time to investments that may have happened years ago,” Wilkinson said. “That would obviously create a lot of uncertainty with respect to investments across the board.

“But we are, obviously, increasingly focused in areas that are strategic for Canada, like critical minerals, in ensuring that there are not provisions that enable countries – whether it’s China or anywhere else – to essentially secure 100 per cent of the offtake of a particular mine.

“In terms of new investments, what we have said is we will not be allowing investments on the part of state-owned enterprises in the critical mineral space, because they are essentially arms of foreign governments.”

“If you’re limiting investment from state-owned enterprises, you’re not just cutting out China, but all the other countries in the region that have state-owned enterprises,” said Anastasia Ufimtseva, program manager of business Asia for the Asia Pacific Foundation of Canada. “We have observed some investment from Japanese and South Korean state-owned enterprises now in critical minerals. But if they’re screening and looking closely, that might deter that investment.”

As for exports, China is second only to the U.S. in terms of its importance as a buyer of B.C. commodities. China accounted for $8.5 billion worth of B.C. exports in 2022, and just three commodities accounted for 75 per cent of the value, according to BC Stats.

Of the $11.8 billion in metallurgical coal exports from B.C. in 2022, China claimed $3.1 billion (36 per cent). It also accounted for 24 per cent ($2 billion) of B.C.’s pulp exports and 15 per cent ($1.3 billion) of B.C.’s copper ore and concentrate exports.

While copper is one of the 31 minerals on Canada’s critical minerals list, it’s unlikely B.C. miners are about to lose China as a key copper buyer. It might be different if B.C. had any copper refining capacity of its own, but it doesn’t.

“There is movement towards on-shoring,” said Michael Goehring, CEO of the Mining Association of BC (MABC). “The Government of Canada’s critical minerals strategy does focus on building Canada’s refining capacity, but there’s been really no public discussion thus far with respect to copper.”

So until Canada develops its own copper refining capacity, it will actually need countries like China to take its raw copper concentrate and turn it into finished copper products.

For all its talk about China being a “disruptive global power,” Canada’s Indo-Pacific Strategy concedes that China is simply too big to ignore as a trade partner.

“China’s economy offers significant opportunities for Canadian exporters,” the strategy’s section on China notes.

“Canada still identifies China as a key market and a key trading partner,” said Sharon Zhengyang Sun, trade policy economist at the Canada West Foundation and a fellow with the Asia Pacific Foundation. “We’ve seen, at aggregate level, even during COVID, Canadian exports to China were increasing. So China is not going anywhere. 

“Overall, we will continue to see trade growth with China, both on the import and export front, especially at the commodity level.”

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