The deal went through swiftly – and almost immediately prompted calls for a national security review.
Just three months after Chinese-state-owned Zijin Mining Group announced its US$960 million plans to buy Canadian miner Neo Lithium, the proposal was signed, screened and delivered.
At a corporate level, the deal made sense. Neo Lithium’s biggest mine operation is in Argentina, where Zijin already has interests and plans to build a lithium carbonate plant. Canadian officials also said carmakers in North America were unlikely to use lithium produced so far away.
Do you have questions about the biggest topics and trends from around the world? Get the answers with SCMP Knowledge, our new platform of curated content with explainers, FAQs, analyses and infographics brought to you by our award-winning team.
But lithium is an essential mineral and the speed of the deal raised calls from lawmakers and security experts in Canada that such agreements with Chinese companies should be subjected to more thorough review.
The backlash highlights growing concerns in the West over China’s control of supply chains for strategic minerals as well as a divide between national interests and corporate priorities.
Neo Lithium has a major operation in Argentina. Photo: Neo Lithium alt=Neo Lithium has a major operation in Argentina. Photo: Neo Lithium>
That divide is particularly apparent in Africa, where the mining sector was previously dominated by European and American firms but has slowly given way to Chinese companies, including Huayou Cobalt, Chengtun Mining, and China Molybdenum.
One example is in the Democratic Republic of the Congo, home to 60 per cent of the world’s reserves of cobalt, an essential component of batteries for electric vehicles, smartphones, tablets and laptops.
American company Freeport-McMoRan used to have extensive interests in the DRC but has since sold its stakes to China Molybdenum. It started in 2016 when China Molybdenum bought Tenke-Fungurume Mining, owner of the world’s second-largest cobalt mine, from Freeport-McMoRan. Then in 2020, the Chinese company bought Freeport-McMoRan’s indirect 95 per cent interest in the Kisanfu copper-cobalt deposit for US$550 million.
Further south in Zimbabwe, Shanghai-listed battery material producer Zhejiang Huayou Cobalt announced in December that it would buy the Arcadia hard-rock lithium mine, owned by Australia-based battery minerals company Prospect Resources, for US$422 million, subject to regulatory approval. The Zimbabwean project aims to process 2.4 million tonnes of lithium ore per year.
Huayou has also operated two copper and cobalt mines in the DRC since 2007 and is investing in four nickel and cobalt projects in Indonesia.
Why China is making a big play for Congo’s cobalt – and other critical minerals
And last year China’s lithium giant Ganfeng Lithium acquired half of Netherlands-based SPV, whose subsidiary Lithium du Mali owns a spodumene project called Goulamina in the West African nation of Mali. Chinese companies also have mining interests in Namibia, Zambia, and Ghana for key metals such as lithium.
That transition has not been without concerns in the countries themselves. The Congolese government has plans to renegotiate contracts with Chinese companies, saying its resources have not benefited its people. A US$6 billion “infrastructure for minerals” deal with Chinese investors – signed in 2008 under former president Joseph Kabila – is under review.
The shift is also raising alarm in Washington, where the House of Representatives passed the China-focused America Competes bill on February 4.
The sprawling bill aims to increase US competitiveness with China and address the country’s shortage of semiconductors by strengthening the country’s supply chain, “eliminating national reliance on minerals and mineral materials that are subject to supply disruptions”.
The US, as well as other Western countries such as Australia and Canada, want to secure supply chains for the minerals that power important industries such as communications, aerospace and defence, and clean technology.
But many of the Western corporate players in those fields have exited for commercial reasons.
“We keep on seeing Chinese companies acquiring Western companies to the dismay of their governments,” said Christian Geraud Neema, an independent Congolese mining and policy analyst.
“What makes sense for politicians doesn’t always make sense for corporations. They can’t expect them to understand their political views if they don’t take into account the economic needs of these corporations.”
He said corporations were profit-driven entities that were more worried about the costs, risks of each operation, and the benefits they made on the entire value chain. And the political and reputational risks of doing business in a corrupt country like the DRC outweighed the benefits of operating there.
He said there were many other opportunities further down the supply chain from extraction and processing for Western companies to add value and profit.
“This would explain why they would let Chinese corporations work in these environments knowing that they’re not under the same level of public scrutiny. [Chinese companies] can deal with corrupt governments without any real risk of backlash in their country,” he said.
Leaving Chinese companies on the ground and then cooperating with them down on the supply chain was a much safer choice for many Western players, Neema said.
This reasoning played a big part in Canada’s decision to approve the Zijin Mining takeover of Neo Lithium. Addressing the Canadian parliament last month, Industry Minister Francois-Philippe Champagne said Neo Lithium was not part of a bigger Canadian lithium mining and processing chain.
Neema said: “Where the Chinese ones are part of a big national strategy and can receive, when necessary, support from the [Communist Party], Western corporations face different constraints and realities. This is why I believe US lawmakers passed the America Competes bill to create a competitive environment for their mining corporation.”
Gregory Miller, an analyst at Benchmark Mineral Intelligence, said the West’s market-based approach to strategic minerals had driven the relinquishment of African assets to Chinese companies.
“This short-termism led Western miners to seek to offload African assets during the period of declining commodity prices post-2008,” Miller said.
He said diminishing returns created a greater aversion to operating in more challenging jurisdictions; at a time when China’s state-led industrial policy was leading Chinese companies to secure new mines across the globe.
Miller said Western governments had become increasingly conscious of the risks posed by Chinese-controlled supply chains, particularly in the wake of the global semiconductor shortage. However, for now, it had yet to lead to substantial action.
“So, while the US may certainly be weighing up a return to the mining industry in an attempt to challenge Chinese hegemony, without imminent state-led action it will likely be a case of too little too late,” Miller said.
Jacqueline Musiitwa, an international lawyer and environmental, social and governance adviser with mining sector experience, said a number of the Chinese mining investment companies had the added attraction of being able to negotiate cheap debt and “infrastructure for minerals” deals.
African countries such as the DRC found the model appealing because of the immediate construction of roads, hospitals and other needed infrastructure in exchange for a shareholding in mines, she said.
That said, China’s investment tactics in Africa were shifting, Musiitwa said.
“The seemingly unscrupulous investments have led to concerns about undue public debt that have put that model under increasing scrutiny,” she said.
Musiitwa said while a lot of focus has been put on the need for critical materials for electric cars, the US needed them for a variety of reasons including that they were relevant for national security.
Chris Berry, president of commodities advisory firm House Mountain Partners in New York, said car companies were now focused on securing critical raw materials such as lithium and cobalt closer to their home markets.
For example, Tesla was looking to secure nickel from a project in Minnesota and General Motors was hoping to secure lithium from a geothermal project in California, Berry said.
“There is also a huge move on the part of European automotive players and the European Union government to locally source critical raw materials,” he said.
This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP’s Facebook and Twitter pages. Copyright © 2022 South China Morning Post Publishers Ltd. All rights reserved.
Copyright (c) 2022. South China Morning Post Publishers Ltd. All rights reserved.
Source: finance.yahoo.com