Canada rejects bid by China's Shandong for Arctic gold mine on security grounds (updated)

Arctic Minerals AB (publ)

22/12/2020 12:00

* Chinese miner planned to acquire TMAC Resources for C$230
mln
    * Canada had been conducting national security review of the
deal
    * TMAC has C$169.7 million in debt due in June

 (Adds China foreign ministry comment, paragraphs 6-7)
    By Tom Daly and Jeff Lewis
    Dec 23 (Reuters) - Canada rejected Shandong Gold Mining's
bid for indebted TMAC Resources  TMR.TO , 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.  urn:newsml:reuters.com:*:nL1N2D31Q1
    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  600547.SS   1787.HK , controlled by the
province of Shandong and one of China's top 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 the sale was blocked on national security grounds.
    Chinese foreign ministry spokesman Zhao Lijian said Canada
should provide a fair, open and non-discriminatory business
environment for companies from all countries including China.
    "Any action that politicises normal commercial cooperation
and engages in political interference in the name of national
security is wrong," Zhao told a daily news briefing.
    Shares in gold producer TMAC, which said it had been
informed of the order to block the deal under the Investment
Canada Act, fell as much as 16.2% Tuesday as investors worried
about its ability to repay debt.  urn:newsml:reuters.com:*:nL4N2J22Z3
    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  LB.TO  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.  urn:newsml:reuters.com:*:nL4N2CQ2TC 
    Canada in October launched a national security review of the
proposed acquisition that was extended last month.  urn:newsml:reuters.com:*:nL1N2ID0SW
    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  ARE.TO  by China
Communications Construction Co Ltd  601800.SS , also on national
security grounds. 
    Prime Minister Justin Trudeau has faced pressure to toughen
the country's stance on China.  urn:newsml:reuters.com:*:nL8N2I55Z3
    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 Steve Orlofsky and Jason Neely)
 ((tom.daly@thomsonreuters.com; +86 10 5669 2119;
jeff.lewis@tr.com; +1 647 200 7236))