Canada rejects sale of Arctic mine to Chinese company Shandong Gold after security review

Parliament Hill in Ottawa is pictured in this file photo on October 29, 2013. THE CANADIAN PRESS/Sean Kilpatrick

CALGARY — The CEO of TMAC Resources Inc. says there's a "silver lining" to news that Ottawa will not allow the sale of his mining company to China's Shandong Gold Mining Co. Ltd.

The company announced Tuesday it had been informed the $230-million sale of TMAC, whose main asset is a gold mining project at remote Hope Bay in Nunavut, would be blocked following a review under the Investment Canada Act.

"The government not approving the transaction, to me, is also in a way saying that what we've done at Hope Bay is important to Canada," said CEO Jason Neal in an interview.

"It's not just important to the community, it's not just important to the employees that we work with, but it's important to Canada that there's established industry in the Arctic."

A spokesperson for Innovation, Science and Economic Development Canada verified the government's decision on Tuesday but declined to give specific reasons and said no one was available for an interview.

"Under the Investment Canada Act, all foreign investments are subject to national security review," said Yara El Helou in an email.

"Reviews are conducted on a case-by-case basis as part of a rigorous and evidence-based process. Due to the confidentiality provisions of the Investment Canada Act, the government cannot comment further."

The government has not told TMAC specifically why the decision was made either, Neal said, although he assumes the grounds were national security based as opposed to its assessment of the project's net benefit to Canada, which he said is substantial.

He added he suspects there are political motivations behind denying the deal as well.

"It's just a fact that relations between Canada and China are not strong right now. I wasn't surprised that it wasn't approved," he said.

TMAC shares closed down 10 cents at $1.20 on the Toronto Stock Exchange after trades as low as $1.05 and as high as $1.32 per share earlier in the day.

Shandong announced the deal in May to buy TMAC for $1.75 per share in cash.

The friendly deal had received Chinese regulatory approvals and TMAC shareholders voted 97 per cent of their shares in favour of it in June.

However, the federal cabinet ordered a national security review of the proposed sale in October.

"The company we're doing work with, Shandong, they operate very much, in Canada at least, as a western company," said Neal.

"I think Shandong was trying to do things the right way because they want to grow internationally and doing things right with us is a part of establishing a template from which they can work."

The sales deal with Shandong followed a strategic process launched in early 2020 by debt-laden TMAC to improve its financial position through alternatives including a possible sale or merger, taking on a partner or other long-term financing alternatives.

Neal said he plans to use learnings from the strategic process to identify TMAC's financial options going forward, adding the company is stronger now, with cash of $71.5 million as of Sept. 30 and positive cash flow from operations.

He said it will have enough funds to pay for its "sealift" bulk supply deliveries next fall but not enough to fully repay maturing debt recently extended to June 30, 2021. Its debt is about $170 million.

The end of the transaction won't trigger a "break fee" payout by TMAC to Shandong, said Lisa Wilkinson, TMAC's vice-president of investor relations.

In August, Shandong reported the appointment of Barrick Gold Corp. veteran Mark Wall as CEO of Streamers Gold Mining Corp. Ltd., its wholly owned subsidiary in Canada.

This report by The Canadian Press was first published Dec. 22, 2020.