Once touted as solution to China in rare earth market, N.W.T. project now taking Chinese investment

A Chinese company is buying from and investing in a rare earth mining project in the N.W.T. — which, for years, had been marketed as a way for Canada to reduce its reliance on China for a material that's crucial in types of low-carbon technology. 

Vital Metals, an Australian company that owns the Nechalacho mine project, announced on Sunday that Shenghe Resources had become a "cornerstone investor" — having purchased a 9.9 per cent stake in the company for $5.9 million in Australian currency. Vital said it would also sell Nechalacho's "stockpiled rare earth material" to Shenghe Resources for $2.6 million. 

Bill Braden, a former N.W.T. MLA who for two years worked for Vital's Canadian subsidiary, Cheetah Resources, as a communications assistant for Nechalacho, calls it a "betrayal." 

"They have abandoned what was the core ethos, I guess, of this whole thing," he said. 

"Here was a world class Canadian deposit that could be a serious player in breaking Chinese dominance of the rare earth market in the western world. And now sadly, so sadly for me, a Canadian resource is now simply part of the Chinese supply chain." 

According to Natural Resources Canada, 60 per cent of the world's supply of rare earth is produced in China. The Nechalacho project, where Vital started mining in 2021, offered an alternative. The company had said it would extract metals and minerals in the N.W.T., send it to Saskatchewan for processing, and then sell it to European, Canadian and American separation facilities. 

Vital Metals opened a processing plant in Saskatoon in September 2022. The facility was still under construction when Prime Minister Justin Trudeau toured it in January. A few months later, Vital Metals paused construction, before dropping the plant and placing a separate Canadian subsidiary that had been building it into bankruptcy.

'The Chinese have got money'

Tom Hoefer, the executive director of the Nunavut and NWT Chamber of Mines, told CBC News the move is confusing for some — but that Vital Metals has found a way to keep advancing an "exciting project." 

"The reality is the Chinese have got money. And the other reality is that companies that are exploring and trying to develop projects are having a very difficult time raising money from the West," he said.

The stockpile sale is expected to be done by early 2024. According to a media statement from Vital Metals, Shenghe has "no preferential rights over future production from Nechalacho" — meaning they haven't also struck a deal for any more of the ore mined there. 

Shenghe could, however, acquire up to 18.1 per cent of Vital Metals in the future, the Australian company said back in October when the investment was announced. Hoefer said he is "not that concerned" about China having that size of stake in a company that is doing extraction in the N.W.T. 

"Canada hasn't said anything at this point, which one might presume then that this isn't the problem for Canada at this percentage," he pointed out.

Canada facing calls for a review

Braden is calling on the federal government to investigate the investment. The House of Commons Standing Committee on Industry and Technology voted in favour of asking for a review of the investment under the Canadian Investment Act as an issue of national security. 

CBC News reached out to Canada's minister of Innovation, Science and Economic Development about whether there will be such a review. In an emailed statement around noon Tuesday, a department spokesperson said the Canadian government is aware of the "proposed transaction" and confidentiality provisions under the Investment Canada Act mean it can't comment on reviews. 

"The Investment Canada Act provides for a national security review of any foreign investment into Canada, regardless of its value," the statement reads. "The government has not hesitated and will not hesitate to take action on transactions that would be injurious to Canada's national security."

Caitlin Cleveland, the N.W.T.'s minister of Industry, Tourism and Investment, said in an emailed statement Monday night the Canadian government could review the financing structure and agreement between Vital and Shenghe, but she was "unaware if this is being pursued at this time." 

"Generally, the [Government of the Northwest Territories] is supportive of the advancement of critical minerals projects in the N.W.T.," she wrote. "Nechalacho is one of those N.W.T. critical minerals projects, and has the opportunity to contribute rare earth elements to global supply chains." 

Cleveland said the territorial government could not comment on Vital Metals' decision to take investment from or sell material to a Chinese company.