A subsidiary of a state-owned Chinese mining company stated that Canada is mistakenly considering a national security review of its agreement to purchase a gold and copper mine in Peru.

In May, Vancouver-based Pan American Silver Corp announced an agreement worth approximately 300 million USD to sell its stake in the La Arena gold mine in Peru to Genting Mining (Singapore), a subsidiary of the Chinese Zijin Mining Group.

At that time, Pan American stated that the agreement was "subject to usual conditions and obtaining regulatory approvals."

However, since then, Canadian Industry Minister François-Philippe Champagne found that the agreement "could be harmful to national security" and informed the company in late June that he "may" order a formal review under the law.

Some types of foreign investments involving Canadian companies are subject to review for national security reasons, and Genting voluntarily informed the Director of Investments at the Canadian Ministry of Innovation, Science and Economic Development shortly after the announcement of the agreement.

The federal government maintains a list of nearly thirty essential minerals deemed "necessary for Canadian economic or national security," and reviews of investments involving foreign companies like Zijin represent a precautionary measure to maintain Canadian control over the essential materials for the "green and digital economy."

Zijin is partially owned by the Chinese government and is overseen by members of the Chinese Communist Party.

Canada's critical minerals strategy illustrates how allies in Europe have suffered "consequences from relying on like-minded countries for strategic goods."

In a judicial review application submitted to the Federal Court in late July, Genting claimed that the minister "lacks the jurisdiction under the law" to issue an order for a national security review of the La Arena deal.

The application stated: "The targets are Peruvian entities. They have no place of operations in Canada or conduct operations in Canada, and they have no individuals in Canada working or self-employed in relation to their operations, nor do they have [assets] in Canada used in the execution of their operations."

National security experts have warned of the geopolitical consequences of allowing foreign entities to take over Canadian companies in this sector, and Genting's actions to circumvent the national security review process pose a test of Ottawa's ability to deal with companies registered in Canada but having no local operations and existing solely to hold foreign assets.

A "very simple story, in fact"

Despite the voluntary notice sent to Ottawa regarding the deal, Genting claimed it did not involve "Canadian business" as defined by law because the targeted companies and their assets are located in Peru, although they are owned by subsidiaries of Pan American registered in British Columbia and Ontario.

The company claims in its application that the minister's decision "is based on an unacceptable and unreasonable interpretation of the law, and thus is legally incorrect."

Aaron Schul, managing director and general counsel at the International Governance Innovation Center in Ontario, stated that the case presents "a somewhat complex story and a very simple one at that."

He emphasized that the deal boils down to a Canadian parent company selling Peruvian assets to a Chinese company, and the structure of the relevant subsidiaries may be for reasons such as liability protection and tax purposes.

Schul noted that the Canadian government has indicated its intention to scrutinize foreign investments involving items like strategic minerals in which "hostile countries" are involved and to "take a tougher stance on this."

He said, "Especially from state-owned enterprises or companies closely linked to the state."

He added that the deal concerns not only gold mining assets but also a nearby gold and copper mine and a power transmission facility.

"You could probably make a fairly convincing argument that this is part of a strategic play by China in Latin America," he said.

"The Canadian government, the U.S. government, and a whole host of other governments have made a lot of noise about taking a tougher stance on this kind of thing. I think what you are seeing here is a sort of testing of that threat in this kind of contested geopolitical environment."

Lawyers for Genting in Canada did not respond to a request for comment.

The Ministry of Innovation, Science and Economic Development also declined to comment on Genting's application to the Federal Court.

"The Government of Canada does not comment on matters before the courts. Due to the confidentiality provisions in the Canadian Investment Act, the government cannot comment on specific transactions," according to a statement from the ministry in an emailed statement.

The federal government announced "significant changes" to the law in March of this year.

The ministry stated at the time: "While foreign investment is essential for economic prosperity, the Canadian Investment Act is a key lever that allows the Government of Canada to act quickly and decisively when foreign investment threatens national security."

"As the world changes and threats evolve, Canada needs new tools to continue protecting the economy and ensuring the safety of Canadians."

Schul stated that the case documents do not indicate the specific national security concerns the minister may have, but he said he will be closely monitoring the case to see the outcome.

He said that if the company successfully averts a national security review, it would put Canada in a "strange position" by allowing foreign companies a way to build deals outside the legislative framework "with just a bit of creative lawyering."