Rare earth expert unsure why China is interested in N.W.T.'s Nechalacho mine project

A mineralogist says he is puzzled by a Chinese company's interest in an Australian company and its rare earth mine project in the Northwest Territories — while a journalist who reports on the industry says he can see both benefits and disadvantages for its new investor.

The mine's owner, Vital Metals, announced over the weekend that Shenghe Resources had purchased a 9.9 per cent stake in Vital and had purchased all of its stockpiled rare earth material.

Anton Chakhmouradian, a professor of geology at the University of Manitoba and an expert on rare earth elements, told CBC News he's not convinced the Nechalacho rare earth project will become an international source of rare earth material. 

Shane Lasley, the publisher of Mining News North, said there are challenges with the mine's location and the lack of infrastructure around it, but he disagreed with Chakmouradian about the quality of the deposit.

"It is a very high-grade, large and near-surface deposit of rare earth — all of which point to its financial and technical viability," he said in an email. 

The Nechalacho mine project, 110 kilometres southeast of Yellowknife, had been marketed as a way for Canada to develop a rare earth market independent of China. Canada and its allies are trying to upend China's dominance in critical minerals — of which rare earth elements are a type — and create a supply chain that relies on what they describe as more stable and reliable partners. Rare earth elements are crucial in types of low-carbon technology.

Natural Resources Canada Minister Jonathan Wilkinson told CBC News in an emailed statement that he is focused on maintaining supply chain security. But critics of the deal between Vital and Shenghe say it flies in the face of those goals. 

Chakhmouradian said he's not clear what the Chinese want with the company because the North T Zone deposit, a smaller pile of metals that were extracted to demonstrate what was possible at Nechalacho, is "spectacular" but also very limited. 

The rest of the Nechalacho deposit consists of rock that Chakhmouradian believes is not "amenable to a commercially viable extraction of rare earth oxide or rare earth products of any kind that would be competitive internationally."

Chakhmouradian hasn't visited the Nechalacho mine site, nor has he worked on the project as a consultant. He said he's drawing his conclusions based on publicly available information — which he pointed out is meant to entice investors.

Chakhmouradian said he's not sure what motivated the Chinese company to make a deal with Vital Metals.

He also said he's not sure any rare earth project would be able to succeed without expertise from China and doesn't believe Canada has any legal recourse to block the investment.

"Unless Canada enacts some sort of law that would nationalize these types of resources or make them inaccessible to foreign capital and foreign development and foreign involvement, I see no viable route to limit that involvement," he said. 

What can Canada do?

Canada's Innovation Minister François-Philippe Champagne said in 2022 that Canada would be limiting the involvement of foreign state-owned companies in the mining sector and ordered three Chinese resource companies to sell their interests in Canadian critical mineral firms. Rick Perkins, a Conservative MP in Nova Scotia, told a House of Commons standing committee that Shengde is partly state-owned. 

The federal Department of Science, Innovation and Economic Development has said it's aware of the "proposed transaction" involving Vital and that the government "will not hesitate to take action on transactions that would be injurious to Canada's national security."

The Investment Canada Act allows for a national security review of any foreign investment into Canada. In an email to CBC News, a department spokesperson clarified that that includes "acquisitions of all or part of an entity carrying on operations in Canada."

But because of confidentiality provisions under the act, the department and Champagne said they can't comment on reviews.

Perkins put forward a motion at a meeting of the House of Commons standing committee on industry and technology asking for Champagne to review the investment.

But Lasley told CBC in an email, "I am not sure what Canada can do about this situation, at this point."

He added, "Vital is an Australia-listed company, and so the Canadian government has little say in who can or cannot invest in the company." 

"I am not sure what actions could be taken if the review determines that Vital's Shenghe-funded work at Nechalacho, or Shenghe's planned acquisition of rare earth stockpiles, poses a national security risk," Lasley wrote. 

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 them to Saskatchewan for processing, and then sell them to European, Canadian and American separation facilities. 

Natural Resources Minister Wilkinson told CBC in an emailed statement that there is a geopolitical risk in failing to act prudently to secure its supply chain.

"As a mining nation with an abundance of critical minerals, the increasing global demand for these minerals provides Canada with an important opportunity to lead in bolstering both clean technology and national security for Canada and our allies in a net-zero world," he said. 

Vital Metals has not responded to CBC News' requests for an interview.