Falcon strikes to UAE as Canada raises bar for international traders

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A Canadian graphite miner has moved its headquarters outdoors the nation to draw new funding because the federal authorities raises the bar for sure international corporations to purchase into Canada’s essential minerals sector.

Falcon Power Supplies PLC — previously generally known as SRG Mining Inc. — accomplished its transfer to Abu Dhabi, United Arab Emirates, in early July, however it can proceed to be listed on the TSX Enterprise Change.

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“The equity markets in Canada are tough at the moment,” chief govt Matthieu Bos mentioned. “The Middle East is booming on all fronts. It’s an interesting place to do business … let’s just pick up shop and look where the money is, where the desire is to really make this (electric vehicle) value chain.”

Falcon’s transfer comes after Ottawa started introducing insurance policies that make it tougher for international companies to spend money on Canadian corporations trying to produce minerals similar to lithium, graphite or copper, that are thought of vital for the power transition away from coal since they’re used to make batteries for electrical automobiles.

Earlier this month, the federal authorities mentioned transactions involving international corporations trying to purchase massive Canadian miners producing these minerals would solely be permitted “in the most exceptional” circumstances.

In October 2022, Ottawa mentioned investments from international state-owned corporations in Canadian essential minerals is also thought of injurious to nationwide safety. Just a few days later, it ordered three Chinese language corporations to exit three Canadian lithium companies.

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In response, Canada’s mining sector has mentioned the federal government wants to offer miners with alternate entry to investments because it has banned funding from sure sources. A failure to take action might result in extra corporations trying to redomicile, they are saying.

Dean McPherson, head of worldwide mining at TMX Group Ltd., which runs the Toronto Inventory Change, mentioned mining corporations have been trying to make modifications and regulate to the federal government’s bulletins “to protect” themselves and redomiciling is only one such technique.

“The bigger story here is the impact on Canada’s economy,” he mentioned. “Canada’s net benefit from the mining sector … is at great risk here because companies will adjust and take legal steps on the back of their advisors to protect their shareholder returns.”

Jim Dinning, a accomplice at Davies Ward Phillips & Vineberg LLP, mentioned Falcon’s resolution to maneuver out was “fairly significant.” He mentioned there was “a lot of talk” about corporations trying to transfer, however this was a sensible instance of it really taking place.

“It is going to allow the company to take on investments that the Canadian government may have been wary of itself,” he mentioned.

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Falcon is at the moment creating its Lola graphite challenge, located about 1,000 kilometres southeast of Conakry, the capital of the Republic of Guinea. The corporate additionally intends to construct a plant in Morocco to refine the graphite extracted from that mine. The aim is to be a supply of battery anode materials for the European battery market.

It wanted funding to satisfy that aim, in order that they introduced a deal in July 2023 with China’s Carbon One New Power Group Co. Ltd. Falcon referred to the Chinese language firm as an “innovative anode material industry leader” and one of many lowest-cost anode materials producers in China in a press release in July.

The settlement referred to as for the Chinese language firm to purchase about 19.4 per cent of Falcon for $16.9 million. However with the federal authorities taking a robust stance in opposition to Chinese language investments, it was all the time going to be robust for the deal to undergo.

Falcon terminated the deal in March, a day after Business Minister François-Philippe Champagne mentioned miners mustn’t look to “circumvent the rules” and that the federal government has a “number of tools” to verify “Canadian law is upheld.”

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They’re forward, irrespective of the way you take a look at it

Matthieu Bos

Bos mentioned his firm was utterly clear about its intentions and wasn’t attempting to skirt any guidelines. He needed to accomplice with the Chinese language firm to make use of its know-how and provide graphite to the Western world. At present, China dominates the manufacturing and provide of graphite.

“They are ahead, no matter how you look at it,” he mentioned. “And so, instead of kind of reinventing the wheel, we thought about how we could partner up with them under our kind of governance framework.”

Working by itself know-how would take a number of years and would additionally imply taking part in catch-up to the Chinese language and never with the ability to decrease prices. This is able to have been a viable possibility till the Western world created its personal options to construct batteries that energy electrical automobiles with the “ultimate goal of becoming a carbon neutral economy,” Bos mentioned.

He mentioned the federal authorities broadly understood what the corporate was attempting to do, however your complete approval course of was taking extra time than anticipated.

“At some point, you have to kind of just move on because we can’t wait forever,” he mentioned. “It was becoming unlikely for us to get to a conclusion that would be acceptable to both sides.”

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The federal government’s evaluation concluded as quickly as Falcon deserted the take care of the Chinese language firm, Bos mentioned.

In some unspecified time in the future, it’s important to form of simply transfer on as a result of we will’t wait eternally

Matthieu Bos

The corporate, nonetheless, continued its aim of redomiciling outdoors Canada, one thing it first talked about doing in November 2023.

Bos mentioned he didn’t need to attribute his firm’s departure to the stricter insurance policies launched by the federal government. As an alternative, he talked about how Abu Dhabi could be a great location for brand new alternatives.

“We think the capital is deeper in the Middle East than in the West and that’s why we are moving,” he mentioned. “I am a positive guy. We did what we did because we believe passionately in what we want to do and it’s a great place to do business.”

Redomiciling means Falcon doesn’t require the Authorities of Canada’s approval for any agreements or offers that it intends to do. The corporate will nonetheless require the approval of the Toronto Inventory Change, which has been very supportive, Bos mentioned.

He mentioned he wasn’t in contact with the particular Chinese language firm that Falcon had made an settlement with beforehand, however that he’s exploring a number of different alternatives with corporations each in and outdoors China.

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Michelle DeCecco, chief working officer at Lithium Chile Inc., one of many corporations that misplaced Chinese language funding in 2022, mentioned Falcon’s resolution underscores the necessity for the federal authorities to reassess its insurance policies or threat repeatedly dropping members of the mining neighborhood.

“(Falcon)’s decision to redomicile, effectively severing all ties to Canada, reflects the complex landscape Canadian mining companies face today,” she mentioned. “The loss of a strong Canadian mining company is profoundly disappointing and carries negative long-term consequences. Our primary duty as public companies is to create shareholder value, and the government’s restrictive policies on critical minerals, which limit our ability to accept Chinese investment, severely hinder this objective.”

Regardless that Bos’s firm managed to go away Canada, it wasn’t straightforward and he wouldn’t advocate it to everybody.

“All this takes a lot of time and it’s very expensive. It’s not the $50,000 legal bill we are talking about. This is real money,” he mentioned. “A lot of the junior mining companies don’t have the financial backing that we have.”

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Bos additionally mentioned that if an organization in Canada has a “very high book value,” it will be liable to pay a excessive tax to relocate, which is perhaps discouraging.

Regardless, he’s open to having a chat with others trying to relocate.

“Give me a call,” he mentioned. “We genuinely want to help. We think what we are proposing is a solution. We are ready to talk and share how it was done. But this solution might not work for everyone.”

• Electronic mail: nkarim@postmedia.com

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