By Paul Vieira


OTTAWA--An Australian company that operates a rare-earth mine in northern Canada said it scrapped part of a deal with a Chinese resource company in favor of a Canadian government-led transaction.

The about-face comes amid recent decisions and comments by officials in Ottawa aimed at deterring and countering Chinese economic interest in sensitive sectors of the Canadian economy, such as rare earths and critical minerals.

Vital Metals, based in Sydney, said Monday it reached a deal to sell stockpiled rare earth material from its operations in the Northwest Territories--known as the Nechalacho project--to the province of Saskatchewan, for a total of 3 million Canadian dollars, or the equivalent of US$2.8 million. In December, Vital unveiled a transaction to sell the rare-earth material to Shenghe Resources, a China-based company, for about US$1.72 million.

"The government of Canada recognizes Nechalacho as a strategic asset that contributes to the country's prosperity and critical minerals goals," Vital Metals said.

A spokeswoman for Canada's industry minister, who has responsibility in enforcing foreign-investment laws, declined comment on the Vital Metals transaction.

Vital Metals Chief Executive Geordie Mark said Canada's Natural Resources Minister Jonathan Wilkinson played a role in putting the deal together with Saskatchewan. "There was obviously a heightened interest for the material to stay in Canada," Mark said, referring further questions on the transaction to Wilkinson's office.

The stockpiled rare-earth material was from a Nechalacho deposit and destined for processing at a planned facility in Saskatchewan. Construction on the processing plant was never completed as Vital Metals' Canadian unit was placed into bankruptcy proceedings.

A Canadian official said Wilkinson was concerned about the security implications from allowing rare-earth elements to leave Canada for China. Wilkinson also informed Vital Metals that future tax or other financial incentives from Ottawa could be at risk in the event the industry minister nixed the deal, the official added.

Part of Vital Metals' deal with Shenghe included the sale of shares to the Chinese company for a roughly 10% stake. Shenghe remains a Vital Metals shareholder, Mark said. A representative for Shenghe wasn't available for comment.

Canadian foreign-investment law gives officials the authority to block investments and transactions viewed as detrimental to the country's economic outlook. Last week, Canada increased the number of minerals on its critical-minerals list by three. This was significant because any proposed foreign investment in companies mining for these minerals could be subject to intense government scrutiny.

In an interview last week, Industry Minister François-Philippe Champagne and Trade Minister Mary Ng vowed to take a hard line on Chinese investments should they pose a threat to Canada's economy. "We need to be extremely vigilant," Champagne said. "There is no ambivalence when it comes to the alignment between the U.S. and Canada on China."

Champagne in late 2022 ordered three Chinese companies to divest their shares from domestic companies involved in extracting critical minerals, citing national-security concerns.

Mining at Nechalacho, roughly 1,200 miles east of Anchorage, Alaska, started in 2021. Rare-earth elements are crucial components for sectors such as healthcare, transportation, power generation and consumer electronics.


Write to Paul Vieira at paul.vieira@wsj.com


(END) Dow Jones Newswires

06-17-24 1942ET