GNWT takes no position on China mine deal that some call a betrayal

The new NWT government says it “cannot comment” on the sale of rare earths from the territory’s Nechalacho mine to a Chinese company. 

Shenghe Resources is spending $2.3 million to buy all of the material mined at Nechalacho since it opened in 2021, and more than $5 million to take a 9.9-percent stake in mine owner Vital Metals, an Australian company. 

Critics say the deal is a reversal of Vital’s prior commitment to challenge China’s rare earths dominance, and is damaging to Canada’s national security. 

Nechalacho is about 100 km east of Yellowknife. Rare earths are elements used in magnets inside electric vehicles, cell phones and other electronics.

On Monday, northerners associated with Nechalacho called the Shenghe deal a “betrayal” and urged the federal government to intervene. 

In a statement, territorial industry minister Caitlin Cleveland said the GNWT had been “closely observing” recent announcements but “cannot comment on Vital Metals’ decision, recognizing that the shift to sell minerals from the Nechalacho project to Shenghe is likely related to the company’s acquisition of shares in Vital Metals back in October 2023.”

Cleveland said the GNWT was looking to Ottawa for what should happen next. 

“The Government of Canada is the lead on discussions of an international or national security nature, with the GNWT’s support,” she wrote, noting that the territory is “unaware” of whether the federal government is conducting any national security review of the Vital deal. Ottawa has declined to publicly state whether a review is under way.

“Our government recognizes the need to support Canadian interests and will continue to collaborate with our federal partners in future discussions,” the minister continued.

‘We can’t rely on Ottawa’

An NWT election has just concluded. Ministers are so new in their posts that at the time of issuing her statement, Cleveland’s departmental website still displayed her predecessor’s biography and image.

Vital Metals’ deal with Shenghe represents the opening significant test of Premier RJ Simpson’s government, and MLAs on Monday called for action. 

“We can’t rely on Ottawa to make this decision,” said Kieron Testart, the MLA for Range Lake.

“It’s not just a GNWT problem, it’s a sovereign Indigenous nation problem, and these decisions are being made without their consent, either.”

Until November’s election, Testart was the Yellowknives Dene First Nation’s director of economic development. The First Nation is one of several Indigenous governments with land claims in the vicinity of Nechalacho and an interest in the mine’s future.

“I don’t think it’s the outcome the Yellowknives Dene signed up for,” Testart said of the China sale. (Shenghe is reported to be part-owned by a branch of the Chinese government.)

“Nechalacho was sold as a source of rare earths and critical minerals that would be controlled by allies,” Testart said. “I was there with the late Chief Edward Sangris when that announcement was made publicly, with representatives from Australia, Norway and the United States all holding hands, showing that this was going to be a Western supply chain. Now, with China involved, that’s clearly not the case any more.

“At the very least, the premier and minister Cleveland need to be reaching out to their counterparts in Ottawa and seeing what sort of positions the federal government has on this.”

Richard Edjericon is the MLA for Tu Nedhé-Wiilideh, which includes the communities of the Yellowknives Dene First Nation, Deninu Kųę́ First Nation and Łútsël K’é Dene First Nation.

He also chaired the Mackenzie Valley Environmental Impact Review Board when the project that would become Nechalacho was being assessed.

“One of the reasons it was approved is it was going to increase jobs and business for the people of the North,” Edjericon said.

Shenghe could soon increase its stake in Vital to 18 percent, and Vital has agreed to give Shenghe a non-executive seat on its board. Edjericon worries that if Shenghe increasingly has a say at Nechalacho, the company might simply shut down the mine – and its economic benefits in the region – to preserve China’s position in the rare earths market.

“If you park it, that’s detrimental to business and job opportunities for our members in small communities who depend on industry for work,” he said.

Testart expressed the same fear.

“This is a huge decision that has lasting repercussions,” he said.

“China’s behaviour around rare earths and critical minerals in the past has been to sit on its stockpiles and control the market, so there’s no guarantee that Nechalacho is going to continue.

“This world-class resource, this multigenerational deposit of critical minerals, they might just sit on it. We need to be an active intervener on this issue.”

Det’on Cho, the economic development arm of the Yellowknives Dene First Nation, formerly ran operations at Nechalacho under contract to Vital.

On Monday, a Det’on Cho spokesperson confirmed the company has no active contract at the mine and was “going to refrain from commenting on the situation.”

The office of federal industry minister François-Philippe Champagne did not return a request for comment. Neither did the office of Conservative shadow industry minister Rick Perkins, who last week called for Champagne to launch a national security review of Shenghe’s investment.

Vital Metals and Shenghe have not responded to requests for comment sent on Friday last week.

Inside out, upside down

Amid Vital’s silence and the sale of ore to Shenghe, northern faith in Nechalacho is collapsing.

“It was a project I really believed in, tailor-made for the things we can and want to do in the NWT,” said Bill Braden, a former MLA who served as the mine’s media relations manager.

Braden’s contract was cancelled in May with the mine project stagnating and Vital struggling to find cash.

He says Vital Metals’ early vision for Nechalacho “pushed so many of the right buttons,” offering a huge resource of a material the world needed, being extracted by a company that seemed to understand the need for close partnerships with Indigenous governments. (Testart said Vital initially earned a “gold star for how industry and First Nations can work together to actually achieve economic reconciliation.”)

But Vital underwent significant changes in leadership and strategy. A private equity firm came in, Lionhead Resources, bringing much-needed money alongside a different way of doing business. Geoff Atkins, the early leader of the project, departed Vital in August 2022 without explanation beyond an oddly terse press release.

By this spring, Vital was abandoning grand plans to build a processing plant in Saskatchewan and changing its senior leadership every few months. Longtime northern supporters of Nechalacho stopped working with the company.

Braden thinks Shenghe represented the easiest money Vital could get to keep going.

He said the latest news – that Shenghe’s initial investment had been finalized, and the same firm would buy all Nechalacho ore mined to date – marked “a sad day for Canada.”

“This is where I really feel betrayed,” Braden said. “An Australian company, a company in a friendly mining country, has turned so quickly, and without any consideration of why it started the project in the first place.

“Now, here’s a Canadian resource that has simply become part of China’s supply chain. A complete reversal. Inside out. Upside down.”

What happens to royalties?

Vital Metals has attracted significant government investment. There are now questions about whether governments try to get any of that money back, given Nechalacho’s end product is being sent to a geopolitical rival.

Federal economic agency PrairiesCan, for example, provided millions of dollars to help the processing plant project in Saskatchewan. Northern equivalent CanNor provided a loan of more than $1 million for specialized ore-sorting equipment in the NWT.

After this article was first published, CanNor said Vital was meeting its loan repayment schedule. As far as CanNor is concerned, the equipment was for an initial two-year “demonstration project” at the mine, which is now complete. CanNor gave no indication that Vital’s recent decisions have given the agency pause.

The NWT government has given Vital hundreds of thousands of dollars through its Mining Incentive Program. The GNWT said that money was tied to exploration, meaning “downstream issues affecting mineral production and sales of mineral production are not addressed.” Vital’s Shenghe deal isn’t a breach of that program’s parameters and Vital likely remains eligible to apply for future support.

Meanwhile, both Testart and Braden said the NWT government had agreed, years ago, to waive the royalty payments it would normally expect from a mine like Nechalacho.

Nechalacho was never a huge mine. It is nowhere near the scale of the territory’s diamond mines and has employed a few dozen people a year at most. Waiving the resulting small sum of royalties was initially seen as a gesture designed to encourage the project’s growth.

But now, with Vital earning millions by selling Nechalacho’s ore to China, there are calls for the GNWT to re-examine its approach and, if it can, seek royalties from that transaction.

“This project was supposed to support Canada’s national interest with our allies and was sold to the government on those terms. Now, that deal has been changed. Do we honour our deal to waive royalties?” Testart asked.

In a statement, industry minister Cleveland said she still considers Nechalacho to be in “pre-development” despite the Shenghe ore sale. She said royalties are a question for a later date.

“Should the Nechalacho project reach commercial production in the future, legislation would dictate the payment of royalties to the GNWT,” Cleveland wrote.

“The project is currently in a pre-development stage, and ITI – on behalf of the GNWT – will continue to monitor the project and provide guidance to the proponent on NWT royalties process requirements,” she added, using an initialism for the territory’s Department of Industry, Tourism and Investment.

Future threat

Vital’s deal with Shenghe may be just the beginning if the company uses Chinese investment as it says it will – to explore other areas of Nechalacho in the hope of launching a bigger mine.

Braden worries about that.

“The threat that I perceive is the Chinese will not just be satisfied with the 9.9-percent interest that they have. They will continue to grow their involvement and access to this resource, and we will not see Canada’s contribution really enabling us to break the dominance of the Chinese supply,” he said.

He wants the federal government to stop the ore sale. The Investment Canada Act appears to allow Ottawa to order that Vital Metals sell the mine to protect Canadian national security.

Ultimately, Braden wants the mine “turned over to a more responsible and more competent team than Vital Metals … a friendly operator who understands how to work in Canada, who appreciates the value of building relationships with Indigenous and other communities around here.”

“I’d much rather this project was sold on to power a future controlled by free markets and a free world, and that’s where we need to be,” said Testart.

“This is unsettled, unceded traditional territory. The Yellowknives Dene are a sovereign First Nation and now you have foreign ownership over soil and minerals that are well within the rights of the YKDFN.

“We need to have a conversation as a country, not just as a territory, and start to evaluate these kinds of deals, especially when there’s foreign ownership in the context of an Indigenous land claim.”

Correction: December 20, 2023 – 7:04 MT. This article initially stated CanNor had provided a loan of millions of dollars regarding a processing plant in Saskatchewan. That loan actually came from a southern equivalent of CanNor, PrairiesCan.