Canadian Government’s Approval of Glencore/Teck and a Ministerial Statement Signals Muscular New Standards for Investment Canada Act Undertakings and Metals and Minerals Transactions

Executive Summary

A recent approval under the Investment Canada Act (“ICA”), and a policy statement by the Minister, signals important developments for investors into Canada, including:

• The “market” length for many undertakings under the ICA is now five years (and potentially longer), up from three years.
• There may be a need to provide meaningful (and potentially expensive) undertakings regarding environmental matters.
• Despite there being no provision for vendor commitments in the ICA, vendors may be asked to make commitments to the Canadian government.
• Investments in large Canadian businesses that have “critical minerals” operations could be restricted significantly.

In Detail

On July 4, 2024, following a 7-month review, the Minister of Innovation, Science and Industry (the “Minister”) approved Glencore’s acquisition of Teck Resources Ltd.’s metallurgical coal business, BC-based Elk Valley Resources (“Teck EVR”). Unusually, the Minister issued a press release describing the undertakings he required in the case, as well as an accompanying policy statement related to investments in Canadian companies that produce “critical minerals” (which Teck EVR did not). Read together, the Minister’s statements signal important developments for investors contemplating acquiring a large Canadian business that is subject to a “net benefit” approval requirement, especially in the metals and mining sector. Notably: 

1. Longer-Term Undertakings. Historically, the Canadian government has required that investors offer 3-year undertakings to issue an approval under the ICA. Although no policy announcements had been made, in private discussions the current Minister has begun requiring longer undertakings (usually 5 years). The undertakings required by the Minister in Glencore / Teck EVR make this trend public and set a new high-water mark for the duration of undertakings. Those undertakings include:
   
   a. five years for Canadian employment-related commitments;
   b. ten years for Canadian management-related commitments;
   c. twenty-six years (until 2050, Canada’s target to be net zero) for substantive environmental commitments.
   
   Investors should expect 5-year commitments as the new normal for approval in net benefit reviews and there is a potential for much longer commitments in specific circumstances.
   
   
2. Substantive Environmental Undertakings. Historically, environmental undertakings required by the Minister entailed the foreign investor implementing and maintaining certain environmental policies (but no financial commitments). The undertakings required by the Minister in Glencore/Teck EVR include:
   
   a. investing an additional $350 million in rehabilitation and closure activities over 5 years, and
   b. maintaining economic responsibility for payment of environmental obligations of the acquired assets through 2050 (even if Glencore sells the assets)
   
   Businesses involved in climate-impacting industries (e.g. natural resources, transport, etc.) should assess whether substantive environmental undertakings are likely to be required to obtain approval in net benefit reviews, and identify undertakings that are likely to be attractive to the Minister.
   
   
3. Novel Vendor Undertakings. In net benefit reviews, purchasers, not vendors, are obliged to offer undertakings to gain the Minister’s approval. However, the Minister appears to have sought, and Teck provided, an undertaking for Teck to reinvest “a significant amount of the proceeds” from the sale of Teck EVR into developing its remaining copper portfolio (a “critical mineral” for the Canadian government).
   
   The legal basis for the Minister accepting and enforcing undertakings from a vendor is unclear, as the ICA does not provide for it. As a result, it remains to be seen whether the vendor-side commitments in Glencore/Teck were specific to that case, or might become a trend. Regardless, vendors selling a Canadian business but continuing to operate other businesses should be aware the Minister may require commitments from the vendors for their continuing business operations.
   
   
4. Unclear Guidance for “Critical Minerals”. In announcing his approval of Glencore’s acquisition, the Minister published an unusual policy statement. In that statement, the Minister advised that foreign investments relating to “important Canadian mining companies engaged in significant critical minerals operations… will only be found of net benefit in the most exceptional of circumstances.” [emphasis in original] The government’s list of “critical minerals” was recently expanded. In the past, these types of statements (which have seemed to bar future investments) were directed at limited classes of investors in an entire industry (e.g., state-owned enterprises investing in the oil sands). By contrast, this new statement appears to apply to all investors (including from the United States), but applies to only a portion of an industry. What constitutes an “important Canadian mining company” or “significant critical minerals operations” is unclear, and further guidance from the Minister will be required for investors to efficiently design their investments and gain approval under the ICA.
   
   

These muscular policy changes must be considered alongside the recent changes to the ICA, which were contained in Bill C-34. Although Bill C-34 has received Royal Assent, its most significant provisions are unlikely to come into force until 2025, when new regulations are developed. Among other things, those changes will permit the government to subject additional classes of transactions to net benefit reviews. Investors contemplating the acquisition of a Canadian business should engage counsel early to determine whether a net benefit review will be required and if so, what undertakings may be expected to secure approval for the investment.

For further information concerning this draft legislation, please contact any member of our Competition and Foreign Investment Group.