In a surprise outcome made public in early January 2022, the Canadian government did not block - or even conduct a full-scale national security review of - the purchase of Neo Lithium Corp., a Canadian lithium company, by a Chinese state-owned mining company. Opposition members of Canada's House of Commons are now calling for parliamentary hearings on the government's decision not to conduct a national security review of this transaction.

The lack of a review is surprising given the Canadian federal government's newly released national security review guidelines. These specifically highlight the impact of foreign investments into businesses involved in critical mineral production and supply chains as a key factor in a review. Lithium and other minerals used in batteries, like cobalt and nickel, are on Canada's list of critical minerals.

The addition of critical minerals to the national security guidelines followed a high-profile action plan between Canada and the US announced in January 2020. The two close allies agreed to improve the industry for critical minerals, including lithium, in both Canada and the US by collaborating to promote joint initiatives, secure supply chains and improve critical mineral security. The absence of a review was also at odds with some of the most high-profile national security reviews and blocked investments by Chinese state-owned investors in recent years, including:

• The proposed acquisition of AECON, a large Canadian infrastructure and construction company, by a subsidiary of China Communications Construction Company Limited in 2018.
• The proposed acquisition of TMAC Resources, owner of a gold mine in Canada's northern arctic region, by Shandong Gold Mining.

• The establishment of a new business in Canada by Chinese state-owned telecom company, China Mobile. The Canadian Minister of Innovation, Science and Industry has already issued an order that China Mobile's investment is injurious to national security and must be unwound. That order is subject to ongoing litigation initiated by China Mobile.

In respect of Neo Lithium, the government has not made any specific comments on why it chose not to initiate a full national security review. The Canadian company announced that the initial post-filing waiting period had expired without extension, which came as a surprise given that the initial announcement of the deal was met with skepticism as to whether the deal would pass the review process.

But there is additional context that may explain the lack of action by the Canadian government on this transaction:

• While Neo Lithium is Canadian, it has no lithium assets in Canada, and its current business is to develop a mine in Argentina.
• The purchaser, Zijin Mining Group, has a recent history of investing in Canadian natural resources companies. In 2020, Zijin purchased Continental Gold Inc., a Canadian gold-mining company developing a gold mine in Colombia.
• Canada's relationship with China seems to have softened somewhat following the return of two Canadian citizens who had been detained in China and the return to China of Meng Wanzhou in October. Prime Minister Justin Trudeau recently made clear that Canada will continue to do business with China going forward, notwithstanding the upcoming diplomatic boycott by Canada, and others, of the Olympics, and other critical comments made by the Canadian government in relation to China's diplomatic activities in Canada.

For companies considering investing in Canada, the key takeaways from the outcome of the Neo Lithium case are:

• Canada remains open to investment - including investment in natural resources - by Chinese state-owned enterprises.
• National security reviews are highly fact-specific, and the review will consider all aspects of the investment, the investor, and the Canadian business. Transactions that touch on one or two of the Canadian government's national security factors will not necessarily be blocked or subject to a full-scale review.
• For investments into businesses involved in critical minerals or natural resources; if the underlying asset is located outside of Canada, the government may view the investment as less risky from a national security perspective, even if the business is headquartered or listed in Canada.