A Canadian graphite miner has moved its headquarters outside the country to attract new investment as the federal government raises the bar for certain foreign companies to buy into Canada’s critical minerals sector.

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Falcon Energy Materials PLC — formerly known as SRG Mining Inc. — completed its move to Abu Dhabi, United Arab Emirates, in early July, but it will continue to be listed on the TSX Venture Exchange.

“The equity markets in Canada are tough at the moment,” chief executive Matthieu Bos said. “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 move comes after Ottawa began introducing policies that make it harder for foreign firms to invest in Canadian companies looking to produce minerals such as lithium, graphite or copper, which are considered important for the energy transition away from coal since they are used to make batteries for electric vehicles.

Earlier this month, the federal government said transactions involving foreign companies looking to buy large Canadian miners producing these minerals would only be approved “in the most exceptional” circumstances.

In October 2022, Ottawa said investments from foreign state-owned companies in Canadian critical minerals could also be considered injurious to national security. A few days later, it ordered three Chinese companies to exit three Canadian lithium firms.

In response, Canada’s mining sector has said the government needs to provide miners with alternate access to investments since it has banned funding from certain sources. A failure to do so could lead to more companies looking to redomicile, they say.

Dean McPherson, head of global mining at TMX Group Ltd., which runs the Toronto Stock Exchange, said mining companies have been looking to make changes and adjust to the government’s announcements “to protect” themselves and redomiciling is just one such method.

“The bigger story here is the impact on Canada’s economy,” he said. “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 partner at Davies Ward Phillips & Vineberg LLP, said Falcon’s decision to move out was “fairly significant.” He said there has been “a lot of talk” about companies looking to move, but this was a practical example of it actually happening.

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

Falcon is currently developing its Lola graphite project, situated about 1,000 kilometres southeast of Conakry, the capital of the Republic of Guinea. The company also intends to build a plant in Morocco to refine the graphite extracted from that mine. The goal is to be a source of battery anode material for the European battery market.

It needed funding to meet that goal, so they announced a deal in July 2023 with China’s Carbon One New Energy Group Co. Ltd. Falcon referred to the Chinese company as an “innovative anode material industry leader” and one of the lowest-cost anode material producers in China in a statement in July.

The agreement called for the Chinese company to buy about 19.4 per cent of Falcon for $16.9 million. But with the federal government taking a strong stance against Chinese investments, it was always going to be tough for the deal to go through.

Falcon terminated the deal in March, a day after Industry Minister François-Philippe Champagne said miners should not look to “circumvent the rules” and that the government has a “number of tools” to make sure “Canadian law is upheld.”

They are ahead, no matter how you look at it

Matthieu Bos

Bos said his company was completely transparent about its intentions and wasn’t trying to skirt any rules. He wanted to partner with the Chinese company to use its technology and supply graphite to the Western world. Currently, China dominates the production and supply of graphite.

“They are ahead, no matter how you look at it,” he said. “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 on its own technology would take several years and would also mean playing catch-up to the Chinese and not being able to lower costs. This would have been a viable option until the Western world created its own solutions to build batteries that power electric vehicles with the “ultimate goal of becoming a carbon neutral economy,” Bos said.

He said the federal government broadly understood what the company was trying to do, but the entire approval process was taking more time than expected.

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

The government’s assessment concluded as soon as Falcon abandoned the deal with the Chinese company, Bos said.

At some point, you have to kind of just move on because we can’t wait forever

Matthieu Bos

The company, however, continued its goal of redomiciling outside Canada, something it first talked about doing in November 2023.

Bos said he didn’t want to attribute his company’s departure to the stricter policies introduced by the government. Instead, he talked about how Abu Dhabi would be an ideal location for new opportunities.

“We think the capital is deeper in the Middle East than in the West and that’s why we are moving,” he said. “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 Government of Canada’s approval for any agreements or deals that it intends to do. The company will still require the approval of the Toronto Stock Exchange, which has been very supportive, Bos said.

He said he wasn’t in touch with the specific Chinese company that Falcon had made an agreement with previously, but that he is exploring several other opportunities with companies both in and outside China.

Michelle DeCecco, chief operating officer at Lithium Chile Inc., one of the companies that lost Chinese investment in 2022, said Falcon’s decision underscores the need for the federal government to reassess its policies or risk continuously losing members of the mining community.

“(Falcon)’s decision to redomicile, effectively severing all ties to Canada, reflects the complex landscape Canadian mining companies face today,” she said. “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.”

Even though Bos’s company managed to leave Canada, it wasn’t easy and he wouldn’t recommend it to everyone.

“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 said. “A lot of the junior mining companies don’t have the financial backing that we have.”

Bos also said that if a company in Canada has a “very high book value,” it would be liable to pay a high tax to relocate, which might be discouraging.

Regardless, he is open to having a chat with others looking to relocate.

“Give me a call,” he said. “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.”

• Email: nkarim@postmedia.com

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