China's Hands on Canadian Gold Miners?

China's Hands on Canadian Gold Miners?

August 18, 2020

Gold prices have been on a run over the past several weeks, with gold futures hitting all-time highs in the US $2,000 per ounce range.

Gold is a safe haven in turbulent times, and these are turbulent times, as we all know. Governments are printing money to stave off depression, interest rates are at historical lows, the US dollar is weak, and tensions with China are at an all-time high.

This is a perfect storm for gold. That makes most investors very happy, including a lot of us here in Canada. But I can think of maybe of a few people who might not be so thrilled at this.

That would be the people inside the Chinese government who are tasked with buying gold mines around the world, and especially in Canada.

Why is that?

Because China has been patiently scouting the world for “cheap” gold assets. And this run-up in gold prices has likely increased the purchase price of anything China was looking at.

No matter. China has a long time horizon, and this won’t stop them over the long term.

But more than ever it’s especially important now that the Canadian government take a careful look at what China’s doing buying gold mines in Canada.

China has a huge advantage over other potential gold asset buyers, and because of this, has the inside track on investments that could easily be seen as threats to our national security.

China has deep pockets of cash. It has access to capital on more attractive terms than any mining company. It has a long-term investment horizon. It can be patient if things take longer to play out.

Not a single publicly traded gold company has all of those arrows in its quiver. Every one of them needs quicker paybacks. They have access to less much capital; and pay much higher rates when they do so. And if production problems arise, executives get fired or companies get taken over for much reduced prices. Maybe by Chinese buyers.

Over the past few months, prior to the run-up in gold, a Chinese group has offered to buy a struggling Canadian gold miner, TMAC Resources, for a mere $207.4 million.

TMAC has run into production snags and problems at its Doris mine in the Arctic. Costs are higher than have been expected and TMAC needs $700 million to turn things around. This purchase on the cheap comes right out of China’s playbook.

As the Globe and Mail’s mining reporter, Niall McGee, highlighted in a July 30 story, TMAC’s operations are located in a sensitive location from a national security viewpoint. The Doris mine is situated near tidewater in the Northwest Passage. It’s right in the middle of the Arctic and is on a highly strategic shipping route connecting the Atlantic Ocean to the Pacific.

As Mr. McGee points out, China doesn’t own any territory in the Arctic, but has referred to itself in the past as a “near Arctic” state.

The purchase of TMAC by this Chinese entity would clearly be a strategically huge move for China into Canada’s Arctic.

This should be a red flag, and an easy one to see, even for a Liberal government.

The TMAC deal has to pass a security screening by the Canadian government. If the government thinks it is a threat to national security, the deal can go under further review under Section 25.3 of the Investment Canada Act.

At the end of the day, Canada has to say No to the TMAC deal. Just like it should on Huawei. Even as the Chinese government holds out a large carrot in terms of trade and economic ties.

But China carries a big stick that it’s been using to play whack-a-mole on the West. It’s been hurting and imprisoning Canadians, stamping out democracy in Hong Kong, imposing embargoes on Canadian canola and other agricultural products and generally being an aggressive and bullying opponent of democracy around the world.

“In just the last few months, Bejing has asserted control over Hong Kong, intruded into Taiwan’s airspace, trained guns on the Philippine navy, harassed Malaysian vessels, sunk a Vietnamese fishing ship, rammed a Japanese coast guard vessel, reignited a deadly border conflict with India and conducted cyberattacks and economic coercion against Australia,” said a July ForeignPolicy.com analysis. 

This is not a power we want with a stake in Canada’s Arctic.

Canada has to say No to China, and NO to TMAC.

If the company can’t find another acquirer, then shut it down and lock it up.

 

- Rick Peterson


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