(Bloomberg) -- Prime Minister Justin Trudeau's government rejected a plan by China's Shandong Gold Mining Co. to acquire a gold miner that operates in the Canadian Arctic, potentially inflaming a diplomatic feud.
TMAC Resources Inc. owns the Hope Bay gold mine in the northern territory of Nunavut, an operation that includes a port and air strips. Shandong, an acquisitive state-backed metal producer, agreed to buy the Toronto-based company for about $150 million in May. In October, TMAC received notice the government had ordered a national security review.
The Canadian miner said late Monday an order had been issued under the Investment Canada Act for Shandong not to proceed with the takeover. Shandong confirmed the rejection in a statement Tuesday, citing a decision made for the “purpose of safeguarding national security.”
Officials in Trudeau's office declined to comment on the move, which comes amid badly frayed ties between Canada and China over the 2018 arrest of a top Huawei Technologies Co. executive on a U.S. extradition request.
Chinese Foreign Ministry spokesman Zhao Lijian told a briefing in Beijing on Wednesday that Canada “should provide an open and nondiscriminatory business environment for all companies operating in Canada, including the Chinese ones.”
The Chinese embassy in Ottawa sees any politicization of economic co-operation as wrong, a spokesperson said by email late Tuesday, calling on the Canadian government to foster a fair market for all foreign investors.
A spokesperson for the Canadian industry ministry said she was restricted in explaining why the Shandong deal was rejected, citing confidentiality provisions of the investment act. “Canada remains open to investments that create jobs, growth, access to global trade and value chains, and long-term prosperity for Canadians, while protecting Canada's national security interests,” Sophy Lambert-Racine said by email Tuesday.
TMAC plunged as much as 19%, the most intraday since March, and was down 11% to C$1.16 as of 12:05 p.m. in Toronto. The shares have declined 70% this year.
Security observers have said a sale could be a threat to Canada because it would give China greater access to the Northwest Passage and is close to Canadian early warning radar facilities in the Arctic.
The Trudeau government's rejection of the deal might not be the end of the story, according to Stephanie Carvin, a professor at Carleton University in Ottawa and former government intelligence analyst.
“The issue when dealing with state-owned and state-championed enterprises is that when you say no to them, China finds other ways to circumvent the rule of law,” she said by phone Tuesday. “If you say no once, it doesn't mean they won't try again in some way.”
Huawei and Aecon
The decision -- and Beijing's reaction to it -- will be watched closely by other Arctic nations, Carvin said, flagging that Foreign Minister Francois-Philippe Champagne had meetings with his Nordic counterparts recently. “Canada is not the only country struggling to deal with China in the north. Denmark is particularly concerned,” she said, citing Beijing's infrastructure investments in Greenland.
Canada-China relations soured sharply two years ago, when police detained Huawei Chief Financial Officer Meng Wanzhou at Vancouver's airport. She has been confined to the Pacific coast city since then, fighting extradition. In the days after her arrest, China jailed two Canadians on espionage charges and halted billions of dollars in agricultural imports.
Even before the Huawei case flared, China was warning of an investment chill in Canada after Trudeau's government rejected a takeover of Toronto-based construction giant Aecon Group Inc., citing national security concerns.
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