The Canadian government is scrutinizing Chinese investments in the country, particularly in the mining sector.

"We need to be working to solve access to capital issues, but the answer cannot be investment from Chinese state-owned industries," Natural Resources Minister Jonathan Wilkinson told Bloomberg.

Concerns about national security and resource access are growing as Chinese companies actively pursue investments in Canadian mining. Over the last three decades, China has invested CA$ 21 billion in the Canadian mining industry.

But Canada’s crackdown on such investments has resulted in mandatory reviews. Recent attempts by Chinese firms to invest in Canadian junior mining companies include Yintai Gold‘s agreement to buy Canadian gold explorer Osino Resources (OTCQX:OSIIF) for CA$368 million, and Zijin Mining Group‘s (OTCPK: ZIJMF) plan to acquire a 15% stake in Vancouver-based Solaris Resources (OTCQB:SLSSF).

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However, the news of junior graphite explorer SRG Mining (OTCPK: SRGMF) scrapping a CA$16.9 million deal with China's Carbon ONE New Energy Group shows that even smaller transactions are now on the regulator's radar.

Yet, heightened scrutiny might hurt small mining firms that face difficulty in raising capital in an environment with high interest rates.

The Macdonald-Laurier Institute highlights the risks associated with the lack of oversight of foreign investments in Canadian mining projects. Chinese state-owned enterprises are strategically acquiring stakes in junior mining companies, providing them access to critical minerals and rare earth resources in the Arctic. The lack of comprehensive regulatory supervision and a North American investment capital shortage exposes Canada’s Arctic to potential security risks.

"If left unattended, Canada's critical minerals strategy will be undermined, and its Arctic backdoor will be left open," former Assistant Deputy Minister of Northern Affairs Stephen Van Dine said in the report.

Another recent example of Chinese involvement in the Canadian Arctic includes the acquisition of an 18.1% stake in Vital Metals (OTCPK: VTMXF), an Australian-based mining company that owns Canada's only operating rare earth mine, the Nechalacho project in Northwest Territories.

The transaction, conducted by a subsidiary of Senghe, was below the regulators’ threshold, thus not triggering an intervention.

The Investment Canada Act governs foreign investments and has been undergoing its most extensive update since 2009. The proposed amendments aim to strengthen the government’s ability to review and regulate foreign investments that pose threats to national security.

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