The federal government should block a Russian state-backed investment in a Canadian-owned lithium mine, critics say, as Ottawa looks for ways to punish Russia economically for its invasion of Ukraine.

At the end of November, Vancouver-based Alpha Lithium announced a US$30-million deal to sell 15 per cent stake of its Tolillar Salar mine in Argentina to a subsidiary of Uranium One, which is part of a network of companies owned by ROSATOM, Russia’s State Atomic Energy Corporation. The deal would also give Uranium One the option to acquire another 35 per cent of the mine for US$185 million.

“I can be very blunt about it: there is absolutely no way that such an investment should be allowed to go forward,” said Wesley Wark, a senior fellow at the Centre for International Governance Innovation.

“That would have been the only sensible course before February’s Russian invasion of Ukraine, and it’s certainly the only sensible course now.” 

The Liberal federal government warned businesses last year that under the Investment Canada Act’s provisions for national security reviews it would apply enhanced scrutiny to deals involving critical minerals like lithium. Earlier this year, debate erupted over whether Canada should have allowed a Chinese state-owned entity’s acquisition of Toronto-based miner Neo Lithium, a move that angered some U.S. lawmakers and Conservative MPs who argued it could endanger a supply of a metal crucial to the production of electronics and electric vehicles. 

On Tuesday, the government warned explicitly that in the wake of Russia’s Feb. 24 invasion of Ukraine it will consider an investment that “has ties, direct or indirect, to an individual or entity associated with, controlled by or subject to influence by the Russian state” to be potentially injurious to national security, “regardless of its value.” 

Some critics say Ottawa should be probing Russian state-backed investments regardless of the war.

“They need to think broader and more strategically about who is gaining access to scarce lithium resources around the world,” said Jeff Kucharski, an adjunct professor at Royal Roads University and senior fellow at the Macdonald-Laurier Institute.

“It was China, but now we’re talking about a Russian company. Both of these countries are authoritarian regimes with which Canada has very difficult relations. They’ve demonstrated in the past that they will use their control over resources as a weapon, so to speak, to pressure other countries to get what they want to punish other countries for policies that they don’t agree with.” 

It’s unclear what the current status is of the deal between Alpha Lithium and Uranium One. The company, which is publicly traded on the TSX Venture Exchange, did not respond to The Logic’s questions. The deal was originally expected to close on Jan. 31, but Uranium One delayed it in late January for at least a few weeks due to “regulatory office closures caused by the COVID-19 pandemic and an extended holiday season in Argentina,” the site of Alpha Lithium’s mining project and a country with one of the richest supplies of lithium in the world. 

Innovation, Science and Economic Development Canada would not disclose to The Logic whether it is already reviewing the Alpha Lithium deal, citing confidentiality provisions of the law. But it said its recent crackdown on national security reviews of Russian investments “applies to current and future transactions reviewed under the ICA.” 

Global Affairs Canada pointed The Logic to Canada’s sanction database, which as of a March 8 update did not list Uranium One, ROSATOM, three other known subsidiaries and affiliates linked to Uranium One or 11 executives listed on the companies’ websites, although the list does include other state-owned energy companies like Gazprom and RusHydro. 

Kucharski said ROSATOM and its subsidiaries should be sanctioned as part of Canada’s economic pushback against Russia, noting the U.S. is already mulling such a move against ROSATOM. 

Even if a Russian entity isn’t currently sanctioned, companies would be on notice that a Russian entity could be added to the list at any time, said lawyer Ross McGowan. Any incomplete investment from a Russian entity would also face logistical impasses due to extensive blocks on banking services, he noted, adding that assets or staff abroad (like Argentina) must also comply with local sanctions. (McGowan would not comment directly on the Alpha Lithium deal since his firm was not involved in the transaction.)

Wark, who spoke to The Logic prior to the March 8 government announcement, acknowledged that restrictions on foreign investment could make life complicated for Canadian miners, and said Canada will need a critical-minerals strategy and an industrial support fund for junior miners, which can find themselves crunched for cash. But, he said, Canadian firms should also be put on notice that critical minerals can’t be subject to a free-for-all. 

“Because the Neo Lithium acquisition was allowed to go forward, I’m not sure exactly what message foreign firms would receive from that,” said Wark. “The foreign-investment community, as well as Canadian firms, are probably actually waiting and looking for clearer guidance from the Canadian government.” 

Wark said that he was surprised to see that Alpha Lithium had agreed to the investment at the time it was proposed, saying that it had the potential to be a “national scandal.” 

In releases announcing the deal last November, Alpha Lithium CEO Brad Nichol said Uranium One had advantages like significant mine assets near the Alpha Lithium site, cash of over $45 million and European contacts. Uranium One president Andrey Shutov said the deal would fit with Uranium One’s strategy of securing non-uranium material resources. 

“This early-stage asset has attained a truly game-changing breakthrough for our shareholders,” said Nichol in November. 

“Having gotten to know Mr. Shutov and his team over the past few months, I am truly pleased to be partnering with Uranium One, an internationally recognized, large-scale project developer.” 

Uranium One, which was headquartered in Canada before the Russian company took it private, was a lightning rod even before Russia’s invasion of Ukraine, after the administration of U.S. President Donald Trump ordered a probe of ROSATOM’s alleged ties to Hillary Clinton. That probe did not turn up any results, although a prior investigation unrelated to the Clinton accusations did find evidence of corrupt payments by an official of ROSATOM subsidiary Tenex, who was bribed to secure advantages for U.S. companies trying to win Russian contracts.

Kucharski said that even if the companies’ assets are in Argentina, Canada has entered a new era where deals cannot be viewed the same way as they were in the past by governments.

“Doing business also comes with responsibilities,” said Kucharski.

“They can’t expect to be dealing with authoritarian regimes that are invading other countries or using their resources as political weapons. It’s unethical…. [It] could potentially make it much more difficult for junior miners if they don’t start to consider the implications and the ramifications of some of the people with which they want to do business.”