China’s Shandong Gold wins marathon takeover battle for ASX-listed Cardinal Resources

National security concerns in Canada are preventing Shandong from an agreed acquisition of TMAC Resources.

National security concerns in Canada are preventing Shandong from an agreed acquisition of TMAC Resources.

China’s Shandong Gold has emerged victorious in its marathon takeover battle for ASX-listed gold hopeful Cardinal Resources, as the Chinese state-backed miner is embroiled in controversy in Canada after being blocked from buying a mine on national security grounds.

Russia’s Nordgold capitulated in its fight to win control of Cardinal and its gold projects in Ghana just before Christmas, selling its shareholding in to Shandong’s $1.075 a share offer after a nine-month fight for control of the ASX-listed miner.

But the victory, which has seen all parties make regular trips to the Takeovers Panel to win an advantage in the deadlocked fight, came as the acquisitive Chinese miner suffered a significant setback in Canada, after a decision by local authorities that could have wider implications for the Australian resources sector.

Shandong won permission from Australia’s Foreign Investment Review Board for the Cardinal acquisition in August, and has long been the majority owner of ASX-listed Focus Minerals, after a disastrous 2012 deal that saw it pump $227m into the WA miner as the gold price plunged, forcing its new management almost immediately to shutter its operating mines.

Canada’s government has taken a different view of Shandong’s credentials, last week blocking the company from buying a gold mine in the Canadian Arctic on national security grounds, in a move that could complicate efforts by Canadian coal miners to take advantage of frosty relations between Beijing and Canberra.

The decision prevents Shandong from an agreed acquisition of TMAC Resources, which owns a gold mine in the Arctic Circle, after a controversial national security review of the transaction.

While the government of Prime Minister Justin Trudeau has not commented directly on the decision, Chinese interest in the Arctic Circle has been the subject of scrutiny because of critical shipping lanes in the Northwest Passage and because of Canadian early warning radar facilities in the region.

While TMAC’s Hope Bay mine is more than 100km away from the nearest military facility, public concerns expressed by current and former defence officials in Canada reflect similar worries by Australian security organisations around Chinese ownership of resources projects near the Woomera testing range in South Australia, which blew up in 2019 when Chinese financed CU-River Mining was forced to pledge to use an Australian-only workforce at its planned expansion of the company’s Cairn Hill mine in the area.

But the decision of Canada’s government has the potential to again exacerbate tensions between Ottawa and Beijing, which have suffered from similar tensions around business, security and trade relations as those between Beijing and Canberra.

Frayed relations between Canada and China peaked in 2018 after the arrest of a Huawei executive on a US extradition request and, in a similar move to Beijing’s current bans on Australian agricultural imports, in 2019 Chinese authorities restricted imports on Canadian canola and soy.

While relationships have remained tense, Canada’s mining sector has been quick to try to capitalise on China’s aggressive moves to block Australian coal exports, diverting metallurgical coal cargoes to other customers to fill Chinese steel mills and capture big price premiums as Australian shipments sit idle outside Chinese ports.

Canada’s Teck Resources, which produces about 26 million tonnes of high-grade coking coal from its mines in British Columbia, said in November it was diverting spot cargoes to China to take advantage of short-term pricing, telling shareholders it planned to restructure its 2021 sales book to increase shipments to China to take advantage of what it said could be a $US50 a tonne premium to benchmark Australian prices.

The federal department of Industry, in its December Resources and Energy Quarterly review, said it believed Canada could try to lift exports to China to take advantage of Australia’s difficult relationship.

Canada is likely to produce only about 32 million tonnes of metallurgical coal in 2020, well below the 170 million tonnes likely to flow from Australian mines.

But Canadian coal product is the only close competitor to high-grade output from Australian operations and, if the Shandong decision further raises the ire of Chinese authorities, could offer a small window of hope for Queensland producers that Australian coking coal could again win favour in Beijing.