Greenland gov’t allowed to review uranium project agreement; confirms Shenghe “intent” to buy controlling stake

Greenland’s department of natural resources has had a third-party legal firm go over the contract giving Shenghe 盛和 a stake in the Kuannersuit (Kvanefjeld) uranium and rare-earth project in the island’s south. The review was meant to establish whether the agreement gave a Shenghe a right to increase its stake to a controlling one, a possibility I first mentioned almost eight months ago. According to a Greenland government press release, the review has concluded that “the contract does not give [Shenghe subsidiary] Leshan [乐山] Shenghe the right to overtake a controlling share” of GME, the Australian firm that owns the licence. Although the press release doesn’t mention it, the department’s head also confirmed to Sermitsiaq that the agreement includes “non-binding statements of intent” regarding Shenghe eventually increasing that stake. This is consistent with those earlier reports, according to which Shenghe would like to have up to a 60% stake in the project if things go well once it enters production.

This ‘60% saga’ began when I noticed that a Shanghai stock exchange press release by Shenghe said the agreement, that involved the sale of one eighth of GME, contemplated eventually increasing the stake to 60% once the project enters the production phase. (I gave the exact phrasing in Chinese, with translation, in a later post.) The news subsequently spread to Danish and Greenlandic media, generating a little brouhaha in which GME denied, then admitted the reports, and Greenlandic officials promised to “investigate” the matter, since an eventual takeover of the project would need their approval. Such an investigation was complicated by GME’s refusal to show the Greenlanders the contract, plainly stating that they didn’t trust “the government’s ability to maintain and protect the confidentiality of documents which, under Australian law, must remain private and confidential between GME and Shenghe” (my back-translation). The government then reportedly said they wouldn’t let the project go ahead if they didn’t know the text of the agreement.

This raises the question of why anyone felt a need to have a third party review the agreement. It has already been reviewed by Australia’s Foreign Investment Review Board, which approved it in November. Shenghe is, in practice, controlled by the Chinese ministry of land and resources, which has circulated information praising the Greenland operation as partially “implementing a vision on mining cooperation” reached by Jiang Daming 姜大明 and Greenland officials in 2015; this makes it clear that relevant Chinese state organs are well acquainted with the details of the agreement. As a non-expert in Greenlandic law, I found the fact that the Greenlandic government could be left out of this knowledge rather counter-intuitive. The purchase would have been blocked if GME had refused to ‘trust’ the ability of Chinese and Australian authorities not to leak the document.

I reached out to Jørgen Hammeken-Holm, the deputy minister (departementschef) enquiries are directed to in the government’s press release, to confirm that his department was given access to the agreement, as opposed to GME just showing it to the (unnamed) third-party legal firm. If he replies, I will update this post in the space below:

[UPDATE: Hammeken-Holm replied, confirming that a member of the legal staff at Greenland’s department of natural resources was given access to and read the agreement.]

The entire 60%-saga is little more than a PR hiccup. As I’ve noted before, most people involved (GME management and shareholders, Chinese and Greenlandic officials) would likely see the eventual controlling stake as good news. The only explanation I can muster for the early refusal to disclose the news to the non-Chinese public is a fear talk of a ‘Chinese takeover’ would generate negative comments from the Danish and global geopolitical commentariat. (Such comments did indeed arise.)

Unlike other mining projects, the Kvanefjeld uranium mine is highly divisive in Greenland. Chinese involvement isn’t generally unwelcome, but environmental issues are a concern for many. These divisions are visible at the highest level of Greenlandic politics: the very minister for natural resources, Múte Bourup Egede, is openly “against uranium mining”. For a recent survey of views on Kvanefjeld among (a small sample of) local community members, see this ‘briefing note‘ by Rachael Lorna Johnstone and Anne Merrild Hansen.

I reviewed the current state of Chinese involvement in Greenland in a post for CPI Analysis a few months ago.

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Shenghe’s Greenland U+REE investment gets FIRB approval

Australia’s Foreign Investment Review Board has approved Shenghe 盛和 Resources’ purchase of one eighth of GME, the ASX-listed owner of the license for the Kvanefjeld uranium-rare earth project in Greenland. Other approvals should be coming these days, as everyone concerned in Australia and China should be happy with the deal.

Meanwhile in Greenland, things aren’t looking so simple. As explained in my previous post, Greenland is ruled at the moment by a Große Koalition of parties that agree on everything, except uranium mining. GME should be applying for a production permit before the end of the year, and that application could be handled by Múte Bourup Egede, a new minister who has already said he’s ‘against’ uranium mining, in so many words. Conflict within the ruling coalition is already showing. On the one hand, Jens-Erik Kirkegaard (long-time readers will remember his ’13 Jiangxi Copper visit) from majority partner Siumut thinks that GME have earned themselves a right (retskrav) to get their permit as long as they comply with environmental and other regulations, and the new anti-uranium minister “can’t just take a political decision.” On the other hand, Sara Olsvig, chair of coalition partner IA (long-time readers will remember her Tibet visit and meeting with the Tibetan gov’t in exile), says GME’s application could be rejected not only on environmental, but on “political” grounds (Weekendavisen via Sermitsiaq). Egede, the new minister, who’s from Olsvig’s party, has said he’ll decide based on the application’s merits as well as ‘listen to the people.’

Shenghe: new Greenland minister ‘against uranium’

The composition of Greenland’s ruling coalition has changed in the last few days, becoming more ideologically homogeneous (viz., homogeneously pro-independence). Their agreements, however, don’t cover the most crucial issue from the perspective of Sino-Arctic relations: the uranium-rare earth project in Kvanefjeld (Kuannersuit) in the south of the island.

As I reported a bit over a month ago, state-linked rare-earth company Shenghe 盛和 Resources agreed to buy a minority stake in GME, the Australian owner of the project, and expressed an intention to eventually increase that to a 60% stake if things go well. That remark, which I wrote after simply reading Shenghe’s Shanghai Stock Exchange announcement, generated a minor controversy after being picked up by Danish and Greenlandic media, who wondered why the 60% part was left out of GME’s own announcements. It even prompted Greenland’s ministry for natural resources to say they would ‘investigate’ and ask GME to show them the contract they signed with Shenghe, which GME declined, arguing they don’t trust the Greenlandic government’s ability to keep it confidential. (Good luck telling the Chinese gov’t you won’t show them documents because you don’t ‘trust’ them.)

Even with those disagreements, which largely boil down to poorly handled PR; the GME-Shenghe project had good chances of getting through under the previous coalition, and specifically the previous natural resources minister, who were unambiguously pro-uranium. That has changed now. The two junior parties in the current government are against uranium mining in Greenland. The coalition’s official position, if we may call it that, is now that they’ve ‘agreed to disagree’ on uranium.

The new Naalakkersuisoq (minister) of natural resources, Múte Bourup Egede, is himself from the anti-uranium Inuit Ataqatigiit (IA) party, and is “against uranium mining,” in so many words. His ministry will have to review GME-Shenghe’s application for a production license, expected to be submitted as early as this year. He says he can’t anticipate what the decision will be like before seeing the application, and that it will be made based on the natural resources law and after ‘listening to the people’. It’s early to tell; pro-uranium forces could prevail and let the project go ahead. The current coalition setup and portfolio allocation could also be shorter-lived than the application process (Múte is the fourth minister in charge of natural resources in just over a year).

GME are optimistic, though. Their ASX-listed shares fell 20% in the days following the coalition shakeup (but are still well above the price one month ago, and almost twice what Shenghe agreed to buy them at), after which they stated they’re happy with the new Große Koalition and praised their plans for the mining sector without mentioning the explicit disagreement over their project.

Meanwhile in China, another Greenland minister, Vittus Qujaukitsoq, whose portfolio includes commerce, energy and foreign affairs, is leading a delegation in a week-long visit. Compared to his previous Chinese visits, this one seems to show increased emphasis on the seafood and sealskin industries over mining. The trip includes stops in Qingdao and Chongqing.

more on Shenghe’s Greenland deal

A couple of weeks ago, I noticed that Shenghe Resources’ agreement to buy into the Kvanefjeld (Kuannersuit) uranium and rare-earth project in Greenland from ASX-listed GME includes an option to eventually acquire a controlling stake. That simple observation, based on just reading Shenghe’s Shanghai Stock Exchange disclosure, generated some attention after being picked up by Danish daily Politiken and later reflected in Greenlandic media. While rather unremarkable, the 60% option snowballed into something of a controversy after GME started denying its existence, which even prompted Greenland’s resource minister to say they were “investigating” the matter. The fact that GME’s own announcements and press comments didn’t say a word on Shenghe’s further plans for over a week led sources to speculate on the reasons they’d want to keep quiet about what would seem to be rather good news. Yesterday, after letting all this speculation brew for more than a week, GME published an announcement to ‘further clarify’ the issue, now in terms entirely consistent with Shenghe’s announcement. GME also wrote to Greenland’s state broadcaster KNR, admitting for the first time that Shenghe “can be interested in a direct share of the project on a level of up to 60%” (my back-translation from the Danish). Any misunterstandings are blamed on ‘translations’. (Translator-scapegoating is a time-honoured custom in the Chinese business world; cf. this old post of mine, that includes quotes from the Sino-Arctic Bard.)

At any rate, whatever discord ‘translators’ (or the media) might have sown, GME’s current official stance doesn’t contradict Shenghe’s official announcements. We can therefore continue to consider the SSE announcement authoritative.

I don’t normally publish translations of extended passages here, since that feels like doing other people’s homework, but in the interest of readers from Greenland, who are surely entitled to know the details about a project of such importance, I’m going to provide the relevant parts of Shenghe’s SSE disclosure together with a quick-and-dirty (rather literal) translation (original text here).

Page 2, under “Overview of the transaction”.

在科瓦内湾项目取得采矿证且技术优化完成后,基于双方届时洽谈的商业条款,盛和资源可选择收购不超过60%项目权益。

After the Kvanefjeld project has obtained an exploitation permit and completed technical optimisation, on the basis of commercial terms that will be negotiated between the two sides, Shenghe Resources may choose to acquire an interest in the project not exceeding 60%.

Page 9, under “Future cooperation in the project”.

在目标公司就科瓦内湾项目的采矿权申请取得相关格陵兰政府批准且技术合作项目的进展得到各方的满意后,认购方可以书面方式通知公司:其希望取得项目60%的权益。公司收到该通知后,各方将友好协商并购交易的条款,包括收购的交易对价、项目的融资情况,以及成立合资实体(不论是公司还是非公司形式)以开发项目。该并购将受限于所有必要的政府许可。

After the Target Company [GME] has obtained the approval of the Greenlandic authorities regarding the application for an exploitation permit for the Kvanefjeld project and technical cooperation has progressed to the satisfaction of both sides, the Subscriber [Shenghe Leshan] may formally notify the Company [GME] in writing of its intention to obtain a 60% interest in the project. After receiving said notification, both sides shall amicably negotiate the terms for a merger or acquisition transaction, including the value of the transaction, the project’s financial situation, and establish a joint entity (be it of company or non-company type) in order to develop the project. Said merger or acquisition shall be subject to all the necessary government approvals.

Thus spake Shenghe. As anyone who’s been involved in business negotiations with Chinese partners knows, the language tends to be less explicit in Chinese than in English documents. In particular, it could be argued that the Chinese document is ambiguous on whether GME has an obligation to consider Shenghe’s eventual intention. In practice, however, this ambiguity is of little practical consequence, since, as I noted in my previous post, the language implies that there’s no obligation to sell (that’s the ‘amicable’ part).

For completeness, here are the relevant parts of GME’s latest ASX announcement:

As part of the broader strategic relationship and subject to the Company receiving a mining (exploitation) licence for the Kvanefjeld Project and the successful completion of technical cooperation to enhance the Project, Shenghe may notify the Company of their intention to negotiate terms to acquire a direct interest in the Project, in association with project development.

Should this occur, the parties would enter into commercial negotiations in good faith. Any such project level investment and associated agreement would be subject to regulatory and commercial considerations, as well as relevant approvals. There is no contractual obligation on either party to reach such an agreement.

This is consistent with Shenghe’s announcement, except it doesn’t say ‘60%’ and adds an explicit statement that the option is non-binding.

To sum up, a Chinese state-linked company has a non-binding option to buy a majority stake in a major uranium and rare-earth project in Greenland, as I was the first to report in two blog posts. This is important news, but entirely unsurprising, as it has long been known that the main Greenland mining projects are actively seeking to involve Chinese players.

Kvanefjeld is the most important mining project with short and medium-term real prospects in Greenland, and is of global significance as a major REE deposit. The agreement (and especially the 60% option) is very good news for GME, whose shares rose sharply during the weeks leading to the signature of the deal, and are expected to keep climbing as more information emerges on the project’s technical progress. Greenland ministers also welcome the deal, which is also unsurprising given they’ve been actively looking for Chinese investors (with mixed success) for a long time.

On the other hand, the project is not free from controversy. Opposition to the project is known to exist in both Greenland and Denmark. Such opposition mainly comes from two angles: concerns, strongest in Greenland, about environmental issues (both about mining in general and uranium mining in particular) and qualms, mainly operative in Denmark, about China’s influence in the region. Greenland is a democratic society, meaning that engaging the public on these issues is an essential part of developing a mining deal. Chinese companies (and Shenghe specifically) tend to be poorly prepared to deal with that aspect of mining investment, which is one of the reasons partnerships with Western companies are sought. GME have been active in Greenland for quite some time and can be expected to interact with the public in a reasonably smooth way, even if their handling of the 60% storm-in-a-teacup wasn’t that slick. Kvanefjeld, Chinese investment and Chinese labour are also enough of a known quantity in Greenlandic public discourse by now, meaning that the brouhaha that surrounded the Isua project isn’t likely to come back, at least not in the same form.

To my great delight, the online edition of Greenland paper Sermitsiaq, which I frequently read, has reported in Danish on my account of Shenghe’s state links.

the 60% saga: update on Shenghe in Greenland

Two separate sources say Greenland Minerals and Energy, the Australian company that has agreed to sell a stake in a Greenland uranium and rare earth project to Shenghe 盛和 Resources, now denies the agreement includes an option for Shenghe to increase its interest to a controlling one once the project enters the development stage.

An option to acquire a controlling stake (up to 60%) in the Kvanefjeld (Kuannersuit in Greenlandic) project is discussed in clear terms in a Shenghe Shanghai Stock Exchange disclosure, as I was seemingly the first English-language source to report. The language suggests GME is not bound to sell Shenghe such a large share, should they ask for it.

The purchase option should be good news for GME, so it’s hard to see why they would deny it.

It’s been known for ever that some sort of more or less Chinese state-connected involvement would eventually begin in Kvanefjeld. GME had long had a non-binding agreement with a unit of China Nonferrous (中色); as explained in some detail in my post from last week, Shenghe’s main shareholders are also mostly state organs.

This information has now reached the mainstream media. Various experts quoted by Politiken draw (geo)political implications of the deal. Rear Admiral (kontreadmiral) Nils Wang, an Arctic expert with the Danish Defence College, expects the deal to attract attention in the US: “It’s very easy to interpret this not just as the classic Chinese-style long-term thinking, but also as two [the other one being General Nice (俊安集团) purchase of Isua] of China’s slowly creating for themselves in Greenland the same kind of soft-power influence they already have in Iceland”. In Greenland, Aaja Chemnitz Larsen of the opposition party Inuit Ataqatigiit (IA), talks of “a need to know how big an influence China can get over the project”, on which she intends to query the Greenlandic and Danish governments. So that’s already a Greenlandic politician and a Danish kontreadmiral for whom the 60% number and Shenghe’s state connections could be interesting data points.

new Chinese investor in Greenland uranium+rare earth project

Chinese rare earth miner Shenghe Resources (盛和资源) has agreed to buy a 12.51% stake in ASX-traded Greenland Minerals and Energy (GME), the company behind the Kvanefjeld (Kuannersuit) uranium+REE project in Greenland. That will already make Shenghe Resources, through a subsidiary, the largest individual shareholder in GME. The agreement gives Shenghe the option to increase its participation up to a 60% stake once the project enters the development stage, Shanghai Stock Exchange disclosures show. The deal is subject to the approval of GME shareholders, Australia’s Foreign Investment Review Board and Chinese authorities, with a late-November deadline. Shenghe’s stake will be owned by it subsidiary Leshan Shenghe 乐山盛和.

At A$.037, the price agreed is less than the A$.06 GME shares closed at when they suspended trading two days ago, but an improvement over the A$.02 it hit last December, when talks with Shenghe reportedly started. Indeed, GME’s recent rise might be what triggered Shenghe to close the deal, rather than wait for the Kvanefjeld project to get a production permit from the Greenlandic authorities.

Chengdu-based Shenghe (listed in Shanghai) is a major consolidated rare earths company. More than a quarter of its shares are owned by state institutions. Its biggest shareholder (~20%) is the Chengdu Institute of Multipurpose Utilisation of Mineral Resources (中国地调局成都综合所, IMUMR), a geological research institution ultimately subordinated to the Ministry of Land and Resources. State ownership also occurs at the provincial level, through the Sichuan Geological and Mineral Resources Company (四川省地质矿产公司), who have conducted exploration activities in Laos and Mozambique. But the name to remember is IMUMR, the central-government majority shareholder. Shenghe’s current identity goes back to a reverse takeover in 2013; its predecessor (i.e. what was reversely taken over) is precisely Leshan Shenghe, established in December 2001 (the IMUMR stake goes back to at least ’02, the Sichuan gov’t company’s to ’04).

Shenghe’s biggest private shareholder is Wang Quangen 王全根, but he isn’t unconnected to the IMUMR. He worked at the Institute for 26 years, the last nine of which overlapped with functions at Shenghe. That is, while he worked as an engineer at a state research institution, he went on to own, together with his wife, a significant share in a large Shanghai-listed company closely connected to the Institute. How he became so rich is, says a Xinhua report, an “enigma“. Another non-state shareholder in Shenghe is Sichuan Giant Star Group (四川巨星集团). Shenghe is chaired by Hu Zesong 胡泽松, vice Party secretary at the Institute.

The latest arrival to Greenland’s mining ecosystem is thus a company intimately connected to a Sichuan-based geological research institution controlled by the central government.

Shenghe has been looking for rare earth resources abroad recently, including a purchasing agreement with Tantalus for its Madagascar production and plans to buy 90% of Vietnam Rare Earths.

update on mining in Greenland

Chinese interest in mining in Greenland hasn’t received a lot of media attention this year, after General Nice (俊安) bought the Isua iron mine, which probably no one would think of developing at the moment (‘cucurbitae caput non habemus‘). That doesn’t mean Greenlandic officials have stopped promoting the island’s ores to Chinese potential investors (there have been meetings in October), or that Chinese interest no longer exists; quite the contrary. As two projects China Nonferrous is expected to help finance and build approach the production stage, Chinese investment in Greenland could become a reality pretty soon.

My latest piece for the China Policy Institute blog discusses these developments.