A subsidiary of a Chinese state-owned mining firm says Canada is wrongly considering a national security review in its agreement to purchase a gold and copper mine in Peru.

In May, Vancouver-based Pan American Silver Corp. announced an agreement worth almost $300 million US to sell its stake in Peru's La Arena gold mine to Jinteng (Singapore) Mining, a subsidiary of China's Zijin Mining Group.

Pan American said then that the agreement was "subject to customary conditions and receipt of regulatory approvals."

Since then, however, Canada's Industry Minister François-Philippe Champagne has found the agreement "could be injurious to national security" and told the company in late June that he "may" order a formal review under the act.

Certain types of foreign investments involving Canadian companies are reviewed on national security grounds, and Jinteng voluntarily notified the director of investments at Innovation, Science and Economic Development Canada shortly after the agreement was announced.

The federal government maintains a list of nearly three dozen critical minerals "essential to Canada's economic or national security," and reviews of investments involving foreign companies like Zijin are a protective measure to maintain Canadian control of materials essential to "the green and digital economy."

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Zijin is partially owned by the Chinese government and overseen by members of the Chinese Communist Party.

Canada's critical minerals strategy outlines how allies in Europe have "experienced the consequences of dependence upon non-like-minded countries for strategic commodities."

Jinteng claims in a judicial review application filed in Federal Court in late July that the minister "lacks jurisdiction under the act" to order a national security review of the La Arena deal.

"The targets are Peruvian entities. They do not have a place of operations in Canada or otherwise carry on operations in Canada, they do not have individuals in Canada who are employed or self-employed in connection with their operations and they do not have [assets] in Canada used in carrying on their operations," the application says.

National security experts have warned of the geopolitical consequences of letting foreign actors scoop up Canadian companies in the sector, and Jinteng's actions to skirt the national security review process represent a test of Ottawa's reach on companies incorporated in Canada, but that have no domestic operations and exist only to hold foreign assets.

A story that is 'actually quite simple'

Despite the voluntary notification sent to Ottawa about the deal, Jinteng claimed it doesn't involve a "Canadian business" as defined by the act because the target companies and their assets are in Peru, although they're owned by Pan American subsidiaries incorporated in B.C. and Ontario.

The company claims in its application that the minister's decision is "based on an untenable and unreasonable interpretation of the act, and is therefore wrong in law."

Aaron Shull, managing director and general counsel at the Centre for International Governance Innovation in Ontario, said the case presents a "fairly complicated story that is actually quite simple."

He said the deal boils down to a Canadian parent company selling Peruvian assets to a Chinese company, and the structure of the subsidiaries involved could be for various reasons such as shielding liability and tax purposes.

Shull said the Canadian government has indicated its intention to scrutinize and "get tougher on" foreign investments involving things like strategic minerals involving "hostile states."

"Especially from state-owned enterprises or enterprises that are so closely affiliated with the state," he said.

The deal, he said, is not only for gold mining assets, but also for a nearby gold-copper mine and a power transmission facility.

"You could probably make a fairly compelling case that this is part of a strategic play on China's part in Latin America," he said.

"The Canadian government, the American government, a whole bunch of others have been making a lot of noise about being tougher on this type of stuff. I think that what you're seeing here is the kind of implementation of that sabre rattling in this kind of contested geopolitical environment."

Jinteng's Canadian lawyers did not respond to a request for comment.

Innovation, Science and Economic Development Canada also declined to speak about Jinteng's Federal Court application.

"The government of Canada does not comment on matters before the court. Due to confidentiality provisions of the Investment Canada Act, the government cannot comment on specific transactions," the agency said in an emailed statement.

The federal government announced "significant changes" to the act in March this year.

"While foreign investment is essential to economic prosperity, the Investment Canada Act is a key lever that allows the government of Canada to act quickly and decisively when foreign investment would threaten national security," the department said at the time.

"As the world changes and threats evolve, Canada needs new tools to continue protecting the economy and keeping Canadians safe."

Shull said the case documents don't indicate what specific national security concerns the minister may have, but said he'll be watching the case closely for the outcome.

He said if the company's successful in staving off a national security review, it would put Canada in an "odd spot" by potentially giving foreign companies a means of structuring deals outside the legislative regime with "just a bunch of creative lawyering."