Canadian junior Lithium Chile (TSX-V: LITH) and China Union Holdings (SZSE: 000036) face a potential national security review of their $175-million Argentum Lithium transaction after Canadian officials raised concerns about it.

China Union agreed in December 2025 to acquire all outstanding shares of Argentum Lithium, Lithium Chile’s Argentine subsidiary and owner of its interest in the Salar de Arizaro lithium project. The Chinese company also still requires outbound direct investment approval from regulators in Beijing.

Canada’s director of investments issued a notice under Subsection 25.2(1) of the Investment Canada Act stating there are reasonable grounds to believe the transaction could be injurious to national security. The act allows the government to order a further review of investments by non-Canadians on national security grounds.

Lithium Chile contests Ottawa’s jurisdiction, saying that Argentum is not a Canadian company and has no assets, employees or place of business in the country. The company said it received no response to this objection before the notice was issued and intends to “forcefully advance that position and seek all remedies available.”

China Union pointed to changes to the Investment Canada Act that came into force in September 2024 as part of efforts to strengthen Canada’s foreign investment review regime.

The company also mentioned Prime Minister Mark Carney’s January visit to Beijing, where Canada and China announced a new “strategic partnership”. A Canada-China Economic and Trade Cooperation Roadmap released during the visit pledged to improve two-way trade and investment, with Ottawa welcoming Chinese investment in areas including energy, agriculture and consumer products.

The proposed sale has already navigated other hurdles. Lithium Chile founder and president Steve Cochrane told investors before the company’s annual general meeting in mid-May that it “has been a complex transaction involving multiple jurisdictions, languages, and time zones.”

Shareholders later approved the sale of the Argentine assets by a strong majority. Lithium Chile and China Union are now consulting their respective legal advisers over the Canadian notice while China Union works through Beijing’s separate approval process.

Salar de Arizaro lies in Argentina’s northwestern Salta province, near the borders with Chile, Bolivia and Paraguay. Lithium Chile’s July 2024 prefeasibility study outlined 4.122 million tonnes of battery-grade lithium carbonate and an expected mine life of 20 years.

The Canadian junior has also completed a National Instrument 43-101-compliant resource report and preliminary economic assessment for the project. Lithium Chile controls 29,245 hectares at Arizaro as well as 11 properties spanning 106,136 hectares in Chile.

Ottawa has not ordered the additional national security review outlined in this week’s notice. Whether it does so will determine the next Canadian regulatory hurdle for a deal already awaiting approval in China.