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S E C R E T SECTION 01 OF 02 OTTAWA 000659 SIPDIS STATE FOR ISN/RA - J. ALLEN-CLOSE AND N. MENKHOFF, WHA, AF, L, AND T E.O. 12958: DECL: 08/28/2019 TAGS: PREL, PARM, MNUC, KNNP, EINV, IR, NA, CA SUBJECT: CANADA SEEKING OFFICIAL CONFIRMATION FORSYS URANIUM DEAL HAS COLLAPSED REF: A. OTTAWA 639 B. OTTAWA 627 C. STATE 84119 Classified By: A/PolCouns Kurt van der Walde, reasons 1.4 (b) and (d) 1. (S) Canada welcomed recent news reports that the deal had collapsed to sell the Valencia uranium mine in Namibia from Canadian-based Forsys Metals Corporation to Belgium's George Forrest International (GFI), according to Department of Foreign Affairs and International Trade (DFAIT) Non-Proliferation and Disarmament Deputy Director Shawn Caza. He cautioned, however, that "we are not out of the woods yet" and added that Canadian officials are still trying to confirm directly with GFI that it has abandoned the deal. Until such time, Caza underlined that Canadian officials are continuing their investigation. Industry Canada had notified GFI on August 18 that Canada had invoked section 25.2 of the Investment Canada Act (ICA) to freeze the deal for 45 days (ref a). 2. (S) Forsys said publicly on August 25 that it remained "unclear about the specific concerns" of the Canadian government, but was terminating the agreement "in the best interests of the company" after GFI failed on August 24 to transfer funds as stipulated in the contract that the parties signed in November 2008. Caza commented that Canada's freeze on the deal most likely made "Forsys executives see that it was not prudent to continue dealing with George Forrest." He surmised that the original Forsys investors, whose previous business experience--according to Caza--was limited to running a Toronto restaurant, realized they were in "far deeper water than they imagined" and decided to extricate themselves as quickly as possible. In its announcement Forsys also said it was seeking C$20,000,000 from GFI as a "reverse break fee." GFI threatened unspecified "appropriate" legal remedies in response. Caza guessed that the exchange of threats about legal action was a "face saving" action by both companies as they seek avoid a large pay out to walk away from the deal. 3. (S) Caza acknowledged that the Canadian Security Intelligence Service (CSIS) is still in the process of securing an interview with Forsys CEO Duane Parnham to gauge his level of knowledge about Iranian involvement with GFI. Caza added that the only contact so far between the Government of Canada and Forsys regarding the uranium sale has been through Industry Canada officials. Canadian Border Services Agency (CBSA) officials at Toronto's Pearson International Airport did interview Parnham in the secondary inspection area about his travel to Iran, according to Caza, who said CBSA made photocopies of his passport pages with Iranian entry and exit stamps. CSIS also wishes to ask the Forsys CEO about the purpose of his visit to Iran and the people with whom he met while there, according to Caza. Nonetheless, Caza said he believed that Forsys must have known that "the deal was much sweeter than it should have been." He added that executives of major uranium mining companies told him that GFI was "overpaying by 20 to 25 percent." (Note: Forsys's stock fell 20 percent the day after the company walked away from the deal, according to news reports.) 4. (S) While expressing relief at the apparent break up of the deal, Caza cautioned that Canada is not clear on its legal options if Forsys decides in the future to sell only Qlegal options if Forsys decides in the future to sell only the Valencia deposit itself--rather than the entire Forsys company--to GFI or a successor front organization for the Iranians. As a Toronto Stock Exchange-registered company with headquarters in Canada, the sale of Forsys "clearly fell within the new provisions of the ICA," underscored Caza. He noted, however, that "no regulations or laws seem to apply" in the case of a Canadian company seeking to sell one of its foreign assets. He added that Canada does have regulations prohibiting the sale of uranium to Iran, and Parnham's travel to Iran indicates "he is dancing closely to the edge" of breaking them. Caza stressed, however, that Canada has no information that Forsys is contemplating going this route. 5. (S) As Canada continues its investigation, Caza observed that they still do not understand whether GFI and Iran have been working together since November 2008 when the Valencia deal was signed, or whether GFI approached the Iranians afterward in May 2009 when GFI encountered financing difficulties. Caza recounted that Canadian officials believe OTTAWA 00000659 002 OF 002 that better understanding that relationship between GFI and Iran from November 2008 until May 2009 will provide a helpful metric for the likely persistence of GFI in seeking to rekindle the deal. He commented that a GFI-Iranian partnership of convenience after the fact would suggest the two parties are much more likely to go their separate ways now that the Forsys-GFI deal appears to have collapsed. If GFI and Iran have been in it together from the start, Caza believes they may seek other means to continue their pursuit of the Valencia deposit. 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