Canada takes a hit by cutting off critical minerals from China
Ottawa has just shown tangible determination by declaring Canada to ban China from possessing critical Canadian minerals. They are essential minerals for the production of electric vehicles (EVs), cell phones, laptops and power from alternative energy technologies.
It is by no means certain that this recent ban is in Canada’s interest. More on that later.
Last week, Ottawa ordered Chinese companies to hand over their ownership in three junior mining companies based in Canada. The companies plan to develop lithium deposits in Canada, Argentina and Chile.
Lithium-ion batteries power most electric vehicles around the world.
The action of the federal government is partly rooted in a radical proposal called “ami-shoring”.
This new economic and foreign policy doctrine gained momentum after Russia’s invasion of Ukraine and the resulting Western effort to economically isolate Russia in order to force an end to hostilities.
Friend-shoring would lead Western liberal democracies to trade more with each other and reduce their activities with countries that pose a risk to national security and do not share our values.
To that end, Ottawa believes Canada should be more selective about who owns our resources, especially those on a list of critical minerals that Ottawa compiled earlier this year.
Canada also joined the United States, Britain, Australia and other Western nations this year in a partnership to ensure secure access to critical minerals.
Describing the concept of friendship in a speech in Washington last monthChrystia Freeland, Canada’s finance minister, said: “There are a lot of strategic assets that we have to be very careful about who owns them.”
Which means lithium could be just the start. In recent years, Chinese interests have purchased stakes in Canadian companies that produce uranium, cesium and chromite (used in the manufacture of stainless steel) and other essential minerals.
It would be wise to accelerate the production of Canada’s considerable but untapped reserves of lithium, tellurium, tungsten, magnesium, rare earths and other critical materials.
But in its nascent phase, friend scaffolding is dangerously ill-defined.
Since last Wednesday’s actions against China, it turns out that the policy means not only reducing trade with “unfriendly” countries, but also prohibiting them from owning Canadian assets.
What other actions against foreign investors are planned? And are we prepared for retaliation against, say, the major mainland China businesses of Toronto-based Canada Goose Holdings Inc. and Restaurant Brands International Inc.?
And what other countries are we “eliminating” – such as human rights abusers Saudi Arabia and North Korea?
But back to lithium, an example with questions of its own.
As mentioned, Canada produces very little of the world’s lithium. The main producers are Australia and Chile, which no one suspects is a security risk.
China, on the other hand, does not have an abundance of high-quality lithium. China’s big card is that it can finance the development of a lithium mine, master the complexities of processing it, and provide a huge market for it.
Processing lithium is extremely expensive and the price of lithium is notoriously volatile. This is why outside of China, the sector hosts a proliferation of small, generally underfunded junior miners. Industry majors like BHP Group Ltd., Rio Tinto Plc and Brazil’s Vale SA (owner of the former Inco) have mostly stayed away.
And why focus on lithium, when Canada has other critical materials in far greater abundance, as well as century-old processing know-how, such as nickel and aluminum?
The Nemaska lithium project in Quebec is a lesson in the difficulty of dramatically increasing Canadian lithium production.
Just about a year after raising $1.1 billion from a consortium of investors including the Quebec government to build a lithium mine and processing plant, the Nemaska project has filed for protection. against its creditors at the end of 2019.
To salvage its investment, Quebec and a joint venture partner have pledged to spend up to $600 million more on the Nemaska project in hopes that its recapitalization will eventually make the project viable.
Canada will need increased global production of critical minerals if it is to meet its targets of 40% reduction in greenhouse gas emissions by 2030 and net zero emissions by 2050.
But Innovation Minister Francois-Philippe Champagne’s announcement last Wednesday did nothing to boost Canadian lithium mining and production.
What it has done is cut off Canadian lithium producers from one of the world’s most important sources of investment capital.
The three Canadian companies abruptly separated from their Chinese partners last week relied on those partners to provide capital, technological expertise and Chinese markets for their production.
There were alternatives to Ottawa’s decision. He could have insisted that Canada co-own lithium companies alongside Chinese investors, as China has done for decades by requiring part-Chinese ownership of Western companies in China.
He could have imposed quotas by which non-Chinese buyers would buy a share of the companies’ lithium production.
As it stands, some or much of the lithium that could have been produced by the three Canadian companies will remain in the ground, likely for many years.