The Decibel - China’s long reach into Canada’s battery minerals industry

Episode Date: February 8, 2023

Canada is facing increasing calls to grow its critical mineral industry as the world pivots toward its net-zero goals and batteries are becoming increasingly important. But at the moment, Canada only has one functioning lithium mine and no refineries.Compare that to China, which dominates the entire critical mineral industry globally and has extensive reach into Canada’s current operations. So what can Canada do to get going? Mining reporter Niall McGee explains how Canada has found itself in this position.Questions? Comments? Ideas? Email us at [e-mail]

Okay, so if you had to give Canada a grade on this, what would it be? Yeah, so unfortunately not a great grade, Manika. Moving away from fossil fuels means that we need to figure out how to create a lot of batteries for electric cars and for storing renewable energy. And we need these batteries fast to meet our approaching net zero goals. So now there's a rush to secure supplies of the specific minerals needed to make these batteries. Probably Canada would get somewhere between a C and a C+. And it's kind of a disappointing grade because Canada does have this rich history of mining. That's The Globe's mining reporter, Niall McGee. In the last year, we've seen how

Russia controlled its oil and gas supplies and made Europe scramble. So when it comes to critical minerals, Canada's grade compared to other countries actually matters. I'm Mainika Raman-Wilms, and this is The Decibel from The Globe and Mail. Niall, thank you so much for joining me today. Well, thanks for having me. Just to start here, Niall, can we define what do we mean when we use the term critical mineral? Yeah, you know, that's a really good question. I mean, in preparation for this podcast, I was curious myself to know, like, when did people first start using the term critical minerals?

And the first instance I found of it actually was back in 1980. And this is when the Americans were in the midst of the Cold War against Russia. So the Americans were concerned about the Russians having so much strength. And then most recently, it's really come to the fore around 2015, 2016, partly because we had a Republican Trump president who was very anti-China and compelled the U.S. Geological Survey to come up with a list of these critical minerals, which it did. And that came out in 2018.

So there's an official designation then of a list of what is classified here. Yeah, there is. And the lists differ a little bit country by country, but the U.S. was really one of the first to come up with this list. And then Canada followed, but in terms of Canada's own official list of critical minerals,

that didn't actually come until 2021. So we were definitely a few years behind the U.S. and probably the only reason we actually kind of got to it is because the US took action. What's on the list? So there's about 35 different minerals and elements. The ones that people are really concerned about right now are any of the minerals that are used in electric cars and technology for the lower carbon economy. So things like lithium, graphite, cobalt, copper, nickel, those are huge. And then there's also these so-called rare earth elements. And these are elements that are also vital to the modern

economy and used in computers and things like little magnets on circuit boards and all sorts of technology that we don't really even think of. But that is another area where China is very, very dominant in. So these so-called rare earth minerals as well have become a real priority for Canada and the United States. Okay, so these are kind of new technologies that we need these critical minerals and these rare earth minerals in order to build these things. So now just how dominant is China? Well, Manuka, China is very dominant in the three critical battery minerals. So lithium, just on the refining side, China controls about 60% of the market. It also has a number of its own lithium mines. If we go to cobalt, the number goes even higher.

They have control over about 70% of the market. And then when it comes to graphite, which is also key for batteries, it's something like 80%. Wow. Okay. China has such a stranglehold on the refining of critical minerals that a lot of it just ends up getting shipped back to China because it's cheaper to do it. Just ship it to China, have the Chinese refine it, have it shipped back to North America or Australia or wherever the minerals are mined from. And the Chinese also recognized early on that a lot of the money is not made in the mining, but actually in the refining. And there's also a lot less risk in refining because mining itself is fraught with risk.

You're never entirely sure the geology, you can have climate events that interrupt mining, and you can have all sorts of unforeseen circumstances that generally you don't see at the refining level. Okay. So that's China. So now what about Canada's critical mineral mining industry? How many projects do we have going right now? In some ways, Canada is in, you know, a pretty good position. Some of the critical minerals, uranium is classified as a critical mineral. Canada has a lot of uranium mines. But if you want to talk about those battery minerals, that's really where Canada's weakness shows up. There's only one current operating lithium mine in Canada.

And unfortunately, it doesn't really benefit the Canadian economy much because it's owned by a Chinese company and that lithium gets sent back to China. And yeah, that's hugely significant because lithium is arguably the most important battery mineral. And yeah, a lot of people criticize the federal government for allowing that deal to happen in 2019. There is some cobalt production in Canada by a company called Glencore in Eastern Canada. Not much though, most of the cobalt you probably know comes out of the DRC, the Democratic Republic of Congo. There's all sorts of issues there. Graphite, there is a little bit of graphite production happening in Canada.

And then if you want to talk about nickel, people will probably know that historically Canada has been this huge powerhouse in nickel. And certainly there's still a lot of nickel production going on. There's not much of that nickel, though, that currently is refined for the electric car industry. But overall, I would say that Canada is surprisingly weak. Okay, so we have one lithium mine, it sounds like, small production of cobalt and some others, but not a lot there. Do we know how much Canada actually has in the ground now that hasn't yet been mined? Like, what's the potential here? I mean, if you ask anyone in the mining industry about potential, you're going to hear amazing things. You know, like Canada has so much resources

and there are so many potential mines. And that is true in a broad sense. But there's a huge gap between having a resource or a discovery and then having an operating mine that's making money. But in terms of giving you a definitive answer on what these could be, it's kind of unknown and it remains to be seen. And the timelines are always so long in mining too, so I couldn't even give you an estimate of when. Okay. So typically, how long do these projects actually take to develop? Well, the government itself recently has said that it can take up to 25 years for a project to go from the discovery phase to production. Two and a half decades seems like a long time for this.

Yeah. I mean, there's plenty of concrete examples of this. In fact, there's plenty of examples where there have been discoveries made roughly 25 years ago, and there's still no mine, or maybe there's still no even permits for mines or applications to build a mine. I mean, I can give the example of the Ring of Fire. You probably know everyone talks about the Ring of Fire a lot as this sort of potential hotbed of critical minerals in Ontario. Those discoveries were made in 2006. I'll let you do the math on where we are right now. So six and 15 years later. That's, yeah, just over, yeah. So we're 15 years in, and there's absolutely no infrastructure built at all. There are plans

underway to build some of that infrastructure, including roads, but there's environmental studies underway. And those studies themselves will take years just to be finished, never mind having the government made a decision on. And then after that, an actual application for a mine might come in. So maybe we're looking optimistically at a mine in the Ring of Fire sometime in the 2030s. So, yeah, you're well into

the 25-year range there. And that's only if things go really well. And things in mining rarely go really well. Okay. So we're talking about like building new mines. And then in the case of something like the Ring of Fire, that also requires a lot of infrastructure, building roads, that's a lot of money, a lot of time. But I'm also wondering how that squares in relation to Canada's climate goals, right? Because we have these goals to be net zero by 2050. Would these mining projects be in conflict with our climate goals? Yeah, I mean, everyone kind of points this out as a kind of key tension. There are all these goals, but there's not really a lot of projects in the pipeline that can meet these goals.

So, I mean, the way we're currently positioned in Canada, there seems to be little chance that Canada can meet those emission goals using mines that are built in Canada in its own country. So there's a couple of things here. So building mines kind of sets us back a little bit maybe because it would probably increase our emissions a little bit. But we need these minerals in order to build electric cars and actually reduce our emissions that way. So there's a kind of tension there, it sounds like. Yeah, absolutely. And in many ways, people have just reconciled themselves to this trade-off. I mean, you're right. Every mine has an environmental footprint. But people are willing or seem to be willing to make the sacrifice to build the mine,

to build the refineries and all the environmental footprint that goes into that so that at the end of the day, you do have technologies that emit little or no carbon like electric cars. So the genie is out of the bottle. People are moving towards that kind of infrastructure. But yeah, in terms of what's active currently in Canada, it looks like we're absolutely going to have to look elsewhere for the metals and minerals, the power of the future economy. We'll be back in a minute.

You've mentioned China a little bit here. How much has China actually invested in Canadian critical minerals? Yeah, so historically, China has invested tens, even asking for China to invest in Canada. It wasn't unusual to send delegates from the federal government or from the provincial governments over to China and essentially invite them and play up the attractiveness of Canada as a mining jurisdiction. China historically and still today has access to the vast coffers of the Chinese state. So a lot of these companies are state-owned institutions. And so they have, in some cases, tens of billions of dollars to play with.

Late last year, Canada actually kind of cracked down big time on any future investment into Canadian critical minerals assets, basically saying they weren't going to happen again, only under exceptional circumstances. So historically, China has been this absolutely massively important investor. And now it's basically going to zero. So the federal government can block these deals? Yeah, absolutely. Whenever there's a sizable acquisition of a Canadian company, the federal government absolutely has the right to study the investment from a national security

viewpoint and ultimately block it if they want to. National security has been kind of broadened to basically encompass economic security. So because these minerals are so important to Canada's economy, it would really become an economic issue as well. And the Investment Canada Act, its mandate now really is also to look at the impact on the economy and also particularly with regards to something like critical minerals. So what kind of leverage would this power over critical mineral production actually give China, like in a geopolitical sense? What kind of power are we talking about? Yeah, so China absolutely has massive power and leverage and the potential for great harm against the West,

essentially. And, you know, this is a legitimate worry. And, you know, people will remember that this actually happened in a sense already in rare earth minerals. You'd have to go back about a decade ago, but China and Japan had a falling out. And for a time, China withheld export of rare earth minerals to Japan. So it sort of happened already writ small. People are worried about it happening writ large. And yeah, can you imagine if China just stopped exporting lithium and car companies, production lines, grind to a halt, or any of the technologies that are used for the transition to the lower carbon economy. It would cause absolute economic chaos. Let's talk about the price of these projects too, because they can be pretty expensive.

There is a lithium mine in Nevada in the States that is being built by a Canadian company, and it's expected to cost $2.3 billion. And that's US dollars, which is a ton of money. So where do companies usually get the capital they need to get these mines up and running? Yeah, that's right. So I think you're referring to Lithium America. So that's a Canadian company. They have plans to build a big lithium mine in Nevada. Traditionally, public companies raised money from their investors, but we're seeing much more government money going into these kind of critical minerals projects. So Lithium Americas, for example, is very likely to get a sizable loan from the U.S. Department of Energy. The US government has really picked up its funding efforts over the last couple of years. One thing we've seen in the US that we haven't seen in Canada is the Department of Defense talking about directly funding mining exploration companies. So these are the little early stage explorers that might need 10 or 20 million dollars to do

an engineering study to try and prove that a resource is economic. And currently, the Department of Defense in the US is speaking to dozens, I believe, of Canadian critical minerals companies with the view to possibly funding them. Why would the Department of Defense be worried about funding these? Well, yeah, that's where it really gets interesting because in the U.S. now is so sort of desperate to source production in the U.S. that it actually classifies Canadian critical minerals companies essentially as American. So it's all like North American. We'd much rather get their lithium from a Canadian company than have to depend on China basically.

Just lastly here, Niall, coming back to the letter grade that you gave Canada at the start, what can Canada do to improve its C grade? Yeah, so there's a few obvious things for sure. And the government and other regulators admit this, that red tape in the mining industry is kind of a disaster. So things need to move faster. For example, currently when a mine is permitted in Ontario, for example, you have provincial environmental studies that are done, federal environmental studies that are done. There's a lot of overlap in what those studies look at. So people are looking for duplication to be eliminated and for studies to run concurrently as opposed to consecutively. There's also in Canada, as you know, this huge and important duty to run concurrently as opposed to consecutively.

There's also in Canada, as you know, this huge and important duty to consult with indigenous before getting mining projects off the ground. And historically, the mining industry doesn't really have a great track record, but it's doing a lot better. And every mining industry nowadays knows it has to consult and consult properly. But people are hoping that that process can be streamlined somehow, but that indigenous rights are respected. So there are definitely things that the government can do and Canada can do, but it's going to take

a while. And there are people skeptical that things will get better quickly. But I think people do expect the landscape to get better. And over time, Canada can probably work itself up from that C, C plus grade to maybe a B. Interesting. Niall, thank you so much for taking the time to speak to me today about this. Well, thanks for your interest, Manika. That's it for today. I'm Manika Raman-Wilms. Our producers are Madeline White, Cheryl Sutherland, and Rachel Levy-McLaughlin. David Crosby edits the show, Kasia Mihailovic is our senior producer, and Angela Pichenza is our executive editor. Thanks so much for listening,

and I'll talk to you tomorrow.