Government and industry push to make Canada preferred supplier in critical minerals market dominated by China

This is the first part of a two-part story about Canada’s efforts to become a supplier of choice for strategic critical minerals, including rare earth elements. Part 1 looks at what will be required to attain this goal and current federal initiatives. Part 2, to be published June 30, will examine key projects underway as well as provincial activities.

For more information, read our backgrounder on critical minerals and why they are becoming increasingly important worldwide for producing clean technologies.

The public and private sectors are ramping up investment in R&D, mining projects and processing facilities in a drive to make Canada a low-carbon, responsible supplier of critical minerals, including rare earth elements.

Canada already produces several critical minerals. But when it comes to rare earths, there is no Canadian mine yet producing rare earth concentrate from raw ore, or a facility to process that concentrate.

The country is taking the steps necessary to grow the supply chain of critical minerals it already supplies to the world, industry executives and academic and government researchers told Research Money.

However, establishing a domestic rare earths industry will take a focused national industrial strategy, much greater private investment and capital spending, intensified R&D and technology commercialization, and supportive government policies and incentives, they said in a series of interviews.

“This is a tremendous opportunity for Canada. But it needs a coordinated approach, it needs government support in terms of some of the R&D,” said Ian London, executive director of the Canadian Critical Minerals & Materials Alliance (C2M2A), an industry-led multi-stakeholder network.

Canada does have all the components necessary to establish a complete supply chain for rare earths, he said. This includes the mineral deposits and mining expertise in the upstream part of the chain, the metallurgical and other processing capabilities in the midstream, and the advanced manufacturing facilities to make products in the downstream.

But Canada will never be able to compete in rare earths with China strictly on a cost-of-production basis, said Janice Zinck, director of green mining innovation at Natural Resources Canada (NRCan).

Cheap labour and state-subsidized mines and processing facilities have enabled China to control more than 60 percent of the global market for rare earth concentrates and 90 percent of the market for rare earth products, such as permanent magnets used in electric vehicle motors, headphones, missile guidance systems and many other technologies.

Nevertheless, “I think Canada has a lot to offer,” including a very high standard of performance on environmental, social and governance issues, Zinck said. “We could be certainly a very responsible supplier and one that I think could be competitive [on that basis].”

Competing with China requires policy intervention: Mining Association of Canada

China’s monopoly-like control of the global market for rare earth materials has discouraged investment in rare earth projects in Canada, said Brendan Marshall, vice-president, economic and northern affairs at the Mining Association of Canada (MAC).

“It takes a certain set or type of policy decisions that would create a kind of insulation from Chinese intervention to allow some of these projects to develop and for a supply chain to take shape,” Marshall said.

MAC advocates the formation of an interdepartmental joint government-industry group to advance work on whole-of-supply-chain approach to critical minerals, including rare earths. The industry association also has called for substantial federal funding, such as a five-year, $250-million program, to de-risk the critical minerals supply chain by advancing pilot and demonstration projects.

The federal government should work with provincial, territorial and Indigenous governments and research and education institutions to develop a strategy, with predictable funding, for developing Canada’s critical minerals industry, the Parliamentary Standing Committee on Natural Resources recommended in a report released earlier this month.

Ottawa and those partners need to support development of value-added processing in Canada to increase the number of markets for critical minerals in the country and build a domestic industry and expertise, the report recommended.

Significant federal investments made in critical minerals

Unlike with rare earths, Canada already produces several of the 31 critical minerals on a list compiled by NRCan.

The federal government is developing a critical minerals strategy, which includes establishing and growing a domestic battery electric vehicle supply chain that requires critical minerals such as battery-grade nickel, cobalt, lithium and graphite.

Budget 2021 allocated $9.6 million over three years to establish a Critical Battery Minerals Centre of Excellence, which will be led by NRCan and focus on coordinating federal policy and programs on critical minerals.

Apart from Budget 2021, the federal and Quebec governments have jointly invested $100 million in Lion Electric’s planned electric vehicle (EV) battery back assembly plant north of Montreal. Ottawa and the Ontario government have jointly invested $590 million in Ford Motor Co.’s upgrade of its Oakville assembly plant to make electric vehicles.

Given those investments, government should require all auto manufacturers in Ontario to use at least 50 percent of Canadian-produced critical minerals in EVs, suggested London, who co-chairs Canada’s Rare Earth R&D Initiative. Those automakers now rely heavily on Chinese companies to supply batteries and raw materials such as nickel and cobalt.

Related: Why demand for critical minerals is expected to skyrocket in the coming decades

Canada’s advanced manufacturing facilities also need to be part of the supply chain that makes end-use components, such as EV batteries, permanent magnets and micro-motors for EVs, rather than simply supplying critical minerals to the U.S. and other countries to make these components, London said.

Budget 2021 expanded funding for the Strategic Innovation Fund’s Net Zero Accelerator to $8 billion, with one of the fund’s priorities being to establish a battery electric vehicle (BEV) supply chain in Canada.

“It’s our understanding that about $2 billion of that $8 billion is allocated to that BEV supply chain objective,” said Marshall of the Mining Association of Canada.

Budget 2021 also earmarked $36.8 million over three years for federal research and development, including to advance critical battery mineral processing and refining expertise.

Some of that funding also will be spent on advancing NRCan’s work on the potential for extracting and recycling critical minerals, including rare earths, from secondary sources in Canada that range from mine tailings and other waste streams to post-consumer products such as smartphones, televisions and computers, said Zinck at NRCan.

Compared with mining critical minerals from raw ore, secondary sources offer potential advantages such as reduced cost, lower energy inputs and a more rapid route to production, she said.

NRCan’s new research program will continue to focus on a made-in-Canada approach to reduce the cost and environmental impacts of extracting and processing critical minerals, Zinck said. “We need to work on how we can be the lowest net-carbon producer. That’s how we need to compete.”

Finding commercially viable rare earth deposits is crucial

At the international level, Canada and the U.S. have signed a joint action plan on critical minerals, including rare earths. The plan calls for increased cooperation and collaboration on developing supply chains, R&D and support for industry.

The plan is a “whole-of-government” effort for Canada, with participants from NRCan, Global Affairs, Environment and Climate Change, Public Safety and other federal departments.

However, Canada is not allocating sufficient human or financial sources on exploration projects to find commercially viable, high-grade rare earth deposits, Dr. Anton Chakhmouradian, PhD, a rare earths expert and professor of geology and minerology at the University of Manitoba, said in an interview.

It makes no sense for Canada to try to build an integrated whole supply chain for rare earths without having accessible upstream sources of ore deposits that can produce internationally competitive rare earth concentrates, he said.

“I think Canada should get into this game. But we should be a lot more serious about our place in this game,” Chakhmouradian said.

Based on publicly available information on Canada’s existing advanced-stage exploration projects, many of which are located in remote areas with no infrastructure, “I see no reasons for optimism, to be honest,” he said.

The Standing committee on Natural Resources' report recommended that Canada increase its capacity to carry out geoscience work, including effectively evaluating mineral resources and investing in transportation and communication infrastructure in remote and Northern regions to improve access to mineral resources.

Canada so far has created many more policy tools and incentives to potentially succeed in establishing and growing a critical minerals-based EV battery supply chain than it has for creating a rare earths supply chain, said Marshall at the Mining Association of Canada.

More government supports will be necessary to establish a domestic rare earths industry, Marshall said. “It’s unrealistic to expect that the private sector and market forces, independently of those [government] supports, are going to be enough.”

“None of this is going to be easy,” London said. “Canada has to get off our keisters and just get it done.”

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