Good News Bad News for Critical Minerals

In early November just after the election, I joined the Hudson Institute and Macdonald Laurier Institute to talk about US-Canada Energy supply chains. At the time, the degree of tariff threats and annexation seemed hard to fathom. Nonetheless it seems worthwhile to share.

I focused my remarks on critical mineral supply chains, a segment of the energy sector which has been a priority for both the US and Canada and many countries and which they have been trying to work on together, bilaterally and with a group of like minded countries via the mineral securities partnership. Critical minerals encompass over 40 minerals in several buckets – those used for battery chemistries, those key in the power sector, many used in military technologies. They vary from some very actively traded ones like Copper and Nickel, to lightly traded ones like gallium and Germanium, which are used in semiconductor supply chains. 

The problem – China dominates these supply chains especially the processing – accounting for 70-90% of many processing.

The good news: More Focus

Canada and the US have woken up to the importance of these supply chains. For many years only the military focused on these supply chains, especially for the very rare metals. Many government departments, states and provinces are all interested in the area and trying to prioritize investments. 

Plenty of brownfield investments old mining sites which may have connectors – roads, infrastructure. New mines promising but have longer building times – decades long.

Government incentives including funding from Dod and attempts to create new supply chains 

Greater recognition of the importance of permitting reform.

Chinese export bans and export licensing restrictions (on graphite, gallium, Germanium) encourage this. Can’t trust Chinese supplies. 

Pilot projects under way on the processing side (private companies, University of Saskatchewan) new investment in mining operations. USG funding via Dod and others as well as on mining. There is an Iterative process in learning about where government will continue to provide support via the 45X tax credit which helps write off domestic processing and mining costs. This was recently expanded

Investment from large energy companies like Exxon (lithium in Arkansas). Some investment from OEMs, that use the materials.

Efforts via the Mineral security partnership to invest collectively in other counties. 

the bad news:

Temporal and price issues. Long-term demand may be high, but short-term demand is sluggish for many. Current prices make it difficult to justify investments especially in context of policy volatility.  

China still controls supply chains and ample supply, sluggish global demand has sent prices falling sharply for some commodities especially battery metals. Some projects like lithium carbonate mines 

Government funds had been focused on large splashy last mile projects like battery plants adjoining auto plants. Less money on mining, mining facilitating/processing. 

Developing new tools, with safety standards is costly. 

More competition from other buyers not just China but also KSA and UAE.  

Risks from export control and tariff considerations. 

what’s to be done. 

Coordination and prioritization – create one stop shops in Canada and US, some can be at sub-national level. Coordinate lists of minerals and coordinate incentives. consolidate the parts of the US government that have oversight (there is a bill in Congress to do just that.

Permitting reform and other efforts to ease permitting issues and make it clear which projects will go ahead.

Clarity on policy, will incentives disappear? The current trajectory suggests that demand subsidies will be reduced via loss of IRA tax credits. This could shift focus back towards supplies needed for power infrastructure and defense.

Financial infrastructure – making markets and developing markets. Many of these commodities lightly traded or are only physically settled. Developing these markets could help hedging and could provide a space for a financial strategic metal reserve. But… many questions about which minerals and which stage of production. I have some work coming out on this.

Consistent guidance on regulatory environment so businesses can safely invest through the cycle.

Clarity on how the sector and rest of energy sector might be affected by tariffs. Coordinate tariffs and other incentives with policy goals. 

Have to make choices – can we compete on all areas? 

Create a platform for trade and investment with third countries. This includes countries that want to move up value chain themselves. (Chile, Namibia etc). This shift is coming at a time when many countries want to be more involved in processing. 

Invest in recycling, reusing also and basic innovation.