Canadian Critical Minerals Money: Winners and Losers

The Canadian federal government announced on April 7, 2022 that a big sum of money has been allocated to be doled out to the Canadian critical minerals industry. As summarized by the Mining Association of Canada, approximately C$3.8 billion has been committed by the federal government to enhance the mining industry’s ability to provide the minerals and metals required to reach net-zero. This follows the 2021 Critical Minerals list from the government, made up of 31 different minerals including uranium and rare earth elements as well as battery minerals.

Who are the big winners? Hopefully the green energy transition (aka the environment). But the government emphasis is on critical minerals exploration companies, the mineral processors and material manufacturers as well as research and development into responsible extraction and processing.

Big Tax Credits

A big win for the exploration industry is the introduction of a new 30 per cent Critical Mineral Exploration Tax Credit for specified mineral exploration expenses incurred in Canada and renounced to flow-through share investors. This will apply to most critical materials, but is specifically directed to rare earth elements, uranium and battery metals among others.

Big Industry

There are more than 1,000 public mining and mineral exploration companies listed on the two main exchanges in Canada, operating in large areas of the country, including Ontario, Quebec, Saskatchewan and British Columbia. Many of them already mine or explore for minerals that are now considered “critical”.

There are also a number of uranium exploration and (fewer) production companies in Canada (mostly in Saskatchewan) but you can literally count on one or two hands the total number of rare earth element exploration companies in Canada. They should benefit the most.

Big Money

The federal government’s budget is a windfall for the mineral industry with $1.5 billion for new infrastructure investments to unlock new mineral projects in critical regions. Another $1.5 billion has been allocated to invest in new critical minerals projects, with a priority focus on mineral processing, materials manufacturing and recycling for key mineral and metal products in the battery and rare-earths supply chain.

And the winners are:

The Province of Saskatchewan. Saskatchewan is consistently ranked as one of (or the best) jurisdiction for mining in Canada and is #3 in the world, according to the Fraser Institute. The Saskatchewan Research Council (SRC) is building Canada’s first and only rare earth processing facility in Saskatoon, to be onstream in 2023 and 2024 and the SRC is a global leader in uranium technologies and testing. Also the only facility in Canada licensed to handle radioactive materials, new federal dollars for processing and manufacturing could easily be used to expand the existing SRC facilities to process more rare earth elements than the current design.

Saskatchewan critical minerals companies. The province supplies a large percentage of the world’s U3O8, with several uranium mines in production and more are planned – these should definitely benefit from the critical minerals funding as well as potential development of small modular nuclear reactors.

Of note is Appia Rare Earths & Uranium Corp’s Alces Lake critical rare earth elements discovery, just northeast of Uranium City in northern Saskatchewan. This has been called “potentially one of the best” critical rare earths projects in the world and the company has commenced its largest ever drilling in 2022. It has the benefit of being located in a great mining province which will soon have a rare earths processing facility in its backyard. There may be others in Saskatchewan (and Canada), but Appia has the unique potential to become a main supplier to the SRC processing facility in Saskatoon.

First Nations. Wherever exploration and extraction projects are located in Canada, typically they are mostly found in remote to semi-remote areas with limited infrastructure. Mineral exploration and production companies have been increasing their partnerships with First Nations and are looking to support them in developing industry and indigenous companies to aid in future development of projects in First Nation territory. The massive allocation of capital by the federal government could make this more possible and likely more successful. This would be an important milestone in the development of a First Nations industrial base.

Mineral exploration companies in Canada. The list of critical materials also includes a number of minerals that were not previously considered to be critical, including aluminum, copper, graphite, magnesium, nickel, PGMs etc. While the focus on critical minerals will drive capital towards their exploration and development, the world still needs base metals and everything else. Canada’s reputation for ethical extraction and a leading edge focus on environmental, social and governance (ESG) will serve the industry well.

Are there actually any losers?

This is a difficult question, as the unintended consequence of promoting a clean energy agenda is massive expenditures and associated costs. The biggest losers are probably consumers. If people want clean energy, they have to pay for the technology. Costs are going to go up.

Power supply concerns. It has been reported that there is not enough lithium in the world to meet a forecast massive (5+ times) increase in demand for lithium -ion batteries, despite a forecasted tripling of supply. Lithium-ion batteries wear out, so there is also a replacement issue, not just a new battery supply issue. Perhaps hydrogen fuel cells, used since the 1960s in outer space, could be an alternative source of portable power, but this technology for consumers is also in its infancy.

Motors and magnet concerns. China continues to control an estimated 90% of the global rare earth market and even if an alternative is found for battery storage, electric vehicles will still need permanent magnets in their drive motors – made from rare earth elements.  The world only meets current demand for permanent magnets with current supply. Demand for permanent magnets for EV motors and wind turbines in particular, is forecast to grow 5+ times by 2030. Supply is not yet available to meet forecast demand, therefore costs will go up.

Taxpayers. Hopefully, the latest federal government largesse will result in increased economic activity, which in turn should result in higher tax revenues. But a bigger issue has not been addressed and that is local infrastructure for EV charging. An average city block in an average Canadian city has 20-25 homes built on it. In that average city, the existing electrical infrastructure will only support 3-4 EV home charging stations before the local grid is maxed out. Who pays for that upgrade?

While the federal government may be on the right track, they are way behind and have yet to deliver a critical mineral strategy, despite talking about it for more than five years.

“We’re with the Government and we’re here to help.” When has that actually worked out?

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