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President Joe Biden hosts a virtual roundtable on securing critical minerals at the White House in Washington, U.S., February 22, 2022.
Digging deep: US military buys into Canadian mining
The US military is sinking nearly $15 million into the Canadian mining sector through the Defense Production Act in what is believed to be the first time in the DPA’s 74-year history that the US has used such funds outside the country.
Why? Both Canada and the US have gone all-in on critical minerals in recent years amid growing tensions and anxiety over China and its control of strategic supply chains.
The joint investment with the Canadian government, part of the US-Canadian Joint Action Plan on Critical Minerals, covers projects for critical minerals essential to key industries including energy, communications, and defense. These include copper, gold, graphite, and cobalt in Quebec and the Northwest Territories.
For its part, China is watching closely – while still investing its own capital into the Canadian mining sector.
U.S. President Joe Biden speaks during a virtual roundtable on securing critical minerals at the White House in Washington, U.S., February 22, 2022.
US and Canada strike up first critical minerals partnership
Speaking of China,the US and Canada are taking their efforts to compete with Beijing underground – literally. The Pentagon on Thursday announced it would invest $15 million in two early-stage mines in Canada looking to dig for “critical minerals” that are considered essential for national security.
The Canadian government will pony up a similar amount for the project, which represents the first US-Canada tag team of its kind. The two projects will focus on cobalt and graphite, critical components in solar power batteries and other fuel cells which are at the heart of the green energy transition.
China is the world’s leading miner of graphite and dominates the global cobalt industry through its control over the sector in the Democratic Republic of Congo, the world’s largest producer.
The American money for the two Canadian mines comes under the Defense Production Act, a tool from the early days of the Cold War that enables the president to expedite the funding or production of industries deemed essential for national security.
The small print? Governments were the only option. The mining companies weren’t able to raise money for these projects on traditional capital markets, because the prospects are at such an early stage that they can’t be proven.
Artistic rendering of Canada with periodic table of critical minerals
Why Biden and Trudeau struggle to deliver critical minerals
When Canadian Natural Resources Minister Jonathan Wilkinson unveiled Canada’s critical minerals strategy last year, he emphasized the crucial link between building mines and reducing carbon emissions.
“It cannot take us 12 to 15 years to open a mine in this country,” he said. “Not if we want to achieve our climate goals.”
In fact, though, Wilkinson was understating the problem. According to S&P Global Market Intelligence, the average turnaround time for opening a mine in Canada — from discovery to production — is nearly 18 years. Things are not that much faster in the United States, where the average is 13 years.
President Joe Biden and Prime Minister Justin Trudeau are pushing hard for a green transition — a generational shift away from fossil fuels to cut the emissions that cause climate change. But their plans depend on lots of new mines, and in both countries, there are complex, unpredictable regulatory processes that stand between venture capitalists and ore production. Those processes are designed to protect the environment and Indigenous communities, but they are also standing in the way of the production of the key ingredients in batteries, electric vehicles, and clean-energy grids — copper, nickel, lithium, graphite, cobalt, and rare earth elements.
Where are the permits?
Biden and Trudeau have promised to tackle the problem, and both have taken steps to make it easier. But they don’t control all the levers, and there is little reason to hope that the lead-up times will be shortened quickly enough to allow for the ramp-up in production that experts say we need to allow both economies to shift away from fossil fuels.
The amount of minerals the world will require to make that shift is enormous. If the world is serious about reaching its climate goals — reaching carbon zero by 2050 — many vast mines will have to start producing billions of tons of copper, lithium, and other minerals from the ground — six times more production than is currently taking place. Green technology — solar panels, batteries, windmills — requires a lot more minerals than traditional energy technology. There is zero debate about the benefits of switching — no matter what politicians and fossil fuel lobbyists say about windmills killing birds — but there will have to be a lot of big holes dug in the ground. These holes will do significant damage to ecosystems, and communities will oppose them, threatening the transition.
Relying on a risky ring
Consider the “Ring of Fire,” a vast area of mineral deposits under the peat bogs of Northern Ontario. More than 26,000 claims have been staked in the ring-shaped area where volcanic deposits contain rich veins of platinum, palladium, copper, nickel, gold, cobalt, and chromite worth tens of billions of dollars – if it can be mined. But as the Wall Street Journal explained this week, that is no sure thing.
Indigenous communities are divided. Some want the development and opportunities that the mines could bring, while others are horrified by the prospect of a big new mining road going through, disrupting delicate northern ecosystems, and releasing large amounts of carbon locked in the peat.
In Canada, courts can kill projects if the proponents fail to consult sufficiently with Indigenous communities.
Proponents do not always do a good job on consultations, and it is also not always clear who has to be consulted. A gas pipeline in British Columbia ran into unexpected problems, for instance, when a judge ruled that hereditary chiefs, not just elected chiefs, have a legal right to be consulted about developments on their territory.
Also, Canada has committed to implementing the UN Declaration on the Rights of Indigenous Peoples, which is expected to give Indigenous opponents of projects new arguments to make in court.
“From a proponent’s perspective, when they look at Canada and want to invest in Canada, that is a huge risk,” says Heather Exner-Pirot, director of Natural Resources, Energy and Environment for the Macdonald-Laurier Institute.
“It's very uncertain,” says Exner-Pirot, “and proponents don’t like that.”
Cutting through the red tape is not an easy task
Canada has promised to unveil a plan this year to make the regulatory process smoother. Biden, meanwhile, has thrown his support behind efforts in the United States to reform permitting processes.
Beyond that, both countries are offering financial incentives, but regulatory processes have not gotten easier – and they may not.
“A lot of what the federal government does is fairly schizophrenic,” says Ian Lange, program director for Mineral and Energy Economics at the Colorado School of Mines. “Everyone has their own little fiefdom that they can affect. And so they might try. But, you know, the real changes have to come with legislative changes.”
When Biden visited Ottawa in March, he and Trudeau promised to take steps toward “reliable and sustainable critical mineral supply chains,” but it is not clear that either can deliver.
“We have a tightly divided Congress, and Canada has a minority government, that's a reflection of the same grumpy-electorate kind of vibe, where they're not really happy with where things are going,” says Christopher Sands, director of the Wilson Center's Canada Institute. “But that undermines the political capital on either side of Trudeau, who has been in office for a long time, and Biden, who I think has some struggles on his popularity front.”
But neither country can proceed with the transition away from fossil fuels without vastly bigger supplies of minerals, and that won’t happen unless investors decide to put their money down.
“Here's the thing about mines, they are very slow money,” says Exner-Pirot. “So you're putting up billions of dollars up front, before a single ounce of ore is ever taken out, and you get your money back. And now with interest rates, it's very expensive to wait 14 years of putting in money and the cost of capital on that before you get any kind of return on investment.”
“You're talking about millions and millions of dollars, so the timelines need to be shortened.”
Greenpeace activists hold a protest demanding an end to deep-sea mining in Prague, Czech Republic.
Jamaica hosts deep-sea mining talks
Who lives in a pineapple under the sea?
Nauru wants to find out. The tiny Pacific island nation is trying to convince the global community to grant it permission to mine precious metals hidden deep beneath the oceans.
Starting on Monday, representatives from 168 countries will gather in the Jamaican capital of Kingston for at least three weeks of UN-hosted talks about whether to allow deep-sea mining in international waters. The meeting was triggered by the expiration of a two-year moratorium on the practice after Nauru filed in 2021 the first-ever application for a commercial license to harvest rocks containing metals like cobalt or copper.
There are two fiercely opposed geopolitical camps. On one side, France, Germany, and Chile are leading the charge for a pause on mining the seafloor until scientists better understand the risk to the marine ecosystem. On the other, China, Russia, South Korea and (!) Norway believe that deep-sea mining is fair game to find metals to power green tech.
Environmentalists fear that anything short of a new ban will cause irreparable damage to a part of the planet that's been less explored than the moon. But pro-mining countries argue that the world can no longer rely exclusively on unstable sources like the Democratic Republic of Congo, which produces 70% of the world's cobalt. And of course, China is keen to further dominate the global supply of rare-earth minerals.
What do you think? Let us know here.Canadian Prime Minister Justin Trudeau arrives at Hiroshima Airport in Japan.
Ahead of G-7, Canada seeks cooperation in Asia
Trudeau landed in Hiroshima on Thursday to discuss global security, economic resilience, climate change, and energy with the other G-7 leaders. As in South Korea, Canada’s top business priority is likely to be seeking markets for critical minerals.
While Trudeau is there, he may seek a quiet word with allies about AUKUS – the Indo-Pacific security alliance between Australia, the United Kingdom, and the United States — which Canada appears to want to be part of after all.
Trudeau will see Joe Biden in Hiroshima, but the U.S. president is expected to fly home early in an effort to reach a debt-ceiling deal. The wrangling at home forced Biden to cancel a planned trip this week to Australia and Papua New Guinea, where he was to meet with the other leaders of the Quad from Australia, Japan, and India. The Quad aims to counter China's rising influence in the Indo-Pacific, so abruptly bowing out sent mixed messages about US priorities in the Asia-Pacific – and, since China is no fan of the Quad, likely pleased Xi Jinping. In fact, the Sydney Morning Herald declared the last-minute cancellation a gift to Beijing.A Canadian soldier holds a flag as they wait for the arrival of PM Justin Trudeau along with NATO Secretary-General Jens Stoltenberg in Adazi, Latvia.
What We’re Watching: NATO (still) wants Canada to pay up, critical mineral gold rush, a tale of two banks
Canada is a NATO laggard – but it’s far from alone
The aging defense league is finding a new raison d’etre battling Russian aggression in Ukraine. But Canada still falls short of the 2% GDP military spending goal that NATO Secretary General Jens Stoltenberg recently said is set “not as a ceiling but a floor, a minimum, that we should all meet.”
A recent NATO report estimates that Canada’s share of defense spending declined against its GDP to 1.27% in 2022, down from 1.32% in 2021 and well shy of the 2% target. Several members spend less than the target, but Canada falls toward the mid-to-bottom of that list.
In 2022, the US topped the list at 3.47% of GDP. The US routinely nudges Canada to spend more on defense. Last month, its ambassador to Canada said he was “hopeful” the country would hit the NATO target.
Canada has no plan to reach the 2% target, and its latest budget is still light on defense spending. But the government does tout that it has the sixth-largest NATO defense budget and is a top contributor to the alliance’s common fund. Canada also spent billions on new fighter jets and is making investments in northern and continental defense. NATO doesn’t penalize states that don’t hit the 2% target – and it’s hard to imagine Canada getting thrown out of the club, so all it can do is name and shame in the hope that Canada starts to pull its weight.
Betting on critical minerals
If you don’t know the term “critical minerals,” it’s time to learn. You’re going to hear it a lot in the years ahead. These are minerals of strategic value to a country’s economic health and security. Both Canada and the US use that definition, but the Canucks add a flourish, referring to them as “the building blocks for the future of our green and digital economy.”
They include copper, graphite, cobalt, lithium, and several others necessary for building and operating a contemporary economy. They power everything, from transportation and energy to digital infrastructure and the so-called “green economy.”
Canada is full of critical minerals. Several provinces and territories are mined for cobalt and copper. Saskatchewan is home to uranium and potash, there’s graphite in Ontario and Quebec, and fluorspar in Newfoundland and Labrador. Experts say the capital-intensive mining industry needs and expects (!) subsidies to extract them. The government’s critical mineral strategy will offer some. PM Trudeau’s March budget included an investment tax credit for critical mineral exploration and investor subsidies.
In the US, meanwhile, the Inflation Reduction Act includes critical mineral measures, such as billions in federal loan money, as well as its own tax credits.
The need for critical minerals is booming on both sides of the border – as is trade. In 2020, mineral trade between the US and Canada hit nearly $96 billion, and by 2030, global mineral trade is estimated to hit $567 billion.
Will Canada and the US hit a recession?
Both the Bank of Canada and the Fed are prepped, but the Northern neighbor is more optimistic than the Southern one. On Wednesday, the Bank of Canada held its interest rate at 4.5%, a move it had signaled for some time. The bank says a soft landing has become more likely as it expects Canada to avoid a recession over the next three years while inflation slows and moves toward the 2% target — though it is still a long way off. The upshot? The economy may be edging back toward a pre-pandemic “normal.” But, warns Bank Governor Tiff Macklem, the current restrictive monetary policy may need to stay in place a while longer. Still, by the gloomy climate standards, that’s pretty darn optimistic.
The US Federal Reserve, meanwhile, is grouchy. It hiked its rate from 4.75% to 5% in March, its ninth consecutive increase. On Wednesday, the US Bureau of Labor Statistics released a report showing that inflation fell to 5%, with core inflation at 5.6%. That’s good news, but it’s unlikely to change the Fed’s course, and another rate hike is expected in May.
So, watch your banks and your dollars for signs of recession. And even if Canada is optimistic, the US pessimism will likely put downward pressure on the Canadian dollar, particularly if Canadian rates remain steady. A weaker Canadian dollar means more expensive imports from the US. But the loonie notably held its own on Wednesday.
What does it all mean in the big picture? Cooling inflation rates in the US, Canada, and Europe offer hope that the rate-hike cycle could soon end. But the UK saw an unexpected inflation jump in mid-March, a reminder to temper — or deflate – expectations.
Podcast: How healthy is the US-Canada relationship?
Listen: On the GZERO World podcast, Ian Bremmer delves into the current status of the US-Canada relationship. In a nutshell: it's going well — definitely a lot better than under Donald Trump — but not all smooth sailing.
Ian interviews the ambassadors of both countries, David Cohen (US Ambassador to Canada) and Kirsten Hillman (Canadian Ambassador to the US), about what brings the two countries together and the challenges that trigger political division. He also chats with Anita Anand, Canada's defense minister, about a variety of national security challenges, from Chinese spy balloons to ... TikTok.
Subscribe to the GZERO World Podcast on Apple Podcasts, Spotify, Stitcher, or your preferred podcast platform, to receive new episodes as soon as they're published.- Will US-Canada border deal mean riskier future for migrants? ›
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Canada has lower risk appetite than the US, says think tank chief
At the US-Canada Summit in Toronto, GZERO's Tony Maciulis asks Chris Sands, head of the Wilson Center's Canada Institute, for his biggest takeaway from the recent meeting between US President Joe Biden and Canadian PM Justin Trudeau.
Sands also has some thoughts on the most pressing issues in the US-Canada relationship, especially migration. And he offers his take on why one-third of Canadians now think that bilateral ties are getting worse.
Finally, do Canadians care about former US President Donald Trump getting indicted?
For more, sign up for GZERO North, the new weekly newsletter that gives you an insider’s guide to the world’s most important and under-covered trading relationship, US and Canada.
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