Navdeep Bains: This is a pivotal moment for Canada to accelerate its critical minerals advantage

Developing the sector could vault Canada to the top in the global race to decarbonize and monetize the EV revolution

By Navdeep Bains

Canada is home to almost half of the world’s publicly listed mining and minerals exploration companies. PHOTO BY TYLER ANDERSON/NATIONAL POST FILES

When I started my career working at Ford Motor Co. in 2001, I thought it was an exciting time to be in the automotive industry. I could not have foreseen the exponential growth and change that would come to define it in the next 22 years. And it is not just the rapid technological changes, it is the geopoliticsm too. Canada’s automotive sector has long been a reliable source of quality jobs, but if Canada wants to continue to play, it needs to be bold, and that means finding its role in the critical mineral supply chains that will define the future.

According to BloombergNEF, half of global passenger-vehicle sales in 2035 will be electric and major companies like General Motors Co. and Volkswagen AG’s Audi have planned to entirely phase out internal combustion engines by around the same time. The International Energy Agency forecasts that by 2030, production of electric vehicles could reach 43 million units per year with production valued at more than US$567 billion. The lithium-ion battery is at the heart of this evolution. And for Canada, this presents an unparalleled opportunity to develop our abundant natural resources in a way that is environmentally sustainable and economically lucrative.

Earlier this month, the federal government published its long-awaited critical minerals strategy, an important blueprint for action amid an uncertain global economic environment. The government set out five areas for action and the strategy is a sensible approach to strengthening Canada’s already strong hand in the resource sector. Our natural resource wealth, scientific excellence and manufacturing skills are best in class. Mining is one of our most important sectors. We are home to almost half of the world’s publicly listed mining and minerals exploration companies with a combined market capitalization of $520 billion.

Our friends to the south are alive to these opportunities and are acting quickly. In the United States there are concerns that the lithium battery era could erode American leadership without aggressive government supports. President Joe Biden addressed the issue head on through the Inflation Reduction Act (IRA) and the CHIPS and Science Act.

The IRA includes a large tax break for any mining activity that helps accelerate the flow of essential minerals central to energy transition products such as electric vehicles. There are also new loan guarantees for specific projects and improved EV tax credits designed to require regional sourcing of critical minerals batteries. The Advanced Manufacturing Production Tax Credit (AMPTC) is an extremely generous provision for domestic manufacturing. Capital is fluid and it will flow to the U.S. if the opportunities are there. Hugely enticing, the AMPTC is a significant threat to Canadian production, and has already attracted Korean and Japanese companies to accelerate their operations in the U.S.

As I have said before, the speed and scale of President Biden’s clean energy tilt is likely to lead to discomfort in Canada. In November 2022, there were reports that the U.S. Department of Defense was willing to help fund feasibility studies for mining companies across North America with promising projects. The motives behind this are in part to tackle the scarcity of supply and pull back dominance in an industry that has largely been lost to China.

Canada must be vigilant however, to ensure that we grow our value-added capacity rather than be satisfied to be hewers of wood and drawers of water. The conditions and timeline for change are challenging given the battery industry largely operates in Asia. The domestic supply chain is in early development, and it is almost impossible for any one country to fully replace China’s dominance in EV raw materials. In fact, it could take a full decade to establish a new U.S.-based supply chain, including quantifying our reserves.

To reduce dependence on foreign markets and the opportunities and risks from the IRA, Canada’s critical minerals industry should leverage our legal, economic and financial stability, high environmental, social and governance standards, as well the significant involvement of Indigenous communities to position Canada for success.

There is a lot to unpack in the intersection between zero emission vehicles and sustainable mining. The critical minerals strategy should be welcomed by the sector and signals the government’s strong support for meaningful change. The strategy positions Canada as the global supplier of choice for critical minerals and clean technology. Its emphasis on building a strong and resilient ecosystem and supporting action from mines, to manufacturing to recycling is the right one. Yet without the requisite urgency, we may not be able to capitalize on our potential to lead in this space.

The following are five areas where the public and private sector can double down to support our industry, create high-quality jobs and meet our environmental obligations.

First, Canada needs to prioritize creating our own value chains, from getting the minerals out of the ground to creating refining capacity. Creating such mid-stream capacity will lock in the downstream value-added economic benefit that other countries have long understood. Such a move will also invariably increase the value of our upstream assets. To be successful, we need business to lead more than ever before with larger Canadian firms building new capacity among Canadian small and medium enterprises.

Second, the partnerships between the resource sector and Indigenous communities are growing but we have the potential to strengthen this critical set of partnerships and lead the world. Critical mineral supply chains can enhance economic partnerships and help provide meaningful opportunities to communities and Indigenous workers. Canada can serve as a model for responsible consent-based resource development.

Third, the federal government should revitalize fiscal tools in consultation with the industry, beginning with the evaluation of the tax changes in the U.S. There is a significant opportunity for the Strategic Innovation Fund to be a game changer in their support of critical minerals projects. Budget 2023 should include competitive adjustments to the Mineral Exploration Tax Credit, the flow-through share system and measures to compete with the U.S. Advanced Manufacturing Production Tax Credit. Quebec has some interesting examples here, from the use of super flow-through shares to the role of Investissement Québec in spurring mining competitiveness.

Fourth, as the new strategy recognizes, there is an urgent need for a modern and enabling regulatory system, with outcomes-driven, flexible and predictable regulations that drive innovation and technology adoption. Business needs certainty. The current timelines for permitting are unacceptable. Federal and provincial governments should be working in sync to ensure they limit duplication of effort and ensure strong inter-provincial co-ordination to maximize impact and present a Team Canada approach with international investors. In my experience, it will take a special effort for officials and policymakers to respond urgently to the priorities of the critical mineral strategy without sacrificing environmental scrutiny and accountability, and to look beyond their traditional narrower regulatory and political interests. Frustrated companies despair at the different levels of government they need to navigate to make things happen.

And finally, we cannot grow our competitive advantage if our companies are not protecting all their assets and ideas. That means giving extra support and incentives towards the development and protection of the intellectual property and data generated by Canadian companies, especially in exploration and environmental technologies.

Canada has a generational opportunity to sustainably and responsibly develop its critical minerals sector. This can vault Canada to the top in the global race to decarbonize and monetize the electric vehicle revolution. This is not the time to take our foot off the accelerator.

Navdeep Bains is the vice-chair of global investment banking for CIBC. He was one of the longest-serving federal ministers of innovation, science and industry.

Source: Financial Post