Canada wants to be a global leader in critical minerals. Why is Australia eating our lunch?

At the world’s biggest mining conference in Toronto earlier this year, two federal cabinet ministers engaged in a public discussion about Canada’s critical minerals industry. Conspicuously absent from the conversation was any Canadian mining company.

Instead, Industry Minister François-Philippe Champagne and Natural Resources Minister Jonathan Wilkinson chatted amiably with Jakob Stausholm, chief executive officer of Rio Tinto PLC, a giant British-Australian multinational. Mr. Stausholm played up Rio’s Canadian credentials and trumpeted that it is the biggest mining company in Canada.

Mr. Champagne, in turn, plugged Rio’s efforts to make green aluminum. Ottawa has been a big supporter of Rio, providing hundreds of millions in funding to decarbonize its aluminum, steel and titanium operations. The subtext from the conversation was clear: A giant foreign company is the modern-day poster child for the Canadian mining industry.

Mission Critical: Why The Globe is digging deep on critical minerals

Canada’s politicians talk a big game in critical minerals, but the list of domestic companies benefiting from the mining or refining of energy transition metals such as nickel, cobalt, lithium and aluminum is short.

While Canada has made strides in building out its electric battery manufacturing infrastructure, there are few Canadian companies who mine or refine the materials needed for these factories.

Two decades ago, the power players in these metals were Canadian champions: Alcan Inc., Falconbridge Ltd., Noranda Inc. and Inco Ltd. All have long since been swallowed up by foreign behemoths.

Canada’s biggest critical minerals miners

Canadian work force

Employees

Headquarters

Company

13,344

Britain/Aus.

Rio Tinto Group

9,315

Canada

Teck Resources

9,000

Switzerland

Glencore

7,599

Brazil

Vale

6,000

Canada

Nutrien

the globe and mail, Source: company disclosures

Canada’s biggest critical minerals miners

Canadian work force

Company

Employees

Headquarters

Rio Tinto Group

13,344

Britain/Aus.

Teck Resources

9,315

Canada

Glencore

9,000

Switzerland

Vale

7,599

Brazil

Nutrien

6,000

Canada

the globe and mail, Source: company disclosures

Canada’s biggest critical minerals miners

Canadian work force

Employees

Headquarters

Company

13,344

Britain/Australia

Rio Tinto Group

9,315

Canada

Teck Resources

9,000

Switzerland

Glencore

7,599

Brazil

Vale

6,000

Canada

Nutrien

the globe and mail, Source: company disclosures

Meantime, Teck Resources Ltd. TECK-B-T, one of the few Canadian stalwarts left, appears to be on borrowed time. The Vancouver-based miner, which dates back to 1913, is in the process of auctioning off its core metallurgical coal business, with Glencore PLC of Switzerland among the front-runners to buy it. Once Teck becomes a metals-only company, management has suggested that it too could be sold to a foreign multinational.

“The largest stock market in the world for minerals companies is the Toronto Stock Exchange, but none of the big guys are on it because we let them go,” said Pierre Lassonde, co-founder and chairman emeritus of mining royalty company Franco-Nevada Corp.

“We’ve hollowed out one of the key industries in Canada.”

In the absence of a homegrown industry, the federal and provincial governments now dole out tens of billions to foreign car companies such as Volkswagen and Stellantis NV to attract battery and electric vehicle investment into Canada. The Canadian critical minerals extraction industry appears to be going down a similar path, with foreign companies calling the shots and gobbling up much of the government funding.

While Canada’s federal and provincial governments have set aside billions in funding for Canadian critical minerals producers, the purses are a fraction of what those governments have doled out to the foreign automotive sector.

Mr. Wilkinson told The Globe and Mail earlier this year that Ottawa is prepared to buy equity stakes in the next generation of Canadian mining companies through the Canada Growth Fund. So far, that funding has not materialized.

Few countries have benefited as much as Australia from Canada’s laissez-faire policy around inbound foreign investment. Over the past decade and a half, Australian companies spent approximately US$52-billion buying Canadian miners, according to data from Refinitiv.

Rio’s US$38-billion purchase of Alcan in 2007 gave the Anglo-Australian company control of the Canadian aluminum industry. Sydney-based Evolution Mining dominates the legendary Red Lake gold district in Ontario after buying mines formerly owned by Goldcorp Inc. and others.

Wyloo Metals Pty Ltd., a Perth-based private equity company, which is controlled by Australian billionaire Andrew Forrest, last year acquired Noront Resources Ltd., the Canadian junior with the most promising critical minerals assets in Ontario’s Ring of Fire. Melbourne-based BHP Group Ltd. is building a potash mine in Saskatchewan, which is expected to be one of the biggest operations of its kind on the planet.

Australia has a virtual lock on the Canadian lithium industry. Earlier this year, Brisbane-based Sayona Mining Ltd. and North Carolina-based Piedmont Lithium Inc. started lithium production in Quebec, only the second such operation in the country.

In January, Galaxy Lithium, owned by Australia’s Allkem Ltd., received federal approval to build another Canadian lithium mine. Allkem will also soon acquire part ownership of the high-profile Nemaska Lithium project in Quebec, once a merger with U.S.-based chemicals company Livent Corp. closes.

Scores more Australian development companies are advancing early-stage lithium projects in Canada, all funded by willing investors in their home country.

“They’re able to come over to Canada and buy our companies for peanuts,” said Mr. Lassonde. “Their valuations are much better because they have great support.”

The situation on the ground is considerably grimmer for Canadian companies. Raising money here to fund drilling or a feasibility study is a difficult endeavour. Canadian exploration-stage companies tasked with finding the minerals that will supposedly power the green economy of the future are withering on the vine.

The S&P/TSX Venture Composite Index is down 84 per cent from its peak in 2007. Mining executives talk of historically low trading volumes, and lack of interest from Canadian investors.

“Australia beats us in everything. It beats us in soccer, in rugby, in swimming. I’ve got enough Aussie friends up here and I guess I’m tired of it,” said Doug Pollitt, veteran mining analyst with Toronto-based brokerage Pollitt & Co. “But we would beat them in mining. We were the global capital markets hub because we’re close to New York, we’re closer to London, and of late they’re just kicking our ass.”

Over the past year, Canada has taken steps to slow and halt China’s attempts to broaden its footprint in the Canadian critical minerals sector, but when it comes to allies such as Australia, it is very much an open-door policy. The zeitgeist is all about friend-shoring, which involves minimizing economic ties with hostile nations, but strengthening those with like-minded countries such as Australia.

“Many of the larger companies that operate in Canada are foreign-owned, and I think in the context of us trying to accelerate the development of critical minerals in this country, we need to continue to welcome foreign investment from friendly countries,” Mr. Wilkinson said in an interview.

“We’re quite happy to see the Australians, and the Americans, and the British making investments in this country.”

Gordon Laxer, emeritus political economy professor, University of Alberta, and founding director of the non-partisan Parkland Institute, said that the federal government’s open-door policy toward foreign investment in mining has gone too far.

“There’s a problem with this whole idea of friend-shoring,” said Mr. Laxer. “With friend-shoring, today’s friend could be tomorrow’s enemy.”

He cites Canada’s fluctuating relationship with the United States which swung rapidly from favourable to testy under the Donald Trump presidency, and could flip again if Mr. Trump is re-elected in 2024.

Similarly, relations with Brazil, the home of Vale SA, which bought Inco in 2006, have waxed and waned over the years, particularly when Jair Bolsonaro, a right-wing nationalist, was president, from 2019 to 2022.

And just last month, Indo-Canadian relations plummeted after Prime Minister Justin Trudeau accused India of being behind the killing of a Canadian citizen on Canadian soil.

“We should be thinking more about more self-reliance,” Mr. Laxer said. “We should be making more strategic materials and sourcing them in this country. And it matters whether you’ve got a Canadian-owned company or not.”

There’s a world of difference, he adds, between a Canadian-domiciled mining company such as Teck, which has a large head office in Vancouver, and research and development facilities across the country, and a large multinational that is headquartered abroad, does all its R&D overseas, but might have a token branch office in Toronto or Vancouver.

“They may pretend they’re Canadians, but of course, they’re not,” he said. “They may have different interests.”

But keeping the mining industry in Canadian hands won’t be easy without support from investors. At the top of the investor food chain, Canadian pension funds don’t offer much support. For starters, 86 per cent of the assets the Canada Pension Plan Investment Board has under management are outside Canada. According to its most recent disclosure, CPPIB had $823-million invested in Canadian mining stocks, a rounding error in a $575-billion fund.

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“Every time you talk to them, what they will say to you is very simple, is that our mandate is to maximize shareholder value, and we’re agnostic,” said Mr. Lassonde. “Well, you know what? That’s a soulless statement where nothing about Canada is said, nothing about the fact that, you know, every single pensioner they represent is Canadian. And where are the jobs that they’re creating? They’re not in Canada, they’re somewhere else in the world.”

“When you talk to them about that,” Mr. Lassonde said, “ ‘Well, that’s not our problem.’ I find that revolting, to be honest with you.”

Mr. Lassonde believes that CPPIB’s sparse holdings in Teck Resources directly contributed to the company’s restructuring plan failing in a shareholder vote earlier this year. CPPIB voted for the restructuring, but had little influence over the outcome because its $70-million investment in Teck was insignificant.

On the other hand, Teck’s biggest shareholder, state-owned China Investment Corp., voted against the restructuring. Its Teck holdings are worth approximately $2.2-billion.

Michel Leduc, spokesperson with CPPIB, in an e-mail to The Globe, defended the fund’s approach to mining investment and its Canadian holdings. He said that CPPIB is exposed to massive demographic and economic headwinds, and it must apply the “prudent person principle,” a legal principle that prevents it from taking on excessive risk.

Diversifying the fund to address concentration risk is essential to protecting Canadians, he added. Far from being underinvested in Canada, Mr. Leduc argues that for a globally diversified institutional investor, a 14-per-cent weighting in Canada is significant, given that the country represents less than three per cent of global gross domestic product.

In Australia, the situation is very different. There, pension funds are fervently patriotic, and sometimes criticized for having too much money tied up in their own country. While Australian pension funds have started broadening their exposure to international investments, most are still heavily invested at home and wear their nationalism on their sleeves.

“They just habitually did not venture offshore. They have built up a very large stake in Australian companies, including specifically miners,” said, David Friedlander, chairman, Australia with law firm King & Wood Mallesons. “There is no doubt that they’re both nationalistic and protective of Australian jobs. It’s in their psyche.”

When it comes to policing foreign investments into its mining sector, and rejecting many of them, Australia has a tougher reputation than Canada.

“The Foreign Investment Review Board has been more intrusive than Investment Canada over the years,” Mr. Friedlander said. “It has said ‘no’ more frequently.”

Australia has the power to review all foreign investments for up to 10 years, a power that Canada does not have. This applies even to tiny investments made by prospectors who are exploring for minerals in Australia. While Ottawa has some leeway to review such investments, the prospecting system is administered by the provinces, so there’s no practical way to police the sector.

Additionally, Australia has a “last resort” power that allows the treasurer to turn back the clock and order divestment in cases in which prior approval for an acquisition had been given. Malcolm Brennan, partner with King & Wood Mallesons, likens this extraordinary power to “a sword of Damocles hanging over your head: If you don’t comply, then this is going to come crashing down on you.”

Australian investors not only support their biggest mining companies, but also exploration-stage companies, the beating heart of the industry. And those investors are providing a lifeline to Canadian companies that can’t raise money at home.

Toronto-based critical minerals and gold exploration company Resouro Gold Inc. RAU-X went public last year on the TSX Venture Exchange, but the company’s shares barely traded because of little or no demand from Canadian investors.

“I went to this year’s PDAC [Prospectors & Developers Association of Canada annual convention] and spent two weeks trying to get people interested in a financing to keep the company alive, but didn’t get any interest,” said Christopher Eager, chief executive of Resouro. “I went to Sydney and closed an oversubscribed capital raising in two days, and then went on to do a second and third capital raising at higher prices.”

Among the investors was Australian institution Regal Funds Management, which has about US$6-billion under management. Owing to the sudden interest from investors, Resouro’s share price shot up 300 per cent.

The company is hoping to develop a titanium and rare earths project in Brazil, and it is now pursuing a listing on the Australia Securities Exchange to cater to its new investor base. If liquidity doesn’t pick up in Canada, Mr. Eager says he’ll likely delist the company entirely in this country.

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There are myriad reasons for the lack of funding available for Canadian exploration-stage companies, he says. The cannabis sector, which soared before the legalization of recreational marijuana in 2018, then crashed soon afterward, sucked much of the risk capital out of the market.

But the slow-burn decline of Canadian independent broker-dealers over the past decade has also been devastating for small mining companies, which traditionally depended on those dealers for support. The bigger brokerages and bank-owned dealers left standing do not generally service small-cap companies. Most Canadian brokers these days won’t touch financing if it’s below $10-million, leaving many mining development companies with few options.

Tightening compliance standards in the brokerage industry since the financial crisis of 2008 are also having an impact. Even for clients willing to put money into early-stage mining companies, compliance departments within brokerages won’t always allow it.

The “know your product” rule means that brokers fielding enquiries about small mining companies must know the proposed investment inside and out before they can sign off on it. It’s a compliance liability that few brokers are willing to take on anymore.

Instead, investors are increasingly being encouraged by brokers to put their money into safe model portfolios that may consist of a suite of mutual funds and bonds run by a big bank.

“Small brokers have been bought by big brokers, and big brokers don’t like to put their clients into more speculative stocks,” said Mr. Eager. “Small brokers have also been bought by banks, which is even worse, because then compliance becomes a big issue.”

Norman MacDonald, partner, natural resources with Fort Capital, used to work in Canadian institutional money management, but left the industry disillusioned by the lack of support for resource companies.

Lost in the rhetoric about environmental, social and governance concerns over mining, Mr. MacDonald says, is how vital the industry is to our modern way of life. From the cars we drive, to the smartphones we are addicted to, to the cutlery we eat with, to the houses we live in – all depend on mined materials. He acknowledges that mining is a dirty business, but instead of villainizing it, people need to look in the mirror and educate themselves.

“I’m originally from Sudbury. My dad worked for Inco,” said Mr. MacDonald. “You want to talk about challenging, going down a kilometre and a half underground, working in a mine to get a thousand tonnes of nickel a day up to the smelter. Is it clean? Is it picturesque in these work environments? No. But that’s the reality of it.”

Canada is not known for its innovation, it’s not a technology hub, it has perennially low productivity and it’s considered a high-tax jurisdiction globally. But what the country has had historically, and still has to this day, is outstanding geology, a skilled mining workforce and an abundance of natural resources. By turning our backs on mining, Mr. MacDonald says, Canadians are squandering one of the few real economic advantages we have as a country.

“We’ve been kind of lulled to sleep as Canadians,” he said. “This whole country has a natural resource bounty that we’re just not managing very well. The more I travel, the more I realize countries that don’t have the bounty that we have cannot understand why we’re doing this, and I don’t either.”

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