How crashing metals prices are dashing Canada’s dream of leading in critical minerals

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Plummeting prices for metals such as lithium and nickel are dashing Canada’s dream of becoming a global juggernaut for critical minerals, with a market capitulation making it even more challenging to raise the money needed to build new mines.

The situation is growing so dire that some miners have started calling for heavy-handed government intervention, including the possibility of Ottawa directly funding new projects, because they worry that Canada will lose the race to produce these minerals to rivals such as China for good.

As it stands, Canada is well-situated for the critical minerals revolution, overtaking China this week as the global leader in BloombergNEF’s global lithium-ion battery supply chain ranking. The annual study rates 30 countries using variables such as volume of raw materials, the capability to produce batteries and the quality of supporting sectors.

Yet having raw materials in the ground is very different from producing them – and Canada is struggling to do the latter. New mines usually take more than a decade to build and require billions of dollars of upfront capital investment – a large portion of which historically came from retail investors.

“The storm is brewing,” said Hugues Jacquemin, chief executive of junior miner Northern Graphite Corp., who is trying to raise money for a new project in Ontario. With prices of multiple critical minerals crashing, the uncertainty “is scaring smaller investors.”

Mr. Jacquemin acknowledges that Ottawa has already released a critical minerals strategy and put forward some assistance, including a 30-per-cent development tax credit, but worries it’s not nearly enough. “We’ve got to keep pushing. Now is not the time to stop,” he said. “We cannot let the downturn in pricing and demand in China slow us down.”

The recent crash has been swift. The price of lithium carbonate has dropped to roughly US$13,500 a tonne, according to Argus Media, down more than 80 per cent in little more than one year. In response, existing producers and processors such as Liontown Resources, based in Australia, and Albemarle, based in the United States, have shelved a mine expansion and laid off workers.

The price of nickel, meanwhile, has tumbled nearly 50 per cent over the same period, with three-month nickel futures falling to US$16,020 on the London Metal Exchange. Cobalt and graphite prices are struggling just the same.

Cooling demand for electric vehicles is one of the driving forces behind the recent drops. The likes of nickel, lithium, cobalt and graphite are all used in EV batteries, and until recently the hope was that rising demand for electric cars would create an undersupply of these metals.

Lately, though, EV sales have cooled in much of the Western world, and, in places such as Germany, are starting to fall off a cliff.

China has also hoovered up critical minerals for years, serving as a main source of demand, yet the world’s second-largest economy is now wobbling and faces much slower growth. Because Chinese companies aren’t using as many of these minerals, inventories have piled up and are being unloaded at fire sale prices.

“We’ve gone through a massive de-stocking cycle,” said Mark Selby, chief executive of Canada Nickel, which is building a new nickel mine near Timmins, Ont. “What we’ve seen in the last three or four weeks is the capitulation moment that usually calls a bottom,” he said.

However, Canadian miners have to contend with demand-supply dynamics from rival producers in other countries as well. With nickel, for instance, Indonesia has emerged as the world’s largest producer, and it enjoys advantages such as low-cost labour.

Because the situation has turned so dire, some mining leaders are calling for the largest Canadian pension funds to step up and provide long-term capital that can withstand short-term market fluctuations.

“If the pension funds invest more in the domestic resource sector, it would allow Canada to compete with Saudi Arabia, China and others,” mining industry veterans Frank Giustra and Pierre Lassonde wrote in The Globe and Mail this week. “Junior resource companies are like seedlings for our future mineral needs. We need to nurture them.”

But there are no easy answers. Most of those funds have mandates to deliver returns that meet the needs of their pensioners, not to fund Canadian developments. In fact, Canada Pension Plan, the largest of them all, is set up to be free of any government interference.

As for calls for more help from Ottawa, Prime Minister Justin Trudeau has tried to step up when the private sector walked away, including when his government purchased the TransMountain pipeline expansion project, but it is a risky gamble for politicians. The project is now more than $20-billion over budget and has become a major headache for the government.

Northern Graphite’s Mr. Jacquemin warns, however, that if things stay the way they are, very little will get built. Ottawa’s assistance so far “is great,” he said, “but it’s not going to build a mine.”