The term “critical minerals” is thrown around a lot these days. Somewhat less ubiquitous is agreement on just what makes up this loose grouping of elements. Governments have set out to prioritize vastly different areas, more closely aligned with national security and economic interests. 

The United States has identified 50 critical minerals, Canada 31, the European Union (EU) 30 and Australia 26. Between these different lists, only 17 minerals actually appear in all four. Given disagreements around taxonomy, it’s no surprise that global supply chain considerations for these minerals are complex. But as a global leader in both mining and cleantech, there’s an important role for Canada to play.

In most cases, critical mineral deposits are highly concentrated in only a handful of regions, with the share of production accounted for by the three largest producers ranging from 46% for copper to 95% for lithium. The relatively small number of countries in control of this vital stage of the supply chain obviously increases risk of disruption, especially when overlayed against geopolitical fault lines and human rights risk profiles. With Canada accounting for 4.8% of global nickel production, 2.8% of copper production and just 2.5% of cobalt production in 2021, Canadian companies that depend on these minerals will need a solid grasp of the associated risks and advanced supply chain risk management practices.

In addition to the concentration of production, the processing and refining of critical minerals is also at a premium, worldwide. China, for example, controls 35% of global nickel processing, 50% to 70% of lithium- and cobalt-refining capacity, and almost 90% of rare earth elements refining. This means that China supplies more than 50% of the raw materials required for solar and wind energy production and plays an outsized role in the world’s ability to transition to a low carbon future. 

The energy transition will drive much of the demand for critical minerals. But, by how much will depend on the dominant technologies and the speed and consistency in implementing climate-related targets. The composition of minerals used varies across technologies, so the relative increase in demand for each mineral will also be different.

Electric vehicles and battery storage, for example, are expected to account for about half of the world’s mineral demand growth over the next two decades. The World Bank estimates that graphite, lithium and cobalt production would need to increase by more than 450% by 2050, from 2018 levels. The related expansion of electric grids would also require a doubling of copper production. 

Given expectations for demand, and in light of the challenges surrounding supply chain security, many countries have modernized existing strategies in order to secure access to these critical minerals.

In the U.S., the Inflation Reduction Act (IRA) commits to increasing the domestic supply of critical minerals through various incentives and investments, and the Defense Production Act (DPA) aims to increase investment in new and existing mines.

The EU is expected to enact new legislation this year to ensure a more focused approach to supply chain security. Australia is planning to update its critical mineral strategy, with a focus on strengthening capabilities in downstream processing.

Canada’s expertise in both mining and cleantech, and abundance of mineral resources, provides a unique opportunity in this space. The December 2022 Canadian Critical Minerals Strategy plans to boost our country’s capabilities along the critical mineral value chain through increased research and development, required infrastructure investments, accelerated project development, workforce planning and consultation with Indigenous Peoples. 

But, the early-stage nature of the sector will prove a challenge. The extraction, processing and refining of critical minerals is different from Canada’s long history of gold, copper, silver, and uranium mining. Establishing a leading critical minerals sector, reorienting the sector in a meaningful way towards clean technologies, and anchoring it to domestically based value chains will be a formidable challenge. 

In mining, the lifecycle from discovery to operation and production is expensive and lengthy. For minerals with the “critical” designation, existing infrastructure gaps in extraction, transport, processing, and integration need to be filled. There’s also a need for novel financing arrangements and industrial norms to account for the potential risks and pitfalls of a sector that is yet unproven as a viable, long-term investment. 

The bottom line?

The global critical mineral supply chain is complex and fraught with risk. Given the nascency of the sector, there are still questions around how secure and stable critical mineral development will be over the long term. However, the clean energy transition all but ensures steady demand for these newly designated gems.

Canada has prioritized for production and development minerals such as lithium, graphite, nickel, cobalt, copper, and rare earth elements. Enhanced strategic co-operation with likeminded partners will help ensure reliable and resilient mineral supply chains, and can open multiple avenues in different markets for Canadian firms to tap into. 

This week, special thanks to Nadeem Rizwan and Kevin Elliott, country risk analysts in our Economic and Political Intelligence Centre. 

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