Saturday, June 15, 2024

Ottawa, Washington join forces to fund junior Canadian critical-minerals companies in face of trade war with China

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Ottawa and Washington have teamed up for the first time to invest in two Canadian mining exploration companies, as both governments attempt to bolster the North American critical-minerals supply chain in the face of an escalating trade war with China.

Ontario cobalt developer Fortune Minerals Ltd. and Quebec graphite exploration company Lomiko Metals Inc. LMR-X have been awarded about $32.4-million in combined funding, the U.S. and Canada said in a joint statement Thursday.

The Canadian contribution is part of the $3.8-billion in funding for the critical-minerals sector that was unveiled in the 2023 federal budget and is coming from Natural Resources Canada.

The U.S. funds are from the Department of Defence under the auspices of the Defence Production Act. U.S. President Joe Biden invoked the act in 2022 to spur North American investment in critical minerals such as lithium, cobalt, graphite and battery-grade nickel, all of which are essential components in low-carbon energy.

The funding for both companies was announced days after the United States stepped up a trade war with China.

How well do you know Canada’s critical minerals strategy? Take The Globe’s Mission Critical quiz

The U.S. earlier this week unveiled new tariffs against the Asian superpower as it attempts to combat what it termed as “China’s unfair trade practices.” The nickel market, in particular, has been devastated this year by an onslaught of China-controlled production coming out of Indonesia.

U.S. tariffs for a long list of critical minerals including graphite, ferro-nickel, cobalt, aluminum, chromium and tantalum are rising from zero per cent to 25 per cent on Chinese imports into the country.

Fortune Metals, a cobalt, gold and bismuth development company based in London, Ont., is receiving $8.7-million from the U.S. and $7.5-million from Canada, as part of the funding announced on Thursday. The company’s main focus is building its NICO mine and concentrator in the Northwest Territories, as well as a refinery in Alberta.

Robin Goad, chief executive officer of Fortune Minerals, acknowledged in an interview with The Globe and Mail that it has been extremely difficult to raise money in Canadian capital markets. The money raised from both governments will be put toward updating its 2014 feasibility study and a new engineering study that will give the company confidence around costs.

Mr. Goad said the NICO project requires an additional $800-million to be built, and he hopes to raise that over time from debt markets and strategic investors.

A big part of the reason Fortune Metals attracted funding is because its project includes a refinery, which is a key part of the critical-minerals supply chain that is missing in Canada and the U.S.

Almost 75 per cent of cobalt production last year came from the Democratic Republic of the Congo, according to the U.S. Geological Survey. Much of that production is controlled by Chinese mining companies. China also dominates the refining of cobalt, with about 70-per-cent market share.

“If you don’t have North American processing, you don’t have custody and control of the metals that are being produced,” Mr. Goad said.

“We are fully integrated.”

One of the reasons some Canadian junior mining companies have struggled to raise money in their home market is that Ottawa has all but closed off the possibility of attracting funding from deep-pocketed China. In late 2022, Federal Industry Minister François-Philippe Champagne said he would only allow investment from China into the Canadian critical-minerals sector on an exceptional basis.

While the move has drastically slowed investment from China, it has left a large gap in funding in the market for small, risky, early-stage companies that often require hundreds of millions for projects that have long timelines for a potential payoff.

Montreal-based Lomiko Metals is receiving $4.9-million from Ottawa and roughly $11.4-million from Washington as part of Thursday’s funding announcement. The graphite exploration company hopes to develop its La Loutre project in southern Quebec, which is at an extremely early stage, and has not yet shown to be economically viable.

In a statement, Lomiko said the funding will help the company over the next five years conduct both pre-feasibility and feasibility studies, and conduct a bulk mining sample.

Graphite is one of the battery minerals that Canada is weakest in, and China dominates the most.

China in 2023 accounted for 77 per cent of global graphite production, according to the U.S. Geological Survey. Last October, China also announced it planned to restrict exports of graphite in a move aimed at protecting its own electric vehicle industry.

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