US military weighs funding for mining projects in Canada amid rivalry with China

The U.S. military has quietly solicited applications for Canadian mining projects that want U.S. public funding as part of a major national security initiative.

It’s part of an increasingly urgent US government priority: reducing dependence on China for critical minerals that are vital in everything from civilian goods such as electronics, cars and batteries. to arms.

This illustrates how Canadian mining becomes the nexus of a colossal geopolitical struggle. Ottawa just pushed Chinese state-owned enterprises out of the sector, and the United States is now considering moving public funds into it.

The US military has a new kitty to help private companies inaugurate new mining projects; it is to finance feasibility studies, factory renovations, battery recycling and worker training.

President Joe Biden invoked the 1950s Defense Production Act to develop the national mining sector, and the army received hundreds of millions of dollars to implement it.

This whirlwind of activity was sparked by a White House study last year, warning that reliance on certain foreign-made products poses a national security risk to the United States, and he cited semiconductors, batteries, drugs and 53 types of minerals.

US President Joe Biden, featured during a virtual roundtable in Washington in February, invoked the US Defense Production Act in March to fund critical mining projects needed for technologies such as electric vehicles. (Kevin Lamarque/Reuters)

This week, an official from the US Department of Defense gave a presentation on the program at a cross-border conference, and he made one thing clear about the funding: Canadians are eligible.

It is because Canada has, for decades, belonged to the US military industrial base and has just as much right to the money as American mining projects.

“It’s really, really simple. It’s a matter of law,” said Matthew Zolnowski, portfolio manager for the Defense Production Act program, addressing a gathering of Canada-United States Law Institute in Washington, D.C.

“So an investment in Alberta or Quebec or Nova Scotia would be no different than it would be in Nebraska or anywhere else in the United States. In law.”

The Canadian government provides a list of 70 projects

Zolnowski said the United States is actively reaching out to companies to explain the process, as many have no relationship with the US government and may not realize how it works.

“We are actively involving these companies, he said, describing a flurry of recent activity, citing a old movie line“It’s a duck on a pond. It looks calm on the surface, but there’s a lot going on.”

The Canadian government has also been active. Canadian officials say they have already provided the United States with a list of 70 projects that could justify US funding.

Both countries describe this as a generational initiative still in its infancy: Canada, for now, still a little playful in the production of these minerals, including lithium, cobalt and manganese.


But a Canadian official said that could change. Jeff Labonté, assistant deputy minister at Natural Resources Canadatold the conference that Western democracies are now engaged in industrial policy in a way they haven’t been in decades.

“We have this resource potential… We also have enormous capacity,” he said, touting 200 mines and 10,000 potential products in the exploration phase.

“We have a skill set in this area. We have capital markets, we have engineering expertise, we have companies that operate across the country and around the world.”

Canada will also provide billions of dollars in public funds to the sector over the next few years through federal and provincial programs.

If it opens on time next March, the La Corne mine in Quebec will be one of the only functional lithium mines in North America. Electric vehicles rely heavily on minerals like lithium. (Sayona Quebec)

What is driving this sudden mineral rush?

The transition to electric cars is a key driver of this challenge. They rely heavily on minerals like lithium, and current production is not close to meeting anticipated demands.

Make it more complicated, it’s China market dominance; for example, it controls two-thirds of the world’s lithium processing capacity.

Beijing has already revealed its desire to cut rivals mineral exports, as it did a few years ago in the midst of a fishing dispute with Japan.

The United States most recently suspended semiconductor exports to China in an emerging digital cold war in which Canada is more and more involved.

A worker in Inner Mongolia stokes pots of lanthanum in 2010, the year China halted exports to Japan in a sea access dispute. China dominates the critical minerals sector. (David Gray/Reuters)

In his speech, Zolnowski said countries had spent decades leaving themselves in this vulnerable position; Solving it will not happen overnight.

He said the US government has a four-part strategy for this.

Part 1 consists of stimulate domestic demand for these assets by designing new sustainability initiatives around these materials.

Part 2 stimulates supply by financing new production and recycling, while Part 3 builds up stocks. The final component is to work with allies.

Zolnowski noted that in 1984, Robert Gates, then a US intelligence official who became defense secretary to two presidents, expressed concern in a speech that companies funded by foreign governments would come to dominate. industry.

This worries the Pentagon for security reasons, both economic and military. Zolnowski called these minerals the building blocks of a thriving economy.

two men talking
Prime Minister Justin Trudeau, left, talks to a worker during a tour of Motrec International, a heavy electric vehicle production plant in Sherbrooke, Quebec, in July. (Graham Hughes/The Canadian Press)

And in times of war, he said, industrialized nations that do not have safe and reliable access to these materials have suffered greatly:[They] suffered significant performance compromises, which contributed to their defeat.”

He said civilian goods will dominate the market and receive the lion’s share of Pentagon funding. Indeed, the wording of the Defense Production Act states that the funds may be used for non-military purposes, including general economic well-being.

Main role of the Pentagon: boosting market confidence?

Zolnowski said the United States was primarily looking to offer grants, not loans, and was willing to fund projects at various stages of implementation because they view this as a long-term project.

An investment firm associate at the conference said the Pentagon’s role is not to become a major investor.

What the private sector wants, he said, is help in building trust: once you’ve demonstrated that a project has the imprimatur of the Pentagon, he said, it is easier to reassure investors, it is a safe bet.

One participant said there were still gaps to be addressed in the program design of Canada’s own Critical Minerals Strategy, including its 30% tax credit.

Jonathan Garbutt, a Calgary-based tax lawyer, cited industry estimates that lithium extracts from brine deposits in western Canada could produce hundreds of thousands of tonnes per year, but, under the wording current Income Tax Act, the credit would not apply. to these extracts.

Another speaker at the conference noted that this new conversation about cross-border cooperation has historical echoes.

Franklin D. Roosevelt, second from left, Winston Churchill and William Lyon Mackenzie King—leaders of the United States, Britain, and Canada, respectively—are pictured at the Quebec Conference in September 1944. At the At the time, military cooperation between Canada and the United States was built around aluminum. (The Canadian Press)

Toronto-based international trade lawyer Lawrence Herman noted that the precursor to the countries’ current military-industrial partnership was a 1940 agreement between American and Canadian leaders.

At the time, American funding discreetly contributed to transform Quebec aluminum into a world power.

Since then, Quebec aluminum has mainly been used for civilian purposes. He also helped the United States build its arsenal for the World War II.

Canada was sufficiently involved in this effort for Quebec to become the site of the conference of allied wartime leaders.

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