The US military has quietly solicited applications for Canadian mining projects seeking US public funding through a major national security initiative.
It’s part of an increasingly urgent US government priority: reducing China’s reliance on crucial minerals essential in everything from civilian goods like electronics, cars and batteries to weapons.
It illustrates how Canadian mining is becoming the hub of a colossal geopolitical battle. Ottawa just pushed Chinese state-owned enterprises from the sector, and the US is now considering getting government funding.
The US military has a new pot of money at its disposal to help private companies start new mining projects; it is for financing feasibility studies, factory renovations, battery recycling and employee training.
President Joe Biden invoked the 1950 Defense Production Act to expand the domestic mining sector, and the military received hundreds of millions of dollars to run it.
This whirlwind of activity was prompted by a White House Study warned last year that reliance on certain foreign-made products poses a national security risk to the US, citing semiconductors, batteries, drugs and 53 types of minerals.
A U.S. Department of Defense official briefed on the program at a cross-border conference this week, making one thing clear about funding: Canadians are eligible.
That’s because Canada has been around 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 very simple. It’s a matter of law,” Matthew Zolnowski, a portfolio manager for the Defense Production Act program, said at a meeting of the Canada-United States Law Institute in Washington, DC
“So an investment in Alberta or Quebec or Nova Scotia would be no different than in Nebraska or anywhere else in the United States. Legally speaking.”
Canadian government lists 70 projects
Zolnowski said the US 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 involved with those companies,” he said, describing a flurry of recent activity by a old movie line: “It’s a duck on a pond. On the surface it looks calm, but a lot is happening.”
The Canadian government has also been active. Canadian officials say they have already given the US a list of 70 projects that could justify US funding.
Both countries describe this as a generational initiative that is still in its infancy: Canada is tentative still a bit of a player in the production of these minerals, including lithium, cobalt and manganese.
But a Canadian official said this could change. Jeff Labonté, Deputy Undersecretary at Natural Resources Canadatold the conference that Western democracies are now engaged in industrial policy in a way that they have not been for decades.
“We have this resource potential… We also have tremendous capacity,” he said, offering 200 mines and 10,000 potential products in the exploration phase.
“We have skills in this area. We have capital markets, we have technical expertise, we have companies operating across the country and around the world.”
Canada will also provide the sector with billions of dollars in government funding over the coming years through federal and provincial programs.
What is driving this sudden mineral storm?
The transition to electric cars is a key driver of this challenge. They are hugely dependent on minerals such as lithium, and current production is not close to meeting projected requirements.
Complicating things is China’s business market dominance; for example, it manages two-thirds of the world’s lithium processing capacity.
Beijing has already indicated its willingness to cut off rivals of mineral exports, such as a few years ago during a fishing dispute with Japan.
The US, more recently, has suspended semiconductor exports to China in an emerging digital cold war in which Canada finds itself increasingly involved.
In his speech, Zolnowski said countries have left themselves in this vulnerable position for decades; solving it won’t happen overnight.
He said the US government has a four-part strategy for this.
Part 1 is over boosting domestic demand for these goods 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 last part concerns working with allies.
Zolnowski noted that Robert Gates, then a US intelligence official who later became defense secretary to two presidents, expressed fear in a 1984 speech that foreign, government-funded companies would come to dominate the industry.
This worries the Pentagon for security reasons, both economically and militarily. Zolnowski called these minerals the building blocks of a thriving economy.
And in times of war, he said, industrialized countries that lack safe and reliable access to these materials have suffered greatly:[They] suffered significant performance trade-offs, which contributed to their defeat.”
He said civilian goods will dominate the market and will also receive the lion’s share of Pentagon funding. The wording of the Defense Production Act states that funds can be used for non-military purposes, including the US general economic well-being.
Key Role of the Pentagon: Building Market Confidence?
Zolnowski said the US is looking primarily at offering grants, not loans, and is willing to fund projects in various stages of implementation as it sees this as a long-term project.
An investment company partner who attended the conference said the Pentagon’s role is not to become a major investor.
What the private sector wants, he said, is help building confidence: Once you’ve shown a project has the Pentagon’s imprimatur, it’s easier to reassure investors that it’s a safe bet.
One participant said there are still flaws that need to be ironed out in the program design of Canada’s own critical minerals strategy, including the 30 percent tax credit.
Jonathan Garbutt, a Calgary tax attorney, quoted industry estimates that lithium extracts from brine deposits in Western Canada could produce hundreds of thousands of tons per year, but under the current language of the income tax law, credit wouldn’t apply to those extracts. .
Another speaker at the conference noted that this new conversation about cross-border cooperation carries historical echoes.
Toronto-based international trade attorney Lawrence Herman noted that the forerunner of the countries’ current military-industrial partnership is a 1940 agreement between the American and Canadian leaders.
Back then, US funding discreetly assisted to turn Quebec aluminum into a global powerhouse.
Since then, aluminum from Quebec has been mainly used for civilian purposes. It also helped the US build its arsenal for the WWII.
Canada was intimately involved in that effort that Quebec became the website of the Conference of Allied Leaders in Wartime.