supply chain

Against the backdrop of ongoing supply chain challenges around the globe, the urgency of untangling and securing critical mineral supply chains essential to a net zero carbon emissions future is becoming increasingly clear.

Following on the heels of the Biden Administration invoking the Defense Production Act for the “Battery Criticals” – lithium, cobalt, graphite, nickel and manganese – the energy provisions in the just passed Inflation Reduction Act are indications that this urgency has begun to resonate with U.S. policymakers, and sends a strong signal to investors that the U.S. is serious about “building the secure, responsible industrial base our economy and national security needs.”

Faced with mounting pressures in the global push towards renewable energy, automakers have been taking steps of their own to build out American EV battery manufacturing.

Toyota, which is building a cell-production facility in North Carolina, has announced an additional investment of $2.5 billion on top of the already committed $1.3 billion.  South Korean battery maker LG and Japanese automaker Honda have announced an investment of $4.4 billion into a joint venture in the United States, with mass production of advanced lithium-ion battery cells to start by the end of 2025.  Panasonic is considering a $4 billion investment into constructing a plant in Oklahoma, and north of the border, recent public filings indicate that Tesla is looking to set up a new advanced manufacturing facility in Canada.

Friends of ARPN can guess what comes next.  As the Wall Street Journal’s Stephen Wilmot wrote last week, “[a]ll this means car makers can perhaps start to relax where they will get EV batteries. The tougher question now is where they will get battery materials.” He adds: “[a]nother wave of investment in inputs such as processed lithium and nickel needs to follow – and with a new urgency.”

As ARPN already pointed out, the Inflation Reduction Act’s requirement that will exclude EVs with material inputs from “foreign entities of concern” from eligibility for the $7,500 tax credit included in the bill, poses a serious challenge because the auto industry is so heavily reliant on battery materials and components from China.  With China being the global hub for battery-mineral refining, says Wilmot, “this will be hard for automakers to work around.”

Not surprisingly, automakers are increasingly lobbying governments to reform the U.S. mine permitting system.  Metal Tech News’s Shane Lasley points to a recent letter penned by Ford Motor Company’s chief government affairs officer Christopher Smith to the U.S. Department of Interior, in which he laments that “[t]oday’s lengthy, costly and inefficient permitting process makes it difficult for American businesses to invest in the extraction and processing of critical minerals in the United States.” Smith calls on the federal government to alleviate the challenges within the U.S. mine permitting framework, which Ford considers “unacceptable and well beyond the requirements facing Australian and Canadian companies, where responsible mining is a given and a prerequisite for obtaining mining permits.”

However, this is far from the only challenge automakers and the mining sector are faced with in their quest to support the green energy transition, as an inter-departmental “tug-o-war” is adding fuel to the fire.  As Lasley writes in an equally insightful piece:

“While the departments of Commerce, Defense, and Energy are forging ahead with programs and investments aimed at ensuring America has the minerals and metals needed to support the clean energy objectives outlined by the White House, and enabled by the Bipartisan Infrastructure Law and Inflation Reduction Act, DOI is pumping the breaks on a domestic project that would produce the requisite raw materials.

The Interior Department’s yanking of the permits to build a road that would connect the rich deposits of cobalt, copper, zinc, and other metals in Alaska’s Ambler Mining District to markets demanding sustainable supplies of these mined materials underscores a disconnect within the Biden Administration.”

Alaska Governor Mike Dunleavy had lamented DOI’s lack of acknowledgement of Alaska as a potential source and blasted the Ambler Mining District decision and called for federal permitting reform during the recent critical minerals summit held in Alaska, which we covered here:

“This administration must speak with one voice. It wants critical minerals, or it doesn’t. It wants the lower energy prices, or it doesn’t.  It wants to create jobs in the U.S. or it doesn’t.  It wants to protect the environment or it doesn’t. It cares about human rights, or it doesn’t. (…) The disjointed federal permitting process doesn’t just hurt Alaskans (…), it hurts every industry, and every state. (…) 

If we set ambitious goals for EVs or renewables without permitting the production of critical minerals here, those minerals will still be produced, they just won’t be produced in here in America or Alaska, they’ll be produced by child labor, potentially, they’ll be produced without environmental standards, potentially, they’ll be produced at the expense of the American worker, to the benefit, potentially, of our adversaries.”  

As for the IRA bill, the Wall Street Journal points out, “[h]ow far and how fast EV and battery makers need to scramble [to meet the law’s requirements] depends on how the Treasury Department interprets the Inflation Reduction Act. This process, which will be subject to intense lobbying over the coming months, could weaken some of the strings attached.”

However, the pressure to diversify supply chains away from adversaries is here to stay – and with that, the federal government will have to take steps to foster greater predictability in the mining sector to unleash the United States’ mineral potential.  As U.S. Senator Lisa Murkowski told attendees of last month’s Alaska critical minerals summit, the rest of the world won’t wait for us, and “other countries” are moving now to implement “longer-term policies that allow them to focus on what it means to be sticking with a policy, and a view, and a vision towards dominance.”

In a new piece for Canada’s Globe and Mail, Niall Mcgee discusses China’s quiet but systematic campaign to corner the critical minerals segment in Canada and stakeholder reactions in Ottawa, or more precisely, the lack thereof.

Citing the 2019 acquisition of the Tanco Mine in Manitoba, known as one of the world’s few sources of cesium as well as highest-grade lithium, by the Chinese Sinomine Resource Group, which earlier this year began shipping lithium produced at Tanco back to China to feed the country’s expansive EV industry, Mcgee laments that there has been little reaction from Ottawa:

“Although Ottawa has made clear that it does not want to be beholden to a hostile foreign power for critical minerals such as lithium, so far there has been little in the way of action from the federal government to prevent that from happening.”

Mcgee cites mining investor and activist shareholder Peter Clausi, who goes as far as calling the Canadian federal government, which could have initiated a review of the acquisition on national security grounds, “morons” for failing to do so:

“It’s [i.e. the Tanco Mine is] known for having the world’s highest grade lithium. The grade is so high that nobody had the technology to process it. And the morons let it go,” Clausi said.

As ARPN outlined in our discussion of the approval of the sale of Canadian lithium developer Neo Lithium Corp to Chinese state-owned Zijin Mining Group Ltd., in the process of which the Canadian government decided not to review the takeover on national security grounds:

“Foreign takeovers of Canadian companies are subject to an initial security screening by the government.  If the initial screening concludes that the takeover constituted a threat to Canada’s national security, it would trigger a more formal review under Section 25.3 of the Investment Canada Act, and the deal could be blocked.”

In the case of Neo Lithium’s project – the 3Q Mine – the Canadian Government argued that “Canada was unlikely to benefit from lithium produced from Neo’s project, because it was located far away, in Argentina.” However, the project could have played an important role in supplying Canada’s lithium needs at a time when the country is not extracting the material within its own borders.

The same could be said for the Tanco deposit.  As Mcgee elaborates, similar scenarios unfold for other metals and minerals:

“Canada has similar also-ran status when it comes to cobalt. This country produces only small amounts of the vital battery metal input, while China controls about 70 per cent of the market. China is even more dominant in graphite, with an 80-per-cent lock on the market. 

And while Canada is a major miner of nickel, another battery metal, it has no refineries that can process it for the battery industry.”

He cites Jeffrey Kucharski, adjunct professor at Royal Roads University and former assistant deputy minister of Alberta’s Department of Energy, who asked during parliamentary proceedings on the Neo Lithium deal:

“How can Canada build a lithium supply chain, or any other critical mineral for that matter, when it allows the assets of Canadian companies to be acquired by a country that seeks to cement its dominance in this sector?” 

As ARPN previously outlined,

“the development ties into the broader North American context of the United States and Canada having formalized a joint action plan on critical minerals in 2020 which included commitments by both governments to strengthen North American battery material supply chains against the backdrop of China’s ever-tightening grip on global supplies.

A stronger focus on critical mineral resource security through the prism of national security is certainly warranted, not just for our Canadian friends, but also from a U.S. perspective.

As Tsvetana Paraskova notes in a piece for Oilprice.com, ‘while the Administration was reviewing supply chain issues and vulnerabilities to its demand for critical minerals, China is moving in on Africa and South America to strike alliances and lend money to mineral resource-rich African countries, while Russia is thought to be providing shadow ‘security services’ in some African nations with a mercenary organization with links to the Kremlin.’

 Followers of ARPN know all too well that as the green energy transition accelerates, we will be facing significant critical mineral resource shortfalls.  For the United States (and for our close allies), the time to act is now. As Paraskova concludes, ‘(…) otherwise, America’s clean energy goals and hi-tech and automotive supply chains could depend on China.’

The energy provisions in the just passed Inflation Reduction Act, coupled with a prior invocation of the Defense Production Act for the “Battery Criticals” – lithium, cobalt, graphite, nickel and manganese — are indications that the urgency of the situation has begun to resonate with U.S. policymakers.

Of course, as we cautioned in our latest piece on the Inflation Reduction Act, “any new law this wide-ranging will require federal guidance on the way to implementation – and spark follow-on efforts by resource development opponents to roll-back some elements even as resource development proponents look to build on this new legislative initiative.”

However, there is good reason to hope that “the bill’s requirements will help jumpstart a more comprehensive push towards domestic sourcing and processing, onshoring, friend-shoring, and harnessing the materials science revolution,” all of which would represent a “critically important leap forward to build the secure, responsible industrial base our economy and national security needs,” in the words of General John Adams, U.S. Army brigadier general (ret.).

The mainstream media and parts of the political establishment may just now have begun to realize it — but followers of ARPN have long known that our nation’s critical mineral woes are real, and go beyond the often discussed battery criticals (lithium, cobalt, nickel, graphite, and manganese) and include one of the key mainstay metals: [...]

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