A “critical” transition for the mining sector
The global energy transition has become a critical driver of both the present-day state and future of the mining industry in Canada and around the world. The projected massive increase in demand for energy transition metals, coupled with expected shortfalls in supply and the related actions of governments to ensure the security of critical mineral supply and capture the up-stream economic potential of critical mineral supply chains, is creating significant opportunities for project developers as well as new legal considerations.
Market demand
The energy transition continues to drive demand for all forms of critical minerals. Demand is not limited to the battery metals dominating headlines but also includes copper and other minerals required for the development of the infrastructure necessary to support the transition. Commodity prices largely returned to typical levels in 2023, following elevated prices in 2021-2022, but the demand fundamentals continue to exist and intensify. Energy systems driven by clean technologies currently require significantly more minerals to build than fossil fuel-based technologies, reflecting a system that relies heavily on infrastructure investment rather than fuel usage. The International Energy Association has estimated mineral requirements will double for clean energy technologies by 2030, based on transition scenarios using announced pledges, with more ambitious scenarios requiring even higher mineral inputs.
Mineral supply constraints
At the same time as demand skyrockets, global supply outlook faces significant challenges. Existing mines and projects currently under construction are estimated to fall well short of projected requirements, and long project development lead times and a decrease in the quality of resource deposits available for development pose challenges in closing this projected shortfall.
In addition to challenges in overall supply, governments are grappling with heavy geographic concentration in both supply and refining capacity for certain critical minerals at a time in which geopolitical factors are causing nations to re-evaluate their supply chains and seek supply from friendly jurisdictions.
Ensuring that the extraction of these minerals is conducted in a clean and responsible manner poses further challenges to the critical mineral materials supply chain. A failure to ensure a sufficient, stable supply of critical minerals will inevitably result in negative impacts on the speed and cost of the energy transition.
Government policy initiatives
In addition to addressing security of supply concerns, governments globally are increasingly looking to maximize the domestic economic benefits of the energy transition and underlying mineral development.
Governments are using a number of levers to achieve these goals, including protective measures around ownership of minerals and mineral processing and increased scrutiny over foreign investment in critical minerals, such as updates to Canada’s national security review guidelines for foreign acquisitions of critical minerals. Mexico has nationalized its lithium industry, and Chile has proposed revisions to its concession system to prioritize state-owned participants in the lithium space. Namibia and Zimbabwe have recently adopted legislation to limit the exportation of critical minerals in minimally processed forms, largely to try to ensure the development of the local beneficiation industry. Against the backdrop of the trend of de-globalization, we are also seeing investment protection treaties decrease in proliferation and amendments to the extent of investment treaty protection offered by treaties.
In addition to protective measures, many governments, including Canada, the United States, France and Australia, have introduced significant investment programs aimed at the energy transition, which include direct support for critical mineral development, as part of efforts to develop their domestic vertical supply chains in the clean energy space. In connection with the Canadian Critical Minerals Strategy, the 2023 federal budget included a 30% tax credit for critical mineral extraction and processing, applying existing flow-through structures to lithium from brines—as well as a $1.5 billion Critical Minerals Infrastructure Fund and a host of other measures aimed at the energy transition that provide incentives and support for critical mineral development.
Addressing the regulatory challenge
In addition to providing financial incentives, governments are evaluating their regulatory processes, looking for ways to more expeditiously complete permitting processes to allow project development while ensuring proper consideration and protection of social and environmental considerations, which critically includes Indigenous consultation. The Canadian Critical Minerals Strategy explicitly recognizes the need for coordination and harmonization across all levels of government and for streamlining regulatory requirements while including Indigenous consultation and engagement in a manner that respects the United Nations Declaration on the Rights of Indigenous Peoples (UNDRIP) principles, as well as providing funding to increase the capacity of participants in the permitting and regulatory processes.
What this means for mining companies
In addition to expected strong market fundamentals, the energy transition is providing a policy environment that is supportive of mining project development, both in terms of financial support and streamlined regulatory processes. Project proponents should look to maximize existing incentives and capitalize on supportive governments. On the other side of the coin, efforts of governments globally to protect and develop their domestic mining industries also pose challenges in the form of increasing resource nationalism and “friend-shoring” in critical mineral supply chains that require careful planning and consideration from an investment protection perspective.
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