Lawyers say federal and provincial policies to strengthen and nurture Canadian production of critical minerals are steadily progressing toward their goal of turning Canada into a hub. However, some caution that policies aimed at preventing investment in Canada from state-owned enterprises are squeezing access to capital for Canadian companies and projects.
Most Canadian provinces have released a Critical Minerals Strategy. The federal government’s Strategy, released December 2022, rests on five objectives: to support economic growth and competitiveness, boost climate action and environmental protection, further Indigenous reconciliation, support “diverse and inclusive workplaces and communities,” and strengthen “global security and partnerships with allies.”
The same month the federal Critical Minerals Strategy was introduced, Ottawa proposed Bill C-34, the National Security Review of Investment Modernization Act. The legislation received Royal Assent in March of this year. The law targets foreign investment from state-owned enterprises and focuses on high-tech industries and critical minerals.
Adria Leung Lim, a partner at Aird & Berlis LLP and chair of the firm’s mining group, says the feds are headed in the right direction on the Critical Minerals Strategy.
“Overall, the government is doing a really great job in terms of setting out a solid framework,” she says.
Adria Leung Lim
Since the Strategy was released, Ottawa has established a $1.5 billion critical minerals infrastructure fund for clean energy and transportation infrastructure projects and allocated $249 million to a strategic innovation fund for two major critical minerals projects. Leung Lim adds that several research and development projects and exploratory projects are underway.
“It’s been a really great effort so far,” she says. “But, at the end of the day, it’s still quite early to be able to see what the direct impacts of these initiatives are.”
Michael Pickersgill, head of the mining and metals practice at Torys LLP, says that Canada’s focus on the energy transition and its critical mineral building blocks has highlighted the essential role of the mining industry.
“Canada’s Critical Minerals Strategy has made some real progress and is still an opportunity and a well-intended strategy document. There are a number of challenges that it’s had in having a meaningful impact,” he says.
Michael Pickersgill
One is that the policy attempts to serve many purposes, which makes it difficult to execute any one of them. For example, the Strategy represents the desire to create a vertically integrated ecosystem in Canada, from pulling the minerals out of the ground to midstream production, downstream usage, and recycling. Pickersgill says this aspiration can work at cross purposes with Ottawa’s desire to protect the Canadian industry from foreign ownership – which can inhibit investment – and to protect the environmental, social, and Indigenous reconciliation interests attached to the project, which can extend the duration of the permitting process and time it takes to get projects built.
“Those are real challenges for the mining industry, and Canada’s Critical Minerals Strategy has yet to unlock that,” Pickersgill says.
He adds that the 2024 federal budget indicates that the federal government is not unaware of the problem. The budget extended the 15 percent mineral exploration tax credit and expanded the clean energy incentives introduced in 2023, including the Electric Vehicle (EV) Supply Chain Investment Tax Credit, a 10 percent tax credit on the cost of buildings used in EV assembly and EV battery production.
“That’s a real, positive, tangible step that can help miners from a financing perspective,” says Pickersgill.
He adds that the budget also identifies steps and objectives to accelerate the permitting and review process and coordinate it more effectively among regulatory bodies and various levels of government.
“Those two things are really positive.”
In addition to harnessing Canadian natural resources to drive economic development, the Critical Minerals Strategy aims to strengthen the production of raw materials used for renewable energy to advance the energy transition.
Pickersgill says renewables “present a real opportunity” in a couple of ways. One is that they allow for long-term cost savings. Given the remote locations of much Canadian mining, combining renewables with alternative and other energy sources allows miners to “balance the load” in a situation in which obtaining diesel fuel and having other power transmission is difficult because of the project’s remoteness.
Renewables also help unlock government and stakeholder support, he says. Their use allows miners to answer stakeholders’ questions about environmental, social, and governance (ESG) concerns. The federal government has also allocated money to the Strategic Investment Fund and the Canadian Infrastructure Bank; renewables use could allow access to some of that money.
“One of the things that we think is a fantastic opportunity, and that we are seeing miners embrace, is looking at renewable energy not only as an effective source of power for projects,” says Pickersgill. “When done thoughtfully and with a view to load and costing, it’s a fantastic opportunity to find a way to access government support and stakeholder support for your project.
“We do see companies embracing that renewable story.”
The Critical Minerals List, which includes 31 minerals that Ottawa considers essential to domestic industry and security, is part of Canada’s policies to enhance domestic critical minerals production.
In 2022, Innovation, Science and Economic Development Canada’s (ISED) Foreign Investment Review and Economic Security Branch (FIRES) published a “Policy Regarding Foreign Investments from State-Owned Enterprises in Critical Minerals under the Investment Canada Act.” FIRES said that reliable access to critical minerals is essential for global leadership in low-carbon and other technology sectors, that critical minerals are “strategic assets that contribute to Canada’s national security as vital inputs to defence and high technology,” and investments from state-owned enterprises can be motived by non-commercial imperatives that conflict with Canada’s national interests.
FIRES’ policy outlines how foreign investments and acquisitions are assessed under the net benefit and national security analyses. Under the national security review, the involvement of state-owned enterprises or “foreign-influenced private investors” in the critical minerals sector will “support a finding by the Minister that there are reasonable grounds to believe that the investment could be injurious to Canada’s national security as set out in Part IV.1 of the Investment Canada Act.”
Davit Akman, a partner at Cassels Brock & Blackwell LLP, says some market participants are concerned that the Critical Minerals Strategy and Canada’s policies toward critical minerals more broadly have chilled inbound investor interest in Canadian companies and projects. Akman is the chair of Cassels’ competition and foreign investment group.
While the critical minerals policy is not explicitly directed at the state-owned enterprises of any individual state, he says there is a perception that it is largely aimed at Chinese government-owned entities and Chinese investors.
Davit Akman
“Historically, the Chinese in the critical mineral space have been a significant source of funding and financing. There’s certainly a concern about cutting off that financing and that access to capital.”
FIRES’ “Policy Regarding Foreign Investments from State-Owned Enterprises in Critical Minerals under the Investment Canada Act” is also viewed by some in the industry as overbroad and vague, says Akman. The first tranche of the new Investment Canada Act amendments comes into effect in September, while the second tranche is anticipated to come into effect in April 2025. The accompanying administrative guidance may clarify, to some extent, FIRES’ policy, he says.
David Redford, a partner in the securities group at Cassels, says the lack of clarity on certain items within Canada’s critical minerals policies and their extraterritorial reach has had a significant impact on the junior end of the market.
David Redford
“It’s not just access to money from state-owned enterprises, but it’s the competition for capital and the impact it’s had on the valuations of those companies because of the perception of their inability to develop their projects,” he says. “It’s had quite a negative effect on companies in the critical minerals space who operate outside of Canada.”
Jeremy Barretto, a partner at Cassels, chair of the firm’s national regulatory law group, and co-chair of the ESG group, says that the federal and provincial critical minerals strategies have yet to achieve their goals of expediting project approval and assessment processes.
“The federal Strategy refers to what they call a ‘one project, one assessment’ approach, which, in my experience, has not been implemented yet,” says Barretto. “We have mining projects in Canada that take up to 10 – in some cases, more than 10 – years from start to finish.”
“If there are multiple governments involved… it can take a year or more for those governments to agree on what the process should be,” he says. “So, I think there are good aspirations in both the federal Critical Mineral Strategy and provincial strategies to speed up these review processes, but they have yet to really move the needle on the ground, and hopefully, that will happen soon.”
Jeremy Barretto