November 07, 2023
There’s a problem in the world.
One among many, admittedly…
It’s one of economic fragility. The pandemic showed how intertwined and co-dependent global supply chains are.
From raw materials to refrigerators and semiconductors… countries and companies depend on one another to a great degree.
And while it may not matter in the grand scheme of things whether the latest iPhone someone ordered arrives a week or a month late… it matters when a nation’s security is at risk.
Something had to be done about that.
Here at the Canadian Mining Report, we’re focused on the commodities Canada-based companies explore for and produce across the world.
And since the pandemic, Canada and its mining industry have become part of a solution to a global problem.
Earlier this year, the world got a sneak preview of what could happen if it stops cooperating.
It restricted the exports of gallium and germanium (two elements used as semiconductors themselves, 5G towers, and solar panels, and as part of the semiconductor manufacturing process) to Japan.
Japan relies on China for about 40% of its gallium supplies. Even though the companies using them in their production processes have enough inventories for the short term, in the future, this trade spat could wreak havoc on Japan’s semiconductor industry.
The problem is significant. China produces 60% of the world’s germanium and 80% of the world’s gallium.
China is also the world’s leader in the mining and refining of rare earth elements (REEs). These are used in most high-technology applications, from smartphones to military equipment.
The Russian invasion of Ukraine showed that the global critical minerals market is vulnerable. Russia is the world’s second-largest producer of raw nickel. This July, the United States placed some of the largest Russian nickel and copper producers under sanctions, which means that trading with them has become all but impossible.
Just as the global supply chain issues have started to subside, now we have these problems.
What’s the solution?
The United States has recently become alarmed at its dependence on China, Russia, and other unstable partners.
China is the largest source of more than half of the minerals that the United States has put on its “critical minerals” list, such as lithium and cobalt, for example.
This is far from optimal.
With the “chip wars” ongoing and geopolitical issues around Taiwan still boiling, we will not be surprised to see further trade restrictions between the U.S. and China.
Rare earth elements would be one of the most obvious choices for China. It pretty much single-handedly controls the world’s market for these critical elements.
This is why last June, the United States and 12 other countries, including Canada, plus the European Union, announced that they would build the Minerals Security Partnership.
The announcement was made in Toronto during the Prospectors and Developers Association of Canada (PDAC).
The Partnership includes Australia, Canada, Finland, France, Germany, Japan, the Republic of Korea, Sweden, the United Kingdom, the United States, and the European Commission.
The goal of the partnership is to find and fund critical-elements projects. By the end of this year, the Partnership aims to select about 15 large projects located in member countries and the EU.
These projects would focus on mining, refining, and recycling critical minerals.
The alliance was announced in Canada, and the country has both significant reserves of critical minerals and the capacity to scale their production.
It released its “The Canadian Critical Minerals Strategy” in 2022 to create a framework for stimulating domestic production, refining, and recycling of critical elements both for its own needs and for the needs of its allies.
RBC Wealth Management writes: “Late in 2022, Canada toughened its foreign ownership rules, requiring three Chinese firms to dispose of their stakes in domestic lithium miners.”
In other words, democratic countries (most of which are also rich) have decided to establish their own supply chains of critical minerals.
In our view, Canada and the country’s mining industry are poised to become a critical player in this area.
This bodes well for it. We will not be surprised to see investor interest in this critical sector increase in the months and years to come.
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