Despite years of talk about how important critical minerals projects are to Canada\u2019s future economy and national security, raising capital to build the projects remains a formidable challenge, executives say, because investors recognize that China\u2019s dominance over various commodities means it can single-handedly change global supply levels to crater or elevate prices.<\/p>\n
We can produce a lot of minerals cheaper than (China) can<\/p>\n
Mark Selby, CEO, Toronto-based Canada Nickel Co.<\/p>\n
\u201cWe can produce a lot of minerals cheaper than (China) can,\u201d said Mark Selby, chief executive of Toronto-based Canada Nickel Co. \u201cThe problem is, and this applies across all critical minerals, today\u2019s price environment doesn\u2019t necessarily generate the financial return that investors want to provide the upfront capital.\u201d<\/p>\n
He described it is as a chicken and egg problem: To break China\u2019s dominance of critical mineral supply chains, Canada needs to build more mines. But building new mines requires investment, and investors are wary of such projects as long as China<\/a> controls enough of the supply chain that it can flood the market with product and depress prices.<\/p>\n The federal government\u2019s deal with Nouveau Monde aims to break this cycle by guaranteeing it will pay a minimum price for its graphite.<\/p>\n And instead of having to take possession of the graphite and stockpile it, the deal allows for Nouveau Monde to sells some or all of the backstopped tonnes \u2014 at the government\u2019s discretion \u2014 to customers who are willing to pay more than US$1,500 per tonne. In those cases, the federal government is entitled to 50 per cent of the profit above the agreed price, net of any losses it has incurred, Desaulniers said.<\/p>\n \u201cI really believe the government will make money out of this,\u201d he said. \u201cIt\u2019s a very smart instrument. It makes us attractive for capital market investors and it creates some downside protection.\u201d<\/p>\n But the deal is contingent on Nouveau Monde, and the Canadian government, finding allied countries or strategic buyers to take 15,000 tonnes per year on substantially the same terms, Desaulniers said. He expressed confidence this would occur, saying the government is already in advanced negotiations with allies.<\/p>\n Desaulniers said that the price of graphite varies. For large flake graphite, which is used in niche applications, it sits around US$1,500 per tonne but for small flake graphite, used in batteries for EVs, it may be half that amount, around US$800 per tonne.<\/p>\n Part of the impetus for the deal is to create more visibility and stability in the graphite market, which remains just a fraction of the size of the nickel and copper<\/a> markets. Unlike those base metals, the London Metal Exchange \u2014 often regarded as an arbiter for metal prices in the western hemisphere \u2014 does not trade futures or other options for graphite and many other critical minerals.<\/p>\n There’s countries that need our product, and don’t like to be reliant on China only for everything<\/p>\n Eric Desaulniers, CEO, Nouveau Monde Graphite<\/p>\n Another layer of the deal says that Nouveau Monde will set aside roughly one-third of the total 30,000 tonnes \u2014 which includes the 15,000 tonnes backstopped by the Canadian government plus the 15,000 backstopped by allies and strategic buyers \u2014 for use in batteries, he added. For that amount, the guaranteed price would be closer to US$800 per tonne, he said.<\/p>\n Back of the envelope math would peg the government\u2019s financial commitment at around US$133 million, but Desaulniers said it will be substantially less than that, for a number of reasons, primarily that the government designed the policy so that investors have confidence that Nouveau Monde will be able to sell its graphite to buyers willing to pay more than US$1,500 \u2014 not so that the government can buy the entire offtake amount.<\/p>\n There are many \u201cmineral-hungry countries\u201d that lack geologic assets and have expressed interest in offtakes, Desaulniers added.<\/p>\n \u201cThere\u2019s countries that need our product, and don\u2019t like to be reliant on China only for everything,\u201d he said.<\/p>\n Mining executives and industry analysts have spent years advocating for such policies, saying they could help jumpstart investment in North American critical minerals projects. Now as trade tensions with China are escalating, the deals are starting to take shape.<\/p>\n In July, the U.S. government marked its own foray into such territory, by taking a 15 per cent stake in MP Materials Inc.<\/a>, a company that controls the largest rare earths mine in the Western hemisphere \u2014 located in Southern California \u2014 and agreeing to buy its rare earth magnets.<\/p>\n China currently controls an estimated 90 per cent of the world\u2019s rare earth magnets, which are used in industrial applications from automobiles to energy, as well as defence and medical applications.<\/p>\n At the same time that MP Materials announced its deal with the U.S. government, it also announced investments from Apple Computers Inc., JPMorgan Chase Funding Inc. and Goldman Sachs Bank USA.<\/p>\n \u201cThis is the right tool because it addresses a market failure and gives investors confidence,\u201d said Bentley Allan, a professor of political science at Johns Hopkins University, and a principal at the Transition Accelerator, a Canadian non-profit.<\/p>\n In recent months, China has used its dominance of rare earths as leverage in trade negotiations with the U.S., imposing a series of restrictions on exports. Even in the latest China-U.S. deal announced in late October, China only partially lifted some of those restrictions, pausing its expansion of rare earth export controls for one year.<\/p>\n This is the right tool because it addresses a market failure and gives investors confidence<\/p>\n Bentley Allan, Johns Hopkins University<\/p>\n But breaking China\u2019s control of commodity supply chains will be valuable when it comes time to finalize trade deals, Allan said.<\/p>\n \u201cEven if the MP deal ends up costing the U.S. government US$4 or US$5 billion, you don\u2019t care if you win a trade negotiation with China,\u201d he said.<\/p>\n The new policy approach comes after governments spent years doling out grants \u2014 often worth less than $25 million \u2014 seeking to help companies advance their mining projects to the construction phase. More recently, the U.S. government has turned to tariffs<\/a> on Chinese materials, including on steel, aluminum, copper as well as critical minerals such as cobalt and graphite.<\/p>\n Canada has followed suit and erected tariffs on steel and aluminum too and, in its 2024 Fall Economic Statement, signalled its intent to slap tariffs on graphite in 2026<\/a>.<\/p>\n Eric Desaulniers, CEO of Nouveau Monde Graphite, believes Ottawa will make money from its offtake deal with the miner. <\/p>\n