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What do you think of Canada's recent order that Chinese companies divest their holdings in three lithium juniors?
Canadian Stupidity & Hypocrisy
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On October 28, 2022 the Government of Canada announced a new Policy Regarding Foreign Investments from State-Owned Enterprises in Critical Minerals under the Investment Canada Act and François-Philippe Champagne, Minister of Innovation, Science and Industry, ordered that three Chinese entities divest themselves of their equity stakes in three Canadian listed resource juniors. These orders are a demonstration of monumental stupidity and hypocrisy. They make absolutely no sense and should be opposed because they jeopardize the role of Canadian resource juniors in identifying and mobilizing new critical mineral supply. If Prime Minister Justin Trudeau were truly serious about the energy transition he should streamline the exploration-development permitting system, resolve issues with First Nations that encourage them to block mining, provide support for downstream processing capacity, and reform securities law so that Canadians who do not qualify as "millionaires" can easily participate in private placements, the primary mechanism through which resource juniors raise risk capital.
At this point the lithium market is not vulnerable to a single point of failure or Spof for short. Lithium Mania 1.0 which started in 2015 when the EV sector took off has mobilized plenty of supply from Australia and the Lithium Triangle which over the next 5 years will deliver half the supply needed for total demand projected for 2035-2040. Lithium Mania 2.0 which began in 2021 when lithium carbonate prices started a 10 fold rebound from the 2020 gutter below $3/lb will deliver the other half from Archean cratons in eastern Canada, Scandinavia, Brazil and Africa. The supply will come from many small to medium sized mines. A Chinese state owned enterprise having a stake and even offtake agreement in one of hundreds of contenders does not alter the collective outcome, but it does help the inflow of capital from a wide range of sources.
The 3 orders seem arbitrary and capricious. What does it matter to Canada that a Chinese entity invests indirectly in a project in another country? Does this perhaps give that country the right to expropriate the project from the Canadian company and sell it to the foreign investor? And even with a Canadian based project, why interfere with what is a collective race to develop new lithium supply? So what if concentrates get exported to China for refining? The government should focus on supporting the construction of refineries in Canada and facilitating the permitting cycle. Let's look at the 3 juniors targeted by the Canadian government divestiture orders.
Lithium Chile Inc raised $28 million at $0.95 from Chengze Lithium International Ltd for its brine projects in Chile and Argentina. What business does Canada have ordering a Chinese company to not have a stake in Lithium Triangle brine projects via a Canadian listed company? Is that not the job of the Chilean and Argentine governments? If the Arizaro project does not advance because of lack of capital, maybe Argentina should take it away from the Canadian junior and give it to the Chinese investors.
Power Metals Corp has the Case Lake project which hosts a set of narrow dykes that include high grade cesium. Sinomine Rare Metals Resources Co bought 7.5 million shares in late 2021 to invest $1.5 million. As part of the financing Sinomine secured an offtake for all lithium, cesium and tantalum. But Case Lake does not even have a resource estimate yet, and Exploration VP Julie Selway, an expert on Canadian pegmatites, is still trying the find the best pegmatites at Case Lake. The offtake agreement is meaningless at this stage. Furthermore, Case Lake is very unlikely to become a future single point of failure. There are lots of other potential LCT type pegmatites in eastern Canada that will emerge as Lithium Mania 2.0 unfolds. And if by any chance 5-10 years from now it becomes necessary to allocate lithium and cesium supply to domestic users, the government can create export controls. The United States just did that to China with high end chip technology. The age of globalized free markets is over. Telling Sinomine to sell its stake in an exploration stage junior makes no sense. Sinomine already owns the Bernic Lake operation which used to produce cesium but Sinomine now wants to mine the spodumene left behind. Wouldn't it make more sense to force Sinomine to divest itself of the former Tanco operation in Manitoba it bought from Cabot?
Ultra Lithium Inc owns the Laguna Verde brine project in Argentina and a net 40% stake in its Georgia Lake area properties after selling 60% to a Chinese company called Yahua which has been busy doing deals with Australian companies. Zangge Mining Investment (Chengdu) Ltd invested $4.1 million at $0.18 to acquire 23 million shares earlier this year. The junior has 2 China based directors from a decade ago who together own 40.5 million shares. Why not also create a ban on Chinese nationals owning shares in any Canadian listed company? Do we really want to decide who is allowed to invest in resource juniors? Maybe it might make sense to block a Chinese entity from buying out a Canadian junior with a critical metals project in Canada that is ready to be built. But worry about that later. None of Ultra Lithium's projects are at an advanced stage.
What the Canadian government should really focus on is its permitting cycle and unresolved First Nations problems. Consider the Spof vulnerability created by Brazil's domination of niobium supply from a single giant world class deposit called Araxa. Niobium is indirectly critical to the energy transition for its role as an alloy that strengthens steel which in turn allows light-weighting, meaning lower energy consumption when transporting goods. There is only one other deposit like Araxa, and it is also in Brazil in a hopelessly remote corner of the Amazon Basin. All other niobium enriched carbonatites are substantially smaller and lower grade. Global supply comes from 2 other such mines, one in Brazil controlled by a Chinese company called China Molybdenum, and the other is privately owned Niobec in Quebec. Araxa supplies 85% of global niobium output which goes mainly into steel. Toshiba is working on a niobium-titanium anode which would be a superior replacement for the graphite anode in the lithium ion battery. Brazil just went through a tumultuous election. Araxa is a huge single point of failure risk.
Canada's second best niobium deposit after Niobec is the James Bay deposit in northern Ontario owned by NioBay Metals Inc. A PEA done in 2020 shows that the deposit is viable at current niobium prices which Araxa's owner CBMM cultivates to maximize its domination of global supply, just high enough to allow some other deposits to be profitable, but not others such as Niocorp's Elk Creek carbonatite in Nebraska. Niobay has a drill permit that would let it take James Bay through the PFS stage. Local politics involving the Moose Cree First Nation has stalled work on advancing James Bay. The stock, which should be in the $2-$5 range while it advances James Bay toward a production decision with a future target price range of $10-$20, has collapsed to a dime after raising $10 million plus in 2020. Why doesn't Prime Minister Justin Trudeau step in and get exploration of the James Bay deposit back on track? Lithium Mania 2.0 will deliver dozens of potential pegmatite lithium mines in eastern Canada. Right now there is only one potential additional niobium mine in Canada and it is blocked by a local anti-mining lobby encouraged by outsiders who do double duty railing about the need to ban fossil fuels. Shame on Trudeau for his stupidity and hypocrisy. |
