Stephen Meurice: If you can hear me right now, chances are you have critical minerals to thank. That’s because they're used in the manufacturing of just about all modern technology: your phone, your earbuds, even the servers and cables used to download this episode. They’re also essential for green energy – solar panels and electric vehicle batteries, just to name a couple. Minerals like lithium, nickel, rare earth metals. They're all key to the global energy transition.
Rebekah Young: Basically, the world needs critical minerals to get to net zero.
SM: That’s our guest today, Rebekah Young.
RY: The world doesn't have enough as it is. And what we do have is concentrated in just a handful of countries.
SM: Rebekah is the Head of Inclusion and Resilience Economics at Scotiabank. And she recently put out a report all about these critical minerals and how a green energy transition rests largely on just a few countries that mine and refine them.
RY: Canada can't go it alone and no country can. So, we need to find a few selective partners where there's mutual interest to work together and we’ve got that in the Americas.
SM: This episode Rebekah will be speaking with Armina Ligaya to give us a critical minerals 101 lesson. She’ll tell us exactly what they are, where they’re found, what they’re needed for, as well as some context around the global demand and the challenges Canada and the world will face to meet that demand.
I’m Stephen Meurice and this is Perspectives.
Now, here’s Armina Ligaya...
Armina Ligaya: Hi Rebekah, welcome back to the show.
RY: Thanks for having me.
AL: Maybe we can start with a really, really basic question. What exactly are critical minerals?
RY: So, minerals are basically rocks in the ground. Now, critical minerals, by definition, have two features. First of all, they're generally stuff that we need for modern technologies, for clean technology, for things like cell phones, you know, solar panels. But the second part of the definition, making it critical, is that they're actually subject to supply risks. So, there's a chance that we need them, but we can't get them. So really, in a nutshell, that's what critical minerals are. Now, the list is exhaustive, so there's no one critical mineral. Even in Canada, the Canadian Critical Minerals Strategy names more than 30 critical minerals as deemed essential. But they do narrow that list down to a subset of six. So the six that Canada says is really, really critical are copper, lithium, nickel, cobalt, graphite and rare earth elements.
AL: I wanted to ask you a little bit more about those minerals and what they're used for. But I did want to mention, because I just learned that on top of being an economist, you’re actually also a chemical engineer and you started your career as a mining engineer in the field. Boots on the ground. So, you’re the perfect person to cover this topic. So what these critical minerals used for? What are the applications that the average Canadian might be familiar with?
RY: So overall, you know, they are used in high tech products. Pretty much everything that we're touching, everybody's got a cell phone. So that is what I would say is like modern technology. So critical minerals are used in, you know, batteries, for example and semiconductors. And we saw what semiconductor shortages did to global supply chains. What we're seeing, though, is a lot of clean technologies are basically high-tech products. They've got very sophisticated technologies behind them and materials going into those products. And so, if you think of the best example we all know about right now are electric vehicles and more specifically, electric vehicle batteries. Also, wind turbines, electricity grids, solar panels. You name it, these clean tech products generally have very strong demand for critical minerals. Just to give you an example of how much these clean technologies would use in terms of critical minerals relative to their more traditional fossil fuel products, is that a typical EV would use about six times the amount of critical minerals as a traditional vehicle.
AL: Wow. Yeah, I want to follow up on that last point. How critical are critical minerals if we're trying to reach our various net zero targets?
RY: Well, I mean, in short, they're hugely critical. And so, to give you an example, the International Energy Agency lays out scenarios and it’s basically what would it take to get to net zero by 2050? These technologies should result in about more than half of the emissions reductions that we expect on that path. So, you can see how important those technologies are to getting to net zero by 2050. And so, the critical minerals then that are needed to go into making those technologies, you can just see how much we really need. You know, the IEA is saying we need to triple, maybe even quadruple the critical minerals on a path that's consistent with that demand. So clearly, we've seen inordinate investments in things like capital exploration of critical minerals over the last couple of years. But we need multiples more than what we've seen to be consistent with net zero.
AL: So, Rebecca, I wonder if you can give me, with your mining engineer and economist and chemical engineer background, can you give me the one on one on critical minerals? Like what does it take to actually get them and get them out of the ground?
RY: I think very simplistically, if you kind of think of it in three buckets of markets. So you've got the extraction, kind of getting it out of the ground. You then have refining it. So, breaking up the rock and taking the critical mineral out ,the stuff that you need in order to then go to the third phase, which is manufacturing or producing the final products or these clean technologies that we've talked about. And so, they kind of all have distinct features. And so, if you think, for example, about extraction, that's incredibly concentrated just because of kind of naturally where these geological deposits sit. Just to give you an example of some of the concentration risk in some critical minerals is that almost 80% of global cobalt is mined in the Democratic Republic of Congo. If you look at things like rare earths or graphite, China has about 60% or more of global mining output. And you know, one metric that we sometimes look at as economists is that about half the world relies only on one provider of raw materials, of raw critical materials. So, they're really kind of hamstrung if things go wrong.
AL: Do we have any of those things? Do we have any of those deposits?
RY: Canada does, actually. So Canada, for the most part, in a whole array of critical minerals punches above its weight. Now admittedly it’s modest in some cases. So, you know, there are a host of reasons we're in a good position, but we can't go it alone without better collaboration.
AL: All right, so going back to how these critical minerals are processed, you talked about extraction, the next step you mentioned is refining?
RY: Yes. So refining is very interesting and very critical right now because this is where the real concentration is happening. So, yes, we've got most critical mineral extraction within three countries alone. But now China more or less has locked down all the key critical minerals. So, we've got lots of plans to do it within our own boundaries and within our own hemisphere. But it is capital- and it is time-intensive. It doesn't come on right away. But if you look at the concentration in China, for example, they pretty much refine all of the world's graphite. About 90% of the world's rare earths they’re refining. You look at cobalt, it's two thirds. You know, you go down the list and you just see red. They have refining locked down. And so, you can't manufacture batteries in Canada or the U.S. right now if you're relying on these rare earths or graphite that are still produced in China. And China knows that. So, they've introduced export restrictions on things like graphite recently. We're seeing other countries nationalize lithium. We're seeing a whole array of policy measures to protect interests. And that's where it's great that we're investing in manufacturing and we're providing incentives for manufacturing in Canada and U.S. in Mexico. But you can see how you're beholden that full value chain, but in particular, China.
AL: So, what is the current demand now for critical minerals and what does that look like in the coming years?
RY: The good news is that there has been a surge in commitments and investments around the world. And, you know, that's been driven, for example, by USIRA, their Inflation Reduction Act, which we all know is misnamed. It really is massive subsidies for roll out of a clean investment agenda. So, it's been, you know, a major driver we also saw in the European corner, first of all, just had already been moving in this direction. But then the Russian invasion really spurred on momentum in investment because of energy shortages. So, there has been this perfect storm and a good sense of it's been kind of a global movement towards stronger commitments, at least intentions for stronger investments towards this green transition. You know, I defer to my equity research colleagues to go kind of specific mineral by mineral. But just to give an example that we saw, lithium. So lithium, big source of lithium demand comes from EV batteries. EVs took off in 2021, 2022, even most part of 2023. And despite lithium output increasing by something like 65%, it still fell short of demand for lithium. But demand and prices right now are clouded by these cyclical factors of what's going on in the global economy. And I think what we're going to see is, looking forward, kind of this structural tightness. But importantly, and unfortunately, lots of volatility and uncertainty. If I had to put a name to what that outlook looks like, I would say kind of tight but volatile, with a great big asterisk on it.
AL: So why the asterisk?
RY: Well, I think there are just so many uncertainties on the path ahead. And so, first of all, I'm assuming that collectively we don't walk back from our ambitions. It's also around those economic factors. Weaker than anticipated growth could dial back some of those ambitions. But I think the really big asterisk, though, is on supply. Like do we have enough critical minerals to meet ambitions? Are they at a price we can afford to meet ambitions? And we did see when prices spike last year and the year prior for critical minerals, what we saw is that the cost of clean tech products that have been coming down on the basis of innovation and economies of scale had suddenly stalled and started going back up. So, I think there is this risk that we don't have enough materials to produce the stuff that we need and that we want for this orderly transition. But I think the really big elephant in the room is the security. So, the stuff we are getting out of the ground and the stuff that we say we're going to get out of the ground is mostly concentrated in just a handful of countries. And, you know, quite frankly, very weakly governed countries. Countries that aren't very open to trade, are pretty opaque. And so we're relying on this subset of countries really to produce the stuff that we want and need. And the OECD, for example, has flagged the risk here. They've noted that there's been like a fivefold uptick in export restrictions around raw critical mineral materials over the last decade. So, you can see we're moving in the opposite direction of where we need to go when everyone needs this stuff. We don't have enough of it and we're starting to hoard the stuff we have for our own self-interests.
AL: I wanted to dig into that last point a little bit more, because you would mentioned off the top as well that a North American corridor of sorts would be one approach to at least help Canada retain more access to these critical minerals. Because there's obviously a geopolitical aspect to this and there's a broader trend of nearshoring as well. So, could you walk me through a little bit how relying on our neighbours, as you've mentioned before, would be a good solution to ensure we have access to these key critical minerals?
RY: I think you nailed it on that point, no country can go it alone. And I think countries are realizing that. So, you know, yes, Canada, for example, does have a broad array of reserves of critical minerals and even more resources beneath our soil. But it's not uniform. We also see partners south of the border, particularly in Latin America, whether it's Chile, Peru, Mexico, that also have reserves, critical mineral resources that punch well above their weight in the global economy. So, I think that we realize that we can't go it alone. But at the end of the day, we still all have our own individual country led critical minerals strategy and the sum of the parts don't add up. I would say we're seeing positives. We are seeing corporate-led vertical integration. We're seeing vehicle makers getting into battery chain, battery suppliers, getting into raw mineral extraction. And we're seeing it not just in a Canada-wide, but, you know, North America-wide as well. But I would say we need to take it even a level higher. We need a greater degree of harmonization. And to give an example, policies. Capital is global. Businesses tend to be global in mining. And I should say Canada has a real advantage there. It's not just the minerals we have beneath our own soil, but it's also this global hub for mining capital, even beyond our borders, that we really can kind of stand on and leverage. But if you take the example of the policy landscape, if you are global capital, if you're a business looking at investment opportunities around the world, well, you've got this patchwork approach to tax incentives to a whole host of policy measures that differ country by country by country. So that seems like it should be an easy win. I'm clearly not a politician or a political scientist, for that matter. But even just a start of harmonizing the policy and tax landscape for these critical minerals, I have no doubt we're never going to get there, you know, in a broader tax or policy landscape, but be really laser-focused in that perspective. I think also on the financing landscape, how do you make capital more borderless or seamless across borders? How do you bring in some of the high competency of what so-called blended finance that international financial institutions can do? They traditionally do it in emerging markets, basically de-risking investment to try and private sector investment. But how do we get that working seamlessly across the Americas in this continental corridor concept? The bottom line is deep, deep integration beyond anything you're really that we've seen before. But the cost of not doing so is just so high, both the opportunity cost economically speaking, but also environmentally or climate speaking of not meeting our ambitions as a result of critical minerals shortages.
AL: So then what would you say is the one key takeaway for the average Canadian about this?
RY: I would say that the economic opportunity on the path to net zero is enormous. Economic climate, social — lots of positive dividends if we can get it right. Now, the math is extraordinarily ambitious. In a perfect world, it's likely impossible in an increasingly fragmented world. And really, the IEA has set out what they call the essential trinity for critical minerals. We're not meeting any of the three. So, future supply is not keeping pace with the scenarios consistent with net zero. We're not making progress on diversification of that supply. And consequently, there's little confidence that this supply will be clean, responsible or secure. But I would say, though, that getting there is not impossible, but it would require unprecedented level of cooperation. So, I think it's a bit of a message to Canadians, all hands-on deck and not just Canadian hands. We need to work with partners. It's really a policy message as well. How do we use all the levers to work with like-minded partners that see the imperative of working together as well?
AL: Well, thank you so much, Rebekah. Really appreciate you coming on the show and walking through this complex issue, but an incredibly important one.
RY: Thank you for having me.
AL: I’ve been speaking with Rebekah Young, Vice President and Head of Inclusion and Resilience Economics at Scotiabank.
