Early-stage mineral prospecting could be key to Canada’s electric-vehicle ambitions, but it’s an industry that’s particularly susceptible to financial shocks.

When the pandemic hit, the industry encountered a funding gap that posed “important risks to Canada’s ability to seize opportunities related to the development of [the] critical-mineral value chain,” according to a government document obtained by The Logic. Advocates for the sector say the government was slow to react, and the country’s junior miners are still struggling for financing.

Though the prices for some battery metals like lithium and cobalt have since gone through the roof, these minerals still make up but a small fraction of junior mining prospects, despite the government’s aspirations to build a battery ecosystem “from the mine to the recycling plant.” The setback in the race to find more of them raises questions about whether Canada has the political will to better insulate the prospecting and development industry from future shocks in exchange for a way into the electric-vehicle business.

The first year of the pandemic was triply hard on the junior mining sector, which lacked access to many of the government’s early pandemic support programs, was hit in the financial markets and lost a summer field season to explore potential deposits.

Programs providing bridge financing, wage subsidies or loans excluded many junior miners, which could not meet size and revenue requirements, according to a memo prepared by Natural Resources Canada’s strategic policy and innovation sector in June 2020 for then-deputy minister Christyne Tremblay. The Logic obtained the document via an access-to-information request. 

“The viability of Canada’s juniors will dictate (to a large extent) Canada’s ability to join global supply chains in the face of competition,” the memo warns.

The sector was eager for government assistance because junior miners were especially sensitive to the volatility of the markets in March 2020. The memo notes that junior firms working on emerging critical minerals—which are key for battery production—are “perceived as being amongst the highest risk by investors” while they determine a deposit’s viability before a more senior company comes in to start production. 

Jeff Killeen, director of policy and programs at the Prospectors & Developers Association of Canada, told The Logic he made a number of calls to the government to expand those programs in the early days of the pandemic, but it didn’t happen. 

The government did, however, make what Killeen called a “very positive” decision in July 2020 that extended the timeline on flow-through-share spending, he said. The shares, which are the main way junior miners raise equity, usually come with a 12- to 18-month deadline for spending the capital they raise, he said.

“Many junior mining exploration companies faced significant challenges as a result of COVID-19, including voluntary shutdowns or difficulty accessing the field,” Natural Resources Canada spokesperson Audrey Champagne, told The Logic. 

“In response, the government of Canada extended the timelines for spending the capital junior mining companies raised via flow-through shares by 12 months. The extended timelines allowed companies with operations impacted by COVID-19 additional time to incur eligible expenses, enabling them to safely plan when to best continue operations, while allowing them to avoid costs from not meeting original flow-through share timelines.” 

The federal government has also shovelled cash across the entire mining sector to help meet its net-zero goals, including a $9.6-million Critical Battery Minerals Centre of Excellence and a $40-million accelerator that would, among other goals, work on technology to quickly bring new mineral deposits into production.

Still, the number of junior mining companies in Canada dropped by 11 per cent in 2020. Killeen said minerals associated with EV batteries, like lithium and cobalt, represented less than three per cent exploration spending in the industry last year, excluding copper and nickel—and investment will need to speed up to support Canada’s battery-powered dream. 

“They are still struggling for financing,” said Gregory Miller, an analyst at London-based Benchmark Mineral Intelligence. “For them to be economic, they really require sustained higher prices.” 

Cleantech firms also experienced challenges accessing financing during the early days of the pandemic. “Some investors have withdrawn from planned investments because of the uncertainty,” notes an August 2020 memo prepared for then-natural resources minister Seamus O’Regan.

It’s been a rough decade for junior miners, which represent 80 per cent of the project operators in the industry, as spending fell to less than half of the 2011 peak by 2019.

Miller said that while battery cell-production commitments have accelerated worldwide during the pandemic, financing activity has lagged upstream in the raw-materials end of the supply chain. And “it takes multiple years to build a mine, if it’s even successful at all,” he said. 

Yet with 40 per cent of the world’s public mining companies listed on the TSX or TSXV, a refrain of Canada’s foreign-investment pitch has been that its supply chain of critical minerals remains reliable “even when faced with a threat such as COVID-19.”

With many metals now bouncing back to high prices, the industry appears settled on the surface. Still, a KPMG survey last year found that while Canada’s mining companies are more optimistic than the global average about access to capital and their company’s prospects, the majority were pessimistic, despite a year-long rally in commodity prices.

When the report came out, KPMG Canada’s Toronto mining leader Heather Cheeseman said that small- and medium-sized miners in Canada “may not have the ability to scale up or access capital to meet rising demand, embrace innovation or address growing ESG expectations,” leading to potential consolidation. 

And Canada’s mining industry will need to do far more than simply recover to the status quo if it wants to play a major role in the electric vehicle battery business. The International Energy Agency estimates that EVs will require six times the mineral inputs of internal combustion cars, while the World Bank forecasts production of some green-technology minerals could grow by nearly 500 per cent. Junior miners, the government memo said, ensure the long-term viability of the industry.

Killeen said one way to keep spurring growth is an expected change to the Mineral Exploration Tax Credit for critical minerals, a proposition he said has government support. A lack of protection against short sellers has made Canada a less attractive destination to raise financing in the past decade, said Lewis Black, CEO of Almonty Industries, a Canadian-listed tungsten miner in Spain, South Korea and Portugal. Better protections would be another way to bolster the industry, he said.

Still, while battery metals are today touted as a path to net-zero emissions, Canada’s openness to the mining sector has historically been viewed as at odds with environmental and social stewardship. While junior miners themselves are not the ones bringing the minerals out of the ground, their reliance on equity markets also means they can’t ignore public sentiment, which is, as one headline put it, “the world wants more lithium but doesn’t want more mines.”  

“‘Rare earths’ is one of the buzzwords everyone likes. Nobody wants a rare-earths mine in their country,” said Black. 

“It’s chemical-intensive; there’s a lot of waste—there’s all kinds of things that your political base does not want. So that makes it very difficult.” 

Killeen said the government is increasingly aware of the need to invest in green mining technologies and pool together processing resources to make infrastructure spending more efficient. A report from Clean Energy Canada last year said that Canada should create a clean capital plan to fund greener mining and seek more green foreign direct investment, pointing to how Sweden has landed investments from other countries like Germany.

Black said that his company would like to eventually mine within Canada, and that governments could also streamline the process by allowing Indigenous laws to prevail whenever possible, rather than having companies reconcile federal, provincial and Indigenous laws.

“If projects are on Indigenous land, the Indigenous landowners should be the ones that set the rules,” he said.

With files from Murad Hemmadi in Ottawa