Critical Minerals
North America moves towards a more secure supply chain
When BHP and Andrew Forrest’s Wyloo Metals engaged in a bidding war to acquire Noront Recources’ high-grade nickel deposits in the largely untapped region of northern Ontario dubbed the Ring of Fire, it was indicative of a major shift in which mining heavyweights are racing to control more supplies of the raw materials that are key to transitioning to low-carbon energy sources. The justification for the C$617 million acquisition of Noront was rooted in the fact that, according to International Energy Agency estimates, demand for nickel is set to grow 19-fold by 2040 if the world is to meet the Paris climate goals. Concomitantly, the increase in supply this decade is set to come from Indonesia, a market overwhelmingly powered by coal-fired electricity where Chinese companies are building nickel processing projects. The Noront deal is reflective of Ontario’s position as a geopolitically stable jurisdiction with a relatively low-carbon electrical grid, which makes it a place that can be relied upon to produce, and process, the metals required for the energy transition in a sustainable manner.
“Eagle’s Nest is groundbreaking, because it is one of the largest undeveloped, high-grade nickel-copper-platinum-palladium deposits in the world.”
Luca Giacovazzi, CEO, Wyloo Metals
“Allowing the communities to lead, in our view, transforms the project from a binary risk to a schedule risk. What we are working on now is how to go as robustly and as quickly as we can together.”
Stephen Flewelling, CEO, Ring of Fire Metals
The case is similar for many of the critical minerals, such as copper, cobalt, lithium, graphite, and others that are anticipated to see precipitous increases in demand as electrification becomes more widespread and supply chains more local. In spite of coming up short on its acquisition of Noront, BHP's dedication to identifying promising copper and nickel exploration prospects in Ontario is evident through its establishment of a presence in the region. The relocation of the company's metals exploration team to its Toronto office in 2021 further underscores this commitment towards identifying long-term opportunities related to copper and nickel. “We chose Toronto because it is a center of excellence for talent and mining companies. There is a critical mass of mining companies in the city, and being in Toronto positions us closer to key business partners, news and deal flow, and capital markets activity – all of which supports our growth conversation,” noted Keenan Jennings, vice president, metals exploration at BHP.
Looking to capitalize on favorable market conditions for nickel, Sean Samson, president and CEO of Rogue Resources, spun out its Langmuir project, located Southeast of Timmins, to found newly listed nickel explorer EV Nickel. Although the historic Langmuir W4 resource is less than 700,000 t, Samson sees it as a starter resource as the deposit is at surface, good grade, and has not been properly explored. The opportunity lies in pulling together more land and ultimately building a good nickel business through a combination of high-grade, starting with the W4 deposit, plus any additional mineralization down the trend, and a huge amount of exploration potential for low-grade ore in the north of EV Nickel’s property, which they refer to as the “Large-Scale” targets. According to Samson, the OEMs they talk to find EV Nickel compelling for three reasons: “One, we have known grade in the ground; Two, we have a production pathway; and Three, Canada is part of the localized supply chain requirements for North America and qualifies under the Inflation Reduction Act as domestic production for the US.”
A final factor that can differentiate a company working with an OEM concerned with carbon footprint is having a low-carbon cost associated with the mining operation. Although most markets are not yet bifurcated based off of carbon metrics, Samson anticipates the market will shift toward greater differentiation in the future based on what quartile of carbon cost comes attached to each nickel unit. “I believe we are going to see that priced into future supply arrangements, and the nickel world is going to start segmenting itself. This is why we want to be positioned in the lowest quartile in terms of carbon cost,” he concluded.
Sudbury-based Magna Mining is adding to the momentum around nickel with its completion of a feasibility study on its Shakespeare project, and its acquisition of Lonmin Canada, whose Crean Hill project is a nickel mine in the same jurisdiction as Shakespeare. In explaining his strategy behind the deal, Jason Jessup, CEO of Magna Mining said: “We think that we have positioned ourselves uniquely in the nickel space given our presence in a tier one jurisdiction, with two advanced nickel assets, and permits to build our own mill. Our vision is to become a hub and spoke producer over the next few years.”
“Ontario has tremendous potential for additional nickel discoveries, and I think Sudbury, despite it having been mined for over 100 years, still has great potential as well.”
Jason Jessup, CEO, Magna Mining
Hedging Commodity Risk
One of the more advanced critical minerals players in Ontario is Generation Mining, which is now on the cusp of construction at its Marathon palladium copper project situated along the Trans-Canada Highway in Northwestern Ontario. Marathon’s primary commodity is palladium, a platinum group metal used in catalytic converters and automobiles. One positive demand driver is that China is increasing the amount of palladium required in each car to lower pollution levels. India has followed, where we are now seeing cars manufactured with substantial amounts of palladium for the first time. Hybrid cars are also getting more popular, and they need more palladium than a typical vehicle.
The bear case for palladium is one in which electric cars begin to dominate the market. However, the secondary commodity Generation intends to produce is copper. While a typical gasoline powered car uses about 40-45 lb Cu, a typical electric car uses 180 lb Cu, and every EV charging station requires an additional 40-50 lb Cu. “This provides Generation Mining with a built-in hedge. If electric cars get really popular, copper is going through the roof. That is why Goldman Sachs is talking about copper potentially reaching US$6-8/lb,” Generation Mining executive chairman Kerry Knoll proclaimed.
Clean Air Metals’s Thunder Bay North project’s optionality is equally compelling with its 1:1 platinum to palladium ratio. The company released a PEA in January of 2022, which revealed that it could build out a 10 year mine plan on the two assets, providing feed to a single mill with fully discounted cash flows of C$425 million with a 31% IRR on initial capital of C$367 million. In conversation with Abraham Drost, CEO of Clean Air Metals, he expressed Clean Air’s need to demonstrate proof of concept. “The market is skeptical that a couple of castaway assets from major mining companies will lead to a successful outcome. The proof of concept is to demonstrate to the market with a pre-feasibility study that we hope to deliver in Q3 2023, that in fact, we can generate proven and probable reserves on these two assets together. This gives us scale, and by building out an underground mine on both, each supplying feed to a single mill, we will have a project with sound economics,” he said.
One of the key validation moments came at the end of 2022, when Clean Air Metals closed a C$15-million mineral royalty financing agreement with Triple Flag Precious Metals Corp, which features a 2.5% net smelter returns (NSR) mining royalty for all mineral product produced on the Thunder Bay North critical minerals project.
Reshoring Refining
Electra Battery Materials is a company looking to be a first mover in reshoring North America’s battery material refining capacity. According to Trent Mell, the company’s CEO, Electra’s plan is to leverage an existing brownfields refinery it acquired in 2017, which has permits in place, to commence its journey with cobalt refining. Electra’s cobalt-sulfate refinery is scheduled to be commissioned in mid-2023, and thereafter, the company will take a multipronged approach. This includes processing black mass, and then after that looking at introducing both nickel refining and ultimately manganese refining. All of that will support precursor manufacturing, which is the next step of battery manufacturing in North America.
A significant accelerant encouraging Electra’s development was the adoption of the Inflation Reduction Act (IRA), which Mell calls “transformational” for the company and for Ontario’s critical material supply chain. “We were already on a path where, by 2025, we would see a notable uptick in domestic manufacturing of batteries and EV plants, so we were gearing up early for that transition. However, with the adoption of the IRA, there is now a huge imperative for battery makers and their OEM clients to stop buying out of China,” said Mell.
The reasoning for the urgency is twofold: First, more raw materials in EVs will be required to come from North American or free trade countries. Second, if an OEM buys any critical minerals from a country of concern, for example Russia or China, the US$7,500 vehicle credit drops to zero. In response, LG Energy Solution signed a strategic relationship with Electra. “This put us on the radar with anybody looking to onshore in North America, because there is a dearth of opportunities to onshore the refining part of the supply chain,” Mell added.
“Billions of dollars of investment are being onshored into EV assembly plants and battery manufacturing, however, nobody is doing the refining piece. Electra views itself as a bridge between mining in North America and the battery manufacturing process.”
Trent Mell, CEO, Electra Battery Materials
Rare Earths
One of the most acute vulnerabilities with respect to critical minerals is in the rare earths space. According to USGS figures, China has the world's largest reserves of rare earths, making up over 36%. 78% of US rare earth imports were from China. Toronto-based Appia Rare Earths & Uranium Corp., whose projects are located in the Athabasca Basin area of Northern Saskatchewan and in the historic uranium camp at Elliot Lake, Ontario, is working to provide an alternative source for US rare earth imports. Tom Drivas, president and CEO, explained that the resources Appia has found to date at Alces Lake appear to be some of the richest rare earth occurrences globally, with grades up to 49% Total Rare Earth Oxides (TREO). The company has completed 100 diamond drill holes for a record 17,480 m of diamond drill core at Alces Lake within four and a half months, and much of the resource lies at or near the surface, with naturally concentrated monazite currently being delineated. Consequently, the mining will be straightforward, and investors can rely on the fact that a rare earths processing plant is being built in Saskatchewan by the Saskatchewan Research Council thanks to the multimillion dollar investment from the government. “China still controls about 80% of the rare earth industry today, and the world can only supply enough rare earth elements to meet current demand. If, as experts project, increasing EV sales rise five times, it will create a considerable supply gap in the market for rare earths,” Drivas commented.
“Canada excels primarily due to our ore grades. A typical operator around the world is mining at 0.4-0.5%, the mines in Canada are 3-4%, and our biggest mines are 20% ore grade, which is unheard of.”
Chris Frostad, President and CEO, Purepoint Uranium Group Inc.
Uranium
Another player making inroads in the Athabasca Basin is Purepoint Uranium Group, which is capitalizing on renewed investor interest and demand for uranium in light of rising energy prices. This follows a difficult decade wherein 10% of the world’s nuclear reactors were taken offline by Japan. Meanwhile, production out of Kazakhstan increased from zero to supplying 40% of the world’s uranium today. That led to a supply overhang of uranium, and a languishing of the commodity price. “As the price of uranium steadily dropped, many mines shut down or reduced production. Over the past three or four years, we have been producing 20 to 30% less uranium than we have been using, and we are now seeing a balance in supply and demand returning to the market,” explained Purepoint Uranium president and CEO Chris Frostad.
Now that prices have recovered, Purepoint has the capital to advance all of its 12 projects. The company is in a desirable position given it began assembling its portfolio 10-15 years ago, and has been able to maintain it while things were quiet. “We were also able to pick up a lot of projects during that downtime. We believe our portfolio has the highest likelihood of success, as we have had the time to construct a portfolio of the most prospective projects,” said Frostad.
Article header image courtesy of Wyloo Metals