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Minister of Natural Resources Jonathan Wilkinson participates in a fireside discussion in Ottawa on Feb. 1.Justin Tang/The Canadian Press

The federal government is considering taking equity stakes and advancing loans to Canadian critical minerals companies, as it mulls following Quebec’s lead in moving to a much more active role in Canada’s industrial policy.

Federal Natural Resources Minister Jonathan Wilkinson said in an interview earlier this week at the Prospectors & Developers Association of Canada (PDAC) mining conference in Toronto that the equity stakes could come through the soon-to-be-launched Canada Growth Fund, and loans could be arranged through the Canada Infrastructure Bank.

“We’re certainly talking about this in the context of the run-up to the budget,” said Mr. Wilkinson. “Which is what will Canada need to do to ensure that its mineral and minerals processing sectors are competitive.”

Until now, federal government investments in the critical minerals supply chain have mostly been grants to large foreign-owned automakers and mining companies. The move to provide equity and loans to much smaller Canadian mining companies will potentially help them embark on risky projects with long lead times that struggle to raise funds form the private sector.

The federal government’s move would also mirror what Quebec has already been doing since 2011 through its ambitious Plan Nord natural resources development strategy. In 2014, Quebec invested $222-million in debt and equity for the construction of Stornoway Diamond Corp.’s Renard mine in the James Bay region. Renard was the first diamond mine in Quebec.

Over the past five years, the province has also invested hundreds of millions into the equity of Nemaska Lithium Inc., which is building a lithium mine in Quebec. If Nemaska succeeds, it would be the first non-Chinese-owned lithium producer in Canada.

“We are very cognizant of the good work that Quebec has done,” said Mr. Wilkinson. “That’s informing some of the thinking around [establishing] the Canada Growth Fund, which is essentially intended to be a vehicle through which equity investments will be made by the government, potentially on concessionary terms to attract more private capital.”

The pivot in the federal government’s strategy to take a more active role in industrial policy has been heavily influenced by deputy finance minister Michael Sabia. Before joining government, Mr. Sabia had a long career in business, including stints as chief executive officer of BCE Inc., chief financial officer of Canadian National Railway Co. CNR-T, and head of the $400-billion Caisse de dépôt et placement du Québec.

“He certainly understands the investment climate in Quebec, and how the government has actually been part of the success of building some parts of the industrial economy,” said Mr. Wilkinson.

The Canada Growth Fund was announced in last year’s budget, and will be backed by $15-billion in federal funds. The money will be invested in the shares of companies involved in low-carbon industries, including critical minerals companies aiming to produce metals such as lithium, cobalt, nickel and graphite, which are used in electric vehicle batteries.

The fund’s objective is to help Canada better compete against similar global initiatives like the 10-billion-Australian-dollar (about $9.1-billion) clean energy finance corporation in that country, and Japan’s 2-trillion-yen (about $20.3-billion) green innovation fund.

Mr. Wilkinson also admits to being taken aback by the size and scale of U.S. spending on climate and critical minerals initiatives. As part of President Joe Biden’s Inflation Reduction Act, passed last year, the administration dedicated US$369-billion toward climate and energy spending. The Department of Energy has a mandate to provide tens of billions in loans to North American critical minerals companies.

The U.S. Department of Defense is also considering funding dozens of early-stage feasibility studies for North American critical minerals companies that could run in the hundreds of millions of dollars.

Last year, Canadian announced its first major round of funding for the domestic critical minerals industry, consisting of $3.8-billion over eight years. Since 2022, $1.5-billion has been dolled out by the federal government to various companies in the critical minerals supply chain. Among the recipients have been Stellantis NV, General Motors Co. GM-N, BHP Group Ltd. BHPLF and Rio Tinto Group, who received funds for a battery plant, a battery parts plant, a potash mine and a titanium project, respectively.

Smaller mining companies have groused that they have been left out of Ottawa’s funding initiatives, and they have complained that the federal government made it harder for juniors to raise capital after it ruled last year that it was effectively outlawing any further investment from China, because of national security concerns.

But it’s clear that Ottawa is now turning its attention to exploration and development companies. Just this week, as part of that initiative, Mr. Wilkinson announced $14-million in funding for junior miners Sherritt International Corp. SHERF, E3 Lithium Ltd. ETL-X, FPX Nickel Corp. FPX-X, Search Minerals Inc. SMY-X, Geomega Resources Inc. GMA-X and Prairie Lithium Corp. All were identified as having technologies that could prove to be innovative in critical minerals, and all are embarking on pilot studies that could lower the cost of production and reduce carbon emissions.

In looking ahead to this year’s federal budget, Mr. Wilkinson acknowledged that while Canada doesn’t have the firepower of the United States in spending, Ottawa will attempt to be more “strategic” as it deploys funds into the critical minerals sector.