A week ago, the shareholders of Canada’s Neo Lithium approved the sale of the TSX Venture Exchange-listed company to China’s Zijin Mining for about $960-million. The announcement received little coverage and appears to have bothered almost no one in the federal government. It should have.
While Neo Lithium is hardly a household name, and the company is relatively small, its purchase should have raised a stink not just in Ottawa but in Washington and among North America’s electric-car makers. That’s because lithium is an essential component of the batteries that power electric vehicles (EVs), a suddenly burgeoning market, and vast amounts of the global supply of the light, silvery-white metal are going to Chinese companies.
China has been quietly buying lithium producers and deposits around the world for years and is also going after cobalt, another vital component of car batteries, and rare earths, a group of 17 specialty metals that are indispensable for the manufacture of high-tech products such as electric motors, mobile phones, wind turbines, hard disk drives and LEDs.
China’s strategy is obvious and hardly a secret: It wants to lock up the raw supplies and the processing capability of the metals that will power the next industrial revolution, from EVs and other clean-energy innovations to leading-edge consumer electronics.
By all accounts, it has a strong lead in these metals, leaving North American and European companies to play catch up – if they can. Only recently have Western governments realized the mistakes they made by not insisting years ago on the careful screening of foreign takeover attempts in this industry. Free-market ideology meant that management and shareholders got their way with minimal government or regulatory interference.
A recent report by the Center for Strategic and International Studies pretty much concludes that the game is all but lost for the West, as China has built stakes in the “green” metals required to decarbonize the world’s energy supply and transportation systems. “No longer a simple mineral producer or component assembler, China is emerging as a higher-value manufacturer that requires a growing volume of the minerals and metals that are considered key to clean energy technology manufacturing,” the report says. “China has become a dominant stakeholder in the global supply chains for critical minerals and clean energy goods.”
The report estimates that China is home to 90 per cent of the world’s solar photovoltaic manufacturing industry. In lithium-ion battery cell manufacturing, China’s global share is 80 per cent, and its lithium refining capacity is estimated at 60 per cent. It controls about half the value chain for wind turbines, including their blades, generators and gearboxes.
While China is a mining powerhouse on the home front, its domestic reserves are insufficient to feed its manufacturers. So it has gone abroad to find the raw materials.
It has invested heavily in the Democratic Republic of the Congo, home of almost two-thirds of the world’s cobalt supplies, and accounts for more than 70 per cent of cobalt refining capacity. In 2016, during the Obama administration, China Molybdenum bought one of the world’s biggest cobalt operations, in the DRC, from Freeport-McMoRan, a U.S. mining giant. Four years later, in the last days of the Trump presidency, China Molybdenum bought another enormous cobalt reserve from Freeport.
The timing of the purchases was perfect. In the past couple of years, EVs have gone from niche to mainstream products, with virtually every major automaker pinning its future on them. A survey by KPMG of 1,100 global auto executives found that more than half of their auto sales will be EVs by 2030.
China’s plan on the critical metals front has been called the “apple seed strategy”: It plants a lot of seeds around the world in small companies and projects with big long-term potential, even if it recognizes that some of them could go nowhere. Zijin Mining’s purchase of Neo Lithium, which bills itself as “The Next Major Lithium Producer,” was part of that strategy. The Canadian company’s vast lithium project is located in northwestern Argentina, near the Chilean border.
China is going after U.S. lithium companies, too. But the United States is starting to see a backlash against acquisitive Chinese companies, partly because President Joe Biden is making EVs central to his climate-change agenda. In November, when he visited a General Motors factory, Mr. Biden said, “You know, up until now, China has been leading this race, but that’s about to change.”
He must have been happy when Lithium Americas, which trades in New York and Toronto, won an international bidding war for Canada’s Millennial Lithium. The war started in July, when China’s Gangfeng Lithium, one of the world’s top producers, bid for a stake in Millennial. Chinese battery giant CATL joined the bidding a few months later. In the end, the U.S. company beat its Chinese rivals for the prize.
But no one saved Neo Lithium from a Chinese takeover, though it’s possible the deal could still be blocked by Ottawa. All the proposed takeovers of lithium companies and others that produce essential metals for the green revolution need to be reviewed, regardless of size. Only now is the government of Prime Minister Justin Trudeau waking up to the threat of handing China the keys to the next industrial revolution and job-creation machine.
Mr. Trudeau wants to make Canada a global leader in EV battery production and has asked for a review of investment legislation to protect the critical mining sectors from hostile foreign takeovers. The move, revealed this week, is the right thing to do – but should have come many years ago. China’s lead may be unassailable.
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