This is the second part in a series on lithium. For part 1, click on the link below:

Lithium Series, Part 1: The Never-Ending Lithium Boom

As discussed in Part 1 of this multi-part series, the never-ending bull market for lithium will provide huge opportunities for companies and countries that can bring new lithium supply online relatively quickly and efficiently, especially from higher quality resource, in the coming decades.

Canada may have relatively small resource compared to several other countries, but it has the potential to slug significantly above its lithium weight class in the future for a simple reason — the world again breaking into trading blocs with rising tensions between the democratic West and an increasingly assertive authoritarian bloc led by China and Russia.

“The resurgence of geopolitics is having a drastic impact on the global lithium industry,” Brian Jaskula, the top lithium expert at the U.S. Geological Survey (USGS), tells the Bulletin. “Most of the world is doing what the U.S. and Canada are doing because of Chinese dominance, creating their own domestic supply chains for security of supply reasons. There will still be trade between regions, but it will be between countries that trust one another.”

Democratic countries in Asia, Europe and North America are rushing to slash their reliance on the Chinese lithium supply chain, while Canada is one of the two countries firmly in the democratic bloc with the wherewithal to securely meet their skyrocketing demand for lithium in the future.

The competition

On the surface, it should be extremely tough for Canada to become a major lithium producer, being no more than an inconsequential player at the present time and with the expectation of sky-high prices for decades to come contributing to a long list of projects in countries with far greater lithium resource.

Canada produced only 500 tonnes of lithium in 2022, from a single mine in the Northwest Territories, representing a mere 0.4 per cent of the global total based on USGS data (see Figure 1). In contrast, Australia dominated global lithium production last year, producing almost half of the global total, with Chile and China at 22 per cent and 15 per cent, and Argentina and Brazil forming a third tier at five per cent and two per cent, respectively.

In terms of identified lithium resource, Bolivia, Argentina and Chile account for over half of the global total — 21 per cent, 20 per cent and 11 per cent, respectively — with massive resource high in the Andes in the so-called Lithium Triangle. Forming a second tier, the U.S. holds 12 per cent, Australia eight per cent and China seven per cent — with the quality of Chinese resource generally low as mentioned in Part 1. At 2.9 million tonnes, Canada accounts for only three per cent of total global lithium resource.

The democratic bloc

However, in mid-June, the lithium playing field tilted in Canada’s favour when the U.S., Canada and leading democratic countries in Asia and Europe established the Minerals Security Partnership (MSP) to secure the supply of critical minerals — such as lithium — from ideologically sympatico countries.

The MSP builds on efforts by the U.S. and Canadian governments to develop a North American supply chain for lithium and other critical minerals, starting with the Canada-U.S. Joint Action Plan on Critical Minerals Collaboration in January 2020.

In addition to Canada and the U.S., the MSP includes Australia, Finland, France, Germany, Japan, South Korea, Sweden, the United Kingdom and the European Commission. In essence, the MSP is a preferred buyers and sellers club for critical minerals.

In terms of lithium, Australia is presently the only major exporter in the MSP, and Canada is the only country with the potential of becoming one in the future. Germany and even more so the U.S. may also have significant lithium resource, but they are both likely to face greater domestic resistance to its development given their higher population densities — and hence potential for Nimbyism and legal actions to thwart projects — while requiring massive amounts of lithium themselves given their industrial might and world-scale vehicle manufacturing sectors.

Why not other democratic countries?

The logical question to ask at this point is: why is membership in the MSP so exclusive, especially when several other large lithium exporting and/or high lithium resource countries in the Western Hemisphere are also democratic? These are the Latin American-5: Argentina, Bolivia, Brazil, Chile and Mexico.

The simple answer to that question is “friend-shoring.” In a speech to the Atlantic Council in April of last year, shortly after Russia’s invasion of Ukraine, U.S. Secretary of the Treasury Janet Yellen presented the basis for the new politico-economic order, a world of trading blocs, much like the original Cold War. In the speech she introduced the concept of “free but secure” trade, reorganizing previously global supply chains around friend-shoring — a limited set of trusted countries who have supported Western economic sanctions against Russia (see Canada’s Golden Energy Opportunity, Part 1 – The New World Economic Disorder).

In a nutshell, the Latin American-5 have been excluded from the MSP because they have all declared themselves non-aligned in the emerging contest between the authoritarian and democratic blocs, while failing to support Western economic sanctions against Russia. More recently, all five have declined NATO overtures to provide military assistance to Ukraine to support its war effort against Russia — with Chile a minor exception, with President Gabriel Boric offering ships to help clear Russian mines in the Black Sea once the conflict ends.

The Latin American-5 have gone the non-aligned route because they have become far more dependent on China for trade and investment over the past few decades, whereas previously their economic interests were much more aligned with the U.S. and the West.

Adding salt to the West’s wounds, both Brazil and Mexico have proposed peace plans for the Ukraine war in recent months which would lock in Russia’s latest territorial gains, while allowing President Vladimir Putin time to retrain and rearm his military for the third round of warfare in the Ukraine, as he did in the post-2014 period.

At the same time, the Latin American-5 are continuing to encourage Chinese companies to invest in their lithium extraction industries, albeit within consortium in Mexico as President Andrés Manuel López Obrador nationalized the country’s lithium resource last year and likely Chile, with President Boric considering nationalizing lithium in his country.

In contrast, both Australia and Canada are now attempting to decrease Chinese investment in their lithium industries. Australian Prime Minister Anthony Albanese has shown little enthusiasm for Chinese investment in his country’s lithium mines, while telling the National Press Club in late February that he wants to see increased processing of lithium domestically, including the production of batteries, to supply them to its democratic allies.

In late October, the Trudeau government outlined new rules to protect the country’s critical minerals sector from foreign state-owned companies. "While we continue to welcome foreign direct investment [that supports this sector], Canada will act decisively when investments threaten our national security and our critical minerals supply chains," Industry Minister Francois-Philippe Champagne and Natural Resources Minister Jonathan Wilkinson said in a joint statement. A few days later Ottawa ordered three Chinese companies to divest their Canadian lithium mining investments.

To conclude, the world breaking back into trading blocs is a potential boon for the Canadian lithium industry as it will rejig international trade flows. “It will force China to Africa and South America to a greater extent as Australia supplies more to other regions,” Joe Lowry, founder of advisory firm Global Lithium, tells DOB. “North America will develop resources and will also draw from Australia and South America. Europe will struggle to supply their battery industry due to minimal resources and bad policy.”

In part 3 of this series, a medium-term outlook for Canadian lithium production will be provided, including the key factors driving it and potential upside for the outlook period and beyond.