Accelerating cross-border North American integration of battery, EV, and critical mineral supply chains

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Despite the geopolitical alignment between Canada and the United States there are challenges that both nations face. First, the effects of the pandemic have spared neither the countries nor the industries, putting pressure across operations and supply chains. Second, Critical minerals are often produced mainly as co-products, so output cannot be easily adjusted. Third, processing certain minerals such as Rare Earth Elements can be costly and associated with high environmental risks if not executed correctly. Lastly, market forces, if left alone without regulation or policy direction, may not be sufficient to ensure supply chains are financially sustainable. 

How far are the United States and Canada from achieving any stability across their supply chains?

North American manufacturing supply chains are already highly integrated. How can the US and Canada benefit from this regional cross-border industrial advantage? Simon Moores from Benchmark Mineral Intelligence suggests that Canada take charge of the upstream segment of the EV and battery supply chain. The latter recommendation outlines a blueprint in which Canada’s upstream potential can feed into United States downstream needs.

The result of such a structure may further increase trade, cooperation, and collaboration whereby each country complements each other strengths and weaknesses in the supply chain. USA Rare Earths CEO Pini Althaus said “you have to collaborate with Canada, and you can’t just rely on projects in the US for supply.”

Both the United States and Canada can benefit through establishing partnerships or Cooperatives. There is no one right answer on how the latter concepts should be formed, as there are many ways that a partnership and cooperative types can be set up. However, there is an essential distinction between the two models: Partnerships are profit-seeking entities.

In contrast, a Cooperative (Co-op, Syndicate) is a group pooling together its resources and factors of production such as (land, labour, capital, and entrepreneurship) to serve the collective interest of its members. In both cases, they have been looked at and applied to the Rare Earths Industry which can serve as a model to be replicated across all other critical minerals and metals.

Under US law, the competing technology and manufacturing companies can enjoy collaborative ownership of the Cooperative without violating anti-trust laws

According to rare earth analyst Jack Lifton, “vertically incorporated companies may be more desirable as it may be the best way to secure financing. Joint ventures, consortiums, and cooperatives could be formed to support production at various stages of the supply chain at optimal locations around the world. Each investor or producer could have equity and offtake commitments where US firms and their ally’s capital may contribute to meeting the goal of providing a secure and stable supply of REEs, intermediate products, and component parts needed for the assembly of end-use products”. 

Legislation must provide an ecosystem for vertically integrated initiatives such as a Rare Earth Cooperative to thrive. In the United States, three bills that promoted the establishment of a privately funded and operated Rare Earth cooperative have been introduced, but none of the legislation has passed. The National Rare Earth Cooperative Act (S.2006,113th Congress), was introduced in 2014. This was followed RE-Coop 21stCentury Manufacturingin 2019 (S.2093 – 116th Congress) and a bill in the House that mirrors the Senate bill, the  Rare Earth Cooperative 21st Century Manufacturing Act (H.R.4410-116th congress).

The notion of a Cooperative is not new they operate across the US and have incorrectly been labelled as monopolies. However, under US law, the competing technology and manufacturing companies can enjoy collaborative ownership of the Cooperative without violating anti-trust laws and have access to finished products that would have been domestically unavailable. It is typically managed under shared risk, production, and distribution in a privately funded vehicle. In line with breaking reliance from China, it should include multiple stakeholders across the supply and value chain that are not Chinese entities.

The purpose of the cooperative would be to utilize the existing flow of potential Rare Earth by-product waste as its primary feedstock and act as a ‘utility’ service provider or resource supplier to function in markets that cannot be serviced by traditional business structures for the many technology companies and rare earth end-users. They also enhance the competitive scale, buying power, and distribution capabilities of multiple smaller entities confronted with large competitors with unequal market advantages. The Cooperative’s function will act as an uninterruptable producer of Rare Earth concentrates into separated oxides, metals, and magnets and are sold “at-cost” basis to its owners. Surplus production would be sold to non-owners at ‘market prices.

A Co-op would assure ownership access to any end-user of Rare Earths or aligned government agency or buying group. According to Ned Mamula, If the cooperative is structured correctly, it could “redirect the flow of capital, jobs, and the newest processing and refining technology related to the Rare Earth industry away from China and toward a reliable domestic solution”.

By this year, China will have accumulated more Rare Earth patents than the United States and the rest of the world combined

James Kennedy, founder of Thorium and Rare Earth Elements (THREE) consulting says that China holds a monopoly in the Rare Earths industry because of two main reasons: First, the US amended its definition of source material which banned Heavy Rare Earth mining in the US, transferring the initial upstream gap over to the east.

Second, China to this day maintains control in the patents of processes in converting separated Rare Earth oxides into high-value metal, alloys and  magnets needed for US defence and energy technologies. By this year, China will have accumulated more Rare Earth patents than the United States and the rest of the world combined. Even though a Rare Earth cooperative is promoted as a domestic solution, the US alone cannot establish a domestic Rare Earth industry to compete on scale with China on its own without help from others.

Jack bedder head of research at Roskill states that “in reality, no country acts fully in isolation and no modern supply chain is fully domestic, even for China”. There is a great opportunity for Canada and the US to establish vertically integrated cross-border structures in each other’s industries. The way forward is through partnerships or

Cooperatives to further strengthen and accelerate integration of North American Battery, EV and Critical Mineral supply chains.

Jamil Hijazi is a Mineral Economist and Energy analyst who holds a Dual Master’s Degree from the University of Dundee Centre for Energy, Petroleum, Mineral Law and Policy (CEPMLP). His expertise and research interests are in Supply Security of Critical Raw Materials, Energy transition, Local Content, and Development in the Extractives Industry.