In the global race to develop technologies to advance the emerging green and digital economies, with batteries topping the list, geopolitical rivalry is swirling around the sources of so-called “critical minerals.” As a leading mineral producer, Canada is at the forefront of this new ‘great game.’ By Canada’s reckoning, 34 minerals are on the critical list, six of which were initially prioritized in the federal government’s 2022 Critical Minerals Strategy: lithium, graphite, nickel, cobalt, copper and rare-earth elements. While the aim is to sharpen Canada’s edge in these minerals, new projects still face overlapping federal and provincial regulations and indigenous concerns. Vivian Kung, a corporate law specialist with Blake, Cassels & Graydon in Toronto, helps clients in Canada and Japan navigate a ‘mining minefield.’ Here, she offers a primer on the key issues.

Since Canada released its Critical Minerals Strategy in December 2022 , several provinces have advanced their own strategies. The federal strategy introduced investment incentives and protective measures. It also seeks international partnerships to align on policies and standards, share information and facilitate investment.

Notably, Canada and Japan have pursued a partnership that includes a sectoral working group on critical minerals as part of the Canada-Japan Energy Policy Dialogue and an unprecedented memorandum of cooperation whereby the two countries committed to cooperate in establishing sustainable and reliable battery supply chains.

This policy activity has translated into investment activity and, naturally, law firm mandates, as clients seek to understand key legal considerations arising from critical mineral projects in Canada. I have fielded numerous questions around common themes, both from domestic clients developing battery storage projects and from Japan-based clients pursuing investments in critical mineral projects.

Project structuring Among the first action items for prospective investors in any critical mineral project is determining the most tax-efficient project vehicle. One key concern is to select an optimal structure to access tax credits, including the 30% critical mineral exploration tax credit (supporting certain critical minerals exploration expenses incurred in Canada and renounced to flow-through share investors); the clean technology manufacturing investment tax credit (supporting 30% of the cost of investments in machinery and equipment used to extract or process certain minerals); and the 15% mineral exploration tax credit (supporting certain mineral exploration expenses incurred in Canada and renounced to flow-through share investors). Eligibility criteria for grants and contribution funding under the Critical Minerals Infrastructure Fund may also inform structuring.

Canada & Japan committed to establishing sustainable and reliable battery supply chains

Regulatory regimes & timelines Canada’s strategy recognizes that regulatory certainty is fundamental to the success of its stated goals. The ideal would be to harmonize federal and provincial/territorial approaches to impact assessments and regulatory/permitting processes (or even extra-territorial e.g., U.S.). But do not expect that in the foreseeable future. So far, there has been no significant change in regulatory approaches to project development, and no real evidence of streamlining among the levels of government in terms of process, timelines and concerns. Accordingly, project participants must have an early and clear understanding of the applicable web of regulatory regimes and factor this into timelines and project schedules.

Indigenous matters Indigenous engagement is not only a critical part of the approval process, it is essential in and of itself, for reconciliation and to de-risk the project from social acceptance perspectives. Indigenous groups also often have their own internal assessment and approval processes. Engagement should begin early; even earlier, the identification of indigenous groups in and around the project area. Impact benefit agreements (IBAs) will continue to play a pivotal role as they always have had in resource development. Many IBAs are negotiated in phases, with preliminary agreements to set out the expected process and address any immediate concerns. While they vary in scope and detail, most final IBAs contemplate community benefits, preferred arrangements with indigenous businesses, financial terms (fixed/variable payments, equity participation), environmental management and mitigation measures for any impacts arising during project development.

Foreign investment restrictions Foreign investors need to be mindful of updated guidelines on the national security review of foreign investments under the Investment Canada Act.  Pursuant to such guidelines, an investment by a foreign state-owned enterprise or foreign-influenced private investor in a Canadian business operating in a critical minerals sector in Canada could raise national security concerns. This policy applies to investments across all stages of the value chain, and irrespective of value and the nature of the investment (direct vs. indirect, controlling vs. non-controlling). The purpose of the enhanced scrutiny is to ensure security of supply, in particular protecting against supply chains being exploited as geopolitical leverage. Any prospective foreign investment in the critical minerals sector will benefit from a legal review from an ICA perspective at the planning stage.

Not only can much more be said about each of the above topics, but as with the sector itself, the corresponding legal landscape is evolving quickly. It has been said that all those participating in this sector have been presented with a “generational opportunity.” And in my mind, there is no doubt that this includes for lawyers in this space!

Vivian Kung works regularly with Japan-based clients on their Canadian investments across all sectors. In her spare time, she is learning Japanese and welcomes any opportunity to practice on live subjects!