Industry Committee on Jan. 26th, 2022

[Han Dong, Liberal, Don Valley North, ON]

I'm thinking again about recommendations to the government from the committee. Should any specific principle or specific elements be included in those reviews? Do you have any suggestions for the committee?

[Dr. Jeffrey B. Kucharski]

Yes. I would just say that the government should consider making a national security review mandatory if the company doing the acquiring is a state-owned or state-controlled foreign company.

[Han Dong, Liberal, Don Valley North, ON]

Even if—

[The Chair, Liberal, Joël Lightbound]

Thank you, Mr. Dong. That's all your time.

[Han Dong, Liberal, Don Valley North, ON]

Thank you.

[The Chair, Liberal, Joël Lightbound]

I'll now go to Mr. Kram for five minutes.

[Michael Kram, Conservative, Regina—Wascana, SK]

Thank you, Mr. Chair.

Thank you to all the witnesses for being here today.

Dr. Wark, can you explain in lay terms why a Chinese state-owned enterprise would want to acquire yet another lithium supplier when they already refine 80% of the world's lithium?

[Dr. Wesley Wark]

Thank you for the question. It's a fascinating question and probably would be best directed, in a way, to Zijin Mining, which is the company that has acquired Neo Lithium for a billion-dollar price tag.

One thing that's interesting about Zijin Mining, as you see if you look at the company's corporate history, is that it began as a gold miner in China. It expanded overseas, principally in gold and other base metal extractions. The Neo Lithium takeover by Zijin, to the best of my knowledge from the available public documentation on Zijin, is the first such acquisition that it has made. I'm presuming—I can't speak for the company's directors, owners and whatever passes for shareholders in a Chinese SOE context—that they looked at and did their due diligence on the Argentinian mine, which is recorded in Neo Lithium public documents on the transaction. I'm presuming simply that they looked at that asset, thought about the future, thought about how they wanted to position themselves as a global miner and as a potential future Chinese industrial champion, as the Chinese strategy has it, and thought that was a terrifically important acquisition for them.

The question for me, I must say, is that if we're going to think about foreign direct investment in a national security and economic security strategy, we also have to do what is known, in intelligence terms, as a “net assessment”, which essentially means that you think about your own interest in this investment and you also think, “Why is a foreign company also interested in this investment?” I hope—and perhaps this is a question for officials when they appear tomorrow—some due consideration was given to that very question, which I think is implicit in your question.

[Michael Kram, Conservative, Regina—Wascana, SK]

Again for you, Dr. Wark, if this is clearly part of their long-term strategy, can you think of any good reason that this would not trigger a national security review on our end?

[Dr. Wesley Wark]

I'm sorry, Chair, I cannot think of any good reason. That's not to prejudge the outcome of a national security review, but it is to say that this was a sensitive acquisition in political and economic terms that needed very considered judgment, not a rush to judgment in a 45-day period.

[Michael Kram, Conservative, Regina—Wascana, SK]

Okay.

Dr. Wark, in your presentation you mentioned that “less than 1% of investment filings” have been subject to a national security review. Also, in the ICA report, it was pointed out that the majority of these reviews involved acquisitions by Chinese entities.

I have a two-part question: Why are so few national security reviews done, and why, in the ones that are done, is China so overrepresented?

[Dr. Wesley Wark]

Thank you for the question. It's an excellent question.

I'm not sure I have a good answer for you as to why we have failed to do very many national security reviews in the past. I think the best answer I can give is that it wasn't part of the tradition. It wasn't part of the way in which we thought about foreign direct investment. We wanted to maintain an image for Canada as a country open to foreign direct investment, which we saw as important to our economic prosperity. Although that still holds, what has changed is the geopolitical and economic security environment in which we now operate, so whatever our past calculations in that regard, I think we have to take a different approach in the future.

It is also, I must say, to be fair to the officials involved, a resource-intensive and very complex undertaking to come up with an appropriate intelligence assessment on these investments. I think, to be frank, that Canada has not invested a lot of resources in what I would call “economic intelligence”. That hasn't been a priority for our intelligence community. We may need to pivot to that enterprise more appropriately in the future, but I don't think we have a lot of resources that we can devote to it at the moment.

[Michael Kram, Conservative, Regina—Wascana, SK]

Still with you, Dr. Wark, in June of last year, the White House released a report entitled “Building Resilient Supply Chains, Revitalizing American Manufacturing, and Fostering Broad-Based Growth”.

This report states that “global demand for lithium”, one of “the most important” inputs in “electric vehicle batteries, is estimated to grow by more than 4000 percent by 2040”. The report goes on to say, “The United States must secure reliable and sustainable supplies of critical minerals and metals to ensure resilience across U.S. manufacturing and defense needs....”

If Canada loses its lithium supplies, can you elaborate on what this would mean for lost opportunities, given the integration of Canadian and American supply chains?

[The Chair, Liberal, Joël Lightbound]

Mr. Kram, I'm afraid we'll have to come back for that answer in the next round for the Conservatives. We're out of time.

We'll go to Madame Lapointe for five minutes.

[Viviane LaPointe, Liberal, Sudbury, ON]

Thank you, Mr. Chair.

My first question is for Mr. Tsafos. You talked about how, on this matter, most of the value is in being able to access the lithium. Can you deepen my understanding of what you mean by that?

[Nikos Tsafos]

The way I think of it is you progressively go from the raw materials to something processed. You then turn this into a battery pack. The battery pack goes into a vehicle. Ultimately, you make a lot of money on the vehicle. There's value that accrues throughout the chain.

The question that the United States and Canada face is where you enter into the chain so that you can create value on your own. If China controls the first four parts of the chain and just sells you a battery and you just put it in a car, a lot of the value that is in that battery accrues to China.

What I meant is that if you look at the numbers in my testimony, you'll see that BloombergNEF, which is one of the well-known energy consultants, shows the value that the lithium may start at and that $11 billion of mined lithium ultimately ends up in a $7-trillion auto industry. The lithium itself has value, but the question is, who can access that lithium and turn it into a useful product? That's where the competitive edge comes from.

If this were an open market and you could get lithium wherever you wanted, no one would care. However, it's not an open market; it's a new market and it's a growing market, so accessing that mineral is very important in ways that it's not for other commodities that are in ample supply and that you could go and get from the open market.

[Viviane LaPointe, Liberal, Sudbury, ON]

Thank you.

My next question is directed to Mr. Volpe.

It's been said that it's very important to think about the whole value chain. Could you weigh in and share your thoughts on that? In particular, what does that mean for Canada?

[Flavio Volpe]

The concept is mines to mobility here.

Let's say we're going to take what we do in the automotive sector, which is predominantly making internal combustion engine vehicles on platforms that are shared around the world, and around the world we're going to shift, both from a regulatory standpoint to mandating zero-emission vehicle market percentages to industrial policy. We're all talking about China's planned state-owned enterprises, but the Americans, by most definitions, are going by the way of industrial policy in this space as well. They're spending billions on different parts of this value chain.

To every country that is in the automotive business, it also matters how you compete. The transition, which is in part being regulated and then in other parts being co-invested in by our competitive jurisdictions, is to move to zero emissions. That requires critical minerals and the deployment of high-voltage platforms that will enable artificial intelligence, machine learning and connected autonomous technologies.

Canada, the 10th-biggest manufacturer in the world and the maker of 2% of the world's vehicles, does not have an OEM carmaker, so we have to concentrate on where we play. We play massively in the parts space. We play massively in the technology space. Many independent studies from around the world have always ranked Canada as one of the potential key players in those critical minerals. For us, it's about where we play.

In the case of Canadian lithium, like Canadian cobalt, Canadian graphite and all the other critical minerals, we need to define what they are. They're Canadian if we can find them in Canada. They're not Canadian, in a deployment or a regulatory compliance sense, if they're overseas. That's especially true because successive Canadian governments have entered us into successive trade agreements that define products by country of origin. The strategy here is to say, “Where can we play?”

Canada can play on the technology side, especially in mobility technology. Canada is absolutely playing in added-value volume parts and has the potential to surpass some of the other players in that top 10 group by being one of the key players among three, four or five players in battery manufacturing. That comes down to whether you can extract lithium in Canada, process it in Canada to turn it into cells, turn it into batteries that go into electric vehicle platforms that are made in Canada and are then enabled by Canadian connected autonomous intelligent technology—

[Viviane LaPointe, Liberal, Sudbury, ON]

Thank you, Mr. Volpe.

[Flavio Volpe]

You're welcome.

[Viviane LaPointe, Liberal, Sudbury, ON]

Do I have—

[The Chair, Liberal, Joël Lightbound]

Ms. Lapointe, unfortunately, that is all the time you had.

The floor now goes to Mr. Lemire, for two and a half minutes.

[Sébastien Lemire, Bloc, Abitibi—Témiscamingue, QC]

Thank you, Mr. Chair.

Thank you for your presentation, Mr. Volpe. I would like to dig a little deeper.

You mentioned a local strategy and you expanded on it. Is it important for processing to be close to the resource, particularly in a mining area? Does that also have a strategic advantage for Quebec and for Canada?

[Flavio Volpe]

From a profitability point of view, it's almost necessary. You're talking about big sums of materials being processed to make smaller sums of usable components. They're big and they don't transport easily or cheaply. The global auto business is based on just-in-time delivery. Car companies try to take the biggest components and locate their sources close to where their final assembly is.

Quebec, and to a large degree Ontario, is very well positioned to be a profitable contributor to that space. We signed on to the USMCA-CUSMA, which states, actually, that they have to be sourced within North America to qualify.

[Sébastien Lemire, Bloc, Abitibi—Témiscamingue, QC]

Thank you very much.

Now I have a question for Mr. Saint‑Jacques.

China is the world's biggest supplier of critical minerals, and, as we can see, its intention is to dominate the world of technology. When China acquires a lithium deposit like Neo Lithium, is it with an eye to a business goal or to a geostrategic one?