Evidence of meeting #28 for National Defence in the 45th Parliament, 1st session. (The original version is on Parliament’s site, as are the minutes.) The winning word was minerals.
A recording is available from Parliament.
Liberal
The Chair Liberal Charles Sousa
Ms. Chan, is this possible? Could you report back on some of the issues that are being—
Senior Assistant Deputy Minister, Lands and Minerals Sector, Department of Natural Resources
Yes.
Liberal
The Chair Liberal Charles Sousa
I suggest that we suspend the meeting. The witnesses are welcome to stay. We're going to have another witness come on immediately following this. I'm going to suspend for a moment to do the techie stuff to get her on.
Liberal
The Chair Liberal Charles Sousa
We're resuming our meeting. We were just suspended.
I'm introducing Cristina Pekarik, who is an economics and resource policy expert.
On behalf of our committee, I appreciate your being here.
I would like to give you up to five minutes for your opening statement.
Cristina Pekarik Economics and Resource Policy, As an Individual
Thank you very much, Mr. Chair.
It's great to see you.
Good afternoon. My name is Cristina Pekarik, and I am appearing today as an independent expert.
I recently retired from the Yukon government following a 32-year career in the Yukon, most recently in the position of senior planner and chief economist for Energy, Mines and Resources.
My focus today is on the economic policy and fiscal aspects of critical and strategic minerals. I want to thank the committee very much for inviting me to appear today in what really is a moment of strategic reckoning for critical minerals and the defence-national security nexus.
My testimony today makes one central argument: Canada's originating 2022 critical minerals strategy was built with its focus on energy transition. The world has changed. There have been action plans emerging that take more account of the defence framework. We now need a framework that is purpose-built for defence, sovereignty and fiscal capacity, and those things are not the same.
The committee has heard extensively about critical minerals and defence supply. What has not been addressed is the fiscal dimension: that critical and strategic minerals revenue may be one of the most direct tools available to Canada for financing the defence commitment we have made to our allies. What I want to leave you with today is the fiscal case around critical and strategic minerals.
Canada has committed to spending 5% of GDP on defence by 2035. The Parliamentary Budget Officer, in his report of February 5 of this year, tells us this means an additional $33.5 billion per year on average. As we know, this is also in the context of a projected $78.3-billion deficit this year. Furthermore, the Parliamentary Budget Officer has projected that annual deficits will average approximately $64 billion out to 2030, for the foreseeable horizon.
To finance a near quadrupling of defence spending, Canada has four options: borrow more, raise taxes, cut programs or grow revenue. I am here to make the case for the fourth option.
Critical minerals currently contribute $40 billion to Canada's GDP. Scaled strategically with a deliberate commissioning pipeline, competitive investment conditions and allied market demand, this revenue base can grow materially. Failing to treat it as a financing instrument for defence leaves one of our most significant strategic levers unused.
In terms of setting this framework, I identify seven categories of measures in the detailed brief that has been submitted. Here, I am going to flag four as the most salient.
First, I recommend that the committee consider asking the Parliamentary Budget Officer to model a pipeline of critical and strategic mineral projects, as well as a commissioning schedule for this pipeline of projects. This should be tied to two scenarios.
The first scenario is what it would take to generate the revenue to meet the $33.5-billion annual defence growth target. The second scenario is what revenue and what pipeline of projects it would take to cover Canada's total defence spending.
This gives the committee an evidence base for action and signals priorities to the Major Projects Office, the role of which was discussed here this morning.
Second, execution timelines become the binding constraint. Mine development averages 15 to 16 years from discovery to production in Canada, and we know that in terms of alignment with our major competitors for mining investment, timelines take up to 26 months longer on average for project commissioning.
A defence imperative requires us to ask, what does “expedited” actually mean?
Federal-provincial equivalency agreements, some of which are under pre-assessment scheduling, and AI-assisted regulatory databases are some of the tools that I cover in more detail in the brief as measures to really improve or that will align with the new definition of “expedited”.
Third, foreign ownership gaps are a documented intelligence risk, and not a theoretical one. CSIS has named China's critical minerals acquisition strategy as a direct national security concern.
The Tanco mine, which has been mentioned this morning, is 100% Chinese-owned, and it holds 60% of the world's known cesium reserves. The Beaver Brook mine, an antimony mine, also mentioned here, has been idle since 2012 under Chinese ownership, while last year manufacturers declared force majeure from antimony supply shortages.
These are not edge cases. They are symptoms of a screening regime with gaps that the Investment Canada Act regulations must close. Regulations are under development, so there is a very strategic and timely role for the committee to play.
Liberal
Economics and Resource Policy, As an Individual
Fourth, Canada has no strategic mineral stockpiles, as discussed here. Indigenous partnerships and federal-provincial partnerships are key.
In closing, Canada's critical minerals are not merely an economic opportunity. In produced, refined and processed form, they are a strategic asset and a financing instrument for defence we're not yet using deliberately.
I ask the committee, then, to do five things: modernize a critical minerals strategy to align with the defence imperative; integrate defence fiscal capacity as an organizing principle; manage execution risks in regulation, investment and workforce; build the indigenous and allied partnerships that this strategy requires; and finally, close the security and supply disruption gaps before they become crises.
Our allies are not waiting. The window to act with strategic intention is now.
Thank you very much. I look forward to your questions.
Liberal
The Chair Liberal Charles Sousa
Thank you. I apologize for that. We just wanted to maintain the time.
Just a moment. I have Mr. Savard-Tremblay.
Bloc
Simon-Pierre Savard-Tremblay Bloc Saint-Hyacinthe—Bagot—Acton, QC
Mr. Chair, I would like to point out the following.
I don't know if this is the case for my colleagues, but I haven't received the document in question, that is to say the brief the witness is referring to. I don't know if we can make sure that it has indeed been sent and received. I haven't received it, and some of my colleagues are signalling that they haven't received it either.
Can we make sure we get that document?
Liberal
Bloc
Simon-Pierre Savard-Tremblay Bloc Saint-Hyacinthe—Bagot—Acton, QC
So it's not unusual for us not to have received it.
Conservative
Jeff Kibble Conservative Cowichan—Malahat—Langford, BC
Thank you for your statement, Ms. Pekarik. I appreciated it.
I wanted to ask you a quick question. You talked about critical and strategic minerals sort of interchangeably. Would you consider gold or fuel minerals and strategic or critical minerals or both?
Economics and Resource Policy, As an Individual
Coming back to how we would go about what would be the portfolio to draw upon for critical and strategic minerals, it would go back to—as I would suggest that the PBO analysis, if requested, would—our NRCan national major project inventory.
Yes, that includes strategic minerals, and looking at this defence fiscal capability, building the defence capability would potentially include gold and other minerals, as well as mineral fuels. It's worth noting that we have a mineral fuel—uranium—on Canada's list of 34 critical minerals.
Potentially, this means adding oil and gas projects, because certainly they have the potential to build out fiscal capacity in terms of federal government revenue associated with the development of those projects. If you track back to the project inventory, which has over 500 mineral and mineral fuel projects on it, it would include those, yes.
Conservative
Jeff Kibble Conservative Cowichan—Malahat—Langford, BC
Moving on, you made a comment about supply disruption gaps, and we talked about Beaver Brook and the other facility. What specific steps could we take to protect Canadian critical minerals from foreign interference, as we've seen? I think this is really important.
Economics and Resource Policy, As an Individual
The Investment Canada Act regulations are currently under development. There are two areas in which the committee could play a key role in what those regulations look like in order to protect our critical and strategic mineral interests.
The first is to define what those sensitive sector projects are. If you include the pipeline list and include all the projects identified as critical and strategic mineral projects in the sensitive sector definition, it would automatically trigger reviews on any transactions that occur in relation to those projects. The sensitive sector definition is really important, because it would remove all the thresholds that typically apply for triggering an Investment Canada Act review.
The second issue—and this came up earlier in the questioning—is the grandfathering aspect. Once you've done a review under the Investment Canada Act, triggering a secondary review seems to be a bit of a speed bump. Removing this speed bump would mean you don't grandfather projects. Because the defence environment is a dynamic environment and securing supply chains for those critical minerals is very important, you would potentially come back and review again with new investment transactions. You'd be preventing the grandfathering clause from landing us in situations of manufacturers declaring force majeure because they can't procure the supplies, as happened, for instance, with Beaver Brook. You would come back and re-review those kinds of projects.
Conservative
Jeff Kibble Conservative Cowichan—Malahat—Langford, BC
I believe I have a few minutes left.
I agree with your assessment that a 5% GDP commitment is a pretty major commitment. You outlined some of the costs going forward over the next few years. It sounds very ambitious, especially relative to the other OECD countries. Do you have any suggestions to try to scale the revenue?
Economics and Resource Policy, As an Individual
Yes. Last fiscal year, Canada's defence spending commitment was 1.37% of GDP. Let's recall that Canada has not even been spending in the range of 2%. I believe that in the mid-sixties, it was just over 2%, but we have not seen that scale of investment in defence in Canada for many decades.
We're now moving out to cover this ground and reach 5% within the decade. This is absolutely a major commitment in providing this fiscal anchor to our mineral and mineral fuel potential and securing the investment in order to scale and meet our defence spending commitment with new revenues, because for every investment dollar, the federal government gains revenues associated with it.
Conservative
Jeff Kibble Conservative Cowichan—Malahat—Langford, BC
I have only a few seconds left, so maybe you could quickly answer what we need to do to actually start building stockpiles. We've heard some signalling about it, and some positioning, but what concrete steps can we take to make a stockpile?
Economics and Resource Policy, As an Individual
We have the authority under the Defence Production Act. Perhaps there's further modernization that is legislatively required.
A really key role is in what it looks like NRCan is going to do, which is to model out what we need. With our allies or within the allied community, what do we actually need to do? We're looking at scaling defence spending and investments and building out the capacity for defence. The background analysis from NRCan is going to be really important to set those and set what we need. Potentially, this needs to be set in legislation or in regulation.
Liberal
The Chair Liberal Charles Sousa
Thank you, Ms. Pekarik and Mr. Kibble.
Mr. Watchorn, you have six minutes, sir.
Liberal
Tim Watchorn Liberal Les Pays-d'en-Haut, QC
Thank you, Mr. Chair.
Thank you, Ms. Pekarik.
I think the initial premise of your argument is the increase in revenue. You talked about an additional 33 billion dollars in revenues from the critical minerals supply chain.
I would like you to tell us exactly what the three best strategies are that the government is going to focus on to reach the $33 billion in revenues.
Economics and Resource Policy, As an Individual
I'm proposing that the committee ask the Parliamentary Budget Officer to go back to that. We have a project list, and it is the national inventory. Provinces and territories identify the major projects that are advancing, and we have 500 projects on that list, whereas the Major Projects Office right now has been referred only 15, and last week there were three new projects added. Covering that ground, the Parliamentary Budget Officer would take a screen on those 500 projects and say, “These are the projects we need to see to investment. These projects need to be commissioned”. Furthermore, we need to see this schedule for final investment decisions and for, frankly, shovels in the ground on these projects in order to reach the target. This is the analysis the Parliamentary Budget Officer can provide to the committee.
Liberal
Tim Watchorn Liberal Les Pays-d'en-Haut, QC
I would like to hear your opinion on the government's recent investment in the Nouveau Monde Graphite mine in Quebec. A line of credit has just been granted to increase graphite production in Quebec. What do you think of this government investment?
