What's behind a historic, unusual U.S. military cash transfer to Canadian mines

The United States was growing desperate, months before its entry into the Second World War. It was gravely short of aluminum, and scrambling for suppliers.

Its solution: turn north to Canada.

American public money flooded into Quebec, building the aluminum industry that supplied raw materials for Allied planes and tanks.

"I would be willing to buy aluminum from anybody," said Harry Truman, then still a U.S. senator, in 1941 hearings on the topic.

"I don't care whether it is the Aluminum Company of America or Reynolds or Al Capone."

Now,in an era of global tension,the Americans are looking north again.

The U.S.military has, for the first time in generations, spent public money on minerals projects inside Canada: nearly $15 million USto mine and process copper, gold, graphite and cobalt in Quebec and the Northwest Territories.

It might not be the last: Officials expect additional cross-border announcementsunder the more than half-billion-dollar U.S. program.

These minerals are vital ingredients in an endless array of civilian and military products including medicine, batteries, electronics, engines, cars, planes, drones and munitions.

The context, this time, is China.

What's driving it: U.S. fear of China

The U.S. has expressed escalating unease over its dependence on its biggest rival. Chinacontrolsthe global mineralsupply, hascut offmineralexports in thepast, and both countries fearapotentialstandoff over Taiwan.

Washington said two years ago that it was weighing funding Canadian mining startups under the U.S. Defense Production Act (DPA). It promised funding last year,and this month, it formally revealed the first such initiatives.

The novel nature of the announcement was scarcely conveyed in the dry language of thepress release, which referred to a Canada-U.S. co-investment.

What's uncommon here isn't Canada's government funding Canadian mining companies. It's the American military funding them, for what's believed to be the first time in the 74-year history of the U.S. DPA, which created new powers for the president to fund or buy certain products as a national-security matter.

"It's a historic move by the U.S. government," said Ben Steinberg, who worked on energy-security issues for the U.S. government, and who now works for a coalition of battery-makers.

"The U.S. military needs these materials for combat and for national-security purposes. It's an important move."

The U.S. started examining dozens of Canadian proposals in 2022. It requested product pitches, then more detailed applications, then it finally picked two winners, at which point the Canadian government contributed millions of its own.

What's the catch?

The cash comes with no strings attached for now. This is free money, in the form of grants, to help companies get through final feasibility studies and permitting.

But in a national-security crisis, the U.S. military could demand these supplies sayin the event of a severe trade war, or worse, a shooting war in the Asia-Pacific.

That's made clear in a clause in Canada's own version of the Defence Production Act, which gives the government the power to buy raw materials on behalf of a NATO ally.

In other words, the U.S. military could leap to the front of the customer line.

One recipient company said that, under its grant contract, the U.S. government would pay the going market rate if it became a customer.

That company, Ontario-based Fortune Minerals, says it's already spent $137 million in preparatory work on a cobalt-gold-bismuth-copper mine in the Northwest Territories and a processing facility in southern Canada.

But lending markets froze two years ago, as Chinese-controlled mines ramped up production, causing global prices of critical minerals to plunge.

With prices low, feasibility studies incompleteand uncertain returns on investment, lenders shut their wallets to the sector.

"We've been living kind of hand-to-mouth for a fairly lengthy period of time," said Robin Goad, president of Fortune Minerals.

"The money was not available from banks," he said."Because the capital markets, for junior mining, have been closed ... for several years."

A look at the two companies involved

He started asking U.S. federal departments for money several years ago, and learned most of them couldn't fund a foreign project; but the military could, because of an old defence-industrial agreement, which the U.K. and Australia have just joined.

He underwent a preliminary screening, then an exhaustive request-for-proposals submission, and finally learned a few months ago that his project was tentatively approved. This month's announcementmade it official.

The funding will pay for the final feasibility studies, and Goad hopes to start construction on the mine within two yearsand start production in 2027, given that he already has key permits and an environmental assessment.

"We are a very advanced project," Goad said.

He suspects what won the grant was his company's plans to process, not just mine, at home, retaining control of these minerals entirely within North America. In addition, he's working to potentially process materials for U.K. mining giant Rio Tinto.

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Can Canada capitalize on a potential treasure trove of critical minerals?

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"We have to go faster. It cannot take us 12 to 15 years to permit new mines in this country if we want to successfully advance the energy transition," said Natural Resource Minister Jonathan Wilkinson as the federal government released its critical minerals strategy Friday.

The other winning bid belonged to a Quebec-based company, Lomiko Metals, seeking to develop what it describes as one of the world's largest graphite deposits.

"We were very excited [by this news], as you can imagine," said Gordana Slepcev, Lomiko's chief operating officer.

"This is a very, very important step for us."

She said the public funding will cover half of everything the company needs before a decision on construction, meaning its late-stage feasibility and permitting work.

With the Pentagon backing, she's not worried about being able to raise the other half over the next few years; she estimates the final plans will take between three and five years; shovels could be in the ground between 2027 and 2029.

"The reality is we can always speed up the timeline," she said. "If capital comes right away, we can go [faster]."

A mood shift during the 1940s

In the 1940s, that capital came quickly.

The U.S. pumped tens of millions in that era's currency into making an aluminum plant in Quebec's Saguenay region the largest in the world, for decades to come.

The project was considered so vital to national security its location was kept secret for two years, with The New York Times eventually breaking news of the "hush-hush" plan.

In the meantime, Canada boasted of supplying the aluminum for thousands of Allied planes, in volumes large enough to equip a new army division every six weeks.

A few years later, with the Allies on the cusp of victory, the American mood turned.

Politicians and U.S. industry complained about these arrangements, even holding congressional investigations to address a question that had seemed self-evident amid the frenzy of a few years earlier: Why had U.S. money built an industry in another country?

This modern-day iteration has been launched with no clarity over whether the world is entering a phase anywhere near as dangerous.