The rise of resource nationalism in the global critical minerals industry: Developments from Canada and Latin America

Recent commitments by various countries and corporations to reach net-zero emissions signal a new phase in global efforts to combat climate change and foster sustainability. As is well known, sources of alternative energy are becoming increasingly dependent on technologies which rely on supplies of specific critical minerals, including lithium, copper, and uranium.

While these demands would typically signal the need for greater trade integration with mineral-rich nations, this has been countered by the fact that supplies of certain critical minerals are limited, and that there has recently been an increase in geopolitical tensions arising from an international trend of deglobalization.

These factors combined have led to the development, by various countries, of initiatives and policies designed to assert certain levels of control over mineral exploration and development activities within the borders of the state. In the context of critical minerals, the rise of protectionist initiatives and policies, commonly referred to as “resource nationalism,” can take various forms, ranging from a state’s refusal to grant authorizations to foreign mining companies to explore for or develop critical mineral deposits, to indirect restrictions such as the application of additional royalties or taxes on foreign-controlled entities.

Canada and critical minerals

Canada is one example of a mineral-rich nation that has recently implemented measures to promote and control the development of critical minerals within its borders, aligning with global trends. Canada’s critical minerals strategy includes tax breaks and other financial incentives to support domestic development. It is now also more difficult for foreign state-owned enterprises to own or participate in Canada’s critical minerals industry, evidenced by the government of Canada’s November 2022 order to three foreign entities to divest their interests in Canadian assets involved in the sector.

Subject to the government’s discretion, new investments by foreign state-owned enterprises in Canadian critical mineral mining companies will undergo heightened scrutiny, and significant transactions of this type will be approved as a “likely net benefit” to Canada only on an exceptional basis. In addition, Canada has partnered with the U.S., EU, and Japan to ensure that “conflict materials” produced from “non-like-minded” nations are prevented from entering the domestic supply chain.

Canada is one example of a mineral-rich nation that has recently implemented measures to promote and control the development of critical minerals within its borders.

Resource nationalism in Latin America

For Canadian companies involved in the exploration and development of critical minerals abroad, the influence of resource nationalism has led to new considerations and assessments of risk, with the potential to affect activities and investments in other regions. Canada is home to nearly half of the world’s publicly listed mining companies, and Canadian mining companies are particularly focused on projects in Latin America, where over 50% of mining activity involves entities based in Canada.

As in Canada, certain nations in Latin America have moved towards greater state control over their natural resources, spurred in part by political demand for a greater allocation of revenues derived from producing mines to be reinvested in local communities and infrastructure projects.

One example of this trend is from Mexico, which in a significant development from February 2023, issued a decree to nationalize its reserves of lithium. This initiative involved a comprehensive review of active mining concessions owned by approximately a dozen foreign companies and has caused some uncertainty surrounding future foreign investment in Mexico’s mining sector. Mexican President Andrés Manuel López Obrador has stated his commitment to secure energy sovereignty, which has caused tension with the U.S. and Canadian governments, who both wish to maintain favourable access to Mexican energy resources.

To varying degrees, other Latin American nations have also initiated policies to control the exploration and development of certain critical minerals within their borders. Chile, which is the source of some of the largest lithium and copper deposits in the world, recently announced a national lithium strategy which mandates public-private partnerships, where private companies are required to participate with the state through a project’s stages of exploration, development, and production. Although not strict nationalization per se, the strategy does show Chile’s clear intention to become actively involved in the industry to increase revenues to the country, ensure the sustainability of local communities, and promote the development of lithium resources in Chile.

In contrast, while there had been speculation of resource nationalism in Argentina after the partial re-nationalization of Repsol YPF, the nation’s largest energy company, there has not been a recent, decisive shift towards state control, and the country’s energy sector has remained largely driven by private enterprise and foreign investment.

Conclusion

The range of initiatives described above indicate that certain mineral rich nations, within the context of deglobalization, are working to find their appropriate balance for developing critical mineral resources. While ensuring that critical mineral deposits are explored for and developed, countries are now finding it necessary to determine how to maintain or build strategic alliances, develop trade relationships, and participate (to the greatest extent possible) in the green energy economy.

ROBIN LONGE is a partner in Dentons Canada’s corporate group and acts as co-leader of the firm’s national mining group. JOSÉ IGNACIO MORÁN is a partner of Dentons in Chile, the firm’s global mining and natural resources leader and a member of the global ESG steering committee. MARIA PAULA MORELLI is a counsel at Dentons Argentina, specializing in administrative and regulatory law, natural resources law and mining law. MICHAEL R. RATTAGAN is one of the founding partners of the Dentons Argentina, co-leading the M&A and natural resources and energy groups.

The authors would like to thank Mary Su and Sarah Stumpf, articling students at Dentons, for their assistance with this article.

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