Canada’s federal budget tabled on Nov. 4, 2025 proposed a $2-billion critical minerals sovereign fund to be spent over five years on equity investments, loan guarantees and offtake agreements, and the government last week signed into a G7 critical minerals production alliance aimed at countering China’s dominance in refining rare earths. Energy Minister Tim Hodgson signed Canada into the alliance at a meeting in Toronto, while the budget proposal outlines direct spending and tax changes intended to bolster domestic mining and processing capacity.
The sovereign fund, as proposed in the budget, would allow Ottawa to take equity stakes in projects “to open mining,” according to government documents released with the budget. The measure is intended to be deployed through a mix of equity injections, financial backstops and long-term offtake commitments that could reduce commercial risk for large-scale projects. The budget also earmarks $371.8 million for upstream and midstream projects, and expands exploration tax credits to cover additional commodities, specifically tin, tungsten and chromium.
The measures come against a backdrop of global supply-chain concerns for minerals used in electric vehicle batteries, semiconductors and other clean-technology applications. Officials and policy documents accompanying the budget tied the new spending and tax changes to efforts to strengthen Canada’s role in those supply chains. The government framed the moves as part of a broader industrial strategy to support clean technology and domestic processing, and to reduce reliance on a single dominant supplier.
China’s position in the sector has been a central driver of the policy shift. The budget release highlights a widely cited statistic that China accounts for 91 per cent of global rare-earth refining, and the G7 alliance that Ottawa joined last week is explicitly aimed at diversifying production and processing away from that concentration. The alliance brings together several advanced economies seeking coordinated investment, regulatory alignment and joint procurement approaches to develop alternative supply sources.
Market observers have noted the significance of Ottawa’s willingness to take direct stakes in projects and to use offtake agreements as tools.
That assessment underscores a broader debate in the industry about the proper balance between public and private roles in developing capital-intensive mining and processing infrastructure.
The budget’s targeted expansion of exploration tax credits to include tin, tungsten and chromium widens fiscal support to commodities that have specific industrial uses beyond batteries, including in alloys, electronics and specialty applications. The $371.8 million allocated for upstream and midstream projects is intended to support stages of the value chain that come before final manufacturing, including mining development and initial processing facilities.
The government’s entry into the G7 critical minerals production alliance is the most recent diplomatic move tied to the budget’s domestic measures. Ottawa’s participation in the alliance signals a desire to coordinate supply-chain initiatives with like-minded partners while simultaneously deploying federal financial tools at home.
As a budget proposal, the sovereign fund and related measures will move through the parliamentary process before becoming law and before specific investments and guarantees are implemented. Industry participants and analysts will be watching how the fund is structured, what governance and risk-sharing arrangements are adopted, and how quickly Ottawa moves from proposal to concrete investments or offtake contracts. Observers have signaled that the government’s willingness to assume equity positions could change commercial calculations for prospective projects, while the success of the G7 alliance in producing alternative supply chains will be judged over the coming years.