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Biden win could be net positive for metals and mining, observers say


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Biden win could be net positive for metals and mining, observers say

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Democratic presidential nominee Joe Biden in a live ABC News town hall meeting Oct. 15 at the National Constitution Center in Philadelphia, Pa.
Source: Chip Somodevilla/Getty Images News via Getty Images

Democratic presidential nominee Joe Biden may be against the further proliferation of fossil fuels, but observers have said a different part of the natural resource economy could get a lift if he bests President Donald Trump in the U.S. election in November: the metals and mining sector.

Trump ran for president in 2016 on a populist economic message that promised the return of a diminished U.S. industrial workforce, including the mining sector. While his government slashed environmental rules in the name of saving U.S. jobs, it was not a saving grace for the mining industry. U.S. coal mining jobs sunk to record lows, and the mining sector in general has hemorrhaged jobs since the start of the coronavirus pandemic. Meanwhile, Trump administration policy objectives that could fuel domestic demand for metals, such as an infrastructure program, have yet to manifest.

Now, on the cusp of a U.S. presidential election unlike any other, the country's mining sector has positioned itself politically as critical to a recovery from the COVID-19 pandemic and to the global transition away from fossil fuels. And Biden, a labor union favorite from the legacy coal town of Scranton, Pa., has floated a raft of economic policy proposals that observers believe could deliver the demand stimulus generally missing from Trump.

"There's the kind of simplistic answer that Trump will be good for the mining industry and Biden will be bad. And I just think that's too simplistic and really kind of not true," said Scot Anderson, a natural resources attorney with law firm Hogan Lovells.

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A taxing endeavor

The mining sector would likely take issue with one Biden campaign pledge in particular: raising corporate taxes.

If elected, Biden has promised to undo changes to the U.S. tax code that industry fought three years ago to pass through Congress in the 2017 Republican tax overhaul. Plans include raising the corporate income tax rate to 28% from 21% and resurrecting the alternative minimum tax. National Mining Association President and CEO Rich Nolan said in an interview that if Biden is elected and raises taxes on corporations, investment in new mines could be impeded. The margins "don't pan out as quickly" because of the time needed to develop an asset and get government approval, Nolan said.

"Raising taxes could be harmful to attracting that capital for long-range mining investment," Nolan said. "American business needs certainty. Getting into a situation where you're ping-ponging the tax code every four years would be detrimental to investment in the U.S."

However, when it comes to raising the corporate income tax rate, metals and mining companies may not be impacted as much as other sectors, such as technology or insurance. Of 25 publicly traded U.S. mining companies estimated to be most affected by an increase to 28%, only three would experience an average negative impact exceeding $100 million, an S&P Global Market Intelligence analysis found. Damage to miners' EPS could also be minimized by Biden's plans for government stimulus focused on clean energy and infrastructure that would likely increase metals demand.

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Any increase in tax rate and a slowing of cost recovery would generally be viewed by corporations as a negative, but changing any portion of the 2017 tax law would impact each subsector of the metals and mining industry differently, Ernst & Young Americas Energy Tax Leader Greg Matlock said in an Oct. 12 email. Noting Biden and other Democrats' ambitions to end fossil fuel subsidies, Matlock said any changes in the tax code to that effect "could create a divergence between the treatment of coal … as compared to other minerals." The same could be said if Democrats singled out fossil fuel companies if they brought back the alternative minimum tax, Matlock added.

S&P Global Ratings analyst Donald Marleau said in an Oct. 9 email that it is "improbable" that a change in administration would affect the credit quality of U.S. metals and mining companies because profit in the sector is driven far more by price volatility and cost predictability than a factor such as income tax. "These are typically capital-intensive industries, so that income tax rarely affects cash flow in [a] meaningful way," Marleau said.

Build back better

At the same time, Biden has proposed seismic federal investments in infrastructure and clean energy deployment as part of his mission to build the U.S. "back better" from the coronavirus pandemic and its economic fallout.

He has pledged to use "all the levers" of the federal government to position the U.S. as the global leader in electric vehicle manufacturing and parts. That includes tax policy changes such as extending energy efficiency tax incentives and focusing on other tax provisions that promote the implementation of technology such as carbon capture, utilization and storage technologies by the power sector.

As a result, observers have predicted that producers of battery and base metals such as lithium and nickel could benefit from a Biden victory. After Trump's election in 2016, copper prices rallied 14% in less than a month as the market reacted to his infrastructure plans, Natixis said in an Oct. 5 note. The upcoming reaction "could be milder than in 2016" because markets may be more skeptical, but the Biden plan is metal intensive and focused on infrastructure and renewables, Natixis said.

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One Biden proposal is a massive buildout of U.S. railways that aims to spark "the second great railroad revolution" by upgrading rails connecting Washington, D.C., to New York City, progressing the development of a high-speed rail project in California and building a similar coast-spanning railroad system. Natixis predicted a significant boon to steel and copper as a result.

The benefits to metals producers from a Biden win could stretch beyond the boundaries of the U.S., said Frank Mariage, a mining attorney with law firm Fasken. While a Trump win would maintain consistency in U.S. critical minerals policy, a Biden administration would prioritize the nation's EV supply chain as automakers in Europe move toward securing minerals from sources other than China.

"Obviously this would benefit not only mining companies in the U.S., but it would benefit mining companies in Canada or other friendly nations with the U.S.," Mariage said.

Politics of the moment

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U.S. President Donald Trump in 2017 in Washington, D.C., after signing H.J. Res. 38, disapproving of an Obama-era water regulation opposed by the U.S. coal sector.
Source: Ron Sachs-Pool/Getty Images News via Getty Images

On the campaign trail, Biden has demonstrated a willingness to avoid contentious debates around certain mining projects. While the former vice president spoke out against the development of Northern Dynasty Minerals Ltd.'s contentious Pebble copper-gold project in Alaska, Biden has stayed out of the debate surrounding Antofagasta PLC's Maturi copper-nickel-platinum project in Minnesota, which has been criticized for its potential harm to a nearby wilderness area.

The prospects of a Biden administration shepherding his clean energy and infrastructure plans through Congress are unclear and would depend on whether Republicans or Democrats control the U.S. Senate come January 2021. But even if Biden wins the presidency and Republicans maintain their hold on their Senate majority, there is bipartisan support for a package of clean energy and minerals legislation known as the American Energy Innovation Act. The bill would result in substantial investments in clean energy research and development while setting policies around mineral security and permitting for certain mines producing minerals with a high national security priority.

"Democrats are clearly very focused on the deployment but have acknowledged that we need to have the minerals, the industrial base, and Republicans are very on top of the upstream both for defense and other reasons," said Robbie Diamond, president and CEO of Securing America's Future Energy, a D.C.-based nonprofit that advocates for the U.S. clean energy transition from a national security perspective.

Nolan acknowledged that some of the policy proposals offered by Biden and Trump were "very similar."

"There are similarities which provide a real nonpartisan opportunity for the mining sector going into the next administration, no matter who that is," Nolan said. "I think you'll see the mining sector fully engaged with a potential Biden administration, just like we are with the Trump administration."