- April 4, 2017
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The Unexpected Events That Impact Mining The Most
In a twist of irony more commonplace than you might imagine, two of the biggest influencers on the current state of the mining industry have nothing to do with mines. Not directly anyway.
Investor sentiment and political decisions about energy and resources are the obvious impactors on the mining industry. Without policies to support them and investors to fund them, mines cannot continue to function. However, the most powerful effects on the industry are sometimes felt from the aftershocks of completely unrelated incidents.
Cyclone Debbie’s impact on the mining industry
In the wake of Cyclone Debbie, which peaked at a Category 3, mining exports have been disrupted due to flood waters and damaged railway lines. Debbie left a trail of destruction spanning 1,000 km and encompassing the territory of major coal mining operations including BHP and Glencore.
Coal haul operator, Aurizon Holdings, estimated it would take around five weeks to repair the damaged rail lines which are vital for connecting the mines to their ports. Alternative routes are under consideration for the Goonyella line which was hit hardest. With Queensland accounting for over 50% of global coking coal, and Goonyella transporting over half of this haul from mines to ports, it is a priority to get the line back in functional condition.
While coal terminals like Dalrymple Bay and Abbot Point have reopened, they are yet to recommence shipping. According to resource research group, AME, we’re looking at up to 15 million tonnes of coal shipments being affected. If the fallout of Cyclone Yasi is anything to go by, we may also see a surge in coking coal prices as a result of these delays.
The ongoing Trump saga
Trump has been digging his fingers into the soft spots of the mining industry and his actions have had both intentional and inadvertent effects. His most out-there move has been to lift the moratorium placed on coal leases by the Obama administration. This removes the restriction on mines being able to lease federal land and will stall efforts to review the environmental and health impacts of the industry.
The moratorium was not a total ban but a pause intended to allow time for policy reviews. However, Obama did hint, when he put the plan in place, that it was the start of a massive overhaul of the energy sector. President Trump claimed his move would create mining jobs and bring in an era of “clean coal, really clean coal.”
National Mining Association is all for the idea
While environmentalists have been quick to condemn Trump’s move (and pretty much everything he ever does), America’s National Mining Association (NMA) has applauded the scrapping of Obama’s moratorium on coal leasing. They have also given their full support to Trump’s executive order on the Clean Power Plan (CPP).
The NMA believe the president’s actions will improve future mining investments. CEO of the organisation, Hal Quinn, explained:
“The clean power plan and the moratorium served the interests of political activists, not the American people.”
In Quinn’s opinion, both measures were counterproductive. Referring to data from the Energy Information Administration, provided in their Annual Energy Outlook for 2017, Quinn explained removing the CPP and coal leasing moratorium would allow for the continuation of 240 million tonnes of coal mining each year and save over 100,000 jobs.
“The moratorium on federal coal leasing was entirely without merit and rested on politically contrived reasoning.”
But will Trump’s actions actually help the mining industry?
The problem is, Trumps actions may not be enough to have an impact on investors. Not yet anyhow. Days after his highly publicised scrapping of the moratorium, a $600 million ming project in Alaska was abandoned by its developers, PacRim Coal LP, due to a lack of investor interest. The company was set to export their coal to Japan, China and South Korea. And their Chuitna Coal project was close to clearing the final stages of both state and federal mine permits.
While mining industry organisations—like the NMA—are hopeful, many academics fail to share their enthusiasm. Director and professor of Energy Economics and Public Policies at the University of Wyoming, Robert Godby, explains:
“Investors are wary, and overall, this is another symptom of the challenges the coal industry faces. It’s a reality check. President Trump can’t change market conditions with the stroke of a pen.”
A big part of investor hesitancy revolves around the ever-growing renewables sector. While Trump (and our Liberal MPs) are gunning for a return to the good old days of the mining boom, their voices, while powerful, may not be enough to fight the tide.
According to Godby,
“Even if the Trump administration puts a pause on greenhouse gas regulations, that’s not what’s occurring across the world. South Korea and Japan are signatories to the Paris Climate Accord. This is part of wider concerns regarding how we can use coal in the future and be responsible regarding potential climate impacts.”
Trump’s inadvertent clash with the industry
Apart from his intentional moves, Trump possesses the remarkable ability to influence investors in every sector—including mining—just by being president. With his unpredictable outbursts (most recently against China) and his relationship with Russia under scrutiny, Trump’s presidency is being felt as a time of uncertainty and instability. For a man who bears a striking resemblance to a plasticine penguin, he is creating a remarkable amount of unrest.
The mining sector plays a pivotal role in economies around the world, Australia in particular. However, it is a give-and-take scenario and the industry is at risk whenever there is political uncertainty surrounding the economy. Trump’s election created concerns about foreign policy, labour market stability and a plethora of other issues. Such political instability makes for wary investors.
When faced with what they perceive as a gaping unknown, investors become less and less willing to take risks. For industries already experiencing a decline, like mining, hopes for investment become dicey. Investors are looking at their longterm ROI and, as the failed Alaskan mining project (and others like it) hint at, their faith in the viably of mines may be nosediving.