Miners banking on Trump and China for global turnaround

Massive infrastructure projects could kick-start base metals market boom

Big construction projects in northern Laos are part of China’s One Belt, One Road building program. The massive infrastructure scheme, and a yet-to-be-realized plan to upgrade public infrastructure in the United States, could spell good news for B.C.’s base metals mining sector | Kingmala Laveth/Shutterstock

Local mining industry leaders are hopeful that two massive infrastructure projects – one underway and one waiting in the wings – will spur a global turnaround for base metals.

U.S. President Donald Trump’s long-delayed infrastructure plan, which would include $200 billion in federal funding for a potential $1.5 trillion in overall investment from states, municipalities and private companies, will likely have to wait until November midterm elections are over for approval.

China’s One Belt, One Road initiative, first announced by President Xi Jinping in 2013, is moving forward, as the country has already signed agreements with close to 90 countries for infrastructure projects including ports, roads and bridges. China will spend an estimated $1 trillion over the next decade to connect the country’s trade routes with Southeast Asia, Africa, the Middle East and Europe.

The benefit from the U.S. and Chinese initiatives for Vancouver’s mining community could be huge as vast amounts of base metals (iron, nickel, lead and zinc) would be needed.

A possible obstacle to the B.C. sector cashing in on a prolonged infrastructure boom is that in the last few years, China’s debt-to-gross-domestic-product ratio has ballooned to more than 300% from 160% a decade ago, leading many to believe the country might be in a credit bubble.

But Mark Morabito, founder, president and CEO of King & Bay West, a Vancouver-based merchant bank and public company services provider that has four mining exploration companies within its incubator arm, said he’s not worried that China’s debt load could hamper its infrastructure project.

“It’ll get done,” Morabito said. “What amazes me about China is – you can argue whether this is good or bad – how fast they can get things done. They don’t have a philosophy that every stakeholder’s interests are sacred. They don’t need years of public hearings, years of consulting every stakeholder. They just don’t have those issues to deal with. Once they decide to do something and lay the engineering down, they divvy up the work and they go get it done.”

Morabito noted King & Bay is working with Vancouver-based Excelsior Mining Corp., which is developing the Gunnison copper project within the copper porphyry belt of Arizona. Morabito said the project is close to getting underway.

Max Porterfield, CEO of Vancouver-based Callinex Mines Inc., which specializes in copper and zinc, said base metals are crucial in China’s drive to develop its trade routes. According to a Bloomberg report, 150 million tonnes of steel will be needed for the One Belt, One Road plan.

“They’re all going to be used in large quantities,” Porterfield said. “Obviously iron is going to be hugely consumed. Zinc is going to have a massive demand due to the galvanization of the steel and connecting all of the telecommunications. You’re going to need a vast amount of copper, nickel, and that’s why they call them base metals because they’re really the building blocks of the global economy.”

The fate of the infra-structure plan in the U.S., meanwhile, is in doubt as it would need approval from both the House of Representatives and the Senate, which would require Democrats to get on board. Morabito said the U.S. mining resurgence is already partially underway thanks to Republican corporate tax cuts, which were passed last November. A recent report from PricewaterhouseCoopers predicted the mining industry could substantially boost productivity “through lower business tax rates, a modernized international tax system, and incentives to invest in the United States.”

“The bottom line is when you combine the tax cuts with the more favourable permitting environment that exists under the Trump administration, you have all the ingredients you need for a renaissance in mining,” Morabito said.

Porterfield said he’s not worried that Trump’s infrastructure plan won’t go through. He noted Democrats have put together a similar proposal that calls for even more money to be spent, and said the U.S. public will support such an initiative.

“If you look at the United States I think one thing that everyone can agree on, and one thing they will put their vote behind, are things they can see every day and use every day, and that’s infrastructure. So I think that’s one thing from a political standpoint, be it China or the U.S. or anywhere for that matter, that no one is going to be opposed to those projects because they see how it impacts their daily lives.”

Scott Dunbar, a professor and department head with the University of British Columbia’s Norman B. Keevil Institute of Mining Engineering, said the only B.C.-based mining projects that would see an uptake in demand would be copper and metallurgical coal mines. He agreed with Porterfield and Morabito about a potential rise in the demand for steel if both infrastructure plans come to fruition, but added the projects would draw from global sources in a competitive atmosphere.

“It also depends on how much money will be spent on the infrastructure, and … the scale and rate of infrastructure renewal.”