There’s been a lot of talk by President Trump about “pretty big stories” happening for the mining sector. His energy policies have been a driving force behind the positive stories regarding the economy. These policies have led to the reopening of mines that had been shut down for budget reasons, but now the miners are up and getting ready to get back to work, definitely a solid economic win for their regions and industries.1
Balancing Facts With Facts
While these are promising beginnings, the mining industry is still a long way from returning to the glory days of old. How much of this rebound is actually tied to Trump’s policies is in question. The mines that are opening are specialized, producing a coal used primarily in steel-making and reflecting motion in the industry that appears to be entirely unrelated to federal policy. One of the biggest drivers of the coal industries past successes was power plant coal, and that mainstay of the industry is still under performing.2
This is due to the same factors that caused the initial decline to begin with, a continuing demand for inexpensive natural gas and the growing availability of renewable resources countermanding the need for electricity coal. However, we can expect to see continuing growth in the industry as new mines open throughout Wyoming, Pennsylvania, West Virginia, and Alabama over the next few years.2
As mentioned above, these mines are not all producing steam coal that used to drive the industry. Instead they’re producing metallurgical coal, often called “Met Coal” used in the iron ore and steel industry rather than for energy use. Currently, there is a booming demand for this form of coal with prices that are some of the highest the market has ever seen. However, with the opening of multiple mines over the next few years we can probably expect to see those prices come down as competition builds for a piece of this coal-land pie.2
Is This The Beginning Of New Prosperity For The Mining Industry?
The increase in prices has been driven by the decline of Australia’s mining industry, where most of the worlds Met Coal used to come from. Events associated with Cyclone Debbie and issues with the rail industry has led to disruptions in their supply chain, events which led to the price of Met Coal tripling. Investors looking at taking advantage of this situation need to remember that Australia’s met coal economy could rebound as it did a few years ago once these challenges have been overcome. Questions exist as to what this would mean for newly opened mines. Experts expect that the rising demand from growing economical powerhouse China will help to sustain the prices and demand, helping to sustain competition once Australia re-enters the marketplace in full force.2
Looking at the past indicates that any growth in the industry is likely to be a slow one. The demand for Natural Gas isn’t going to decline anytime soon, and new methods of mining this resource ensure that the supply is going to continue uninterrupted. While new mines mean new jobs for miners, existing mines are becoming more efficient in their mining processes, requiring fewer workers to produce the same amount of coal. Efficiency may increase profits for shareholders, but it reduces employment for those in the coal industry.3
Additionally, another important aspect of the energy sector are power plants, and all over the US there are power plants slated to close. The policies that Trump has enacted have little influence over these realities, and it’s unlikely that these plants will remain open, especially given the Met Coal focus of recently opened mines. There just isn’t as much money in Steam Coal anymore, evident in the 18% decline of coal power in the US power market over the last decade.3
Met Coal Mining Brings Ripple Effects To Communities
The mining industry isn’t the only one benefiting from these recent openings, the communities in which they reside are also seeing an uptick in their economy. Betty Rhoads owns the Coal Miner’s Cafe in Jennerstown, PA, located about an hour east of Pittsburgh and home of the Acosta Deep Mine. At the end of their shifts over a dozen coal-miners stop in to have breakfast in her establishment, something that helps to ensure that everyone can meet their bills and contributing to the success of the restaurant.2
Increases in available mining jobs can also help bring in new blood to communities, and help to sustain the growth of many local businesses. The ripples will simply continue to expand from there, but they won’t be enough to recover these communities on their own. This was seen during my recent visit to Cobalt Ontario. The city was decimated after cobalt and silver prices dropped and a multitude of government levies were introduced. The shop owners are hoping for a resurgence.
What Does This Mean For Gold Investors?
The mining industry is seeing gains but the underpinnings of that growth isn’t predictable, and many of the communities that are currently benefiting may have the rug pulled out from under them in a few years time. This instability makes this a potentially good opportunity to start investing in a solid and reliable resource, gold.2
Trump has great ambitions, and in the long run the economy may very well benefit from them but the opportunity is just as large for economic disaster on the heels of what may be a short-sighted patch fix for the US Energy Sector. While time will tell for those investing in the coal industry, gold investors may see a continuing security in precious metals, with a potential boom from an unstable energy industry and economy.1
Dr. Kal KoTECHa
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