MINERS BRACE FOR STEEL TARIFFS AND THREAT OF TRADE WAR.

In the middle of the U.S. desert, just east of Reno, Nev., engineers and construction workers are preparing to sink a second shaft of what is likely to be North America’s next productive copper mine sometime next year — Nevada Copper Corp.’s Pumpkin Hollow underground mine.

And yet headwinds are blowing as U.S. tariffs and sanctions threaten to whip up a global trade war, and erode mining companies’ margins just as many commodities prices are rising.

Mining companies operating in the U.S. hope to benefit from a more lax regulatory regime, and from recent tax reform that included major corporate breaks, are worried lingering uncertainty about trade and global economic growth could slow the industry.

“We’re watching very closely, and it’s concerning,” said Matthew Gili, chief executive of Toronto-based Nevada Copper. “There’s always the concern that we get tied up in some sort of negative trade environment … In the end, we produce for the world market. If we can’t produce freely for the world market, that is a risk.”

Among the immediate concerns for some mining companies is the 25 per cent duty on steel that the U.S. last week extended to apply to Canadian imports, as well as Mexico and Europe. Canada and Mexico have fired back with their own tariffs against the U.S., and other countries have signalled similar intentions.

Meanwhile, President Trump has threatened to impose more than US$50 billion in tariffs on China — a major consumer of metals — as he seeks to negotiate a trade deal.

“It’s very disruptive, and overall there are no real winners” if a trade war escalates, said Jason Burkitt, metals and mining leader for the global consulting firm PwC in the U.K.

He added that if a trade war slows global growth, broadly speaking, it hurts mining companies by decreasing demand for metals.

It has the potential to disrupt a rally in copper prices, even with analysts seeing a copper supply deficit on the horizon. Copper hit a sixweek high on Tuesday on news of a potential impact on supply at one of the world’s biggest copper mine, which pushed prices back above US$7,000 a tonne.

The tariffs imposed on steel may soon begin affecting mining companies, as steel is an important component of mining equipment, found in everything from trucks to the drills and grinding media used to process extracted ore.

The costs of drill steel, rock bolts and grinding media, used to crush or grind material, could increase by as much as 10 to 20 per cent with the tariffs in place, according to Jennifer Leinart, president of Spokane-based CostMine, a consulting service that estimates mine costs.

Grinding media can account for as much as 18 per cent of a mill’s operating costs, Leinart said.

“If you tack on a tariff, it ends up being a bigger proportion of your operating costs,” she said.

For junior mining companies, those costs can add up in an already difficult financing environment.

Nevada Copper, for instance, raised around $380 million in December through a combination of equity and streaming, but had to re-engineer its mine plans to target higher grade deposits of copper first, and scale back its design for an additional open pit copper mine it plans to build.

Gili said his company does not use steel as intensively as some other companies, but it will as it prepares to build a plant to process ore from its underground mine into copper concentrate.

“That’s going to be like a point loader, a single point in which we consume a lot of steel, and so that is a major concern from us — will there be any major effect on steel prices in the U.S.?” he said.

Although steel is still only a marginal cost, “when you’re tight for cash,” it will amount to a lot of money, said Gili.

And yet, some executives from major mining companies said they would take the uncertainty surrounding steel from current U.S. trade policies in exchange for the tax breaks and friendlier regulatory regime they’re expecting under the administration of U.S. President Donald Trump.

John DeCooman, vice president of business development and strategy for Vancouver-based SSR Mining, which operates a heap leach open pit gold mine in Nevada, says his company recognized $6.5 million income tax recovery in 2017 as a result of the U.S. tax legislation. Because his company’s operations are open pit, and heap leach — with no plant — steel prices have only marginal impacts compared to labour or energy costs.

Fuel prices, particularly for diesel for its fleet of trucks which carry the ore and waste out of the pit, can have more of an impact, said DeCooman. So the company has a hedging program, selling ‘puts’ and buying ‘calls’ on oil futures.

On the bright side of operating in a mine in the U.S., DeCooman said he’s excited that the Environmental Protection Agency and Department of Interior are looking to simplify the permitting process for mines, which along with recent tax changes, could counterbalance the negative consequences of a trade war.

“Net net, how do I know if it’s been positive or negative for us?,” he said about the new administration’s policies.

“I think you don’t really know until you start seeing a couple quarters of how these different factors have influenced your business.”

WILL THERE BE ANY MAJOR EFFECT ON STEEL PRICES IN THE U.S.?