What does a Trump Administration mean for Canada’s mining sector?
Only a few weeks ago the results of the U.S. presidential election were a foregone conclusion, with a second President Clinton all but assured her place in history. To paraphrase … a funny thing happened on the way to the podium. In the time since, pundits and prognosticators have tried to understand what happened, what it says about America, and what we should expect in the years to come.
The only certainty in the new world order appears to be continued uncertainty. We are years into a cycle of considerable market, currency and commodity price fluctuations, but now it feels like we are on the cusp of a new era, an era that will see America challenged for economic, political and global dominance, and with a president who, it seems, is keen to make policy and personal pronouncements via Twitter. A new world order indeed! Uncertainty on a new scale!
On election night, President-elect Trump delivered a message that was quickly embraced by the financial markets and the resources sector – America would be building infrastructure. While a number of factors have driven trading enthusiasm since, it is, at least in part, a Trump bounce. The market has rushed to price in the need for copper, nickel and metallurgical coal in an infrastructure spending boom, but what the real demand will be for these metals and compounds remains to be seen.
We are cautioned that the enthusiasm seen from Trump and the market still must pass the U.S. Congress. True. We are also warned that a Trump White House may not see eye to eye with deficit hawks in Congress when it comes to infrastructure spending. Also true. What is discounted is how Trump arrived where he is today. Congress would be wise to note that his ‘take no prisoners’ methods will surely be delivered upon them should they attempt to delay or impede the Trump Train. Business as usual is unlikely to be tolerated.
Fluctuations in currency also play a huge role in our industry, as gains may be earned by producing in weakening currencies only to then sell product in strengthening U.S. dollars. If a President Trump can produce real growth, inflation and resulting interest rate hikes in the United States, the Canadian dollar may further weaken in the face of American growth.
The counterweight to this is the historical tendency for Canada to be positively impacted, or dragged along, by growth in America. This may, over time, normalize any Canadian currency advantage in the commodities space.
Other challenges may also be on the horizon. Firstly, Canadian business abroad has, for many years, been relatively safe thanks largely to a well maintained U.S. global order. With U.S. threats to retreat from trading relationships, global alliances, and perhaps the world order entirely, to focus on the homeland, Canada may be required to shoulder more of the burden of supporting Canadian industry abroad.
Secondly, we have seen very little impact to date of the offloading of trillions of dollars globally from private balance sheets onto public ones through the dramatic increase in the money supply. The growth and inflation curve anticipated by resurgent growth in America could, it is thought, boomerang. Central banks are constantly warning of debt ratios and exposure to interest rates. The return of inflation to address the growth of the money supply, could challenge the current assumptions supporting future economic growth expectations.
And what is the fate of our friend gold? Despite the dire predictions that a Trump presidency would bring, there has been an easing off of gold prices since election day. Inflation, uncertainty, shifts in global and economic policies and fluctuations in currency, may all be factors that lead to a resurgence in gold prices.
The biggest challenge may be the very uncertainty that we began pondering at the start of this article. A black swan event may give rise to unconsidered alternatives, as interpreted by a Trump White House that may be volatile and unpredictable in the face of the unexpected, the response may be extraordinary. Described as a pragmatist rather than an ideologue, Trump lacks the experience in policy, diplomacy or bounds of party that his predecessors were confined by. All that has happened to date has confounded popular wisdom. It is more than possible that events will continue to do so.
Sander Grieve is a partner and head of the mining practice at Bennett Jones in Toronto. Linda Misetich Dann is a partner and co-head of capital markets and M&A at Bennett Jones in Toronto.
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