When the White House becomes a mining mogul: Liam Denning

Key topics:Trump takes stakes in three US miners to counter China’s dominance.Government ownership may hinder private investment in critical minerals.Loans, price floors, and permits could achieve goals without equity stakes..Sign up for your early morning brew of the BizNews Insider to keep you up to speed with the content that matters. The newsletter will land in your inbox at 5:30am weekdays. Register here.Support South Africa’s bastion of independent journalism, offering balanced insights on investments, business, and the political economy, by joining BizNews Premium. Register here.If you prefer WhatsApp for updates, sign up to the BizNews channel here..By Liam Denning.President Donald Trump’s love for mining has reached the point where he wants to buy the company. Or rather bits of several companies. His administration has recently taken equity stakes in three miners in rapid succession. Ostensibly, the muscular intervention is to counter China’s state-led dominance of critical minerals. But this burgeoning experiment in socialism with Trumpian characteristics is both unnecessary and ultimately counterproductive.The first of the three to receive government investment, in July, was MP Materials Corp., which runs the only operating rare earths mine in the US. The Pentagon will ultimately own 15% of MP and is also providing a loan, plus guaranteed offtake and a price floor for its output. Two months later, the Department of Energy agreed to ease terms on an existing loan to Lithium Americas Corp. in return for a 5% stake in the company and 5% of the mine it’s developing in Nevada. A week later, the US took a 10% stake, and got warrants for more, in Trilogy Metals Inc., which aims to develop a resource with copper, cobalt and other minerals in western Alaska. In return, Trump will approve a controversial road project, previously rejected on environmental grounds, to access the remote site..Read more:.Koshiek Karan: Countering Trump – the art of a trade war.The first has the strongest claim to addressing an emergency. Beijing restricted exports of rare earth magnets earlier this year to counter Trump’s tariffs, causing immediate problems for US automakers and highlighting an acute vulnerability. It repeated the trick last week. The US must, therefore, do whatever is necessary to counter China’s leverage. Case closed.Not quite. The “necessary” is the issue here. In early June, Trump issued waivers to the Defense Production Act that freed the government to commit to buying critical minerals at above-market prices. This was momentous because one of China’s most potent weapons has been to use its dominance of these small, illiquid minerals markets to occasionally crash prices, deterring private investment in rival capacity. Setting a US-guaranteed price floor for domestic rare earths counters that. Investors understood: MP’s stock jumped 12% that day and was up 46% by the time the Pentagon stake was announced.A 10-year purchase commitment at a price more than double MP’s estimated production cost, plus a loan from the Defense Department, was transformational already. You could argue the Pentagon’s 15% stake helped motivate Apple Inc.’s subsequent deal to buy output from MP. But the technology firm had many other reasons: confidence in MP’s prospects arising from the price floor, the government’s clear commitment to reshoring manifested in numerous executive orders and actions, plus Apple’s own desire to be seen waving the flag. The equity stake is just icing.The same goes for the other two deals. With lithium, Republicans actually reduced the urgency of securing domestic supply by undercutting the electric vehicle battery market that accounts for 75% of demand. Yet Trump took the opportunity provided by Lithium Americas’ desire to renegotiate its existing $2.3 billion federal loan commitment to take a piece of the company anyway. Similarly, Trilogy’s existential need for the Ambler Road provided an opening for the US to become a top shareholder with a board seat, too.It is tempting to argue that if taxpayers help these companies get going, they should share in the upside. Tempting but shortsighted. If that help results in a domestic supply chain bolstering investment, jobs, and national security, that is the upside. Society’s goals would have been achieved, and without compromising the principles of private enterprise that have underpinned US economic success.Granted, that can sound abstract and trite compared with the immediate problems of magnet shortages. Yet the symbolic benefits of government ownership are outweighed by the costs. Mining, especially of the more esoteric critical minerals, involves high upfront investment in assets that are years away from first revenue and have lifespans measured in decades.The goal is to reduce the project’s cost of capital by cutting the stack of external risks beneath it. The government has many tools to do this, all of which were present in these cases, from permitting measures to guaranteed prices and offtake-contracts to low-cost loans. Indeed, if a developer gets all that and we still aren’t sure they can make a go of it without also having Uncle Sam as a shareholder, maybe we shouldn’t be investing in that developer.Plus, equity is generally the most expensive form of capital. The ownership stake in Lithium Americas, alongside the renegotiated DoE loan, imply a net interest expense of 6.6%-7.2%, according to analysts at Jefferies Financial Group Inc. The original loan was priced at zero spread to Treasuries. Meanwhile, turning MP into the effective national rare earths champion sounds great for MP. But the aim here isn’t to build quasi-monopolies, or juice short-term stock rallies.This is a long-term project to foster a dynamic ecosystem of competing and collaborating critical minerals producers. There’s a reason the shale boom took off in Texas and it isn’t just the rocks. How will critical-curious private capital feel about investing in rivals to the US government’s chosen ones?Or maybe the government just gets a piece of all the miners. The slippery slope here — with our deal-loving, norms-allergic president — is black diamond level. Shares of several other junior miners have soared since July on the mere notion they may be anointed, too. The White House even had to deny that it was considering taking a stake in a company involved with Greenland’s largest rare earths project (I wonder what inspired that particular rumour)..Read more:.Miningweb: A trillion-ton threat hangs over critical minerals - David Fickling.Given that Trump has declared multiple emergencies, and also taken stakes in steelmaking and chipmaking already, it wouldn’t be surprising if he seeks slices of other industries with big funding needs, high risks and plausible national security angles. Advanced nuclear reactor startups spring to mind. On that note, there is something that Republicans, once staunchly opposed to government ‘picking winners’ but now seemingly fine with it just owning them instead, should consider. Some day, a differently minded administration may declare a climate emergency and whip out the national checkbook. At that point, the convoluted green subsidies of the mostly repealed Inflation Reduction Act may look quaint by comparison..© 2025 Bloomberg L.P.

When the White House becomes a mining mogul: Liam Denning

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