By Ernest Scheyder
(Reuters) - U.S. mining projects are growing reliant on Washington's financial support to offset global competition, a reality underscored by Sibanye Stillwater (NYSE:SBSW)'s decision last month to lay off hundreds of Montana miners after it failed to qualify for an obscure tax credit tied to the Inflation Reduction Act.
Sliding prices for several critical minerals this year - in part due to overproduction in China, Russia and elsewhere - have put the traditionally conservative U.S. mining companies in the unusual position of seeking Washington's help to survive, a reliance that helps link their corporate fates to American government decisions.
U.S. industrial policy has shifted in recent years to more fully embrace tariffs, tax credits and other financial tools that directly inject government dollars into critical sectors, including through the IRA, the CHIPS Act and the Bipartisan Infrastructure Law, among others.
"One of the biggest challenges we have in mining in America - setting aside permitting - is that mines here are just not commercially competitive," said Gracelin Baskaran, director of the critical minerals security program at the Center for Strategic and International Studies.
A fight over government largesse shows how much the stakes have changed for U.S. mines as overseas rivals have expanded market control.
South African miner Sibanye's Stillwater palladium mine, located roughly 40 miles (64 km) from Montana's border with Wyoming, last year lost nearly $600 on every ounce it mined, or roughly $269 million, as Russian rivals boosted production at safety standards below what is acceptable in the U.S. Palladium prices fell 40% in 2023.
The mine's loss, executives said, would have been lessened by a little-known tax credit provision of the IRA known as 45X, which reimburses 10% of production costs. That, they said, could have helped save some of the roughly 800 jobs slated to be cut next month, with the fate of the entire mine uncertain.
The U.S. Treasury Department issued draft rules last year saying the 45X credit does not apply to mining but rather final processing of a mineral.
The draft rule was seen as a strict interpretation of the IRA's language and meant to appease conservationists and environmental groups, although the United Steelworkers and other labor unions have called for the 45X provision to apply to mining.
While miners lobbied behind the scenes for months, the draft rule appears on track to be finalized in coming days, analysts said. The Treasury Department said it expects to issue final draft rules soon.
Sibanye estimates its costs for labor, electricity and related areas have increased 30% since 2020, part of the reason why it is cutting staff now but did not when prices for palladium - used to make semiconductors, among other goods - were near similar levels in 2018.
"It's very hard to compete when Russia is selling the exact same product," said Heather McDowell, a Sibanye executive. "We believe Congress intended for the tax credit to incentivize those of us who produce critical minerals the right way, in this country."
Other U.S. mining projects have pushed for Washington to support two-tiers of metals pricing, stop negotiations with Indonesia and other minerals-rich countries using controversial mining practices, and forcing government contractors to buy American-produced minerals.
That shift in U.S. industrial policy in a way paradoxically reflects steps that China has already taken, said George Cheveley of Ninety One, a London-based asset manager with investments across the mining sector.
"If you look at the way the U.S. and China are approaching the energy transition, they're actually doing it the same way," said Cheveley. "Their view is, 'We will subsidize the industry to get it up to scale and then we'll have a profitable, functioning industry with the latest technology.'"
ELECTION RAMIFICATIONS
The 45X issue has now worked its way into control of the U.S. Senate. Montana Senator Jon Tester, a Democrat facing a tough re-election race next month, said little about 45X when the draft rules were issued, but in the wake of Sibanye's layoffs, has gone public with calls for the credit to cover mining and has lobbied Treasury officials.
Mining is the highest-paying industry in Montana, with an average annual wage of $98,000, 81% higher than the state's average.
Tester has called the layoffs "unacceptable," blamed Russia and asked the Treasury Department to expand the 45X credit to mining.
"This mine is a big deal for local economies and our national security," Tester, a farmer by profession, said in an emailed statement to Reuters.
Tester's Republican opponent, businessman Tim Sheehy, has blamed what he sees as Democrats' "job-killing, climate cult agenda" for the job losses in recent public statements. Sheehy's campaign did not respond to requests for comment.
Polls show Tester trailing Sheehy, although the race remains tight and the winner could help determine control of the Senate given close races elsewhere in the country.