Trump's tax-cut bill could hold back US critical minerals projects

A U.S. House bill, aiming to cut government spending, proposes eliminating the 45X tax credit established by the Inflation Reduction Act, which incentivizes domestic production of critical minerals like nickel and rare earths. Industry executives warn that removing this credit would hinder their ability to compete with China, which heavily subsidizes its own mining industry and controls significant portions of the global critical minerals supply chain. The potential loss of the tax credit, along with the removal of funding for the Department of Energy's Loan Programs Office, has raised concerns about the future of U.S. critical minerals projects and their ability to secure financing.

Analysis

A U.S. House-passed bill, dubbed the "One Big Beautiful Bill Act," proposes the elimination of the 45X tax credit, a 10% production credit for domestic critical minerals extraction and processing established under the 2022 Inflation Reduction Act. This legislative move, driven by Republican efforts to reduce government support for green energy projects and reallocate funds, poses a significant threat to the viability of U.S. critical minerals companies. Industry executives, including the CEO of Westwin Elements, which is developing the nation's only commercial nickel refinery, warn that removing this credit could lead to project closures and an inability to service debt, as financing models often incorporated the permanency of such incentives. The bill also aims to remove remaining funding for the Department of Energy's Loan Programs Office (LPO), which has previously provided substantial loans to projects like those of ioneer (INR.AX) and Lithium Americas (LAC.TO). This development exacerbates concerns about the U.S.'s ability to compete with China, which heavily subsidizes its own critical minerals sector and has demonstrated its willingness to leverage its dominant market position, including halting exports and flooding markets with cheap supplies of nickel, cobalt, and lithium. The potential loss of these incentives is viewed by industry leaders, such as the CEOs of Magrathea and Momentum Technologies, as undermining efforts to build a secure domestic supply chain for materials crucial for advanced electronics, weaponry, and the energy transition, despite the House bill including $2.5 billion for a critical minerals stockpile and $500 million for a Pentagon mining loan program. The legislation's passage through the House, with some members admitting to not reading it fully, and its current debate in the Senate, introduces considerable uncertainty for the sector, which industry consultants warn could lead to mineral shortages within five years if domestic support is curtailed.

Key Decisions for Investors

• Investors should closely monitor the U.S. Senate's deliberations on the "One Big Beautiful Bill Act," as the potential elimination of the 45X tax credit and Department of Energy LPO funding represents a material headwind for domestic critical minerals projects, potentially impacting their financial viability and competitiveness against Chinese state-supported enterprises.
• Re-evaluate positions in U.S.-focused critical minerals companies, particularly those like ioneer (IONR) and Lithium Americas (LAC) which have benefited from LPO support, or developers like Westwin Elements that have factored the 45X credit into their financial projections, given the strongly negative sentiment and specific risks highlighted.
• Consider the heightened policy risk in the U.S. critical minerals sector; the potential rollback of these incentives could significantly delay or derail the development of a secure domestic supply chain, increasing reliance on foreign sources and impacting long-term commodity price assumptions.
• Factor in the possibility of increased volatility for equities in this sector until there is legislative clarity, as the removal of these incentives could impair project economics and access to capital for U.S. miners and processors.