Why investments in volatile commodity markets are not suitable for U.S. Green Card applicants.
Despite substantial investment, the U.S. mining and natural gas sectors have faced strong political headwinds and significant market volatility in recent years.
EB-5 investors should steer clear from high-risk investments as much as possible, in order to reduce immigration and financial risk.
If an EB-5 project fails to complete construction and create enough jobs, your family could lose their investment and their opportunity to receive U.S. Green Cards.
In the following article, we will explore how market instability and an uncertain future are negatively affecting the natural gas and mining industries, as well as how government policy may impact commodities and EB-5 investors in those projects.
Uncertain Future in Mining
Problems with Natural Gas
Costly Geopolitics & Ecopolitics
Government Intervention
Limiting Risk for EB-5 Investors
Uncertain Future in Mining
The U.S. mining industry faces considerable challenges in the coming decades, particularly regarding the impact of resource depletion, environmental standards, and talent drain.
In a comprehensive analysis of the mining industry, McKinsey & Company concluded, “Miners have to plan for the considerable challenges of this decade, including the urgent need to address the prospect of acute labor shortages, a legacy of underinvestment and sparse project pipelines, geopolitical risks, and low productivity.”
Rare Earth Minerals: Supply and Demand
The clean energy transition has led to a rise in demand for mining lithium, cobalt, and rare earth minerals such as terbium, dysprosium, neodymium, and praseodymium. These minerals are essential to operating electric batteries, electric vehicles, wind turbines, mobile phones, and even the F-35 striker jet.
“Rare earth deposits, they don’t just get turned on by the flick of a switch,” said USA Rare Earth CEO Pini Althaus. “They evolve, sometimes a decade or two of drilling, having the right economics, being able to develop those projects.”
With such a long timeline to determine whether or not a project is viable, EB-5 investors should be cautious about tying their family’s Green Card chances to a rare earth mineral EB-5 project, despite increased demand from the green revolution.
Mining Industry’s ‘Grey Tsunami’
One of the most significant issues facing the mining industry is talent drain and a so-called ‘grey tsunami’ of retirees.
“We are anticipating a retirement of more than half of the U.S. mining workforce over the next six years,” said Walter Copan, Vice President at the Colorado School of Mines, testifying before the U.S. House of Representatives Committee on Natural Resources. “That’s 221,000 workers that are expected to retire by 2029.”
In 2023, a study by Deloitte found that mining employment in the U.S. fell more than 20 percent over the previous decade. The study also found that the majority of U.S. mining workers are over the age of 46, confirming Copan’s anticipated ‘grey tsunami’ of retirees.
U.S. mining graduations have declined by nearly 40 percent since just 2016, according to a study by the McKinsey Global Institute.
Furthermore, as the industry evolves both technologically and ecologically, approximately 20 percent of workers in the mining and metals industries are at risk of layoffs or displacement. To replace workers in this changing market, mining employers must now compete with the tech and digital spheres for qualified talent.
Problems with Natural Gas
The U.S. is both the largest producer and the largest consumer of natural gas in the world.
However, the natural gas sector is “choppy and lifeless”, according to a September 2023 analysis by Investing.com. Their commodities expert even named natural gas as likely the single worst performer in both the commodities market and the overall market.
This is due to a variety of factors, both domestically and globally, including slowing demand and a volatile marketplace.
Market Volatility
Natural gas is the third most-traded commodity in the world, due to its extreme market volatility.
“Volatility in natural gas demand often leads to big spikes and declines in its price,” reports Garry White, Chief Investment Commentator of U.K. investment firm Charles Stanley. “The risk involved in derivatives trading can even result in professional investors losing a substantial amount of money.”
With commodities experts around the world warning against individual investment, the natural gas market is simply too volatile and high-risk to rely on for EB-5 investment.
Weakening Forecasts
Natural gas demand grew by 20 percent in the 2010s. However, natural gas prices have weakened in recent months, as forecasts for consumption have cooled.
S&P Global predicts global demand for oil and natural gas will peak in 2031 at approximately 110 million barrels per day.
The International Energy Association (IEA) anticipates only a five percent increase in natural gas demand in the 2020s, followed by a long-term decline due to the rise of renewable energy sources.
Costly Geopolitics & Ecopolitics
Both the mining and natural gas industries are beset by increasing political and environmental concerns that are impacting investment both domestically and around the world, especially with rising interest rates and increasing costs.
Commodities markets are notoriously subject to the changeable winds of geopolitics. The World Bank’s Chief Economist named Russia’s war with Ukraine “the biggest shock to commodity markets since the 1970s.”
Trouble Raising Capital
A 2023 report from Ernst & Young found that simply raising capital is the biggest risk to the mining industry, after environmental, social, and governance (ESG) issues.
Specialty and rare earth metals investment decreased almost 50 percent in 2023. Copper mining investment decreased by 28 percent in the same year, despite it being crucial to most electronics, as well as the green energy transition.
Investment in publicly traded oil and natural gas companies declined 6.5 percent globally between 2015 and 2019 due to environmental policies, according to the EU’s Centre for Economic Policy Research.
EB-5 investors should be concerned if large institutions are decreasing their investment in commodities.
Environmental Concerns
ESG requirements have made building new mines prohibitively expensive for investors. In fact, nearly 20 percent of all large-scale mining projects requiring at least $1 billion in investment are completed overbudget, by an average of $500 million each.
The Metals Company, a deep-sea mining corporation, saw its share price fall 90 percent in the first year after its IPO, due to investor flight and environmental litigation.
The Environmental Justice Foundation even warned investors that “investing in deep-sea mining should be seen as extremely high-risk given threats to biodiversity, unpredictable demand, unproven technology, the risk of litigation and reputational risk.”
“The message I would give to current and prospective investors of any deep-sea mining company is that it’s still a long and winding road ahead with many uncertainties,” says Pradeep Singh, delegate to the International Seabed Authority, which governs more than half the world’s oceans. “There is a very high chance of applications submitted before 2025 being rejected or being subject to extremely stringent and unfavorable conditions.”
The serious environmental hazards of natural gas extend beyond the life cycle of an active well. Orphaned natural gas wells leak dangerous methane, polluting urban areas, suburban backyards, rural farms, and even drinkable groundwater.
Congress allocated $4.7 billion to plug orphaned natural gas and oil wells, as a part of the Bipartisan Infrastructure Law. The initial $560 million in orphaned well grants has already plugged and remediated more than 2,800 state and private wells.
Environmental risk factors are making it increasingly difficult to underwrite investments in commodities, even for the most experienced investors.
Government Intervention
The United States’ natural gas and mining industries are artificially propped up by vast government subsidies, with overall incentives estimated between $10 billion and $50 billion every year.
Senator Sheldon Whitehouse, Chairman of the U.S. Senate Budget Committee testified that “taxpayers pay about $20 billion dollars every year to the fossil fuel industry. What do we get for that? Economists generally agree: not much… The cash subsidy is both big and wrong.”
Both President Biden and former President Obama named eliminating fossil fuel subsidies as a top priority in the early days of their presidencies.
Eliminating just the federal tax deduction on intangible drilling costs, by which fossil fuel companies can deduct most of the expense of drilling new wells, could generate $13 billion for the government over ten years.
Fossil fuel subsidies totaled more than $7 trillion globally in 2023, in response to the pandemic recovery and the surge in energy prices after the Russian invasion of Ukraine. Fossil fuel subsidies, including natural gas, cost governments the equivalent of 7.1 percent of global GDP, 60 percent more than government spending on education.
The International Monetary Fund (IMF) recommends that “scrapping explicit and implicit fossil-fuel subsidies would prevent 1.6 million premature deaths annually, raise government revenues by $4.4 trillion, and put emissions on track toward reaching global warming targets.”
Industries reliant on government subsidies should be avoided for EB-5 investment. Government policy can change at any time, with potentially devastating effects on businesses that are not economically viable on their own.
Limiting Risk for EB-5 Investors
EB-5 investment in high-risk industries such as mining or natural gas is not recommended.
Investing in a volatile industry not only jeopardizes your family’s chances at receiving U.S. Green Cards but may also cause a complete loss of invested capital. Projects that fail financially typically fail to create enough jobs to qualify for EB-5 immigration.
EB-5 investors’ capital investment in a new commercial enterprise (NCE) must create a minimum of 10 full-time jobs for U.S. workers that are sustained for at least two years.
It is essential for EB-5 investors to limit both their immigration risk and their financial risk when choosing an EB-5 investment project.
Real estate construction projects are much more dependable for EB-5 investment, that’s why they are the industry standard. Many EB-5 construction projects partner with multibillion-dollar national builders and property management companies with decades-long unbroken records of financial success and 100% loan repayment, like EB5AN’s partnership with The Kolter Group.
When considering investment in any type of project, EB-5 investors should always perform due diligence.
Make sure that the NCE has a senior loan agreement in place and that the developer has committed significant equity. These indicate that the project has sufficient capital to complete construction and that the developer has strong confidence in the financial viability of the project. Some EB-5 projects even come with an I-526E approval refund guaranty, a job creation guaranty, and a loan repayment guaranty from the developer—providing investors with the assurance that sufficient jobs will be created and their investment will be returned.
EB5AN has helped more than 2,300 families from over 60 countries to successfully immigrate to the United States through the EB-5 Immigrant Investor Program, with a 100% I-526E approval rate.
For more information on the best low-risk industries for EB-5 investment, schedule your free one-on-one consultation with EB5AN today.
