They say every cloud has a silver lining and, in some ways, this is the story of the mining industry in the age of COVID-19. When the reality of the size and potency of the pandemic first hit home, a shiver of fear ran through the global mining industry, which was asking itself how will we cope with this new “lockdown” society and how will the commodity markets react?
And while some countries and companies have been hard hit, there is no denying that many others have seen real boom times.
According to resource industry analyst firm Research & Markets.com, the global mining market is expected to grow from US$1,641.67B in 2020 to US$1,845.55B in 2021 at a compound annual growth rate (CAGR) of 12.4%. It also forecast that the market is expected to reach US$2,427.85B in 2025 at a CAGR of 7%.
Research & Markets suggests that the sustained growth is mainly due to the success of mining companies in rearranging their operations and recovering from the impact of COVID-19, which had earlier led to restrictive containment measures involving social distancing, remote working, and the closure of commercial activities that resulted in operational challenges.
The analyst firm also forecast that growing support of the mining industry via government policies will continue to drive the mining market upwards. It noted that governments are providing subsidies and encouraging foreign direct investments (FDI) in the mining industry. There is also government support through government-backed public finance institutions, such as bilateral development banks and export credit agencies investing in mining projects, fiscal support through budget allocations and tax exemptions, and investments through majority state-owned mining and utility companies.
Global consulting company PWC has also noted that the mining sector has fared particularly well during the COVID pandemic. PWC says the top 40 mining companies have come out of the storms of 2020 in excellent financial shape, while mining is one of the few industries that emerged from the worst of the COVID-19 pandemic economic crisis in excellent financial and operational shape.
It even suggested that 2020 was a banner year for the mining sector and that things are expected to get even better for the world’s biggest mining companies.
The pandemic has heightened stakeholder expectations around all high-impact risk exposures
Effects across commodities
Research firm McKinsey reports that as the COVID-19 pandemic has hit geographies and countries at different times and to varying extents, the immediate supply correction varies sharply across commodities.
Although some countries (such as Australia) have seen limited impact, others (such as South Africa) have witnessed severe lockdown measures, with a knock-on effect on mine sites. The overall impact on each commodity differs, with fertilizers and aluminium resilient while the average monthly production of nickel and zinc is down by approximately 20%.
An extreme example is uranium: almost 50% of the global supply ground to a halt in May 2020 as Kazakhstan stopped production. Additionally, disruptions not related to the COVID-19 crisis are in place – and will continue throughout the year – as part of the nature of the mining sector.
McKinsey found that Disruptions not related to the COVID-19 crisis in Brazil – May 2020 had the lowest Brazilian iron-ore monthly export volume for that month since 2009 – have combined with a relatively resilient Chinese steel industry to see prices surpass the mark of US$100 per metric ton in June, despite record exports from Australia.
It found that copper prices are already above pre-crisis levels, with supply squeezed by lockdowns in Peru, although demand should return with country-level stimulus packages and especially investments in renewables and new grid infrastructure. Meanwhile, spot uranium prices, partially driven by the previously mentioned large supply correction in Kazakhstan, have risen by some 32% since the beginning of the year.
Australia defying the forecast
Geographically, Australia has been one of the global winners in the COVID-19 era, with export earnings from iron ore sales to China in particular hailed as the saviour of the nation’s economy during the early stages of the pandemic.
According to KPMG, Australian mining operations have grappled well with COVID challenges such as supply chain and labour disruptions, liquidity risk, and cyberattacks. At the same time, the country has been boosted by tailwinds, including surging commodity prices, new demand for raw materials necessary for the zero carbon transition, and new technology.
‘“Of course, just as there is opportunity in crisis there is risk in times of abundance, and mining executives seem acutely aware that commodity price booms have historically been associated with creeping inefficiencies,” KPMG suggested.
Accountancy firm HLB Mann Judd noted that in the early stages, analysts were predicting the COVID-19 pandemic would likely to have a devastating effect on Western Australia’s (WA) mining and resources industry for up to 20 years. A forecast economic downturn coupled with the patchy financial support from the government for junior resources companies was tipped to severely impact exploration and the development of future mining operations in WA.
Yet, it has been Western Australia’s mining sector that has carried Australia a remarkably strong economic turnaround.
Governments are providing subsidies and encouraging foreign direct investments in the mining industry
Yet despite its largely successful handling of COVID-19, there are still a number of growing issues that the industry must continue to deal with. Multinational professional services firm EY suggests the experience of the pandemic has heightened stakeholder expectations around how enterprises prepare for, manage, and monitor all high-impact risk exposures.
It says the impact of COVID-19 has been mixed, with some restrictions imposing new, unforeseen costs and other measures removing silos that hindered productivity. Over the longer term, it believes that tackling this issue effectively requires a true end-to-end focus on costs and productivity across the value chain.
However, it also forecast that rising costs and productivity remain on the radar as the complexity of mining increases and commodity prices come under pressure due to disrupted supply and the impact of ongoing economic uncertainty on demand.
While there are some positive forecasts for the mining sector, ongoing COVID-related issues continue to have an effect. These include travel restrictions, which continue to affect the movement of workers and equipment. This can almost change on a daily basis as countries or regions are suddenly locked down. The various new strains of the COVID-19 virus have highlighted this in recent months.
The constant regime of maintaining strict hygiene is an ongoing and sometimes a particularly arduous task with larger mines where there is a significant number of staff (who are often fly in and out). There is also a significant amount of often very large equipment to sanitize.
In some countries, lockdowns have stopped major projects in their tracks and once they have been shut down it is a slow and costly process to bring them back online again. Meanwhile, the “boom” is putting pressure on hiring skilled workers (see p.78) as there is difficulties in such matters as undertaking pre-employment assessments if workers are in a locked down area. Furthermore, drilling in some areas has becoming more expensive due to “booming” demand, while there are growing delays at the assay labs.
On the other side, some mineral commodity prices are at record highs, while for a significant period fuel prices were near the other end of the spectrum. Noting the high commodity values and demand, financial markets have been very supportive in backing capital raisings, providing strong impetus on the exploration