Mining Digital Wits

The new world has begun, or has it? Whilst we are in this period of uncertainty everyone is speculating what will become of the world as we knew it.

How will humankind react to this COVID 19 virus and how will
business deal with this new world? Mines will as always need to pre-empt the requirements of the world, 10 to 25 years into the future to provide the resources required.

The shutdown of non-essential and deep-level mines will have given the industry time to consider how to not only deal with the start-up of operations but also how to prepare for a similar Black Swan type event in the future.

The mining industry has always been at the forefront of preparing for unusual and out-of-the-ordinary events as they generally operate outside of major centres and new supplies could take days’ or even weeks to be
available.

So what is the current market outlook?

The market for resources will continue to be depressed for the 2020 year as the long lasting impact of Covid-19 has decimated global growth. The continued geo-political issues that plagued 2019 with US-China trade
war will likely continue in 2020 as it is anticipated that a ramp-up in rhetoric will occur in the run up to the US elections later in 2020.

With the world has seemingly stopped anywhere, for a period of about 3 weeks to 2 months with lockdowns, in some form or another in all major countries.

China had locked down their manufacturing sector since end of January and is only starting up factories in early April 2020.

This has resulted in worldwide harbours reporting significant declines in volumes of between 50% and 75% in this period. Factory activity in China
plunged to its worst level on record in February 2020.

These factors will all contribute to a slow start-up for the mining community once the lockdowns are over and no immediate bounce in demand.

So what will change if any and how to react to that challenge

The immediate future will challenge the industry to ensure the virus does not spread through their communities.

The majority of mines and their employees operate in very close proximity of their surrounding communities and should the virus spread through these communities, the impact could be devastating.

Not only will the loss of lives potential be catastrophic but the psychological impact could cause mistrust between the community and the industry.

Thus the challenge is how does an industry that requires a big workforce that operate in small enclosed spaces operate in a Covid-19 world. Each mine will have to determine what works best as there will be no one-size fits all solution for the industry.

The solutions will range from taking additional personal protective
equipment to regular testing and smaller shift-work forces. These all come at a cost, be it added production costs or less production output resulting in low profitability.

These cost pressures along with depressed market prices will be difficult for the industry to deal with.

In the medium to long term the industry will push harder than before for mechanised mining and a reduction in workforce. This is a capital intensive process but considering how the majority of the industry has worked to reduce debt and shore up their cash reserves and balance sheets, now may be the perfect opportunity to upscale the mechanisation of the mines.

The industry will have to rethink their modus operandi. The safety of the workforce and community will need to come first. This will include how rotational staff is transported to and from mines all across the world, from
Chile to Africa and Australia.

Greater emphasis on the mechanised mines, remote drilling and blasting will be the order of the day. These will be challenging times for the industry.

Read more about COVID-19

The major miners will adapt and has the balance sheets to afford
the short term change requirement in the environment, the marginal and junior miners will be where jobs will be lost and companies become financially distressed.

If they can get the balance right between workforce optimisation and mechanisation will the mines ultimately become more profitable in the future, which will bring opportunities of a different kind.

AUTHOR: Jacques Barradas – Audit Partner, BDO in South Africa