By consultant Nicolaas C. Steenkamp
The Covid-19 pandemic lockdown measures globally have impacted mining negatively and will influence the way the mining sector operates drastically – the aftereffects of which will be felt for months to come.
The mining industry already had high requirements for health and safety prior to the start of the Covid-19 pandemic. All mines around the world and specifically South Africa have been subject to stringent legislation regarding occupational hygiene.
Mines have annual medical examinations, on-site clinics and continuous education and awareness programmes around personal hygiene and health. This allowed mines to respond quickly and effectively. Similar programmes are either not as developed in other sectors or completely absent.
Mining has been identified as the sector that could be a stabiliser in the post-lockdown period. The success will be largely dependent on the support and relief measures the governments put in place to aid in the recovery process.
There will most likely be several impacts on the mining industry that will affect the way in which mines will operate. The lockdown period was a quick and hard school of remote working, with operations having to find ways to allow remote work, identifying and overcoming challenges and implementing measures to determine productivity. Some of the main challenges revolved around the use of licenced software and limitations of the number of concurrent VPN users that access company systems.
The push towards automation is expected to increase in the coming year. This would range from increased use of IoT platforms and the introduction of blockchain-based stock and inventory monitoring and ordering.
Restrictions on travel
Travel bans and restrictions and limited travel to and from sites have resulted in companies having to review their expat extraction and repatriation policies. In addition, it sparked an increase in interest of remote sensing and earth observation products. Satellite imagery, that captured images prior to the start of care-and-maintenance versus ramp-up, is compared with change monitoring products, such as Pinkmatter Solutions’ FarEarth, to evaluate surface changes that occurred during this period.
Several operations have opted to only continue with the processing of stockpiles or reprocessing storage facility material. The volume changes can be quickly and fairly accurately determined through photogrammetry in the absence of on-site survey capabilities or functions.
A number of major companies also declared force majeure as soon as lockdown measures were announced. This had a devastating effect on small- and medium-size vendors, contractors and consultants to the mining sector. Only time will tell how many of these SMEs will survive the year or will bought out or forced to close operations. Artisanal miners that supply to major companies are also set to lose out on income.
In the couple of days leading up to the lockdown, mining operations scaled down to only keep the essential services operational and perform maintenance. The care-andmaintenance measures were done in such a manner that the shortest possible ramp-up time would be required once production resumes. Breton Scott, MD of Bowline Professional Services says that most operations will need to urgently review their business and operational plans and remedial measures developed. Bowline is also developing formats to help clients ensure that their business continuation plans are amended to cater for potential future long-term periods as a result of factors that could include pandemics to extreme weather forced curtailing of production.
The marketing and auction approach may also experience a quick change. A number of precious stone auctions have started to move to virtual auctions, or flexible tender sales. It is still to be determined how the buyer market will react and what their levels of satisfaction will be.
The lockdown period panic also saw a tug-of-war between gold and the US dollar for investor’s confidence. Gold appears to have retained its safe haven status in developing countries where the domestic currencies suffered serious losses against the major currencies on the exchange market.
The recovery of the ferrous and non-ferrous metal markets will to a large extent depend on how fast the Chinese and Indian manufacturing sector returns to full production. For some small producers of iron, the good times of high iron ore prices may be over for the time being, but chrome and ferrochrome producers may benefit. The precious metal and gemstone market segment might struggle to recover from the lack of luxury purchases being made during the lockdown periods.
Impact on South African mining
Historically, there are a number of critical tipping points, and the global lockdown in response to the Chinese Covid-19 pandemic is bound to be recorded as one of those moments. The African mining sector and specifically the South African mining sector are bound to suffer the consequences over the long-term.
The lockdown added to the woes of a country that was already projected to experience minimal growth, downgrading to investment junk status, the prospect of prolonged loadshedding, political movement towards expropriation without compensation and nationalisation of the Reserve Bank, failing state-owned enterprises (SOE) and increasing unemployment levels. Although mining is not the main contributor to most countries’ GDP, is remains one of the pillar sectors for employment, both direct and indirect. Mining has also been identified by the South African government as a key industry to recover the economy after the lockdown period and this is echoed by Australia and others.
Mining was not deemed an essential service during the 21-day lockdown period in March to April 2020. These measures necessitated mining operations to put their operations in care-and-maintenance, in such a way that the minimum ramp-up time would be required to bring the operations back into production once restrictions have been lifted. Production during this time was limited to keeping critical infrastructure in operation, but limited in most cases to processing stockpile material or reprocessing to keep the plants in operation. A smaller number of operations halted operations completely. It is however clear that most mining company do not have contingencies in place in their business continuation plans to handle prolonged shutdown periods, as a result of pandemic emergency measures or extreme weather. Mining companies will spend the next couple of months engaged in remedial and de-risking planning meetings.
Major mining companies also responded to the crisis by immediately issuing force majeure notifications. The effect of this will wreak devastation on the small vendors, contractors and consultants to these companies. Payment terms by mines to service providers can already be as long as 120 days. Unless better terms can be agreed upon, a significant number of these businesses will potentially have to apply for business rescue. In turn this may result in shortfalls of supplies and services at mining operations, impacting on productivity. Fortunately, direct immediate job losses in the mining sector have not happened yet, it was considered illegal to conduct lay-offs and retrenchments during this lockdown period with additional pressure from the labour unions.
The South African government responded by announcing the creation of a relief fund. This may be a saving grace for some of the SMEs most affected by suspension of services and payments from clients. The fact that the relief support is based on demographic criteria is however concerning. A significant number of SMEs that offer vendor services or contractor or consulting services to the mining sector, were created by individuals who were offered severance packages to vacate their positions to be filled by designated BEE candidates or were retrenched as a result of the two recent economic downturn periods. This talent and skillsets may now be permanently lost to the mining sector or to the international market. Initial indications were that there was no criteria set to determine whether or not the applicants were experiencing financial difficulty prior to the announcement of the lockdown period. The government would also need to make a real effort to get the notoriously ineffectiveness of state department bureaucracy to function more effectively.
The mining sector is the most regulated industry, subject to a multitude of occupational health and hygiene regulations and legislation. Most mines already have annual medicals for all their employees, mine clinics and awareness campaigns ranging from TB to HIV and AIDS. The mining industry is possibly the best prepared sector in the country to respond to and handle pandemic situations.
The potential of remote work will now be considered more seriously by employers. Various dimensions will most likely be considered, ranging from measuring effectiveness and outputs to addressing challenges. It is conceivable that the IT sector will experience an upswing as a consequence. The push toward greater onsite automation should also gain momentum, as well as realising the potential of remote sensing and Earth observation methods to monitor site activities and conduct change monitoring. The application of these methods will persist well past the travel bans and restrictions, to reduce onsite presence of high cost staff and management, and bring the site visit to the boardroom.
A complete discussion of all possible post-Covid-19 scenarios is beyond the scope of this article. In short, there are two main possible scenarios. The first scenario is the best case: government allows the private sector to take the lead in the economic recovery programme, by supporting actions and scrapping or suspending all the current legislation or planned legislation that led to the weakening of the economy prior to the lockdown period. The SMEs are the true heroes of the economy when it comes to innovation and job creation.
The second scenario is the worst case: government seizes the opportunity of the sentiment in the country to motivate pushing through ideology-driven policy and legislation such as the National Health Insurance (NHI) and gaining access to the pension funds. It would be catastrophic if the lockdown period is extended or another lockdown period is announced during South Africa’s peak flu season.
Only time will tell if the lockdown measures and the reaction following it will put another nail in the coffin of the South African mining sector. This experience has undoubtedly changed the way in which the mining sector will operate and conduct business in future.