The COVID-19 virus has disrupted business practices, interrupted supply chains and changed the way many companies approach business.

By Mark S. Kuhar

COVID-19 has turned into a global crisis, evolving at unprecedented speed and scale. It is creating a universal imperative for governments and businesses to take immediate action to protect their people. The economy is facing demand, supply and confidence effects. How long will it last? That depends on the global severity of the outbreak and the public health measures undertaken to contain it.

According to professional services experts Accenture, mining operations face continuous risk of exposure. Mining operations require workers to operate and live in confined spaces (e.g. mining camps, trucks, operator rooms). This increases exposure to and propagation of COVID-19.

Operations are well-advised to:

• Ensure people are safe.
• Evaluate risks and opportunities and be ready to take swift action.
• Reduce operational exposure.
• Manage the situation with the same passion and discipline that you bring to managing your operations.

Australian-based research group State of Play has been conducting research into the immediate impact of COVID-19 and what it could mean for the resources sector in the medium to long term.

In an ongoing research project, partnering with METS Ignited and National Energy Resources Australia (NERA), State of Play researchers have surveyed almost 200 global mining leaders, gathering valuable data on how the resources sector is responding to COVID-19.

As a public health crisis, the primary impact is directly on people and their ability to work, travel, and stay safe and healthy. This human impact has indirect impacts on the movement of goods and services, the operability and resilience of supply chains, and the overall health of economies (both national and global).

Unlike a classic economics-driven commodity price crash, health-driven operating model and supply chain disruptions have impacted operating companies and services companies very differently, as our data shows in Figure 1.

Mining is a globally interconnected industry with a diverse geographic footprint. While corporate offices are often in major cities such as London, Johannesburg, Melbourne or Vancouver, asset locations are dictated by orebodies, and trading centres are often located along key supply routes.

It is therefore unsurprising that the two main impacts of COVID-19 to asset owners are related to the operability of global, interconnected supply chains, with people (39 per cent) and critical supplies (30 per cent) unable to move between locations and maintain the status quo. In particular, in mining areas with relatively immature remote operations capabilities, the inability for people to operate assets is driving down production capabilities.

As a result of this disruption, it is likely that innovation in remote operations and building supply chain resilience will be accelerated as the industry moves to protect itself from a similar crisis in the future and as it internalises what worked well through this period.

In the competitive mining services industry, disruption to the ‘business as usual’ operations for miners generally leads to cutting costs, with non-essential suppliers frozen out and essential services stripped back to their core. COVID-19 is little different in this respect; our data shows that the biggest impact from the virus on services companies is in the loss of revenue (57 per cent) and the loss of overall profits (33 per cent).

The longer the crisis continues, the more stress is expected to be seen on services companies’ cashflows, which will force further innovation in new virtual supply models and the adaption of current efforts to the new operating environment. It may also accelerate collaboration and innovation on digital technology as suppliers work closely with operators to adapt brownfields.

The impact of COVID-19 and the government’s policy response is amplified by the potential length of time that restrictions will remain in place. The highly uncertain timeline of the crisis means we may face restrictions anywhere from another couple of months to over a year.

While many businesses are able to withstand short-term interruptions, only 43 per cent of operators and 28 per cent of services companies believe that their current situation is sustainable (Figure 2).

Naturally, if the crisis lengthens, businesses are likely to innovate in order to operate differently according to the new restrictions and new, virtual services will compete in a remotely operated industry. Thus, while current sentiment is alarming, we expect the industry to adapt to whatever situation presents itself.

Looking at the longer term, there is no doubt the current pandemic will change the resources industry. Given the greatest impact so far has been on operating models and supply chains, it follows that this is where the greatest opportunities may also lie.

Beyond an unsurprising increased focus on risk management (48 per cent), long-term trends such as flexible working, remote operations and automation, and reduced travel are likely to be accelerated. While these shifts were already underway, the current situation will speed up investment and competence in these areas.

Take flexible work. As the digital maturity of organisations improve, many employees are increasingly able to work on more flexible timetables and from different locations. Two key barriers to this shift have been a cultural preference for physical congregation of workforces – in particular in corporate offices – and the lack of required infrastructure to support large-scale remote work.

Restrictions on public gatherings of people (including office spaces) have forced the issue. Globally, the culture around remote work is shifting, as productivity remains relatively high outside of physical office environments, and investment in infrastructure to support remote connections has been quickly made in order to minimise disruption. These two developments increase the viability of flexible working options and are seen as the most widespread change in the industry post-pandemic (53 per cent; Figure 3).

In an operational context, the restrictions on travel have increased the focus on remote operations of assets and have caused a rethink on the necessity of physical travel, particularly for corporate roles. Cultural inclination for the extensive travel of managers and executives to sites has been replaced by increased virtual communication, which is likely to continue after COVID-19 has subsided.

Some mining companies have already baked in reduced travel budgets for the next financial year. In addition to its productivity benefits, investment in automation and remote operations centres is likely to be accelerated for resilience to future shocks.

In addition to the increased flexibility of operating models, supply chain resilience will be a focus for both mining and services companies. We are likely to see two changes, one structural, one innovation-based.

First, the diversification of supply chains and increased bias toward local procurement (38 per cent; Figure 3) is likely to shift the services industry to be more proximate to large clusters of operators and reverse the globalisation trend that has outsourced many functional tasks offshore. While a positive development for local METS industries, the globalisation trend was driven by cost, so for any permanent shift in the other direction, costs must also decrease.

Second, there will likely be more innovation in alternative procurement methods, in particular 3D printing technology. For equipment manufacturers, the ability to print critical parts locally de-risks international supply chains and provides opportunities for new types of equipment and service models.

Alongside the concern for business leaders, especially in regard to ongoing sustainability in a severely disrupted market, there is an opportunity for industry to adapt to the new way of working and innovate to build resilience in their operating models and supply chains. While disruptive, the crisis may be the catalyst for positive long-term change.

Navigating the COVID Curve

The metals and mining sector has successfully navigated periods of economic challenge before – but the COVID-19 crisis is different. It is both a health and an economic disruption, and it is worldwide. The shock will alter social, business and political norms, perhaps permanently.

How then can mining companies navigate the challenges both they and investors will need to overcome in the near future, while also working to prepare for the likely conditions in the post-pandemic mining and metals markets?

Mining companies are navigating through what London-based ERM – a global provider of environmental, health, safety, risk and social consulting services – has titled the COVID Curve.

“This contains three distinct phases associated with the COVID-19 economic crisis, which we’ve defined as Respond, Manage and Recover,” the company said (see chart). “Success in one phase does not guarantee success in the next. Each phase has its particular challenges; individual companies can lead, lose-ground or even fail during any one of these. The post COVID-19 market leaders will be those that are the fastest to adapt and incorporate the demands of each phase into their operation and business models.”

The likely trajectory of individual mining and metals companies through the COVID Curve.

In the Respond phase, companies have acted rapidly to protect their people and business. Some have contributed to the wider-pandemic control efforts and demonstrated consideration for the communities that support assets, and suppliers who are critical to the success of their operations. Building and maintaining stakeholder trust at this time is important.

Transparency and communication are key, and companies need to ensure they deliver on their promises. Memories last and stakeholder relationships can be transformed for better or worse at such times of crisis. Ensuring that the supply chain remains intact is also critical. The partnerships that are sustained or enhanced during this phase are vital to navigate the following phases.

The Manage phase will see companies re-focus on production and drive operational efficiency before physical-distancing protocols are relaxed. Initiatives that include remote delivery, automation and virtual working solutions will endure. The efficiencies, convenience and reduced risk they provide will make them irreversible and will be a catalyst for long-term structural change in how the sector operates. This will create more streamlined, sustainable and safer operational outcomes that lead to the Recover phase.

KPMG Insights

According to multinational professional services network KPMG, “we expect to see supply chain issues arising and escalating due to import and export restrictions and reduced operational capacity by suppliers as a result of COVID-19 restrictions.”

• Lag times for orders of essential mining consumables such as tyres, reagents and other consumables are emerging and will likely have further impact over the next several months.
• Domestic imposed travel restrictions will also create supply chain issues even if products have arrived to Australia and sit at port or warehouses ready for dispatch, however at this time of publishing we have not seen any major impacts. Current government regulations regarding shipping ports remains unclear however we observe that certain shipping ports remain operating to assist in delivering critical mining supplies, however 14-day isolation rules apply at certain ports and pending country of origin.
• KPMG expects to see miners more closely examining counter party risks in respect to new offtake or product sale agreements and third-party contractors who have, or are being considered for project works or operational contracts. This is both from a financial perspective and ability to provide adequate personnel to undertake the relevant services.
• Prior to COVID-19 Australia had a skilled mining labour shortage. This position is becoming even tighter due to domestic travel restrictions including intra state restrictions and airline service reductions, albeit the government has acknowledged that essential travel to site can continue to keep sites operating at this time.
• Added to the above, staff exposed or diagnosed with COVID-19 or staff returning from overseas are unable to work due to quarantine requirements disrupting operations in the absence of alternate staff or contractors being deployed.
• Miners are implementing strategies to reduce and limit staff and contractor exposure to COVID-19 by changing rosters and limiting interaction between swapping FiFo crews and other staff generally. Miners are unable to source any foreign resources at this time due to overseas travel and foreign visitor entry bans to Australia. However, the government is working with miners to ensure they can get workers in and out of regional and remote areas in accordance with health and safety requirements.

Vulnerable Supply Chains

While miners previously did not need to understand the complexities across their supply chains (and usually lacked the data, contingency plans and crisis incident management to do so), the impact of COVID-19 highlights the shortcomings.

According to EY, a global provider of assurance, tax, transaction and advisory services, navigating this and being ready for future events demands that mining and metals companies take steps now to mitigate disruption and develop a deeper understanding of supply chain risks:

1. Conduct an end-to-end supply chain risk assessment to develop a calculated risks index. The assessment should include demand and supply risks, operational performance, global trade implications and the impact on customers and the workforce. Digital tools can map upstream supply chains to help companies visualize global trade flows and understand where input disruptions may lie. Current disruption hotspots are likely to be in the EU and the United States rather than North Asia where manufacturing and logistics appear to be ramping back up. Identifying potential shortages can alert companies to possible difficulties in sourcing inputs and financing purchases, which may create business continuity issues for both companies and suppliers. In areas of ongoing disruption, suppliers may face deteriorating financial health.

2. Identify supply chain gaps by developing crisis scenarios based on how long disruption may continue. Activating existing crisis management policies and protocols in each disruption scenario can identify gaps in the current supply chain model and show both the qualitative and quantitative impact.

3. Prioritize critical focus areas that may have changed in light of current circumstances – for example, personal protective equipment, food and provisions, spares and equipment. Visibility across the entire inbound supply chain allows companies to identify where interventions should be made to increase inflow, particularly for these critical assets. Assessments of how much inventory will be required on-site should take into account anticipated disruption due to ongoing complexity around movement and transport. Considering alternative suppliers can ensure that a backup plan is in place.

4. Invest in more collaborative, agile planning and fulfillment capabilities, which may include, for example, sharing inventory with other mining and metals companies in the same country. Collaboration can reap significant working capital benefits and help ensure business continuity.

5. Ensure good visibility of commodity demand – and protection if it doesn’t eventuate. A clear view of demand helps companies direct stock to the most important work. Miners that control their outbound supply chains – i.e., the larger iron ore producers in Brazil and Australia that own rail and port logistics – also have a significant advantage. We may see some companies shift their strategies to mitigate the risks of being overleveraged to one or a few countries.

6. Review contracts to determine whether the company and its suppliers, contractors or subcontractors have force majeure rights (generally determined by reference to the specific contractual term). Understanding finance facilities helps determine whether any requirements are at risk of being affected by economic uncertainty.

Emerging Themes

International law firm Herbert Smith Frehills’ mining experts are working together with firms across the globe, to track and compare government responses to COVID-19, whether that takes the form of legislation, government guidance, regulator statements or resolutions by industry bodies.

Australia

While mining in Australia has had to make a number of adaptions, the mining industry is operating at usual levels. This is the result of careful and ongoing engagement with government and recognition by federal and state governments of the mining industry as an essential service. Mining companies and unions have been in close collaboration during this time and significant steps have been taken to make personnel and communities safe such that there have been no outbreaks at mine sites.

Southern Africa: Botswana, Namibia, South Africa and Zimbabwe

Government responses in these jurisdictions reflect the heavy reliance of these economies on mining. While each of the four jurisdictions we have examined implemented national lockdowns, in some form or another, mining has been permitted to continue, and mining has been amongst the first of industries where lockdown carve-outs and exemptions have been implemented.

This stands in contrast to other African states: Tanzania, for example, where no lockdown measures have been implemented at all and mining activities are permitted to continue without restriction.

South Africa, having implemented one of the most restrictive lockdown regimes in the world, initially allowed mining of coal (to fuel its coal fired power stations), and minimal mining activities in relation to gold and platinum-group metals, to the extent needed for medical equipment or otherwise to avoid turning off smelters. This has recently been relaxed to allow all mining activities to resume provided that mines only produce at 50% of capacity. Maintaining social distancing protocols in the deep level underground mines of Southern Africa is going to present a distinct challenge. These mines are typically labour intensive operations with significantly lower levels of automation when compared with mines in many developed economies.

By contrast Botswana, Zimbabwe and Namibia are now all permitting full scale operations, but subject to strict health and safety precautions.

The Americas: Argentina, Brazil, Canada, Chile and Peru

Within this diverse group of countries, government responses vary greatly, sometimes within the same country in light of different approaches at the regional level. All countries have imposed lockdowns, but the impact on the mining industry varies:

In Brazil, mining has been recently declared as an essential activity. Therefore, operations are allowed to continue subject to implementing safety and control measures.

In Peru, mining activities with minimum personnel are permitted in order to assure the sustainability of critical operations. The mining regulator has issued protocols for operators to follow to protect health at mine sites.

A state of emergency has been declared in Chile with restrictions on movement and work which may apply to mining operations.

In Canada, each province and territory has declared mining an essential service (or exempted mining operations from closure orders) and operations are permitted under safety guidelines. In the Northwest Territory (as well as the Yukon Territory and Nunavut), special attention has been given to travel restrictions but mining workers are permitted to travel into and out of the territory. There are also efforts to protect workers in remote work camps and local, isolated communities.

Mining has been declared an essential service in Argentina at the federal level. The National Secretariat of Mines has issued recommendations that related to the level of activities at mines and safety measures for employees. A biosecurity protocol has been published by the Chamber of Mining Business setting out best practices for safety.

Major mining companies will likely take a leadership role in defining and setting the standards for the levels of health screenings and healthcare adopted at mine sites, and how, as part of the their ESG policies, they contribute to the solutions required to deal with the pandemic. This has happened with previous health crises where mining companies took leadership roles in e.g. HIV/AIDS and TB testing and treatment.

Final Word

Management consultants McKinsey & Company stated that metals and mining CPOs have a real opportunity: to help mitigate this crisis now, improve the effectiveness of the procurement function, and position their organizations to become more resilient after the crisis has passed. Now is the time for bold actions and assertive partnerships with other functions in the company. And now is the time to lead with purpose, boost employee morale, and pave the way to winning in the recovery.

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Redpath: providing full service global mining solutions and innovation since 1962

In 1962, Jim Redpath’s vision for the company was much the same as it is today: offering a high level of service to the mining industry, which exceeds current standards and provides challenge for its employees. With a foundation built on global experience, adaptability and exceptional workmanship, Redpath leads the industry with cutting edge innovations in safety and mining practices.

Standing by the Redpath Philosophies and Guidelines, employees will begin the next half century with the echo of SAFETY – FIRST, LAST, AND ALWAYS which stands as true today as it did when the company began. Image source: Redpath

Redpath has built a solid reputation for conquering tough challenges and adapting to a variety of environments. Redpath’s employees are the heart of the company’s success

and it remains through them that the company will continue to expand and flourish.

The Redpath Group has provided full-service mining solutions in more than 58 countries since its establishment in 1962. Redpath’s services include underground construction, shaft sinking, raiseboring, mine contracting, raise mining, mine development, engineering and technical services and a variety of specialty services.

The company has more than 7,700 employees worldwide and regional offices in Australia, Canada, Chile, Germany, Indonesia, Mongolia, South Africa, United States and Zambia.

Headquartered in North Bay, Ontario, the company has since established itself as a premier provider of mine contracting worldwide. Redpath has built a solid reputation for being innovative and for conquering steep challenges.

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Industry Intelligence

• Fitch analysts maintain their iron ore price forecast for 2020 at $85/tonne, as prices remain resilient despite the COVID-19 backdrop that has resulted in the decline of other metal prices.

• According to the Minerals Council of Australia, during the COVID-19 crisis, the minerals industry is “privileged to engage and partner with Aboriginal and Torres Strait Islander people, including Traditional Owners, groups and organisations across Australia.”

• Andrew Swart, writing for Deloitte, asks that companies consider if the crisis can be used as a catalyst to rethink how and where work is done, improve the ability to collaborate remotely, and accelerate adoption of automation and digital capabilities.

• FLSmidth said, “In these times, digital is also coming into its own. There have been questions for a while in the industry over how digital can deliver tangible benefits and we are seeing these questions being answered. Some of our solutions are really proving extra useful; take SiteConnect, for instance, which allows customers to monitor and review the performance and data from their equipment on their phone getting alerts and other information without having to be on site or in the control room. Or our remote condition monitoring service, which allows remote experts to monitor and often predict failure before it occurs.”

• Gold market prices have increased during the COVID-19 pandemic, but there is no indication that artisanal and small-scale gold miners gain much profits from the increase due to the challenges posed by the pandemic, said PlanetGOLD.

• According to Frost and Sullivan, technologies that could prevent business disruption in the aluminum industry include advanced automation and smelter technology: robotics integrated into aluminum smelters and cast- house operations eliminate the use of human capital and also avoid unsafe material handling; Process control improvements: automation and data from the shop floor and production units captured based on real-time machine learning and artificial intelligence to enhance/optimise process control; and use of in-house-smelter technologies: aluminum smelters have state-of-the-art facilities with a mix of automation and human interference where applicable and needed.