Shirley Webber, Head of Natural Resources at Absa, explains why mining companies could take up to 6 months to recover production from post COVID-19 shutdowns.
Due to the coronavirus pandemic and imposed national shutdowns, mining companies throughout Africa are anticipating it to take up to 6 months to return to normality. While the lockdowns have been eased to varying degrees, it will take several months before most mines are restored to their full production.
Most of this is due to limitations on the number of miners that can work underground or in opencast operations. Some companies must also organise for the return of foreign workers who had gone to their homes after operations were stopped due to COVID-19 in line with government guidance.
The shutdown has also had a large impact on the liquidity requirements of mining companies, and those dependent on a single commodity have been especially hit hard. Short-term liquidity requirements for these mining companies will have increased and will most likely remain under pressure for at least the next three months.
As the shutdown restrictions are gradually eased, companies should expect a gradual uptick in production until full output is achieved. But at this rate of opening, most mining companies only expect to return to full production over the next six months.
However, it must be noted that during the shutdown, some mining operations, such as smelting and furnaces, were not completely stopped because operationally, it is not possible to shut them down without causing significant damage to them. This means it will take these mines less time to get up and running at full capacity.
On the other hand, commodity prices have not experienced a significant dip; if anything, they have been holding up strongly. While naturally, there was an expected dip in prices due to less demand than supply, this is a welcome respite for many mines. As the price of minerals such as gold have remained robust during the pandemic, and while copper and palladium prices have softened slightly, these industries can expect a full recovery in the short term.
However, this does not mean that commodity prices will stabilise over the next 3 – 6 months, and heightened volatility is expected. What is not certain, however, is how much volatility commodity prices will experience as the global economy slowly begins to return to normality as national shutdowns are lifted.
The irony of the current shutdown is that South African mines have not been able to benefit from the depreciation of the Rand, which would have been beneficial for exports given the current USD/Rand exchange rate.
All across Africa, operational discussions are being held between banks and their mining clients on issues such as liquidity support, CAPEX and cost containment. These discussions are necessary to fully understand what issues mining companies are facing so that banks can assist them properly. Such discussions are also important to ensure that any questions around liquidity support can be addressed.
Now more than ever, a tight relationship between banks and their mining clients is crucial. Banks must work closely with mines in order to get them back on their feet, and give a much needed boost to the economy.
Read the article online at: https://www.globalminingreview.com/special-reports/05082020/covid-19-and-the-mining-industrys-production/