The metals and mining sector has successfully navigated periods of economic challenge before - but the COVID-19 crisis is different. It’s both a health and an economic disruption, and it’s 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?
Navigating the COVID Curve
Mining companies are navigating through what ERM 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 (See Figure 1). 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.
Figure 1. 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.
During the Recover phase, a new set of value drivers will present themselves. Companies that succeed in this phase will have re-aligned their strategies to respond to the longer-term fallout from COVID-19. It is important for companies to anticipate the direct and indirect impacts the crisis could have on the world, the mining sector and their operations specifically.
Projections on Future Conditions
Mining and metal companies will be exposed to dramatic swings in market demand during and post COVID-19. As they work through this and prepare for the future, we offer the following insights:
It remains to be seen whether the crisis will ultimately undermine or enhance international cooperation. We witnessed a war of words between countries over responsibility for the crisis, which may feed existing trade disputes. The oil price war may continue to foster volatility in oil markets and in relations between major oil producers. Restrictions on travel and trade throughout the world will put further pressure on international relations, and unmanageable debt burdens are leading to appeal for clemency from highly indebted countries. A G20 attempt to ‘save the world’ should not be ruled out in the long term, but it will require better cooperation than is currently being exhibited.
Upping the fiscal take from mining
Governments are now borrowing aggressively to lessen the damage to their economies caused by the pandemic. This debt will eventually have to be repaid, leaving governments under pressure to raise new taxes. Natural resource assets have always been targets for cash-starved governments. Those most at risk will be those that are seen to be performing comparatively well, particularly where they are mining metals and minerals for which prices have remained resilient to or flourished as a result of the crisis.
Accelerating ‘green new deals’ and the energy transition
When deciding how to deploy stimulus packages, many governments will face pressure to avoid protecting the ‘old’ economy and invest in sectors that will help combat climate change. Implementing a broad-scale green transition would require an unprecedented level of international cooperation. Therefore, we will likely see more piecemeal ‘green deal’ efforts in different countries. With fundamental restructuring of businesses on governments’ agendas, companies would be wise to take the opportunity to transition towards ‘cleaner’ processes and products.
What it will take to build market leadership
Companies will move through the COVID curve at different speeds. Much will depend on their capacity to withstand shocks through the duration of the crisis, their degree of agility and forward action from leadership. Companies need to be thoughtful in their scenario generation and be prepared to take bold decisions (e.g. M&A) despite the uncertainties. They will also need to go beyond their traditional resilience formulas, and collaborate with organizations across supply chains and with customers to draw the attention of capital markets.
While the mid- to long-term impacts of the crisis on a macro political and economic scale are yet to become apparent, they can still be prepared for. Environmental and Social Governance (ESG) and related standards that were at forefront before the pandemic, still need to be built into business plans. They will, or should, have increased importance as companies look to build sustainable operations in a post COVID-19 world.
It is almost inevitable there will be winners and losers as we work through issues over the coming year. ERM is there to help companies balance their traditional EHS, social, sustainability and risk approaches with alternative strategies, to help give you an edge and navigate what is likely to be a different normal for the industry.