Tapping Into Uncertainty? COVID-19 and South Africa’s mines

by Ina King (Potgieter) April 16, 2020

Following three weeks of lockdown, the mining industry is continuing the slow and uncertain return to full production, in the shadow of the COVID-19 pandemic.

Extensive talks between the Department of Mineral Resources and Energy (DMRE), Trade Unions and the Minerals Council of South Africa seemed to lay at least an initial blueprint for miners to return to work. But then Sibanye-Stillwater and Impala Platinum miners returning to the platinum mines around Rustenburg on Tuesday (14 April) were met with a police blockade that prevented the planned resumption. This despite Sibanye’s DMRE approval to return to operations this week.

With South Africa responsible for around 70% of the world’s mines platinum production (along with 35% of palladium), the immediate fate of these mines’ activities is of global significance. Already, the reduction in global supply could be as great as 5%.

We will have to wait and see how the impact of the lockdown has impacted annual production guidance for the country’s mineral industries, but it will be significant. Besides coal mines supplying Eskom, Kumba iron ore mines, several open-pit and mechanised mines and select chrome mines, most mines operate with only skeleton staffs manning essential operations and equipment. Mining houses such as Sibanye-Stillwater, Anglo American and Impala Platinum saw a share price drop between 40 – 60% around the lockdown.

While the situation is extremely both delicate and turbid, one thing is certain: contributing approximately 8% to the country’s gross domestic product and employing almost 420 000 people, it’s economically imperative for the industry to get back on its feet, fast.

South Africa’s approach to lockdown has been lauded across the world’s health and scientific communities in the impact it seems to have had in flattening the curve to date, with new infections having slowed to just 4% (down from 42%).

Although economically devastating, it has bought the country time to prepare equipment and facilities to cope with the inevitable surge of the pandemic as we head into winter. And with a vaccine still an estimated 12 to 18 months from development, we head into a world with a new norm far more sensitised to hygiene and social distancing.

In mining, this adds an additional layer to the engrained health and safety matrix practised by workers across the industry. COVID-19 preventative measures will include screening, increased hygiene solutions and new physical distancing policies, although how this plays out in cramped underground environments is likely to remain a challenge.

Global economy commodities expose demand decline, supply uncertainty

The global economy faced multiple variables that impacted the loss of commodities’ value, with COVID-19 leading a great deal of this massive decline.

Commodities such as gold, coal, copper, iron ore, nickel, aluminium and platinum, as reported, suffered losses between 2.82% - 38,34% during the first 3 months of 2020.

Initially, even that historical safe-haven commodity gold wasn’t been spared, falling from a peak of $1 697/oz. on 8 March, to trade at $1 467 on 19 March (a decline of over 13% in less than 2 weeks), although it has since rebounded to a current bullish $1 719.57, in a commodity move only gold could script.

PGMs like palladium, which had achieved breath-taking recent performances due to increased demand from motor vehicle manufacturers, has fallen over 30% from its high of $2 714 in mid-February earlier this year.

This graph shows how some commodities have performed in light of the COVID-19 outbreak:

Long-term impact predictions

A report released by economic research institution Trade and Industrial Policy Strategies (TIPS) pre-empted significant losses to the South African mining industry if the coronavirus is not contained within April 2020.

Although the virus is vicious and far-reaching in its spread, with recessionary effects being likely within the first six months following outbreak (now compounded by Moody’s downgrade of the currency to junk status), analysts are relatively optimistic that once the virus has peaked and contained, the recovery period could be relatively swift.

South Africa's Minerals Council continues to explore what is required to prevent permanent damage to the sector, in preparations for the worst possible outcomes.

For now, over the next few weeks it’s going to require a fluid, agile and carefully managed resumption of operations as the South African mining industry reopens for business and the economy splutters back to life.

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