COUNTRY IN FOCUS •
ADAPT OR DIE
By investor relations specialist Jacques De Bie, on behalf of Exxaro
The South African mining sector is resilient and has survived previous
shutdowns and restrictions. These include the South African ’Boer’ War,
World War I & II, the 1987 strike which lasted 21 days and the 2008 Eskom
crisis which forced PGM operations to shut for five days.
The most violent and destructive period for South
African mining was the 1922 Rand Revolt which shut
down all Witwatersrand gold mines for 10 weeks. The
revolt by 220 000 miners escalated into gun battles, artillery
shelling, bi-planes bombing mining quarters and relieving
the besieged Brixton police garrison, killing over 200 people
and injuring dozens.
At the start of the nationwide lockdown coal suppliers
to Eskom (and Sasol) have been granted the approval to
operate under strict conditions as a critical service provider
during lockdown as it is ‘essential’ to supply coal for power
generation. Open cast coal mining is less of a transmission
hazard compared to underground mining which is ‘high
risk’ due to hot, wet and confined operating conditions. At
the time of writing most South African mines were either
shuttered or working at reduced output as COVID-19
impacted on the sector. This adds to production pressures in
the sector caused by heavy rainfalls last year.
Dynamics relating to environmental management tie in
with the need for competent Environmental Social and
Governance (ESG) policies and planning by countries and
companies alike. Several learnings can be drawn from the
recent global events. Firstly, that business continuity and crisis
management plans including prudent financial planning
are essential, and all companies in every sector need to
adapt to dynamic changes in their environments to survive.
Companies are repurposing and adapting their processes
to fight the scourge, and also to contemplate alternative
business scenarios that mitigate negative social impacts of
the crisis and enable positive economic activity.
Secondly, the science behind these events and data driven
decision-making cannot be ignored as this applies equally to
fighting invisibly small viruses to combating global weather
patterns and investment trends.
The COVID-19 pandemic coincided with the oil price war
between OPEC and Russia which saw the oil price drop to
less than USD20 a barrel, a depressed global market and
Moody’s credit rating downgrade of SA to sub-investment
grade, impacting the cost of borrowing and limiting
investment inflows.
The economic effects of this ‘perfect storm’ are seen in short
to medium-term stock market declines, commodity price
plunges, including oil and coal, and South Africa’s mine
Leon Louw
Commodities like iron ore is punted to make a come-back once the
world economy starts shifting the gears again.
production outputs reduced significantly overall. With the
outbreak likely to disrupt the global economy for several
months, nobody knows what the new normal might look
like in South Africa later this year. Exports are critical for the
country to earn hard currency, but it is difficult when ports
and import destinations are restricted.
Macroeconomics favourable
Despite the recent credit downgrade, the macroeconomic
factors for South African mining are favourable, with the rand
at ultra-weak levels of about R18.25 to the dollar, operations
in rands gets covered by increased offshore dollar revenue
generating positive cash flows when business-as-usual
resumes. Mining cost inflation will likely be reduced given the
plunge in oil prices, bringing diesel costs down, 3.3% average
CPI forecast for 2020 and the weakness of the local currency.
Governments have launched unprecedented public health
and economic responses to this crisis. Initial indications in
South Africa are that early intervention and lockdown was the
right move especially for a population with a large proportion
of immune suppression and respiratory weakness due to TB
and HIV.
The Minerals Council, together with the Department of
Mineral Resources and Energy, have prioritised the health of
employees and are committed to delivering critical services
and limiting the damage to the operational abilities of the
sector to enable full resumption of operations after the
lockdown period.
www. africanmining.co.za
African Mining Publication
African Mining
African Mining • May 2020 • 17