Insights

COVID-19 and the mining industry: a sector forever changed

The mining industry has managed to stay relatively unscathed during the pandemic. PwC forecast that miners will take a modest hit to EBITDA of approximately 6%. While previously solid industries such as oil and gas have taken a huge hit due to coronavirus, mining’s ability to ‘resource for the future’ has never been more relevant.

The mining industry is not out of the woods yet however, as it bears a huge amount of responsibility as many governments will rely on the mining industry as one of the foundations for rebuilding the global economy. Mining is at the beginning of the supply chain for nearly every commodity we use as part of our daily lives. Practices such as remote workforce planning and a greater use of automation have served the sector well so far, but long-term implementation will undoubtedly bring about significant change.

Like most other sectors, the mining industry will also now be considering how it can de-risk critical supply chains by making them more localised whilst also reflecting on the benefits of investing in local communities to support them further moving forward.

De-risking global supply chains

Global supply chains have always been favoured within the mining sector as a highly effective way of driving down costs, reducing inventories and increasing asset utilisation. Yet the pandemic has highlighted the vulnerabilities of this approach. When national and inter-state borders closed and factories went into lockdown, mining companies that were reliant on transient workforces, minimal inventories and low diversification struggled the most.

The global pandemic highlighted the issues of concentrating supply chains in one country. When the virus first hit China “the world’s supplier”, mining exports were stopped at the borders, leaving manufacturers and producers in Europe and the US with a glaring hole in their supply chains. This has forced countries to re-examine their supply chains and consider two routes: more global diversity or a focus on locally sourced suppliers. The latter would not only de-risk companies against future global crises but would build resilience in local communities. Many organisations, such as mining giant BHP, have already accelerated payments to local suppliers in order to shore up current relationships as a result of the pandemic.

Remote workforce planning

Despite working through the pandemic, mining has not been exempted from the social distancing measures forced upon the global workforce. Enforced remote working has helped to change working patterns for the better. A recent report from EY stated nearly 37% of the mining industry said they would develop or increase remote operations.

What will this mean for the mining industry in the future? Employees may see this as an opportunity for further freedom when it comes to their location of residency, choosing to live in larger cities rather than mining towns. But could this have an unintended negative impact on rural communities who rely on the economic support associated with local miners?

Supporting local communities

Miners have also been quick to see the benefits of a localised workforce. When borders were closed during the outbreak the flaws in the employee hiring model of “fly in, fly out” were quickly exposed, forcing companies to rely upon the skills and resources of their local community.

This issue begs the question, will a move towards localised workforces to build resilience against any future global issues ensue? In the next few years, we could see the removal or reduction of expatriate positions in countries that have previously been quite welcome to expatriate employees. What’s certain is that mining companies will likely have to continue to boost investment in order to maintain a local, sustainable workforce they can increasingly rely on.

The coronavirus has also highlighted the ways in which mining companies can support local communities under the social pillar of the ‘S’, in ESG. The Financial Times has claimed that “this goal will become increasingly important as investors and employers respond to the concerns of the younger and future generations that are much more focused on issues such as equality, inclusion and purpose.”.

Automation and digitalisation

The use of automation and digital operations has accelerated during the pandemic. While at first it was out of necessity, many miners have discovered that automation and digitalisation does far more than reduce costs and drive efficiencies. The technology has provided many workers with the ability to work from home which has reduced on-site presence and has also allowed companies to monitor and control operations from outside the mine

We spoke with Dino Otranto, Chief Operating Officer for global mining company, Vale’s North Atlantic Operations, he agreed, highlighting that innovation has been required to accommodate new ways of working: “The pandemic has worked as a catalyst for innovation, forcing our business to adopt new technology on all fronts to not just survive, but thrive amidst these challenging times. Some examples include:

  • Developing contact tracing apps at sites and in the office to ensure a safe workplace and the sustainability of our business
  • Leveraging remote access technology to support projects that enhance mine productivity
  • Changing the way we work, promoting a more flexible workplace built on remote networks and office hubs to maintain business continuity

COVID-19 has certainly created challenges for our business, but it is in my experience that it has also resulted in creative responses that will drive future innovation, change and leadership in the industry.”

Despite its many benefits, its application must be viewed with caution. Technology and automation will put further strain on already job-affected communities. Companies committed to protecting the livelihoods of the communities they operate in must balance this carefully. It will be important apply focus and resources to ensure comprehensive retraining programs to realign skills.

The mining industry has demonstrated its resilience during such an extreme course of events, and it has largely been unaffected so far by major closures or job cuts. PwC reported that the world’s top 40 mining companies have weathered the COVID-19 storm and emerged in relatively sound financial shape compared with other sectors.

However, there will likely be lasting changes within the mining sector as a result of the pandemic. Whilst these will remain focused on optimising operational outcomes to remain financially fit, mining companies will do well to embrace the positive ESG behaviours that have come about as a result of the coronavirus.

Natural Resource Team

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