- Mining overall has been hard hit – but junior miners were coming off a very low base when the pandemic struck
- Easing of lockdown means nothing if companies can’t get production to market
- Some companies won’t survive
While the mining industry overall was hard hit by the coronavirus pandemic, it is junior miners who sustained the heaviest blows – with some fighting to survive as their viability is threatened.
The mining sector ramped up production as lockdown regulations were eased, but emerging miners are adjusting to a “new normal” which is set to test the entrepreneurial mettle of business owners who were already facing tough operating conditions even before the pandemic hit.
Not a simple restart
“For us, going back to production following the hard lockdown was not as simply as pressing a restart button,” said John-Ernest Fogwell, an executive director at Junior Mining Association.
“The initial lockdown had a huge impact on us as an industry, and impacted cash flow, given that unlike big companies, junior miners do not have big shareholders and easy access large capital resources,” said Fogwell.
Junior and emerging companies are considered as entities with an annual turnovers of not more than R500 million, and players in the segment are spread across the mining spectrum. Following the phased easing of lockdown regulations, which gave the mining industry a green light to increase production under strict health and safety regulations aimed at preventing the spread of Covid-19, junior miners which had been bruised by the shutdown also resumed work.
But they are concerned that the road back to full production will be long and hard.
“It is going to take a while to return to full production….to where we were pre-Covid-19. Companies will have to reset their businesses as demand locally and internationally is still slow and some markets not back on track,” Fogwell said.
- READ| Mining production slowed ahead of lockdown, worse figures to come
Data released by Statistics South Africa showed that annual mining production plunged 47% in April, which was the first full month of hard lockdown. The fall in production was largest in iron ore, which fell by 68.7%. Production of platinum group minerals was down by 62%, gold fell by 59.6% and manganese ore by 57%.
The months of slow production have considerably pushed up operation costs for companies, including the financial effect of the implementation of new health and safety guidelines adopted to protect workers against the deadly virus.
Mining giants have revised down output forecasts and warned of the potential effect on financial performance. But the emerging companies, who employ approximately 25 000 people, are set to be hit the hardest.
“In the short term we are likely to see companies that that would sadly not make it,” said Fogwell, adding that corporate actions such as mergers, joint ventures and liquidations would likely be more prevalent as companies take an alternative approach at their business operations, cost models and value proposition.
It has emerged that approximately 22% of all mining-related businesses are currently considering a form of merger or JV relationship, while 47% are looking a technology implementation as a way of managing cost and increasing production, according to Fogwell.
Bleak picture
Ayanda Bam, the co-founder and Director of Mpumalanga-based coal mining firm Kuyasa Mining, painted a bleak picture of financial toll of the pandemic on junior miners.
“It must be remembered that junior companies were coming off a very low base when the pandemic hit, and the pandemic has now made things even worse,” Bam said.
Bam stated a significant dip in coal demand had forced Kuyasa to put its mines under care and maintenance, with the majority of employees off site. While coal companies were allowed to operate during the lockdown, a sharp drop in demand from major coal users Eskom and Sasol nonetheless hit coal producers. Economic activity also took a dip in major export destinations such as India and China, who implemented lockdowns in what caused a “ripple effect” for the sector.
“The easing of the lockdown means nothing to companies if we cannot get production to the market. Companies are facing hard times with no end for the next few months,” Bam said.
While the government has come up with a loan guarantee scheme for companies affected by Covid-19, companies seeking financial assistance are subject to lending criteria, limiting the chance of qualifying for those already in dire straits.
“In my view the qualification criteria should be relaxed since we are in a state of national disaster and therefore government needs to re-assess the intended impact of the funding mechanisms made available to companies during this time,” said Bam.
The mining industry contributed 8% to GDP last year, and Minerals Resources and Energy Minister Gwede Mantashe hopes to increase the number to 10% in the next five years.
