Question

Im looking for assistance in answering the analysis of the impact of coronavirus on the Mining Sector in Australia. I would like to know how COVID-19 will change the mining sector and need to do an analysis on pre-covid mining and post-covid mining. Thanks!

Answer 1

As this is a subjective or essay type question, so as per HomeworkLib guidelines i can assist you in providing the pointers that can help you to frame your analysis.

We can start the analysis by having a general outlook on the covid-19 impact on mining industry globally, then compare it with how it has impacted in australia, what is the way forward to continue the operations and what can be the new 'normal' for mining industry.

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The COVID-19 epidemic will be counted as an unprecedented health issue in the modern era disrupting the ongoing viability of businesses globally. The World Health Organisation has declared the Covid-19 coronavirus outbreak a pandemic. With over 3.9M confirmed cases worldwide, as of now, a fear of global recession cannot be counted out. Something similar to 2008 crisis or even worse. Mining companies is one of the worst impacted industries, and a global restrictions for social distancing caused some mining projects to slowdown or closed. The prolonged shutdowns can reduce the productive capacity of the economy and that capacity can take some time to bring back a normal growth for most of the countries.

Commodity and mining  outlook

Oil experienced significant declines over the period of time as the COVID-19 disruption along with Saudi-Russian price competition driving the price of Brent Crude down 53% in the month of March to reach US$23/bbl, a 17-year low.

Many US shale producers, facing breakeven prices in excess of US$45/bbl, will be forced to shut down production.

Industrial metal prices have also fallen, Copper is down 20%, nickel down 13% and zinc down 14%. A lot of metals are building surpluses due to demand weakness and supply growth.

COVID-19 has created unprecedented complexities in the mining sector. Mining industry in Australia is the backbone of its economy and source of income for many families. Australia’s miners have also faced a number of critical issues due to covid-19 and that is something that impacts the way miners’ operate, both physically and financially.

Although many commodity prices are volatile, but Australia’s major mining exports are robust; however addition of weaker Australian dollar and lower fuel prices could to some worry for the stakeholders and of course for the economy.

The critical operation from australia's mining industry remains functional and vital exports to the critical regional economies such as China, Japan, South Korea still remains intact.

China accounts for almost 38 percent of Australia’s exports, mostly from mining, and the recent developments in china which has seen a quick downtrend in covid-19 cases and their resumption of normal life after lockdown has definitely shown a positive signs for the commodity demand stabilise in the next quarter.

Amidst the crisis the global currencies are also feeling the heat of the pressure, showing short term volatilities. Its impact is reasonably visible in the March 2020 quarter, copper, nickel, and aluminium fell up to 20 percent., while iron ore and gold remained relatively steady.

The US and Europe are the other major consumers of key commodities and the full effect of demand shifts is yet to be seen and evaluated.

After facing these global impacts there are some impact internally also, like supply chain disruption, travel restrictions, counterparty risk, operational costs will definitely be reflected on the balance sheet.

Australian mining share prices have fallen which may impact existing lending or investment covenants which need to be dealt with, at the same time, certain companies may be seen as an investment opportunity for investors at current market capitalisation as there still exists a high level of liquidity in the finance market, and in particular with regard to private equity.

Raising equity or debt will be more challenging in the current environment. Equity is more likely to be raised from institutional placement at this time and any debt facilities will likely be more expensive than pre COVID-19 with more stringent due diligence processes. Banks will show limited appetite for project debt funding so it is expected to see a hold on new capital expenditure and construction projects.

Following actions can be taken to handle the current situation:

Health and safety planning for employees -  ensure policies and plans in place that protect employees, suppliers and customers and mitigate disruption to continuing operations

Stakeholders management- proactive, regular communication and reporting to all the impacted or non impacted stakeholders.

Supply chain woes - Reduce bottlenecks, to prevent equipment or supplier failure. Have a contingency plans to manage those disruptions.

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Thanks !