The impact of Covid-19 and the consequent national lockdown on junior miners is likely to be devasting, mining services provider Ukwazi Mining business development director Spencer Eckstein tells Mining Weekly.

However, he believes that survivors in the real economy will occupy a vastly different business environment in future, and therein lies opportunity for those companies that are quick to adapt to change.

“The world may never be the same again. Junior minors, like the rest of the mining industry, are facing a new reality, not merely a paradigm shift. Recognising that is the first step in surviving the crisis,” Eckstein says.

He laments that despite their efforts, many juniors will be “decimated”.

“If they do survive, such juniors will emerge as a completely restructured business with a different staff complement, organisational design, technology spine and cost profile. It will be a reframed business,” he notes.

The pandemic and consequent economic impact have caused company structures, systems, processes and cultures to be disrupted, which means that the traditional bases of value creation, distribution and realisation have shifted.

The sudden economic freeze has also affected supply and demand, which manifests, ultimately, as a massive liquidity crunch, Eckstein explains.

Juniors cannot operate at full capacity, receive their usual income from customers or pay suppliers.

“Even care and maintenance costs money, as does ramping up – even to 50% capacity or from 50% to 100%,” he notes.

Many juniors have already assessed their operations, determined what can be done remotely, and plotted how to resume operations and ramp up to 100% capacity, in line with the latest directive changing the lockdown level from level 5 to level 4 issued by President Cyril Ramaphosa last month and the latest regulations by the Department of Mineral Resources and Energy.

Eckstein says many juniors have simply tried to adapt to and absorb the initial economic shock. Some have focused on cost reductions by negotiating with landlords for payment holidays and applying for debt relief from banks and equipment suppliers.

Moreover, new health and safety protocols have been introduced to mitigate the spread of Covid-19 based on regulations to be introduced by the Chief Inspector of Mines by May 18, 2020 as part of a Labour Court decision issued on May 1.

These include temporarily scrapping biometric fingerprint scanning at mine entrances, screening and testing, issuing of appropriate personal protection equipment and training workers in the appropriate use thereof, making hand sanitisers widely available and face masks compulsory, as well as implementing physical distancing measures.

There have also been widespread submissions of applications to various debt relief and tax incentive schemes offered by government.

“The risk is that these applications take time to process. Turnaround times are slow and the outcome is uncertain,” Eckstein comments.

Juniors have also embraced remote working platforms, where possible.

“Many have discovered that most employees work harder, for longer and are more productive working remotely. However, working remotely changes business culture, decision-making pathways and flattens organisational hierarchies – all of which will benefit juniors,” Eckstein comments.

This shift in culture might remain in place for the foreseeable future, he adds.

Going forward, juniors will have to review their cost and pricing structures to adjust to customers who may expect a blend of on-site and remote delivery or demand just-in-time deliveries to destinations of their choosing.

Ordinarily, balance sheet strength is a critical decider in whether a mining company can survive. “In the absence of balance sheet strength and cash reserves, the alternative will be to innovate. This would include engaging in collaborative competition and the pooling of resources,” Eckstein notes.

Innovate to Survive

Many scientists and engineers, as well as pharmaceuticals or information technology companies, use open-source platforms to encourage worldwide collaboration.

Juniors can similarly pool their resources and share information to collaborate and, thereby, remain in business and regain their competitive positions, Eckstein notes.

This can include digital transformation within mining operations, as well as systems integration for improved operational data analysis – particularly for tasks such as updating geological models, mine planning, load-and-haul simulations, and reconciliation of production volumes.

Another form of innovation could be the creation of shared service centre arrangements. For example, juniors that mine the same commodity in the same area could outsource their technical services to one provider, who could perform the service from a remote location. This creates planning and operational efficiencies, as well as cost savings for all involved.

They could also consider increased automation and mechanisation of equipment and fleets; however, this may be prohibitive as it is capital intensive. The industry could, perhaps, consider a Junior Mining Fund to assist juniors as a sectoral initiative, says Eckstein.

Juniors could also centralise procurement and logistics arrangements to achieve economies of scale.

“For junior coal miners, sharing toll washing infrastructure and logistical arrangements such as rail sidings could prove beneficial.”

Additionally, Eckstein sees an opportunity to consolidate the junior sector and streamline the industry through mergers and acquisitions.

“The critical consideration here is whether the juniors are in the lower cost quartile and have high-value assets,” he says, adding that the most likely outcome will be juniors being bought by majors, rather than many juniors agreeing to consolidate, particularly since majors may offer cash as part of the transaction.

In the medium to long term, Eckstein predicts a consolidation among midtier and major mining companies, with the number of juniors declining significantly – especially if second and third waves of Covid-19 infections occur followed by targeted lockdowns locally and globally.

He adds that junior miners that can unlearn the orthodoxy of past practice, and repurpose and refocus to create value relevant to a changed business environment are most likely to survive.

“The junior sector is resilient, and they may yet surprise, survive and thrive,” Eckstein concludes.