Industry survey captures concerns about long-term impact of Covid-19

In our second article examining the results of The Northern Miner and Canadian Mining Journal’s reader survey on the industry’s response to the Covid-19 pandemic, we look at respondents’ concerns about the long-term impact of the coronavirus and what those polled think governments, banks, and financial institutions can do to help companies survive the economic downturn.

The reader survey was open in July and August, with 384 people from the sector responding to a combination of multiple-choice and open-ended questions. Respondents represented principally mining and exploration companies, suppliers to the industry, and consultants, with a few respondents who identified as investors, or as being part of financial institutions, government or NGOs.

Long-term impacts

Although the long-term impact of Covid-19 on the mining industry is still unknown, the economic downturn will continue to affect the industry for some time to come, many respondents said.

Over half (53.4%) of the respondents felt that the economic downturn would last more than a year, with 31.8% stating that it would last up to a year. A few respondents predicted that the downturn could last anywhere from two to 10 years, or until a vaccine was found.

The impact, according to a senior geologist at a consulting company, “will be the same as the other downturns: fewer jobs available; fewer students entering the industry and more students entering postgraduate programs; and slower investment interest.”

Across the board, respondents indicated that the economic slowdown would reduce the demand for commodities and lower prices, leading to a decrease in mining and exploration activities.

“Lower demands on mineral resource commodities will reduce and/or eliminate new developments and reduce mining operations resulting in a major downturn in the industry,” said a respondent who works for a mining/exploration company. “Majors may weather, but juniors and mid-tiers will be at much greater risk.”

Another respondent was more optimistic, stating that while there would be diminished demand for some materials, “all industries need raw materials to function” and “after a period of adjustment, the mining industry should pick up.”

One respondent noted that while the shortage in supply of metals may not be good for mining companies, it may benefit exploration companies and drive up prices.

A handful of respondents felt that gold projects would benefit from the downturn, but forecast that the market will remain soft for some commodities, like diamonds.

Another respondent, a supplier/service provider, predicted that while “business will adapt to new realities,” it will take “at least 18 months to recover.”

The same respondent also acknowledged the impact the pandemic has had on Indigenous communities. “Most Indigenous communities are very concerned about their health and safety and do not want outsiders visiting them,” he wrote. “It will be necessary for companies and regulators to come up with acceptable new engagement strategies.”

A few respondents also commented on the impact on rural communities.

“Rural communities that have been hard hit by Covid-19 may place undue pressure for help, assistance, and even profit sharing on regional mines,” said a respondent. “The lack of exploration for one year can put an exploration company back between three and five years. This may affect the opening of new mines or the expansion of present mines.”

There was consensus among the respondents that Covid-19 will continue to push the industry’s digitization, with more of the workforce working remotely.

Supporting the industry

Across the board, respondents felt that governments and regulators at both the federal and provincial levels should continue to enforce social protocols to limit the spread of Covid-19, allowing businesses and mines to continue operating.

However, several felt that the federal government should provide a more consistent set of rules countrywide.

Asked what actions governments and their agencies could take to help the mining and exploration industry specifically, several respondents said that the sector’s importance to the economy should be highlighted.

“Governments need to ensure clear and consistent messaging,” said a respondent from a mining/exploration company. “They need to see that to help our economy. They need to back the resource sector – not try to cripple it with unattainable goals.”

This view was echoed by another respondent, who felt that the government should “increase public awareness of the importance of mining’s contribution, which will help balance poor public image problems.”

One senior geologist working for a major Canadian mining company said the industry has shown that it can safely operate during a pandemic and that the government should “keep mining an important business if there is a second wave that forces another shutdown.”

Several respondents also called for governments to provide direct support to the industry with tax incentives or concessions, including a reduction in income tax, a loosening of travel restrictions (both inter-provincial and international), increased employment subsidies, and more streamlined permitting processes.

One respondent from an exploration company based in Canada said the government should provide incentives to invest money on exploration, arguing: “Give exploration companies a reason to be here.”

In general, there was considerable support among the respondents for government wage-subsidy programs like the Canada Emergency Response Benefit (CERB), which provides $500 per week for four weeks for Canadians whose jobs have been impacted by the pandemic.

One senior executive from a major Canadian gold mining company said the federal government “can include pre-revenue companies (companies without revenue) in their Covid-19 wage subsidy program.”

That view was not shared by all. One respondent from a supplier/service provider felt that the government should “stop giving money to people not to work,” and that their company had “many spots available, but CERB [was] making people not work.”

One executive from an exploration company focused on the Northwest Territories said that the government should change the legislation relating to Canada Pension Plan (CPP) contributions to ensure that “employees are not penalized if they are working for greatly reduced amounts or relying on wage subsidies during the pandemic, where lower incomes year(s) do not count and thus will not have a negative effect on the long-term CPP benefits payable.”

A few respondents also felt that the government and regulators, like the TMX Group, should reduce business costs. “We are trying to stay viable, and yet we have to pay thousands of dollars to all of them for sustaining fees, listing fees and filing fees,” one person said.

Some respondents saw the current crisis as an opportunity to improve the industry’s environmental sustainability, with one board member of a junior company noting that the government could “provide incentives to develop our own domestic supplies of critical minerals needed to move towards more sustainable and low carbon-producing energy.”

Other respondents said that banks and other financial institutions could help mining companies weather the downturn and felt that credit lines should be extended and that interest rates should be lowered to reduce the cost of capital.

A few respondents also asked for flexibility in the lending terms offered by banks and other creditors, with the option of deferring payments for those companies.

One respondent from a consulting firm asked that they “be available and understand the needs of a capital-intensive industry. Be cognizant that this is a short-term challenge with benefits in addition to risks.”

Doing business in 2020

Although companies in the mining industry appear to have generally coped well with Covid-19, many expressed concern about the pandemic’s future impact on business. Their biggest worry was the long-term shuttering of mines, which polled at 30.3%.

Of those polled, 27.4% voiced a broad range of concerns, which included travel restrictions hampering access to sites and the ability to consult with communities; the health and safety of employees, contractors and communities; lack of or loss of business/client interest; trade nationalism; supply chain disruptions; and mining companies failing to adapt.

The loss of staff/skilled workforce was also an issue, with 24.2% of respondents ranking it as their primary concern.

According to many of those polled, the impact on the workforce was significant. They felt that skilled workers would migrate to other sectors, and finding workers willing to operate in confined spaces and close to other people would be a challenge.

A few of the respondents reflected on how the industry’s ageing demographic would push many older workers into retirement.

“I think skilled labour who are on the brink of retirement will retire,” said a respondent from a supplier/service provider to the industry. “Because mining has an ageing workforce, this will have long term impacts on the industry.”

A geoscientist from a consulting firm also felt that Covid-19 could see “senior members retire with no knowledge transfer” to their previous companies.

Concern over the loss of skilled workers wasn’t confined to older workers or those close to retirement.

“It will push a lot of contract workers and smaller consulting companies out of the industry,” said a respondent from a supplier/service provider to the industry. “Especially the younger contractors that don’t have enough savings to get through a year or more of slow times — they will move on to other jobs in other industries and not return.”

Nearly two-thirds (66%) of respondents noted that their companies had reduced staffing levels by less than 10%, with 11.2% reporting headcount reductions of more than 50%.

Respondents employed by companies that had laid off or furloughed workers amounted to 5.5%, while 11.4% reported that their company had introduced reduced hours/job sharing.

Demand destruction was the primary concern of 22.8% of the respondents. About one-fifth of respondents (20.3%) reported that they were concerned about their company’s ability to raise money, with one respondent from a mining/exploration company observing that, “it would be nice to be able to raise money again.”

Only 12.5% of respondents ranked commodity prices as their primary concern.

In response to the economic downturn, 58.7% of respondents said that their organization had reduced capital spending, with 18.9% reducing capex by more than 50%, 21.8% between 25% and 49%, 23.3% between 10% and 24%, and 28.6% by less than 10%.

“Exploration, capital expenditures are on hold, and [we’re] reassessing development plans due to reduced ability to raise capital,” said an advisor for a supplier/service provider.

Respondents reported a wide range of areas where companies had sought to reduce expenditure. These included exploration activities, business travel, marketing (tradeshows, events, advertising), office supplies, new equipment purchases, engineering and feasibility work, and hiring.

One respondent from an exploration company in B.C. said that the company had “increased capital expenditure, headcount, and salaries, [and is] pushing ahead on all fronts simultaneously.”