6 minute read
The resource sector-led recovery - Warren Pearce, CEO, AMEC
from BBMC Yearbook 2020
by bbminingclub
Warren Pearce, CEO, Association of Mining and Exploration Companies
It’s fair to say that this year has seen one of the biggest possible challenges thrown at our country, and our industry, as we’ve battled the COVID-19 pandemic. For all of us, 2020 has seen an extraordinary change in almost every aspect of daily life.
Governments around Australia had to quickly put in place a wide range of restrictive measures to slow the progress of the virus and to protect the safety of all Australians, and although necessary for keeping people safe, these restrictions have had a profound and powerful impact across our society, our industry, and our economy.
Prior to 2020, the investment environment for the mineral exploration industry had been challenging for some time due to several highly-publicised issues and international shocks, such as US China trade tensions and Brexit. Each created considerable uncertainty around the global economy and trade relations.
However, heading into 2020, optimism in the industry was improving, driven by favourable commodity prices. In fact, 2019 ended with a quiet upswing underway in the Australian mining industry. Real GDP grew by 2.2%, with the mining industry directly accounting for 28% of that growth, and indirectly employing over 1 million people.
The Fraser Institute’s 2019 Annual Mining Survey returned positive news for industry, when considering both policy and mineral potential, Australia retained its position as the second most attractive region in the world for investment, and investment in exploration was on the increase again, signalling a return of confidence in the industry as we turned the corner into 2020.
However, the COVID-19 pandemic soon hit and its broader impact on our economy and financial markets was quickly realised, increasing economic pressures and constraints for our industry, and our country as a whole. COVID-19 essentially re-wrote the rule book for work in Australia, having an immense impact on all aspects of day to day life in our country.
Government restrictions were put in place, and industry had to quickly adapt to new requirements and embed a new operational environment for over 250,000 employees. We had to ensure that our companies and our employees adhered to these new requirements in order to show governments and the community how seriously we took this responsibility. This proved the ability of Australia’s mining industry to move quickly to implement new operational measures.
Travel restrictions and hard border closures meant that many interstate employees had to relocate, while many others lost jobs. Companies refocused their recruiting on finding new locally based employees to replace them, and to ensure greater contingency in their workforce. Large portions of Australia suddenly became inaccessible as remote Indigenous communities were closed and large areas locked up to protect these vulnerable communities.
Our industry was fortunate enough to be given special exemption from some travel restrictions, enabling mining operations to continue under strict new guidelines and to ensure the health and safety of our workforce and the broader community. However, while partially exempt from travel restrictions, we were not immune from all impacts of COVID-19.
Anticipating the hard times ahead, many explorers ceased exploration programs to preserve their capital, as they attempted to buffer against a long and difficult period, not knowing when they might get back on ground. Initially, any remaining appetite for investment in mineral exploration was all but killed by COVID-19, meaning that companies were unable to attract private investment to continue exploration. Without the ability to access this critical source of funds, and with companies’ cash reserves depleting, the ability for many of these companies to survive the year was in question.
Industry had to focus their efforts on surviving this crisis to emerge at its end, to assist our industry and country in the herculean task of economic recovery. Looking back, the speed with which industry moved to meet these swiftly changing requirements to keep our industry open, to ensure the safety of our employees and our communities, and to keep COVID-19 out of our industry, sites and supply chains is incredible. That we have been able to sustain our operations through this period is a remarkable achievement.
Governments around Australia are now heavily focused on the economic recovery process, and all have acknowledged that the mining industry has been holding up the Australian economy. Considering this, industry is travelling extremely well.
Despite the initial impacts of COVID-19 and against the odds, the wider exploration industry is finally enjoying a bumper period, with significant investment taking place in mining and exploration projects across Australia.
A recent BDO report showed that there was a 60% increase in cash inflows in the June quarter with financing inflows at $1.34B exceeding the five-year average. This increase was up from the four-year low of $834M in the previous March quarter. 28 companies were able to raise funds of $10M or more, up from 12 companies in the previous quarter. And 62% of companies reported a cash balance of $1M in June 2020, up from 57% in the March quarter.
Looking ahead, the number of IPOs are also expected to increase with a growing number of upcoming listings. Our ability to keep our mining and mineral exploration industry open and working is a significant benefit to the nation, but is also becoming a major competitive advantage globally when many major mining jurisdictions around the world have been affected by spread or outbreak and consequently closed or severely limited by tight restrictions.
If Australia can continue to keep COVID-19 in check, our continent will have a clear advantage in attracting new mining investment, as investors continue to look for opportunities protected from the impacts of COVID-19, providing secure supply for customers.
But this is not the only reason for a resurgence in exploration investment. Australia is now reaping the rewards of two to three years of sustained investment in exploration, which has unearthed a wide range of early exploration successes and major discoveries, shining a spotlight on the wealth of Australia’s continuing mineral potential.
According to data from the Australian Bureau of Statistics, Australia’s commodity exports also reached a record $287B in 2019-20 and resource and energy commodity exports have grown 3.5% since 2018-19. Iron ore exports rose by 8.1% from May to June, making it Australia’s first commodity to earn more than $100B in a year. And at a time when national unemployment is high across the nation, the mining industry workforce is growing.
With new projects in the pipeline, there is potential for over 30,000 new construction jobs and over 20,000 operational jobs to be created in our industry. Despite Australia’s comparative success, we should not expect that new practices in our industry will be wound back any time soon. Social and physical distancing will remain for a long time to come, as will the preventative steps taken by companies to reduce the spread.
Australia’s economic recovery and the fortunes of a great many Australians may well depend on the mining industry’s ability to continue operations, paying wages and generating royalties and revenue. While the health, safety and wellbeing of Australians must remain the focus through COVID-19, we also need to think about supporting industries that will be critical in helping Australia to get back on track.
