Stronger Despite All
The mining industry pushes through lockdown months without major stalls
Since that initial belief that a Chinese-like lockdown could never be a reality in the freedom-loving Western world shattered, many feared that Africa would be devastated by the pandemic. To the surprise of all who shared those expectations, most countries in the continent responded admirably well to the ensuing challenges, reporting low infection and mortality rates. A younger and fitter population profile, but also the experience of dealing with epidemics like Ebola, has helped countries in the region to minimize the impact of Covid-19. Mining operations tend to be isolated in remote areas with less people movement compared to the urban hubs. At the time of writing, Ghana, Senegal and the surrounding countries count less than 50 daiy new cases each, whereas Europe braces for a second wave. Nevertheless, containing the pandemic came at the costs of strict and lasting lockdown policies, including months-long bans on international travel. The bigger and the more globally integrated economies were also the ones more severely affected by the pandemic, experiencing substantial cutbacks in capital inflows. Average growth in West Africa has been revised down from a projected 4% to -2.0% for 2020, the six percentage points drop officially driving the region into its first recession in 25 years.
National governments intervened with stimulus packages, pushing their budgets into deficits: Ghana launched a Covid-19 alleviation program to minimize job loss, support SMEs through loan schemes, and subsidize certain imports to ensure supply chain continuity. In Nigeria, similarly, the government injected about US$6 billion into the economy as part of a “palliative” funding mechanism designed to support household income. However, the size of the economic stimulus in Sub-Saharan Africa was proportionately lower compared to high-income, G20 countries, according to the Brookings Institute, and the scale and gravity of socio-economic consequences of the pandemic are still unclear. The mining industry, which is an important contributor to the national GDPs of Ghana, Mali and Burkina Faso, continued activity, albeit with some operations temporarily slowed down or stalled. Compared to Q1 last year, the top 10 mines in West Africa produced 2% more gold in Q1 2020, totalling 1,051,000 oz. Restrictions on the movement of people and equipment particularly affected junior companies and put service and equipment providers under great pressure to meet fluctuating, and sometimes panic-induced, customer demand. Because producing companies tend to rely on local employees or a local contractor, disruptions were minimal compared to other parts of the world, but sacrifices had to be made.
At the Essakane mine in Burkina Faso, for instance, operator IAMGOLD could not execute the usual shift rotations due to travel impediments, which has meant that teams worked on-site for over two months without a break, as their replacement expats could not fly to their position. Besides a drop in productivity due to fatigue, the resilient work of locally-based teams can be credited for maintaining almost uninterrupted West African operations.
At the sites, producers instituted what Gordon Stothart, president and CEO of IAMGOLD, calls “island mode,” which means having part of the team working from home, while the team on site is provided with accommodation and other resources so that they can almost incubate within a defined perimeter of the operation.
Alongside joggling the challenges brought by the pandemic, the mining industry also began riding on another rising wave: in synchrony with a growing curve in global Covid-19 cases, the gold spot price reached an all-times-high. Since mining in West Africa is overwhelmingly focused on gold, producers began taking higher profits, while juniors saw returning interest from investors, and the whole value chain positioned for the beginning of a bull market, albeit an unpredictable one: “Without a doubt, all boats rise in a rising commodity market. As with every cycle, money flows first into the large companies, but as these become more expensive, cash begins to trickle down to the mid-caps and eventually to smaller explorers. M&A has not yet been very active to date, but the bigger companies have increased their cashflows in Q2 and Q3 and will soon start looking at replenishing their pipelines from a development perspective. This is where the exploration companies will come into play,” said Luke Alexander, president and CEO of junior explorer Newcore Gold.
As we will see in this report, each segment of the value chain is bracing for a volatile, yet promising period. The price upturn will manifest itself differently in each West African country with a gold focus: With little exploration underway, but a solid production sector, Ghana is more likely to see its majors take greater risks to ramp up production. By contrast, younger mining jurisdictions like Ivory Coast will be better positioned to advance exploration projects. The bottom line is that, while some of their international peers stagnated for months, producers and juniors in the West African mining space have not only continued operations but accelerated activities in order to make the most of the boom.
Image courtesy of Gold Fields