Although mining was not exempt from challenges brought on by Covid-19, it appears to have been in a stronger position to face the challenges caused by the pandemic than many other industry sectors.
According to a report by PwC entitled Mine 2020: Resilient and Resourceful, the top 40 global mining companies were mostly unscathed by Covid-19. Solid financial performances in 2019 afforded those companies the flexibility to respond to the changing economic conditions.
Furthermore, mining being classed as essential work in many regions allowed the majority of mines to continue operating, albeit frequently towards revised production targets.
This optimistic view over the mining industry in the pandemic is echoed in the Mining Global Market Report 2021: Covid-19 Impact and Recovery to 2030 released by ReportLinker. The report forecasts that despite the impact of Covid-19, the global mining market is expected to grow from being worth $1.642trn in 2020 to $1.846trn in 2021. That represents a recovery compound annual growth rate of 12.4%.
Commodity prices supercycle to the rescue?
Alongside this recovery, experts suggest that the fifth ‘supercycle’ (a period in which commodity prices see an extended boom) of the 21st century is under way. Signs pointing to this include the 85% surge in the iron ore price between March 2020 and January 2021 – its highest over the past decade. Copper also saw a nine-year high, rising by 80% in the same time period, while nickel, gold and cobalt prices (among other commodities) have also risen.
As the world continues to navigate its recovery from the Covid-19 pandemic, mining appears to be in a position to recover well. However, if the past year has taught governments, investors and businesses anything, it is to expect the unexpected.
How well do you really know your competitors?
Access the most comprehensive Company Profiles on the market, powered by GlobalData. Save hours of research. Gain competitive edge.
Your download email will arrive shortly
Not ready to buy yet? Download a free sample
We are confident about the unique quality of our Company Profiles. However, we want you to make the most beneficial decision for your business, so we offer a free sample that you can download by submitting the below formBy GlobalData
Which countries will suffer in a mining downturn?
Investment Monitor’s Mining Vulnerability Index looks which countries would suffer the most should their mining industry suffer a downturn.
In 2020, mining accounted for 23% of Mongolia’s overall GDP, while 70% of total export revenues for the country are attributed to coal and copper.
In order to rank this, the index evaluated 83 countries across a number of metrics, such as the percentage of mineral and coal rents as a percentage of the location’s GDP, the run-of-mine production average annual growth forecast (2018–21) and the overall number of mines and projects.
The number of mines and projects are then broken down further into the categories – ‘exploratory stage’, ‘in construction’, ‘in operation’ and ‘in closure’. Within this section, only the mines in the ‘in closure’ stage are weighted differently, as this would hint at a step back from the mining industry.
It is worth noting that both the Democratic Republic of Congo and Papua New Guinea had missing data within their evaluations. Furthermore, the index set the barometer for each country to have a minimum of 20 mines for inclusion.
Mongolia’s mining boom
Mongolia, Zambia and Australia top the index as the three most vulnerable countries to a mining downturn. Mongolia’s mining boom began in 2010, when Rio Tinto invested in Oyu Tolgo, a mining project within the south Gobi Desert. This secured a long-term deal with the Mongolian government that saw capital rising at an unprecedented rate.
Following the initial boom, 2011 saw ‘Minegolia’s’ economy grow by 17% with its reserves of copper, coal and other minerals valued at $1.3trn. Between 2011 and 2015, its GDP averaged an annual growth rate of 10.3%, according to the Asian Development Bank. This made it one of the fastest-growing economies in the world in that time. This boom fizzled by 2016 when growth had shrunk to 1.2%. The country’s economy has since bounced back, but this downturn had been largely due to depressed commodity prices, showing just how dependent Mongolia is on this sector.
In 2020, mining accounted for 23% of Mongolia’s overall GDP, while 70% of total export revenues for the country are attributed to coal and copper. These markets are, however, dependent on neighbouring China remaining its biggest buyer.
Zambia and the ‘big four’ mines
In Zambia, the ‘big four’ mines (Barrick Lumwana, FQM Kansanshi, Mopani and KCM) dominate the mining industry. Not only do they account for approximately 80% of Zambia’s annual copper production, but they also hold the majority of mining employment, corporate social investment and direct investment. Between 2000 and 2014, the big four collectively raised $12.4bn in investment for new mining projects.
More recently, in 2020 FQM’s sentinel mine in Kalumbila saw its highest-ever annual copper production, despite the Covid-19 pandemic. This 14% year-on-year increase in its annual copper production helped to support job retention at the mine. Zambia is Africa’s second-largest producer of copper, after the Democratic Republic of Congo.
FQM is reported to be in close conversation with the Zambian government to preserve its partnership, a relationship that the government sees as critical to withstand the economic impact of Covid-19. Copper in particular remains crucial to the economy of Zambia and accounts for 85% of all the country’s exports, making it particularly vulnerable to copper price volatility.
Mines stabilised Australia through Covid-19
Since the 1850 gold rushes, Australia has been been in some way reliant upon the mining industry, and it continues to be an important economic driver for the country to this day. According to the Australian Bureau of Statistics, mining made up 10.4% of the Australian economy between 2019 and 2020. This made it the single-largest contributor to the country’s GDP, with a value of $202bn and 4.9% growth when compared year on year.
This growth is, in part, credited to the rise in demand for iron ore following the pandemic. The Australian mining sector employs approximately 261,900 workers – according to the Labour Market Information Portal – with mining employment rising by 21.4% over the past five years.
The mining industry has supported the Australian economy through the Covid-19 pandemic. In order to allow the industry to continue to play such a supportive role, an advisory group has encouraged the Australian government to support faster project approvals and create competitive tax rates. This comes alongside a call to invest in more skills programmes as industry 4.0 continues to automate parts of the mining sector.
Sub-Saharan Africa most mining-dependent region
Based on the make-up of the top 40 of the Mining Vulnerability Index, the sub-Saharan African region dominates.
Africa is home to the largest mineral industry in the world, with the continent holding the largest and second-largest reserves of bauxite, cobalt, diamonds, phosphate rocks, platinum-group metals, vermiculite and zirconium.
Asia-Pacific and the central and eastern Europe/Commonwealth of Independent States region are the second and third most vulnerable regions, respectively.
However, it should be noted that the sub-Saharan African countries do not hold the lion’s share when it comes to number of mines.
The North America region accounts for 11,240 mines. Asia-Pacific and South America come in second and third with 9,559 and 2,042, respectively.
On a country basis, the US hosts the highest number of mines with 6,115, but is ranked fourth in the overall index. Canada follows a similar pattern of holding a high number of mines but its ranking in the main index coming in lower.
This is due to the two countries’ ability to diversify their economies beyond mining, meaning they are less dependent on the success of their mining industries. The US saw its revenues from mining decrease between the second and third quarters of 2020, from $438.50bn to $421.80bn.
Mauritania is home to the smallest number of mines within the top ten countries of the overall index, with 44. In 2007, mining accounted for more than 35% of Mauritania’s exports. Despite setting diversification into non-mining industries as a long-term initiative, mining (primarily of gold and copper) and oil accounted for 25.9% of Mauritania’s GDP in 2020 and employed more than 55% of the workforce, according to Lloyds Bank Trade.
Why diversifying an economy away from mining is key
The majority of countries in the top ten of the Mining Vulnerability Index have two key factors at play. First is the heavy influence commodity price fluctuations have upon their mining sectors, and how hard an impact that has on the countries’ overall economies.
The second is a failure to diversify into non-mining industries. This has been a long-standing problem for developing countries that are rich in natural resources. For these countries, falling into mining dependency is too juicy an opportunity to resist.
The potential oncoming of a supercycle could prove lucrative for countries sitting at the top of Investment Monitor’s index. On the other hand, another price fall – such as that seen between 2014 and 2015 – could have a huge negative impact upon these economies if meaningful steps to diversify are not taken.