Response to Pandemic Top Risk for Mining Industry

Trevor Hart, Global Mining Leader at KPMG, has co-authored a report listing the Top 10 risks the global mining industry faces in a COVID-19 environment. The report is based on a comprehensive survey of mining executives. It points out that, before the pandemic, “the main risks included access to capital, community relations and global trade war; now, however, response to the pandemic is at the forefront of immediate planning, decision making and risk mitigation.” Hart ranks the risks as follows:

1. Physical and mental health of a critical workforce, their families and communities.
2. Operating resilience and maintaining production.
3. Clear and expedient communication to stakeholders, especially employees, communities and governments.
4. Managing key supplier risk.
5. Monitoring end to end supply chain risks and adapting as issues emerge.
6. Managing cyber risk as an increasing number of people work remotely.
7. Managing liquidity risks and shocks, fluctuating cashflows, debt maturity profiles and covenants, among other financial risks.
8. Global recession as a risk to commodity prices and currency volatility.
9. Outsourced functions in jurisdictions badly affected by COVID-19.
10.  Significant and rapid decline in certain commodity prices, requiring rapid cost out to preserve operative resiliency.

Key industry players in the Mexican mining industry have confirmed KPMG’s risk ranking. For example, Alberto Leal, Managing Director of Cribas y Productos Metálicos, a mining screen manufacturer and distributer, recently made the following points in an interview with Mexico Business News: “Our first priority during the present health emergency is our employees. Therefore, we devised a strategy to guarantee the income of the 180 families who depend on Cribas, while also keeping them safe. To this end, we analyzed the industries that would be affected by the shutdown of non-essential activities. The first thing we identified was that it was very likely that most of the industries we work with would remain at least partially open. Therefore, we set out to determine their needs as exactly as possible. We then focused our efforts on being able to provide for those specific needs. The challenge was to successfully zoom in on those needs, while reducing our operational costs to a minimum and paying our workers consistently.” For Leal, the physical and mental health of Cribas’ workers, their families and communities is crucial. Also, operating resilience and maintaining production are paramount issues that are best met through a careful analysis of the mining market. 

Additionally, volatility in commodity prices and currencies are among the most prominent concerns for mining executives with assets in Mexico. Carlos Silva, CEO of Santa Cruz Silver, said to Mexico Business News that “silver has not reacted in the same way as gold, which has increased in price since the onset of the pandemic.” Nevertheless, Santacruz Silver can start selling its production at US$17/oz, a threshold that the white metal has already broken this month. Silva went on to underscore the importance of currency volatility, too. “The US dollar is getting very expensive in comparison with the Mexican peso. That is good for us, because we sell in US dollars, while most of our costs are in Mexican pesos. We may see an exchange rate in 2020 of MX$25-30 to the US dollar,” he added.