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Mining companies gear up for unprecedented 21-day shutdown

Mar 24 2020 15:15
Sibongile Khumalo

Mining companies will heed the directive by President Cyril Ramaphosa to shut down their underground operations as part of the 21-day national lockdown he announced on Monday aimed at curbing the spread of the coronavirus.

In his address, Ramaphosa ordered that "companies whose operations require continuous processes such as furnaces or underground mine operations will be required to make arrangements for care and maintenance to avoid damage to their continuous operations".

Large and small cap mining companies have indicted that they would halt operations in what is expected to severely impact the key sector, which has already been suffering as a result of commodity price volatility and a range of domestic operational challenges. Over the past few years, the local mining sector has been shedding jobs as companies close down loss-making shafts to improve capacity. Production of some key minerals, such as gold, has also plunged. 

Job losses

"The lockdown, as much as it is necessary, will severely hit companies. It's possible that this phase might even lead to more restructuring processes, with more job losses," warned independent mining analyst Mamokgethi Molopyane.

AngloGold Ashanti announced on Tuesday that it will "temporarily suspend production from its South African operations for three weeks as of midnight on 26 March 2020."

Its operations would be placed into care and maintenance over the period.

The company, which operates the wold's deepest gold mine, Mponeng, southwest of Johannesburg, last month announced the sale of its operations to Harmony Gold, in an approximately R4.4 billion transaction. The company said on Tuesday the deal was expected to close by end of June. It also owns mines in different parts of the African continent, Americas and Australasia.

Unprecedented

Harmony said the shutdown would affect the its annual production guidance of 1.4 million ounces and full-year earnings for 2020, with CEO Peter Steenkamp referring to this period as "an unprecedented time in the history of the mining industry and our country".

Mid-tier gold producer, Pan African Resources, said it supports the measures announced by Ramaphosa aimed at curbing the spread of the virus.  While the lockdown will "impact negatively" on operational performance in the short term, it said its liquidity position was robust, with immediately available facilities of $20m. 

It said it would also look at rescheduling its short term senior debt obligations, in the event of an extended national lockdown, highlighting the current favourable gold price.

As a result, the company has suspended its full year production guidance is suspended until its could quantify the full impact of the lockdown.

Anglo American Platinum, meanwhile, said it would review the detailed regulations relating to this lockdown action including exemptions for certain business activities, and issue a further statement in due course. The group said it was "working together with the government of South Africa to ensure the continuity of our business where appropriate in order to minimise any unintended consequences of the announced lockdown".

Marginal mines may not reopen 

According to the Minerals Council, mining contributed R351 billion or 7.3% to South Africa’s gross domestic product (GDP) during 2018. 

A total of R312 billion was added by the industry to export earnings, which represents nearly 25% of total South African exports of goods and services. 

Molopyane said the shutdown may help "reduce a glut" in the platinum group sector, which she said had seen an oversupply.

She stressed that the real economic impact of the lockdown would be felt in the third to the fourth quarter of the year.

"This is an industry which has been in a rut for a while, it is no doubt that this would add more pressure."

The Minerals Council said it was exploring ways to prevent permanent damage to the industry, as a result of the shutdown.

"There are marginal and loss-making mines that would likely be unable to re-open should they be required to close fully, without remedial measures."

The minister of Mineral Resources, Gwede Mantashe, is currently meeting the industry players to discuss the measures announced by the president.

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