Digital Issue 4

The survival of the resources sector through and beyond the COVID-19 crisis

  • By Dr Michael C Clarke FAusIMM

An exploratory article that examines the resources sector’s likely approach to the COVID-19 crisis and examines options for economic harm minimisation and future growth

Introduction

The education and training of professionals, lower management and technicians and thence the retention of those people by the resources sector through their productive lives is a necessary goal for the industry. Likewise the training and retention of unskilled personnel who through the workplace (and skills training institutions) have become semi-skilled, is also very important. This paper is primarily concerned with the professional end of the workforce spectrum and the impacts we may see following the COVID-19 crisis.

COVID-19 – the virus (an overview)

The fate of the virus and its effect on our future is largely unknown. From the published reports, the quest for an effective vaccine is at best estimated to be available in early 2021; however, the situation continues to evolve. It should be hoped that government, medical research institutions and Australian pharmaceutical corporations continue their work in epidemic avoidance, control and mitigation in the future with an emphasis on national (Australian) biosecurity.

The boom-bust nature of the resources sector and the COVID-19 outbreak

The resources sector is very important to the world’s economics, society’s performance and the wellbeing of the global population. The oncoming economic recession (potentially developing into a depression) due to the outbreak of COVID-19 is seeing some areas of the industry and production decrease significantly, with international and domestic buyers of resources sector products withdrawing from the market; the reduction in petroleum demand being one example. The outbreak is also seeing the supply of imported machinery, domestic goods, food products, apparel, etc ‘dry-up’; this could also have a major effect on the resources workforce (and indeed the entire nation could be crippled by this supply-led recession).

The ‘future normal’ in Australia

What might the Australian economy look like following the COVID-19 pandemic? It may mean regaining a higher level of independence with respect to energy and fuels (including a realistic balance between renewables and fossil fuels); manufacturing; international logistics (including sea freight); aircraft maintenance; strategic pharmaceutical production; the production of strategic agricultural chemicals and fertilisers; the production of at least moderately transformed manufactures from raw mined products (eg blister copper in place of copper concentrate and moderately enriched uranium instead of yellow-cake); the export of processed food (cold and frozen produce); the maintenance of a better balance between internal and export food supply; and allowing tourism to recover and re-orientate so as Australia is ready for a steady but increasing flow of overseas visitors whenever the conditions allow. The government incentives being offered to employers will assist in recovery.

The resources subsectors and their recovery from COVID-19

Quarrying needs the construction sector to resume the construction of dwellings, commercial buildings, public infrastructure and ‘national’ projects. The traditional way Australian governments have used to stimulate their economies is to undertake a few selected major infrastructure projects such as the Brisbane cross-river rail tunnel or another runway for Sydney airport; this may not be immediately possible in a post-COVID-19 economy. The construction of dwellings and commercial structures with limited public input but supported by a strong post pandemic recovery private enterprise is perhaps the best way to support the quarrying industry.

Energy and petroleum must be in consistent supply to the domestic markets. Fossil fuels (natural gas and coal) must be available to keep the power grids stable, especially with respect to balancing those energy sources with intermittent renewables. Transport fuel, which is principally derived from petroleum, must be available such that the strategic inventory is maintained and there is sufficient local useable supply to meet emergency demand.

Metals, gold, industrial minerals and uranium are big earners of foreign exchange value. AusIMM is the professional body that is primarily concerned with the professionals who win and process those minerals. These professionals will be in demand in quantities that were sought up to the end of 2019; they will be in even greater demand from a politically and economically stable supplier like Australia in the future. Their continued production holds a key to lessening a potential financial meltdown.

To and fro of the professional workforce post-COVID-19

There are two counter trends that I believe will come post COVID-19. These are:

  • A continuance of the trend for professionals to ‘migrate’ towards their share of the benefits of city life that include the proximity to high-level health facilities, such that the professionals and their families can have fair access to a ICU bed if required.
  • Some professionals will want to leave the urban environments to get away from the post-pandemic social challenges that are possible; the observance that many sizeable non-urban communities have little or no COVID-19 occurrences three months into start of the COVID-19 outbreak may be important to some as will a ‘relatively’ secure income from some operations and will attract city-dwellers.

It is likely that there will be major shifts in the willing and available professional workforce post COVID-19; preparing for this workforce will include long and extensive inductions plus training and education in specific areas of expertise such as mining methodology, ore preparation and logistics systems.

FIFO: an ineffective solution to the long-term employment challenges of the resources sector?

Following the COVID-19 pandemic, fly in, fly out (FIFO) may not be an advantageous employment system for the majority of the workforce or industry. The dangers include economic and logistics factors (eg the availability of aircraft/airlines to ferry workers to and from the workplace); health hazards (eg flying crews to a site in often smaller aircraft with little space between passengers); the lack of immediate, safe and biologically secure evacuation options; the lack of comprehensive medical infrastructure in remote sites; and destruction of social cohesion where family and friends are not available for support in crucial times.

However, when it comes to FIFO for the professional workforce, the sharing of professionals for specific areas of industry (eg iron ore logistics, gas exploration and aggregate plant engineering) may ease expertise shortages at production sites.

FIFO should therefore be a restricted and a regulated employment system for the sector, with the goal being to create strong links between the workforce and the management of remote as a priority for creating stability.

The future

Government assistance cannot become an assumed long-term right; financial maturity must be returned to Australia as soon as possible. Industries including the resources sector should have some assistance, but must look for long-term independence from government.

The resources sector workforce: maintenance and sustenance

Is the sector up to the costs, OPEX and CAPEX, of maintaining and sustaining its workforce post COVID-19?

If production can be maintained in remote sites, even at very reduced rates, where moderate stockpiles are allowed to grow, then switching on full production as orders come in should be a relatively simple operation. Letting plant go into a care and maintenance mode reduces OPEX but sees CAPEX rise as the value of worker experience dissipates; this will increase the time and cost to resume full production. If plant is closed down, then costs of getting back to full production will be onerous and restart may be impossible if no experienced workers are available and CAPEX is needed for plant. Companies with deep pockets with possibility of a little from government will be better placed for keeping the production open.

What might the new normal look like?

Some key considerations include:

  • What is, or will be, known about the long-term health and wellness of the post pandemic population? If a COVID-19 epidemic annual wave becomes part of our existence, what will be the human costs of that wave? As previously discussed, the path that COVID-19 will take is largely unknown; how we defend against the virus, physically live with the virus and how we allow the virus to affect our psyche, is unknown. Also, how will the ongoing post-virus health of the nation (and world) effect the economic and social recovery?
  • The economies: the world economy, the economies of major trading partners, and the Australian economy. How long will the recession/depression last? Will international politics become increasingly belligerent because of COVID-19? What changes will occur that effect our trading partners? Will those changes affect our minerals and fuels export economy, and if so for how long and to what extent?
  • Societal changes to the overall population: people who have never been unemployed may not fit back into their previous employment even if it exists post-COVID-19. There will be major changes in lifestyle for many, with many of those changes being from the collapse of incomes. Competition from new school-leavers will affect many unemployed people if the COVID lockdown and subsequent recession lasts for more than two years. The options open to school-leavers will be more restricted in terms of service industries such as hospitality and tourism but may be opened up for working in the resources sector and (later) expanded manufacturing.

AusIMM supporting critical industry post COVID-19

The AusIMM may be able to provide non-prescriptive information for professionals on management, general legal, financial affairs and staffing arrangements. Here the AusIMM could be a knowledge base to the industry and its professionals.

Conclusion

The COVID-19 pandemic is an example of how civilisation can be challenged with external forces in a very short time. COVID is causing great economic, political and social disruption to a point that a depression is more likely than not. There are opportunities to strengthen the Australian economy as we return to ‘back-to-normal life’.

The national financial situation will need extensive sources of income to stabilise; this will likely need to come initially from the resources sector and broader extractive industries and later a revived manufacturing sector and could be accompanied by inflation and currency devaluation.

Being part of an industry group that is essential to civilisation means that the resources sector, its professionals and organisations all have a role in the economic affairs of Australia. Maintaining the flow of minerals into the world’s economies is an important activity during renewal.

Acknowledgements

Irene Ivanova (FAusIMM) and Carlos Sorentino (FAusIMM), being fellow members of the AusIMM Consultants Society and the Membership Retention and Recovery Special Interest Group, are thanked for their contributions to this article.

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The views expressed in this article are the views of the author. This article provides general information, does not constitute advice and should not be relied on as such. Professional advice should be sought prior to any action being taken in reliance on any of the information.

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