In understanding the potential lifecycle of the covid-19 and its impact on the resources industry, it’s helpful to look at a case study that is relatively ahead in the battle against the disease. Australia has recorded one of the fewest numbers of cases and deaths since the virus reached its shores and demonstrates how the innovation potential of the industry can adapt and look to the opportunities as they emerge from the pandemic.
In just two months, the level of concern in Australia has moderated as cases plateau. In March, 78% of the industry where either highly or extremely concerned about the pandemic, which declined just one month later to 63% in April.
The stabilisation in sentiment occurred even as the impact from the pandemic worsened. In March, 57% of the industry reported at least a significant impact, whereas in April this had intensified to 73%. As this occurs, the Australian resources is innovating and adapting to the new operating conditions.
On the State of Play covid-19 research
Given the unprecedented situation, we at State of Play are looking to use our resources in partnership with the Australian Federal Government through METS Ignited and National Energy Resources Australia (NERA) to help the global resources industry understand how different businesses are responding by providing a useful source of data and support collaboration in response to the crisis. We aim to do this by providing headline, geographical, site-based data to help decision-makers take the pulse of the industry response. This data is directly used to inform government policy in Australia, both in understanding the needs of the local industry and to compare the sector to international benchmarks.
We are conducting research on a fortnightly basis to measure the shifts in attitude and ensure currency of recent data. We will also use this data to conduct further research on how to best prepare and respond for future crises of this nature. We are happy to share the data with researchers and analysts; just send us an email request and we will provide a cleansed dataset.
In its simplest form, the data reinforces the anecdotal evidence of how the industry is responding. In every continent, every industry, every place of work, covid-19 is a big driver of disruption and change. Companies are responding with a range of measures, from travel restrictions, screening, remote work, new policies and risk management and closure of sites. The full data pack is available for download at the top of this article. Some of the most interesting insights come not from the headline data but in the breakdown of different demographics in their evaluation of the crisis and response.
Shock and stabilise
As with any short-term shock, many of the effects of the covid-19 pandemic were front-loaded. Uncertainty and short-term reactionary decision-making leads to significant disruption in operating conditions. As Australia moved quickly to reduce the spread of the virus and contain cases, the resources industry similarly moved to find workarounds for disrupted practices. Work moved virtually, business recovery plans were enacted, and dedicated taskforces formed to respond to the threat. As a result, short-term impacts reduced quickly from March to April; lost revenue fell from 75% to 55%, loss of profits from 40% to 30%, and supply chain disruption from 35% to 23%.
While many of these numbers are promising, there remains some underlying issues that will take longer to resolve. The impact of business model disruption has remained constant at 45%. Contract renegotiation takes time, only falling two percentage points over the two months from 35% to 33%. Clearly these issues take longer to overcome and reflect a potential structural shift in a post-covid world.
One potential shift in operating models is reflected in the only indicator to increase over the two months: downtime. In March, only 15% of the industry reported a significant impact from increased downtime, rising to 23% in April. The resources industry was able to cope in the short-term with an interruption to their operations, however as the downtime extends, the costs increase, sometimes exponentially. In evaluating how the industry can build resilience to future shocks of a similar nature, we may see a value premium on lower fixed costs to reduce the pain of extended shutdowns.
In your own backyard
Australia’s resources industry is geographically relatively isolated given its reliance on international flows of goods and services. Many suppliers operate complex international supply chains, which have experienced one of the greatest interruptions due to the global pandemic response. Given this, Australia has started to face a significant concern in procurement and sourcing materials. An emphasis on local procurement as insurance against supply chain disruption has increased from 33% in March to 63% in April. The Australian federal government sees international supply chain resilience as a key concern throughout and after this crisis.
The question for other regions is whether they are similarly exposed. A seemingly irreversible trend to global economic integration has been interrupted by covid-19, will it ever revert? If other countries place more emphasis at both a governmental and industry level, how will that impact services and exporting industries in each country? Reducing the number of cases is just the start, governments and industry alike may have to prepare for a different economic system after this pandemic.
As this pandemic continues to evolve and businesses respond to the dynamic environment, we at State of Play want to provide as much valuable data back to the industry as possible to help guide the response. We are now moving toward a monthly cadence for our surveys, with some different questions and some that remain constant to track change over time. Even if you completed the survey previously, please complete it again here and share.
If you want to be part of the conversation, come join our Slack community. The community enables you to connect with other explorers, operators, researchers and investors who are interested in building the future resources industry. We get together to talk about the industry and learn from each other. Join here.
Thank you and stay safe!
The State of Play Team