Unlike a classic economics-driven commodity price crash, covid-19 is health-driven, and has caused operating model and supply chain disruptions that have impacted operating companies and services companies very differently. Our data shows that approximately 70% of operators are facing critical supply shortages, whereas only 20% of services companies are. The discrepancy is an opportunity for innovation and collaboration; supply chain partners working to mitigate the shortfall.
On a positive note, our data is demonstrating the agility of the industry. In March, 30% of the industry did not expect to be able to operate past three months, whereas in April the number has almost halved to about 16%. Resources companies and their suppliers are adapting, pivoting quickly in the new environment and finding new ways to operate, virtually, remotely and flexibly.
The reported resilience in the industry to continue to operate occurs even as the effects of covid-19 magnify. April has seen an increase in the magnitude of the impact, from 61% reporting a significant impact or higher, to 74% this month. Clearly, the industry is realising the impact of the pandemic, just as it moves to adapt and succeed in spite of it.
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.
Show me the money
Covid-19 is leaving operators without the people they need (59%), whereas services companies across the board face a loss of revenue and profits (89% and 51% respectively). This is perhaps unsurprising; operators still require manual interaction with much of the on-site equipment, whereas service models have been rapidly virtualised as a result of government restrictions. Meanwhile, services contracts have been cancelled or scaled down as a result of cautionary cost-cutting, whereas the fundamental cashflow of many miners has remained broadly intact.
The impact that the pandemic is having on different companies is also evident in their views on government support. Services companies are primarily facing cashflow issues, with wage support (68% compared to 58%) and debt relief (32% compared to 0%) relatively higher concerns compared to operators. Meanwhile, asset owners are worried about the resilience of their operations, looking for open trade flows (50% compared to 18%).
As the industry plans for a post-covid future, operators and services businesses are looking at the future slightly differently. Many operators are global, relying on international supply chains and the free movement of goods and people to conduct business. It is therefore unsurprising that operators are focusing relatively more on planning for future disruptions and managing their impact. In particular, risk management (75% compared to 69%), de-risking supply chains through local procurement (70% compared to 53%) and inventories (29% compared to 22%), and the use of scenarios (52% compared to 33%) are relatively higher than their services counterparts. While the fundamental business model remains intact, operators are now positioning to respond to future pandemics more quickly and with less impact on their businesses.
Services companies are seeing a more fundamental shift in the way they do business. Requirements to work flexibly and remotely are changing the nature of their business models. A strong focus on new, virtual service models (69%) is expected to drive significant innovation in a post-covid world. Interestingly, services companies are far more likely to see an increasing trend toward automation (44%) compared to operators (29%). The discrepancy is likely a difference in maturity; operators have been automating due to safety, cost and operability drivers for the past couple of decades. Services companies have generally struggled to invest the required capital expenditure to automate their own operations. Covid-19 has provided the required catalyst for further investment which holds great promise after the pandemic has abated.
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 launching our Week 6/7 survey, 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