Dare I say that, RED has grasped the implications of the pandemic and the stock market crash and has shored up its balance sheet in a credit crunch and ensured its potential can be realised, in a business world where only the financially fit will survive!

Miners failing to grasp the magnitude of pandemic: McKinsey

9th April 2020

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Some mining companies have failed to grasp the potential impact of COVID-19 and must act now to shore up their balance sheets – even if they appear robust for the time being, according to McKinsey & Co senior partner Sigurd Mareels (reports MiningNews).

"I think most people don't grasp the full depth of it," said Mareels, co-leader of the firm's basic materials practice, told MNN sister publication Mining Journal.

"Even if your balance sheet right now looks good, you have to think through what two or three years of crisis could do, and therefore people with relatively big balance sheets…they have to act now and do whatever they can to shore up their balance sheet because the likelihood that this gets worse is relatively large," said Mareels.

"Most of this industry looks relatively safe for the time being with relatively little debt, but that can change very very quickly," he added.

Mckinsey has modelled nine economic scenarios based on how effectively the virus is contained. The firm's first - ie best case - scenario is roughly equivalent to the global financial crisis of 2008, when green shoots emerged roughly a year on from the crash, said Mareels. Scenario two resembles the dot com bubble in 2001, when it took about three years for the global economy to get back to normal, he said.

"The second [scenario] already scared the living daylights out of us…and of course there are so many unforeseen secondary effects that could affect the industry…so I think there is probably an understating of the current dangers, because this could spiral out of control," said Mareels.

In terms of the impact seen on mining operations so far, Mareels said it was still "very early days".

"Right now the first response is around workers' safety - so basically social distancing practised at an operational mine," said Mareels.

The second phase will see miners focus on maintenance, but the challenge of - for example - overhauling an engine in a confined space while adhering to social distancing measures - "becomes a bit more difficult".

However, perhaps the most concerning issue for miners relates to supplies.

"The real issue which we're getting our heads around is what happens when your supply chain starts faltering," said Mareels.

Mareels pointed to the example of changing tyres on a large mining truck, for which there are only three tyre plants in the world.

"If one of those goes down, then in no time I have a disruption," said Mareels.

"I had several calls with industry participants last week…they're not even worried about supply and demand, it's: am I going to get my spare parts in the next six months, or will they demobilise their facility?" he said.

Meanwhile, large mining projects will be shut down "because the risk of spreading the disease is too much when you have thousands of contractors and 10,000 people on site".

Read more at https://www.miningnews.net/covid-19/news/1384506/miners-failing-to-grasp-the-magnitude-of-pandemic-mckinsey

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