How Has COVID-19 Impacted Australian Miners?

Mining’s role as a major contributor to the Australian economy ensured that it was classified as essential early on.

Much the same as everywhere else on Earth, Australia has not been immune to the effects of the COVID-19 pandemic, which has ravaged people, politics and markets.

As a resources-heavy nation, with some 11 percent of its economy dedicated to mining, and over 60 percent of its exports coming from resources, the initial slowdown in Australia’s largest trading partner — China — brought about severe jitters in the Australian economy at the beginning of 2020.

The impact was felt through supply chain disruptions. With end users in China effectively boarded up in the immediate response to the pandemic (to such a degree that pollution levels plummeted), Australia’s mineral exports became a major issue as the supply chain started to run into bottlenecks and closures.

Output could continue, but transportation, workforces, end users and redistribution networks were hammered, causing investors and sector participants to think long and hard about how to stay afloat.

Mining quickly deemed essential in Australia

However, mining’s role as a major contributor to the Australian economy ensured that it was classified as essential early on, so the industry as a whole never needed to be concerned about government-mandated shutdowns; that meant operators could focus on economic performance and sales.

Resources (and media coverage) for mining companies being affected by the pandemic were thick on the ground, with the Minerals Council of Australia going so far as to release protocols and explainers for members of the resources industry to work with. It also explained the steps miners were taking to keep communities safe to local governments, various layers of bureaucracy and the general public.

The arguments made by the industry must have been pretty good, as some of the larger companies not only didn’t slow down their operations, but hired on more people. Rio Tinto (ASX:RIO,LSE:RIO,NYSE:RIO), which slowed operations elsewhere globally, kept ploughing on in Australia. For the record, Rio Tinto’s share price on the ASX ended 2020 higher than where it started.

The industry, with the bulk of its operations and profitable mines in the middle of the Western Australian desert, was credited early on with saving the Australian economy because it was allowed to stay open. In fact, miners were plotting their recovery from the initial shocks of the pandemic by May.

The pandemic did give pause to Australia’s three decades of economic growth, but the economy was already pulling out of a recession in the September quarter of 2020 following a 7 percent fall in the June quarter. The economy had also contracted in the March quarter.

Still, talk of Australia already being out of the pandemic-caused recession is an issue of contention, with unemployment rates and the sheer numbers when it comes to the depth of the initial recession (a 7.3 percent contraction in the first six months of 2020) being sobering.

Commodity price fluctuations impact miners

Hits last year to the bottom lines of miners in Australia were primarily due to changes in commodity prices. Gold crept up, but metals such as copper, nickel and iron languished or fell in Q1 of 2020 before rocketing upwards in the second, third and fourth quarters.

Meanwhile, energy resources took massive hits, bringing large sections of the Australian economy on a downward trajectory, and playing into the mixed bag of results for the economy overall.

In a nutshell, prices for the metals that China wants and needs went down when China shuttered its industry, and went up when China opened those industries back up again. The latter was a jackpot for Australia, which has all the metals China wants.

Iron ore in particular did quite well, and Australia benefited as the world’s largest exporter of the metal, with major players like BHP (ASX:BHP,LSE:BHP,NYSE:BHP), Rio Tinto and Fortescue Metals Group (ASX:FMG) increasing investment. Like Rio, BHP is above where it started 2020, and Fortescue is almost at AU$24 on the ASX, having started last year a little over AU$10.

Gold — another commodity Australia does well in — saw prices rising through the year as it leaned into its safe haven reputation, allowing Australian gold producers, which were already still open and humming along nicely, to capitalize on the pandemic.

On the other end of the scale, oil and gas were down simply due to the economics of lower demand, while coal ended up being collateral damage in 2020 thanks to a rapidly deteriorating relationship between Australia and China — though that’s all mostly politics, as China continues to gobble up most of Australia’s exports regardless of the rhetoric.

Australian mining outlook promising in 2021

The hard numbers on the ground suggest that the mining industry thrived in the land down under last year, despite Australia being cut off from the world by drastic government action — or perhaps because of it, depending on how you’re looking at the situation.

Mining industry investors with an eye on Australia can take heart in the support the Australian government gave the industry during the pandemic’s initial throes, and in the way that operators managed to plough through the ravages of 2020 with few disruptions.

Thanks to that support, mining is likely to stay front and centre in Australia’s economic recovery, making for plenty of opportunity to come.

Don’t forget to follow us @INN_Australia for real-time updates!

Securities Disclosure: I, Scott Tibballs, hold no direct investment interest in any company mentioned in this article.

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