Impact of Covid-19 on mining

Two articles on the impact that the Covid-19 pandemic could have on diamond and platinum mining.

Please follow the links to read the articles at source.

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20 APRIL 2020
Impact of Covid-19 on the diamond market

Impact of Covid-19 on the diamond market

“According to leading diamond producer Alrosa, 2020 started well for the diamond sector, citing improved customer sentiment across key markets for diamond jewellery, a recovery in prices for polished diamonds and that sales were ‘quite robust’ in December and January.

However, the initial outbreak of Covid-19 led to a fall in demand from the Chinese market, which is reported to account for 15% of global demand. The spread of the virus in China and ensuing quarantine measures meant the majority of jewellery stores were closed for around two months.

Diamond sales
Given the spread of the virus, quarantines and declining economic conditions, it was inevitable that demand for luxury items such as diamonds would fall. In early March, De Beers, the world’s second-largest producer, reported a 28% year-on-year decline in sales, at $355m down from $496m in 2019, during its second sales cycle of 2020 as Covid-19 impacted the Chinese market. This compared with $551 in the first sales cycle of 2020, with 12 sales cycles in a year.

There have been additional challenges for sales. Since the virus has spread to other parts of the world, limitations on travel are impacting sales events, with, for example, De Beers, cancelling a sales event, its third ‘sight’ of the year, due to take place
from 30 March to 3 April. The company advised it was “enabling Sightholders to defer 100% of their Sight 3 allocations to later in the year, and will continue to seek innovative ways to meet Sightholders’ rough diamond supply needs in the coming
weeks”. It has also closed stores in London, Paris, US, Canada, Russia, Kazakhstan, Malaysia and Saudi Arabia until further notice.

Alrosa is looking at the option of online trade as global travel restrictions make the usual physical inspection of diamonds almost impossible. In its Q1 results, released on 16 April, the company reported a mixed quarter for sales. Total rough and polished diamond revenues in Q1 2020 were $904.2m, down 10% year-on-year, although this was due to much lower revenues in March, at $153m, compared with $377m in March 2019. January and February 2020 together were $751m, 19.8% higher than the corresponding period in 2020. Sales volumes also fell year-on-year in the quarter, down by 11% from 10,592k carats in Q1 2019 to 9,421k carats in Q1 2020.

Production
Diamond production in 2020 is being affected by operating restrictions in many countries. South Africa, for example, initially entered into a lockdown for three weeks from 26 March, but this has now extended to the end of April. In Quebec, on 24
March, the government suspended mining as a non-essential service, and while it has permitted mines to recommence from 15 April, Stornoway Diamond’s Renard mine, the province’s only diamond mine, will remain in care and maintenance.

Elsewhere, mines across Lesotho, Namibia, Zimbabwe, India and other parts of Canada are on hold due to lockdowns or, in some cases proactive steps. For example, in Northwest Territories in Canada, Dominion Diamond Mines suspended operations at its Ekati mine in mid-March, to avoid the spread of the coronavirus.
Overall mines that would otherwise account for over 16% of the world’s diamond output in 2020 are on hold.

Alrosa is one of the least affected, with no lockdowns in Russia, although the company is undertaking a wide range of measures to minimise the potential spread of the virus. The company, which is the world’s largest producer, reported a year-on-year increase of 2.5% in Q1 2020, due to increasing production at the Jubilee pipe and at the Aikhal and international underground mines. Latest guidance is for production of 34.2m carats in 2020, which would be an 11% decline on 2019’s 38.485m carats, although only marginally lower than its pre-Covid guidance of 34.2m carats.

Likewise, De Beers is not expected to be significantly impacted. Its initial guidance was for 32m-34m carats in 2020, up from 30.8m carats in 2019, with an update expected when the company releases its Production Report for Q1 2020 on 23 April. The majority of its diamond production is in Botswana, where mining activities have not been forced to close, although a 28-day lockdown has been imposed. South Africa and Namibia together accounted for 12% of total production in 2019 and, despite the widespread lockdowns in South Africa, Anglo American announced its Venetia diamond mine would continue operations, albeit at 75% of the workforce.

Overall expectations for 2020 diamond production before the outbreak were for a slight reduction on 2019 output, down by 1.5% from 145m carats in 2019. Rio Tinto’s guidance was 12m-14m carats versus 17m carats in 2019 with the Argyle mine entering its final year of production, while in Q4 2019 Alrosa was already advising of production of 34.3m carats for 2020, a reduction of over 4m carats. However, with more limited production due to mines entering care and maintenance or operating at reduced capacity, initial expectations are for production to fall to 133m carats, a decline of 9%. Should lockdowns continue or the market deteriorate further, then an even more significant decrease is expected.”

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South African lockdown another dent to global platinum production

21 APRIL 2020
South African lockdown another dent to global platinum production

“The 21-day lockdown that has commenced across South Africa’s mining sector will particularly impact the global supply of platinum and other PGMs. However, with declining demand from the autocatalyst and jewellery sectors, platinum prices remain under pressure.

From midnight on 26 March, all but a few of South Africa’s 239 operating mines were put on care and maintenance for three weeks in a bid to stem the spread of COVID-19 across the country. Only a small number of thermal coal mines remain in operation in order to feed the country’s coal-fired power generation.

To date, South Africa has not been too badly affected by the pandemic.

As of 26 March, there were just over 700 cases, including only one at a mine site, according to the Minerals Council of South Africa, and also no deaths to date. However, the government recognises the true threat the virus poses and has made the most significant step to affect the mining sector globally by choosing to a 21-day lockdown.

South Africa is the dominant producer of platinum globally, accounting for over 70% of the total production. By freezing production for 21 days, it effectively reduces the global supply for the year by 4%, around 250koz. Production in 2020 was already forecast to decline due to lower output from Anglo American Platinum. The company reported an explosion at its Anglo Converter Plant at the Waterval smelter in Rustenberg in February, which will take until Q2 2021 to be repaired. As a result, guidance for 2020 was reduced from 2-2.2Moz to 1.5-1.7Moz for platinum.

Previously, in 2019, production had fallen by 1%. This was despite increased production from leading producers such as Anglo American Platinum and Sibanye-Stillwater, which acquired Lonmin during the year, with their increases being offset by declines elsewhere such as at Implats.

Demand for platinum is highest in the autocatalyst sector where it is used in diesel vehicles, however, following the dieselgate scandal in late 2015, demand for platinum in this segment has been falling steadily, down by 16% overall between 2016 and 2019. An opposite trend has been seen for palladium, which has benefited from stricter emission laws in Europe and China, which have prompted car manufactures to produce more petrol and fewer diesel vehicles.

The COVID-19 outbreak is having a significant impact on the automotive sector, with the widespread temporary closure of plants and, as of 24 March, GlobalData was predicting a decline in sales of light vehicles of over 15% for 2020. Thus any impact on platinum output of the 21-day lockdown would be expected to be more than counteracted by the decline in demand from the automotive sector.

Sales of platinum jewellery are also expected to decline in 2020, continuing the downward trend since 2014.

The price of platinum experienced a steep decline from over $1,000/oz on 19 February to $608/oz on 22 March, but this was halted by the announcement of the lockdown, with prices rising to $735/oz on 26 March. However, with a rising surplus expected this year and ongoing temporary shutdowns of auto manufacturing to contain the spread of the coronavirus, platinum prices are expected to remain under pressure”

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