‘Shut it down’: Mining continues amid global COVID-19 pandemic, but warning signs mounting

As the race to contain the spread of coronavirus reaches a sprint in many parts of the world, the mining sector is still grappling with the best way to deal with a situation that has left it few easy choices.

So far, operations at many mines have moved forward, often largely unaffected.

But there are signs that trouble is brewing. On Tuesday morning, for example, Ricus Grimbeek, chief executive of Vancouver-based Trevali Mining Corp. learned that in Peru — where his company operates an underground zinc mine — the government planned to lockdown the country essentially by restricting all non-emergency travel.

The situation posed an obvious dilemma for Grimbeek, and other mining companies in the country, for many reasons, including that most mines need time to change directions. Putting a mine on care and maintenance requires personnel to work, and there could be environmental damage and high expenses involved. Within hours, Grimbeek met with ministers and devised a plan to send a new shift of workers and enough supplies to operate for two weeks.

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“The reality is that it’s going to become quite hard to operate beyond the two weeks,” Grimbeek told the Financial Post on Thursday.

He said that the company is taking each worker’s temperature before he or she enters the mine, and other precautions but odds are low that it can continue much longer under the current situation.

Elsewhere in Peru, on Tuesday, Colorado-based Newmont Mining Corp. announced it would scale down its Yanococha gold mine, citing coronavirus containment measures.

In Canada, a handful of mining companies announced changes to operations as a result of the pandemic: Vale S.A. announced this week it would put its Voisey’s Bay open pit nickel mine on care and maintenance, and stop construction of the underground expansion project in Labrador in response to concerns raised by the Indigenous workforce there.

“We started to see a lot of chatter on social media that brought it to our attention,” said Cory McPhee, vice president of corporate affairs for Vale Canada.

McPhee said more than 50 per cent of the workforce is Indigenous, and the company did not want to risk the chance a worker would contract the virus at the mine site and inadvertently bring it back to a remote community where health care is limited.

“They have a bad history with disproportionate impacts from epidemics,” he added.

In Nunavut, Agnico-Eagle Mines Ltd. announced it was sending its 450 Inuit workers home, but they would still be compensated, after blockades were set up on Tuesday night to protest contractors workers coming on site from Quebec and potentially introducing the virus. The company continues to operate its mine however.

In British Columbia, earlier this month, Copper Mountain Mining Corp. revised its mine plan by deferring certain capital expenditures in response to market uncertainty caused by COVID-19.

But such changes mark the exception. Even as revelations continue to surface that a

mining conference

held in Toronto in early March caused the spread of COVID-19 within the sector, including on Tuesday a new report of an outbreak at Toronto-based Troilus Gold that resulted in a hospitalization, the mining industry has largely been able to continue to operate without impact.

The conference was attended by 23,000 people, down only about 10 per cent from the previous year. A source familiar with the planning of the event said there were daily meetings for two weeks before the event at which there was discussion about whether to cancel because of the virus.

“The voices that were opposed to moving forward were definitely in the minority,” the person said.

Ultimately, the Prospectors and Developers Association of Canada, which hosted the event, said public heath authorities did not recommend cancelling the conference.

Within days, a conference attendee from Sudbury tested positive for COVID-19, putting the remote Ontario mining community at risk.

Vale continues to operate its underground mines there despite the risks. McPhee said the company is practicing social distancing, by putting fewer workers in the cage elevator that brings miners underground, and taking other precautions.

Some mining insiders note that contagion at mines poses a high risk because the remote location often means there is limited access to health care.

Metals analysts have also said there are other longterm business risks from continuing to operate during the pandemic, including a potential glut of various metals.

“In the midst of arguably the single-largest demand shock in our lifetime, the production side of the metals and mining sector in general continues to hum along,” David Gagliano, an analyst with BMO Capital Markets wrote Thursday in a note entitled “Shut it Down.”

Gagliano, who was looking at the U.S. steel sector in particular, wrote the lack of response has the potential to create “unprecedented inventory builds” which could end up hurting the sector by creating price weakness for extended period of time.

Meanwhile, his colleague Colin Hamilton, managing director of commodities research at BMO Capital Markets, analyzed data on industrial production in China in January and February and predicted there would be a roughly five per cent drop in the first quarter of 2020 — the largest since 2009.

“This is important … as a precedent for the rest of the world as it enters a lockdown period,” Hamilton wrote

Paul Robinson, a director at the market research firm CRU, said that exactly how demand for base and industrial metals, whether copper, iron ore or another metal, will be affected by coronavirus containment measures remains hazy.

Optimists believe demand could bounce back, starting in China, and things could resume as normal within months if not weeks, said Robinson.

“With mines, it’s not a matter of flipping a switch to turn them off, and it’s not a matter of flipping a switch to start them again,” he said. “Whilst you’ve got demand uncertainty, mines are not going to take a decision to close down, because some of those decisions will take many months, and cost money.”

Financial Post

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