Tag Archives: supply chains

Top 40 miners may need to de-risk critical supply chains in face of COVID-19: PwC

The top 40 mining companies are so far weathering the COVID-19 storm mostly unscathed, and certainly better than many other sectors, according to PwC’s 17th annual review of global trends in the mining industry.

In Mine 2020, the report authors said this was a remarkable feat, given that global growth is expected to decline in 2020, something that’s only happened twice in modern times: in 1944, during World War II, and, in 2009, during the global financial crisis.

The ability of the top 40 to ‘resource the future’ continues to be relevant in the current environment as many governments will appreciate mining for being a bedrock of economic recovery out of this crisis, the authors said.

“Our forecast for 2020 suggests the top 40 miners will take a modest hit to EBITDA of approximately 6%,” they said. “Capital expenditure will also slow, freeing up cash flows, and giving miners the capacity to pay dividends should they choose to do so.”

Against this backdrop, the authors did not expect many mega-deals to take place, due to the increased economic uncertainty and practical constraints of site visits and inspections.

The COVID-19 crisis has led to some positive changes around the way these companies operate, according to the authors.

“Although mining has been able to keep operating through the COVID-19 crisis, companies have also had to adapt and evolve,” they said. “Some changes have been for the better, such as remote workforce planning and greater use of automation. Many of these adaptations may become permanent.”

They continued: “In an uncertain environment, miners have focused intensely on controlling the things they can control, and it is serving them well. But the top 40 are not immune from the social and economic shocks ahead, and they cannot afford to let their guard down.

“COVID-19 is challenging long-held assumptions about the unassailable wisdom of ultra-lean principles and global supply chains. Miners may need to think about de-risking critical supply chains and investing more in local communities. A shift towards localisation in supply chains and in deals, as well as different forms of community engagement, may turn out to be enduring consequences of the pandemic.”

The top 40 miners also need to keep on top of the mega-trends that existed pre-COVID, particularly environmental, social and governance (ESG) reporting and cybersecurity, the authors said.

“We analysed how the top 40 are performing on ESG disclosure and found that a few companies are doing most of the heavy lifting, while the rest lag behind,” they said. “But ‘brand mining’ is a collective brand, and every miner needs to play its part.

“On the cyber front, the top 40 have some work to do. At a time when mining companies are becoming more vulnerable to cyberattack as they use more automation and digital technologies, CEOs are expressing less concern about such issues.”

In some respects, the mining sector is well-situated in the wake of COVID-19, the authors said.

“For example, despite recent uncertainty regarding Brazil’s ability to continue mining, iron ore prices have risen, potentially limiting the total impact on the sector,” they said. “Mining companies have strong finances and are mostly still operational, albeit with increased levels of precautionary controls.

“But the longer-term impacts remain uncertain, and ongoing disruption is likely.

“Top 40 miners should take advantage of their current position of financial stability to revisit their strategies. Doing so will ensure their businesses can enhance their resilience over the long term and meet the demands of the global economy to maximise the opportunities to resource the post COVID-19 future.”

COVID-19 pandemic hits Caterpillar supply chain

Caterpillar says the spread of the COVID-19 pandemic is starting to impact its supply chain, with the mining OEM weighing up alternative options to ensure it can continue to operate the majority of its facilities at this difficult time.

The company mentioned such a possibility in its risk factors back on February 19.

This week, Cat said it was monitoring the situation closely and supply chain teams had been executing business continuity plans, which include, but were not limited to, being alert to potential short supply situations, and, if necessary, using alternative sources and/or air freight, redirecting orders to other distribution centres, and prioritising the redistribution of the most impactful parts.

“Caterpillar is committed to continuing to execute these plans and will remain in close contact with its supply chain to monitor future possible implications, especially on production facilities,” it said.

While the company is continuing to run most of its US domestic operations and plans to continue operations in other parts of the world, as permitted by local authorities, it said it was temporarily suspending operations at “certain facilities”. It did not name these facilities.

Cat put this decision down to “uncertain economic conditions resulting in weaker demand, potential supply constraints and the spread of the COVID-19 pandemic and related government actions”.

It added: “The company will continue to monitor the situation and may suspend operations at additional facilities as the situation warrants.”

On top of shutting certain facilities in reaction to the COVID-19 outbreak and other related issues, Cat said it was continuing to implement several preventive measures to protect the safety, health and well-being of employees, customers, dealers, suppliers and communities, while also meeting the needs of global customers, at this time.

This included increased frequency of cleaning and disinfecting of facilities, social distancing practices, remote working when possible, restrictions on business travel, cancellation of certain events and limitations on visitor access to facilities.

Cat concluded: “The magnitude of the COVID-19 pandemic, including the extent of any impact on Caterpillar’s business, financial position, results of operations or liquidity, which could be material, cannot be reasonably estimated at this time due to the rapid development and fluidity of the situation. It will be determined by the duration of the pandemic, its geographic spread, business disruptions and the overall impact on the global economy.”

Following the factors mentioned above and the continued global economic uncertainty due to the COVID-19 pandemic, Cat said it was withdrawing its financial outlook for 2020, which previously estimated a profit per share outlook range of $8.50-$10.