Abstract

The world is currently experiencing a rapid and deep economic slowdown as a result of COVID-19 mitigation efforts. The depth and global nature of this recession, which could turn into a depression, suggests that this pandemic will significantly affect the demand for metals and the global mining sector. The majority of governments consider mining to be essential, meaning that the effect of mitigation on the mining industry and on metal production has been minimal to date. However, increases in metal stocks and decreases in metal prices suggest that the mining industry will be negatively affected by the COVID-19 crisis, at least in the short term.

This paper presents an overview of the effects of COVID-19 mitigation on the mining sector to date. That includes variations in metal and commodity prices and stocks during the crisis and the outlining of two possible scenarios for COVID-19 related impacts. The first involves persistent supply-chain disruptions, where metal supply is restricted by logistical or COVID-19–related mitigation impacts on intermediates such as smelters and refiners. This restriction of supply could cause higher metal prices but also could cause issues with demand for ores and concentrates that negatively affect individual mining operations. More likely is a second slower demand growth scenario in which a global decrease in demand for metals causes further lowering of metal prices with associated negative economic impacts on mining operations. However, further research into global metal supply chains and the impact of the COVID-19 crisis on individual metals is needed. Key remaining unknowns include the influence of mitigation efforts on global metal supply and demand, the effect of these efforts on metal prices, and the geography of supply chains.

Introduction

The rapidly evolving and global COVID-19 crisis has impacted all aspects of human life, including metal and mineral production and the industries that the mining sector supplies. This has led to a slowdown in the global economy as a result of efforts to reduce the spread of COVID-19. However, the effect of the crisis on the mining industry remains unclear, partly because of the different approaches to mitigation adopted by various governments. Most countries consider mining essential (albeit with a couple of major exceptions in South Africa and Mexico) although mitigation approaches have also varied over time as COVID-19 outbreaks are managed. These variations are a function of the swift development of the crisis, the relative importance of mining to different regions of the world, and economic and political pressures acting on governments at all levels. The often essential nature of mining means that the direct impact on the global mining sector may not be as significant as the impact on other economic sectors, such as transportation and leisure travel, which have been greatly curtailed. However, the fact that mining operations have remained open during the COVID-19 crisis is not the end of the story. The economic impact of COVID-19 may be sharp and deep but a return to economic normality may not be equally as rapid (i.e., is not likely to be V-shaped). A slow return to economic normality is even more likely given the current lack of vaccine or effective treatment for COVID-19 and the need to prolong mitigating measures.

The continuing supply of metals provided by a continuation of mining also contrasts with an apparent decrease in global metal demand as a result of the COVID-19 crisis. This potential oversupply suggests we may enter a period of relatively low metal prices until either demand recovers or some mines close as a result of the prevailing economic conditions. This paper discusses the data underlying these scenarios and highlights the variables involved in the current situation. It also outlines the impact of this crisis on mining to date and areas for future research to more fully determine the likely effects of COVID-19 on the global mining sector as well as possible mitigation approaches.

Mining continues in most countries; challenges are not governmental; they are logistical and related to the outbreak itself and economics

Most governments have allowed mining to continue during the COVID-19 pandemic, if not as per normal then with somewhat limited restrictions relating to COVID-19 mitigation (Table 1), despite the suspension by some companies of individual operations for their own economic or other reasons. The continuation of mining is not directly related to the dependency of the economy of a given country on mining or the value of mining to a country (i.e., gross domestic product, GDP), as is shown in Table 1.

There are some notable exceptions to the continuation of mining where the crisis has resulted in the temporary closure of individual mines, the cessation of mining in certain regions, or in rare cases the closure of the entire mining industry of a country. This most likely reflects the nature of mining in the countries that enacted these measures, as COVID-19 mitigation approaches are naturally much harder to enact in underground labor-intensive mining situations relative to large and more mechanized or automated open-pit environments. A complete shutdown occurred in Mexico, where the mining industry was forced to cease operations on March 31, 2020, but was allowed to reopen on May 18, 2020. The South African government also initially approached their underground-dominated and often labor-intensive mining industry the same way, closing operations in March 2020 (Ramaphosa, 2020) but later changing this to only reduce mining capacity by 50%.

This is not to say that mining activities that are currently continuing couldn’t be suspended if a second wave of COVID-19 infection (e.g., Anderson et al., 2020) eventuates or if outbreaks develop at individual mine sites. The remote nature of (most) mine sites may be advantageous in terms of keeping operations running as this physical distance from the general population may act to prevent COVID-19 outbreaks. Mining operations that have gone through recent epidemics are also particularly well equipped to continue operating during this crisis. This is exemplified by West Africa, where knowledge of screening and isolation practices developed during the Ebola epidemic means that individual mine sites and other businesses in this part of the world are better equipped to continue operations during the COVID-19 pandemic (Ihekweazu, 2020).

Mining companies are also making decisions based on their own situations, including local COVID-19 outbreaks at individual operations, logistical challenges, and changes in metal prices and demand (both positive and negative). This undoubtedly has the potential to create clashes between mining companies, intermediates, and governments if legislation is enacted that suspends operations against the will of the operator. Other clashes may occur if countries with high mining contribution index (MCI) values, an indication of the mining dependency of a country’s economy, want production to continue and individual companies do not—as a result of low metal prices or other factors. One example of this is Zambia, where the government appeared to be encouraging mining operations to remain open even where operators were considering shutting down for economic reasons (e.g., the Mopani Copper Mines; Biesheuvel et al., 2020). It is also important to note that the dependency of a country on mining does not just incorporate the contribution of mining to that country’s GDP. For example, the MCI values shown in Table 1 are a composite of four indicators that capture different aspects of the contribution of mining to a country’s economy. These are the value of mineral and metal exports and how they have varied over time, indicating whether the importance is increasing or decreasing (International Council on Mining & Metals, 2018) of mining as an economic activity to a given country. The MCI values shown in Table 1 also incorporate mineral production and mineral rents as a percentage of GDP, providing a sense of the value of mining to an economy for the former and the contribution of mining-related taxes and profits to the economy of a country for the latter (International Council on Mining & Metals, 2018). The incorporation of these variables gives a more accurate overview of the true contribution of mining to an economy, rather than just comparing the value of mineral production to the overall GDP of a country; this also explains the contrasting high MCI but low contribution to GDP values for some of the countries listed in Table 1.

The closure of mining operations could also have additional negative effects beyond the global economic slowdown in countries with economies that are heavily reliant on mining for the reasons discussed immediately above (Table 1). Even if mining operations can remain open, COVID-19 containment measures such as enforcing physical distancing and reducing numbers of personnel gathered in one place might reduce metal production capacity. International and domestic travel restrictions may also impact the ability of mines to continue to operate, given the significant numbers of mine site employees that work on a fly-in, fly-out (FIFO) basis in some countries (e.g., Australia). These potential personnel shortages could mean that some mines may not be able to sustain operations in the short term, especially given the lead-in time needed to move a mining operation from production to care and maintenance. This lead-in time is essential to allow mines to efficiently reopen and to prevent environmental issues arising during the cessation of mining activity. Mines in countries such as the United States, Canada, Australia, and elsewhere that employ significant numbers of indigenous employees may also be forced to reduce operations or close, given the risk of these workers passing infections on to often remote communities with limited medical infrastructure. These mitigation measures have led individual mines such as Red Dog in Alaska to institute their own travel restrictions to prevent the spread of COVID-19 (DeMarban, 2020). The pandemic may also drive companies more rapidly towards automation of mining operations, a trend that is already well established. However, the prevailing lack of certainty on the duration of the crisis and the fact it may be difficult to accelerate beyond current uptake in the short timescales typically associated with modern epidemics and pandemics means it remains unclear whether increased automation is a viable approach to mitigation against COVID-19. All of this suggests that although mining operations may be allowed to continue, a wide variety of other (non-economic) factors could mean mines operate at lower capacity or have to transition to care and maintenance.

The crisis is also posing logistical challenges relating to the transport of supplies and the products of mining such as metal concentrates. It is unclear whether there has been any major impact or interruption on the supplying of mining operations with key materials such as fuel, explosives, or even the personal protective equipment needed to operate. However, the shipping of ores and concentrates from mines has certainly been affected. For instance, cobalt and copper concentrates produced within the Democratic Republic of the Congo (DRC), a country with only limited closures of mining operations, are generally shipped to China for further processing via the South African port of Durban (e.g., Luk, 2020). However, the widespread closures and transport restrictions in South Africa are causing most shipments to be diverted to Mozambique or Tanzania, resulting in a decrease in concentrate exports as a result of customs delays. These logistical challenges are present despite the South African Maritime Safety Authority’s stating that all cargoes can be loaded and unloaded at South African ports. This directly contrasts with information from another government agency, the Transnet National Ports Authority, which maintained that metal exports from Durban were banned at the time of the statement by the South African Maritime Safety Authority indicating ports were open, creating a clearly confusing situation (Luk, 2020). These conflicting statements and positions are typical of the challenges and unknowns affecting all industries, not just mining.

In addition, smelters and refiners that process ores and concentrates from mining operations face both possible COVID-19 mitigation-related restrictions as well as potential decreases in the demand for their own products. All of these uncertainties relating to the transport of ores and concentrates and the operation of smelters and refiners mean that although mining is likely to be able to continue, the possibility remains of a reduction in demand as a result of logistical disruptions to producers or the closure or lowering of production at smelters and refiners.

In summary, the major challenges facing the mining industry are not from governments closing operations to mitigate the spread of COVID-19. Instead, the logistical challenges of supplying operations with the essential workforce and transporting products such as concentrates represent more significant difficulties on the production side of mining. This in turn suggests that metal supply may not be significantly affected by the direct impact of COVID-19 mitigation or outbreaks although, as discussed above, indirect impacts are certainly possible. Instead, it is more likely that the demand for metals and minerals and the economics of mining operations may be negatively affected by this crisis, as discussed in the following section.

Changes in metal demand and price; metal stocks higher, metal prices lower with the exception of gold

Global production and manufacturing have declined as a result of economic slowdowns caused by efforts to prevent the spread of COVID-19. This led the United Nations to predict that this slowdown would result in global GDP dropping by at least 1% (UNDESA, 2020) and the International Monetary Fund to predict a change in global economic growth of –4.9% during 2020 (International Monetary Fund, 2020). These impacts are further demonstrated by a decrease in U.S. industrial production (indexed where 2012 = 100) from 109.1 in January 2020 to 92.6 in April 2020, a contraction of ~15% (Board of Governors of the Federal Reserve System, 2020). This decrease was coincident with an increase in U.S. unemployment from 3.6% in January 2020 to 14.7% in April 2020 (U.S. Bureau of Labor Statistics, 2020). Although some of these statistics are U.S. specific, similar impacts are occurring around the world. This global economic slowdown and the resulting decrease in production of manufactured goods will undoubtedly have a negative impact on the demand for metals. This decrease in demand has the potential to create an oversupply in metals given the continuation of production, which in turn will drive metal prices down.

The recent price history for metals and oil confirms this. Figure 1 shows prices for a number of metals and Brent Crude oil between January 2 and May 18, 2020. The majority of metal prices started to decrease around March 10, 2020, to between 10 and 20% of early January 2020 prices, whereas oil prices started to decline before this (but not as a result of the COVID-19 crisis, as discussed below). Metal prices then rallied around March 23, 2020, coincident with the onset of possible production restrictions related to the temporary closure of the South African mining industry (Ramaphosa, 2020). This rally was also influenced by the increasing likelihood of demand stimulated by the signing of the Coronavirus Aid, Relief, and Economic Security (CARES) Act by the U.S. federal government. Most metal prices shown in Figure 1 have generally similar trends and positively correlate with each other (Table 2), independent of whether they are base (e.g., Cu, Ni; Fig. 1B) or minor or bulk (e.g., Co, Sn, Al; Fig. 1C) commodities. These data suggest that the majority of metal prices (barring the precious metals Au and Pd; Fig. 1A) have been uniformly affected by this crisis with changes reflecting the global economic slowdown rather than any specific changes on a commodity-by-commodity basis. The uniformity of the response of the metal market to COVID-19 is reflected by the temporal consistency (Fig. 1) and positive correlation (Table 2) of metal price changes.

The change in metal prices as a result of decreased demand without a change in supply is consistent with metal stock data (i.e., metals available for sale) for copper, nickel, and zinc (Fig. 2). The stocks of all three of these base metals have steadily increased since January 2020. This trend probably reflects a decrease in demand for these metals without a significant decrease in supply. This was the case for copper concentrates during the January-February 2020 COVID-19 slowdown in China (Davy, 2020), although this decrease in demand was earlier than the major decrease in copper (and other metal) prices in March 2020 (Fig. 1). This suggests that although the effects of mitigation in China influenced metal stocks during very early 2020, the slump in most metal prices evident in Figure 1 was more related to later decreases in demand for these commodities caused by COVID-19 mitigation in Europe and North America (Fig. 2).

Not all metals have been negatively affected by the COVID-19 crisis. Gold and palladium are the only metals in Figure 1 with prices in April and May 2020 above their respective prices on January 2, 2020. Increases in gold and palladium price (Fig. 1) may reflect two factors that potentially overprint or enhance the existing pre-COVID-19 trend of increasing prices for these metals. These are (1) the temporary shutdown of mining in South Africa, an important producer of both metals, and (2) increased demand for these precious metals as safe investment havens. The fact that platinum has not had a price increase similar to that of palladium may reflect a lack of confidence in future demand that primarily relates to a decrease in the use of platinum in catalytic converters (e.g., Mudd et al., 2018). The generally negative correlation between gold prices and the majority of the other commodities shown in Figure 1 and Table 2 also suggests that gold is once again being considered a safe haven during economically turbulent times.

Oil prices have also declined more significantly than metal prices during the COVID-19 crisis, reflecting two factors. The first of these is a decline in demand resulting from COVID-19–related economic slowdowns (i.e., the same as metal prices). The second is that oil prices have also been negatively affected by a decision taken by Saudi Arabia and Russia to not cut back on oil production, thus creating excess supply. Similar controversies may develop with metals if stocks continue to accumulate (e.g., Fig. 2) as a result of production continuing to be unaffected by COVID-19, leading to a corresponding decrease in prices. This may create clashes between countries with economies that are heavily dependent on the production of the same metal and which therefore will want mining of this metal to continue despite potentially low prices (e.g. the DRC, Zambia, and Chile in the case of copper).

Future impacts on metal mining are uncertain

It is difficult to quantify the long-term negative impacts on the metal mining industry as a result of COVID-19 because the future path of the pandemic and the resulting global recession remain unknown. It is inappropriate to make long-term predictions based on historical events such as the Great Depression or the 2008 Global Financial Crisis (GFC) because these events were caused by economic issues rather than pandemic-related events. Perhaps a better analogy is to compare the COVID-19 pandemic to a world war. For example, both wars and pandemics result in the global removal of the human workforce from “daily duties” and a corresponding reduction in the ability of the general populace to spend on non-essential goods. These impacts, combined with the fact that a rapid V-shaped economic recovery without a vaccine or treatment is unlikely, will mean that COVID-19 is very likely to have a continuing and severe influence on the global economy for some time, as was the case for both world wars. One possible but smaller analogue is the 2014–2015 Ebola epidemic in West Africa, when the negative economic impact of this event far outlasted the epidemiological impact of the outbreak (World Bank, 2016). The same may well apply to COVID-19.

However, it is also possible that COVID-19 may have some positive longer-term effects on the mining industry. If the COVID-19 crisis is analogous to global conflicts such as World War II, then longer-term outcomes may be similar, with World War II followed by three decades of above-average GDP growth and increased metal demand associated with reconstruction in Europe and Japan. A similar situation is possible in which COVID-19 postpones investment spending for several years but is followed by a surge in investment spending on infrastructure, capital and transportation equipment, and consumer durables, all of which would cause higher metal demand and associated increases in metal prices. Ongoing efforts to stimulate domestic manufacturing in countries like the United States and Europe as a result of supply security issues may also contribute to increasing domestic mining in these areas. However, any longer-term positive effect of COVID-19 on the mining industry needs to be considered in light of possible shorter-term negative impacts that may mean that some parts of the industry do not survive long enough to reap any possible longer-term benefits.

One thing that is clear is that it is likely that this pandemic will not be resolved quickly. Modeling (e.g., Anderson et al., 2020) of the epidemiology of this crisis suggests that slow reopening and removal of restrictions will be needed to ensure second waves of outbreaks are either prevented or mitigated (e.g., Lipsitch et al., 2020). The impact of this slow reopening is apparent; whether this causes further economic losses or can be managed in a way to ensure that economies recover as soon as possible is key. Equally, later outbreaks and potential peaks need to be managed effectively and quickly to prevent a resurgence of the major economic slowdown seen from March 2020 onward. Evidence from China suggests that even if quarantine-style regulations are imposed on the general population, smelting, refining, and manufacturing operations can still reopen (if closed) relatively rapidly (e.g., Daly, 2020). Different parts of the world are also likely to be affected in different ways (e.g., Chaudhry, 2020). This reflects variations in government financial support packages, different COVID-19 caseloads, and variations in the ability of healthcare systems to cope, and differences in approaches to mitigating the spread of COVID-19 and their relative efficacy (Table 1). All of this means that the long-term economic picture is just as complex as the public health picture.

The longer-term effect of the COVID-19 crisis on demands for different individual metals is also unclear. This uncertainty reflects the fact that these metals and their associated end uses will be affected in variable ways by the closure and the contraction or expansion of various parts of the economy. For example, the demand for certain medical equipment such as ventilators is likely to significantly increase (e.g., Wells et al., 2020). However, it is unclear how this and other increases in demand might affect different metals and how long the situation will last. Equally, the contraction of the travel industry may cause a decrease in demand for metals such as aluminum, molybdenum, and rhenium, all of which are used in jet engines.

Understanding the impact of COVID-19 on the metal mining sector and the wider economy requires a comprehensive analysis of three main things. These are (1) how metals are currently used and (2) what sectors and end-products are likely to increase or decrease in size and production as a result of COVID-19. It is also important to understand (3) the interplay between different parts of the metal mining sector and consequent feedback. Point (3) is especially true given that some metals are predominantly or entirely by- or coproducts of other metals (e.g., Nasser et al., 2015; Jowitt et al., 2018). All these linkages and their feedback make the current picture very complex, although at least two short- to medium-term scenarios can be envisaged, as outlined immediately below.

Supply-chain disruptions or slow demand growth; resolving the uncertainties

It is likely that one of two potential scenarios might play out over the next few years: either a persistent supply-chain disruption or a slower demand growth. The persistent supply-chain disruption scenario reflects a situation in which mining is similar to farming and is not significantly impacted by COVID-19. Rather, intermediate industries like smelters or refiners in the mining sector—or meat-processing plants in the farming sector—are impacted either as a direct result of COVID-19 mitigation or as a result of indirect challenges to transport and logistics (as described for the DRC, above). This would create bottlenecks in which demand for metals cannot be met, potentially leading to an increase in metal prices. In comparison, the slower demand growth scenario is somewhat akin to that currently facing the retail industry, where production can continue and stock is on hand but demand has fallen sharply as a result of both a lack of consumer access and limits in consumer spending. This drop in demand would most likely lead to a decrease in metal prices.

To avoid the persistent supply-chain disruptions scenario, the temporary suspension of mining operations should ideally be contemporaneous with the closure of smelters and processing facilities and other downstream users of metals. This would generate a rolling blackout-type scenario where a balance of supply and demand is maintained. This possible scenario warrants further investigation to determine the likelihood of decreasing supply matching decreasing demand as the pandemic progresses.

Recent metal price decreases and metal stock increases (Figs. 1, 2) associated with the COVID-19 crisis are indicative of a lowering of demand by end-users. These changes suggest that the mining industry may be facing the second slower demand growth scenario. Applying this scenario to the mining sector means that mines as well as intermediates like smelters and refiners would generally remain open at previous or slightly lowered capacity than before COVID-19. However, demand in this scenario drops as a result of the ongoing economic slowdown. That would lead to a reduction in metal prices (e.g., Fig. 1) and a significantly negative impact on the metal mining industry. Decreasing demand could also lead to an excess of supply, especially if governments put pressure on mining operations to remain open despite poor economics and challenging COVID-19 issues. This would compound the issue of decreasing demand and would increase the negative economic impact on the mining industry. Metal prices would then decrease, causing some mines to become uneconomic, with shutting down or moving onto care and maintenance as a result, decreasing supply to maintain parity with decreased demand. Such actions would put significant stress on at least high MCI countries (Table 1), potentially leading to economic assistance from governments to ensure mines remain open, legislation to try to force mines to stay open despite challenging economics, or even to nationalization in the most extreme cases.

Predicting the impact of the COVID-19 crisis on the mining sector and the balance between metal demand and supply requires further research. Firstly, it is clear that not all metals and parts of the mining industry will be affected in the same way by the COVID-19 crisis. For example, will certain metals like copper or gold see pre-COVID-19 or higher demand as a result of uses on antiviral surfaces or as safe investments? Will other metals—such as aluminum, molybdenum, and rhenium that are used in the airline industry—see a greater decrease in demand as a result of the decrease in air travel? This is especially true given this sector was already affected by issues surrounding the Boeing 737-Max (e.g., Frasch, 2019). Will governments enact policies such as vehicle buy-backs that would stimulate parts of the economy but would also potentially increase the amount of metal recycling, reducing primary demand? Understanding the relationships between main, co-, and by-products will also be crucial as poor economics for a given metal may well lead to a reduction in production and shortages in other linked metals such as the critical elements (e.g., Nasser et al., 2015; Jowitt et al., 2018).

Conclusions

The rapidity and depth of the COVID-19-related economic slowdown is unprecedented. Although mines are being considered essential and are generally staying open during the crisis, production is likely to be less than prior to the onset of the COVID-19 pandemic. Mines also face logistical challenges such as the transportation of concentrates to smelters. Metal prices, barring gold and palladium, have also generally decreased during the crisis independent of whether they are base, bulk, or minor metals. Stocks of metals have also generally increased, suggesting a global decrease in demand for most metals. However, not all metal prices have been negatively affected by the COVID-19, with increases in the price of gold and palladium to levels above that of January 2020 and the subsequent onset of the pandemic. The question then is which of two scenarios the mining industry will face. Will we see a supply chain disruption, where an inability to meet demand is not the result of mine closures; rather, it results from supply bottlenecks and/or the closure of intermediates such as smelters and refineries? Or are we likely to see a slower demand growth scenario in which mines and intermediates remain open and operating at near capacity but are affected by a continued decrease in demand, creating excess supply and lowering metal prices with associated negative economic impacts on mining operations. Currently available data suggest we are facing the second scenario and that mining companies and governments will need to plan for these impacts so as to recover from the crisis as rapidly as possible.

Acknowledgments

This paper has been written as the COVID-19 crisis is unfolding and the situation continues to change rapidly. I thank Brian McNulty and Cassady Harraden for reviewing a pre-resubmission version of this manuscript and Larry Meinert for excellent and patient editorial handling. Numerous constructive comments on previous versions of this manuscript by Steve Kesler and Rod Eggert significantly improved this paper although any omissions or errors present are certainly the fault of the author rather than the reviewers.

Simon Jowitt is an economic geologist who is currently an assistant professor at the University of Nevada Las Vegas. His research interests are broad but are focused on ore deposit formation, critical metal resources and the security of supply of the critical elements, the use of geochemistry to unravel geological processes within mineralizing systems, igneous petrology, mineral exploration, global tectonics, and the links between magmatism and metallogeny. He has extensive expertise in mineral economics, metal criticality, and the “economic” side of economic geology and was awarded the Society of Economic Geologists Lindgren Award in 2014.