Covid-19 could deal a ‘sucker punch’ to South Africa’s mines, economy

15 April 2020 by Simone Liedtke

With the Covid-19 lockdown in full effect until the end of April, South Africa’s mines have scaled down operations on a massive scale.

Law firm Webber Wentzel in a podcast shared on April 15 said Covid-19 “could represent the sucker punch for mines and the economy”.

Exacerbating the situation is the fact that South Africa is heavily reliant on foreign earnings from mineral exports, and that a scale down in operation could potentially spell a scale down of employees – something that South Africa can ill-afford with its unemployment rate sitting at 38%, at the expanded definition, which includes those who have given up on finding jobs.

The country’s official unemployment rate is at about 29%.

Economists are already predicting that South Africa could shed a further one-million jobs this year.

While Mineral Resources and Energy Minister Gwede Mantashe noted that mining operations would be “significantly downscaled” during the national lockdown period, he confirmed that the production of gold, manganese and chrome could continue, as would the processing of surface operations for platinum-group metals (PGMs).

Webber Wentzel partner Rita Spalding said Mantashe had stated that essential services which support the mining sector – such as security-related infrastructure, maintenance, water pumping, ventilation and the like – must continue.

Additionally, essential services – such as the provision of water – being rendered to communities that surround a mine must also continue during the lockdown.

Taking the Covid-19 regulations and related lockdown measures into account, Spalding encouraged mining companies to “carefully assess” their supply chain and communicate timeously with their individual suppliers to ensure that they would be able to obtain the necessary documentation and products which they required in order to continue producing essential goods, or to conduct their operations.

Post-lockdown, however, Spalding indicated that she believed it to “be government’s job” to facilitate a path back to business as usual.

“I don’t think we necessarily require a new regulation to get there, but perhaps a more lenient approach or enforcement of the current regulations is what’s required,” she commented.

In addition to this, she suggested that government may need to consider some novel ideas such as some leeway on procurement targets, or a relaxation on requirements in exchange for the retention of employees.

Government will also need to provide fiscal support to marginal operations and continue driving downstream beneficiation for job creation, she added.

However, Spalding said that regardless of what initiatives are implemented, she believes that the Department of Mineral Resources and Energy (DMRE) “needs to continue applying its mind to each and every mining company’s situation on a case-by-case basis”.

It is anticipated that post-lockdown, certain mining companies may not be able to restart their operations, or if they do, may do so at reduced levels. This will ultimately result in numerous applications being submitted to the department along the lines of amendments to mining work programmes, or even amendments to current social and labour plans in order to cater for the company’s new position.

“We foresee that there may be a flurry of applications for Ministerial consent in terms of Section 11 for the transfer of controlling interests in mining companies, or for the transfer of mining rights pursuant to various restructurings and business rescue proceedings,” Spalding commented, highlighting that “all of these applications should be prioritised and fast-tracked to ensure that mining operations can continue as far as possible”.

Further, another key concern for mining companies post-Covid-19 could be that of labour relations.

To this extent, Webber Wentzel partner Lizle Louw indicated that the principle of “no work, no pay” will still be applicable as mining industry employers are not legally obligated to pay their employees during a government shutdown.

Apart from a force majeure, she explained that this was applicable in the case of a government shutdown owing to “a supervening impossibility of performance”, where neither the employer nor the employee took the decision to close down.

However, despite mining industry employers not being obligated to pay their employees during this period, Louw noted that many mining companies, if not most, have undertaken to pay their employees in full for the lockdown period.

Whether this approach will still be practical and affordable, should the lockdown continue, “remains to be seen”.

Source: Creamer Media’s Mining Weekly at https://www.miningweekly.com/article/covid-19-could-deal-a-sucker-punch-to-south-africas-mines-economy-2020-04-15/rep_id:3650