"Companies are starting to generate enough cash flow to reduce liquidity risk and their need for debt financing. Many can now manage risk more effectively and can self-finance expansions and life extensions much more easily."
How did the pandemic impact the South African mining industry and SRK?
The Covid-19 lockdown brought economic activity to a halt for five weeks, with the exception of a few critical activities and essential services. This significantly impacted the prices for minerals and commodities as supply and demand changed rapidly and unpredictably. Activities that could be conducted remotely continued, and companies accelerated their adoption of digitization technologies. As the country moved to lower lockdown levels, operations were able to resume, but there was significant uncertainty about staffing levels, the production levels that mines would achieve, the prices that would be realized, and the nature of the recovery. Mines have done quite well in managing the pandemic, and we witnessed demand recovering strongly.
How did the demand for SRK’s services change, and what service is currently most in demand?
We have always had a significant demand for our services related to independent due diligence-related work and operational aspects like geotechnical consulting and tailings dam operation and design; in addition, we have recently seen an increase in demand for feasibility studies related to exploration, the development of new projects, and taking operations out of care and maintenance. Another change in the market is that companies are starting to generate enough cash flow to reduce liquidity risk and their need for debt financing. Many can now manage risk more effectively and can self-finance expansions and life extensions much more easily than a few years ago. This is leading to more demand for our services to support life-extension and expansion opportunities and also to an increase in transaction-related work.
What is SRK’s role in supporting decarbonization and sustainability trends?
There are exciting developments and advanced solutions contributing to more sustainable operations, especially regarding energy generation. It is, however, quite difficult to retrofit a suite of solutions to existing operations unless the operation has a long enough life-span, a clear replacement cycle and alternative equipment has been adequately tested. It will be difficult for the mining industry to meet certain sustainability targets as quickly as regulatory bodies would like. I believe that renewable energy solutions will be implemented promptly in most projects in South Africa moving forward, but the actual replacement of capital equipment with lower emissions will take longer.
The energy transition narrative in South Africa is particularly pertinent. Outside of South Africa, there are very few countries with such a large coal industry, who have to consider early closure of coal mines and closing power plants – especially with such long operational lives ahead of them. The reality is that most of Africa has too little power and, given how the economics of renewable power is changing, it is likely that most of the continent’s future power will come from renewables anyway. A transition where mines are being closed primarily in response to climate change pressures needs to be carefully managed to protect the affected communities and workforce.
South Africa already has a supply chain for renewables and related infrastructure, with experienced technicians to conduct installation and maintenance. With President Cyril Ramaphosa’s recent announcement allowing a 100 MW limit for self-generation, we see the move to renewable projects not as an alternative to coal but rather as a supplement.
What is SRK’s strategy to consolidate growth in the future?
Decarbonization is an important trend, and it is increasingly appreciated that this process will be heavily dependent on mining. We will need to see new mines being built to supply greater volumes of various minerals while keeping the environment and sustainability front in mind. With mining expansion we will see high demand for consulting services related, for instance, to the detailed design and management of tailings dams and water management systems. As mines operate in more challenging conditions and climates, our job is to help them navigate the uncertainties.