How the resources sector beat COVID-19

Well-oiled crisis response plans and a "safety first" culture helped Australia's risk-averse resources sector not only survive the pandemic but also thrive.

It sounds like a COVID-19 nightmare — people from different towns, states and countries flying into an isolated community to work, eat and relax in close proximity. Yet, at the time of writing, the Department of Industry, Science, Energy and Resources has had no reported cases of COVID-19 at any Australian mine site or facility.

“The resources industry has been through many emergencies of various kinds and, as a result, we were better prepared for this one than some other sectors,” says Peter Hay FAICD, independent non-executive chairman of Newcrest, one of the world’s largest gold mining companies.

“Historically, the resources industry has also made enormous efforts to inculcate a culture and mindset that looks out for people’s safety, and translates pretty easily into a very good crisis response. Our own management team did a spectacularly good job of making sure the bug didn’t get into the operating sites.”

The 130 members of the Chamber of Minerals and Energy of Western Australia (CMEWA) produce all Australia’s iron ore and lithium — and a significant proportion of the nation’s gold, oil and gas. CEO Paul Everingham suggests that lessons learned from past outbreaks of measles and influenza gave resources a significant jump-start on other industries when it came to managing the contagious disease. “As soon as it became clear that COVID-19 was highly infectious, our members came together to work on strategies for safe travel, operations, accommodation and medical treatment for the whole sector,” he says. “By the first National Cabinet on Coronavirus on March 15, we had drawn up a framework to show state and federal governments that we were able to keep our people safe and operations up and running.”

Everingham says that thanks largely to the support of Prime Minister Scott Morrison, WA Premier Mark McGowan and Queensland Premier Annastacia Palaszczuk, Australia’s mining, oil and gas facilities were allowed to remain open. “We worked with our members to implement a program based around testing before travel; safe travel; limited travel; safe access to mine and gas sites; setting up infectious disease zones on sites and facilities; proper sterilisation of mine sites; and closure of group facilities like food messes and gyms,” says Everingham. “That all had to be put in place quickly and everybody took it extremely seriously. We knew if we had even one outbreak on a site, it was likely the government would shut us down.”

The industry also stayed in close contact with government. “We had to ensure we had the appropriate permits and satisfy government we had appropriate safety processes in place,” says Hay.

In the resources industry, safety measures often need to extend beyond the camps and facilities. “It was imperative we kept the virus out of local communities,” continues Hay. “In Newcrest’s case, this includes potentially vulnerable Indigenous communities in Australia, Canada and Papua New Guinea. We also created a $20m community support fund to help pay for medical care, equipment and essential services where they were needed — and we’re working with our partners, host governments, communities and First Nations leaders to ensure the various programs are delivered effectively.”

Keren Paterson MAICD, founder, managing director and CEO of new potash exploration company Trigg Mining, ceased all fieldwork to remove any risk to local Indigenous communities. “We are committed to being respectful to the Ngaanyatjarra, the traditional owners of the country in which we operate and, after consultation, we decided to suspend all field-based exploration,” she says. “This was frightening because as an exploration company we have no revenue, and we weren’t eligible for JobKeeper.”

Paterson was forced to let go two new administrative staff. The board and contracted technical team all took pay cuts, and she put a budget together to stretch every dollar as far as she could. “We did everything possible to preserve the business so we could come out the other side — and we were very fortunate that, for us, the other side came very quickly,” she says. “We were back out there drilling in July and investment has been flowing into the sector.”

Lessons learned

Saracen is an all-Australian gold growth company with three mines close to Kalgoorlie. Managing director Raleigh Finlayson believes other industries might be interested to learn that collaboration was another critical factor in managing the pandemic. “When it comes to safety and people’s health, resources companies set an example by pulling together,” he says. “For example, we all worked with airports to minimise travel, reduce seating on flights and, where possible, relocate interstate workers to minimise the chance of getting COVID-19 on our sites. We’re at pains to help each other out, particularly at a time of crisis.”

Finlayson also foresees lasting changes in managing hygiene. “We saw cases of colds and flu fall away as hygiene practices improved,” he says. “The number of sick days taken during that period was an all-time low.”

Some companies have learned from problems in the supply chain. “We’re seeing many members switch to employing local people and sourcing supplies of goods and services locally wherever they can,” says Everingham.

It also became clear that companies may be able to cut costs and save time by reducing business travel and that remote working (for those jobs that can be done remotely in the resources sector) doesn’t automatically bring a drop in productivity. “In the face of COVID-19, remote working happened rapidly and en masse,” says Joanne Best who, as executive manager engineering and customer support at Hastings Deering, a mining equipment supplier, led the COVID-19 response across Queensland, Northern Territory, Papua New Guinea, the Solomon Islands and New Caledonia. “Suddenly, previous blockages, excuses or difficulties were fixed or dropped — and a lot of productivity myths busted.”

Governing in turbulent times

The Newcrest board has always included “pandemic” in its risk management strategy, but the severity of COVID-19 took even Hay by surprise. “The first reports from China suggested it would be possible to put the genie back in the bottle but, obviously, it didn’t turn out that way,” he says.

As pandemic remains centre stage, boards must also manage ongoing challenges such as climate change, shifting stakeholder expectations and geopolitical issues. “The world is a volatile place and it’s up to us as directors to keep an eye on the horizon at all times,” says Paterson. “We need to respond intelligently rather than reactively — and be willing to meet more often to ensure we stay on the front foot.”

Like many other board members, Hay has had to deal with multiple issues across a range of companies very quickly. He believes the experience of governing through the pandemic will reinforce the need for rapid response in a crisis, including modifications to the governance model so decisions can be made outside the formal channels.

“COVID-19 has tested companies’ ability to make quick assessments and decisions about, for example, the safety, health and welfare of staff, and about the cashflow outlook and any measures required to maintain solvency,” he says. “That nimbleness of crisis decision-making might lead to permanent streamlining of governance practices. For some businesses such as tourism, for example, it made no sense to consider following a pre-existing business plan or even constructing construct a coherent annual budget. It will never be possible to predict the precise timing of external shocks such as COVID-19, but we can foresee there will be other external shocks. Boards and managers need to include that risk in their planning scenarios and prepare companies to be resilient when major risk events occur.”

For Hay, good governance includes building resilience into every facet of the organisation. “There’s a good case for mining and processing ore efficiently,” he says. “When you’re on the lower edge of the cost curve, you have a better chance of surviving than someone whose costs are higher, But the resources industry is notoriously cyclical, so you really can’t be a resources company unless you know how to deal with the next slowdown.”

Cautious optimism

Earnings from resources and energy exports are expected to fall to $256b in 2020–21 and $252b in 2021–22 as a result of generally lower prices. However, the latest Resources and Energy Quarterly reports that, as emerging economies such as India focus more on services and IT, as well as taking different approach to energy and transport systems from China, there could be a significant increase in the market for commodities such as copper, lithium, nickel, LNG and aluminium. As longer-term opportunities continue to open up in Asia, Africa and South America, Australia’s prospects remain strong.

Paterson shares that optimism. “As governments around the world focus on recovery, there’ll be an increasing investment in infrastructure and a demand for commodities we wouldn’t otherwise have seen,” she says.

Australia has escaped relatively lightly compared with the rest of the world, but as Hay, also chair of Australia Pacific Airports Corporation, points out, our economy doesn’t exist in a bubble. “The economy looks set to start rolling again and the resources sector is well placed to lead the recovery, but it will take longer for aviation to recover.”

China syndrome - rising risk to exports

Australia’s resources and energy market comparison in 2019–20.

China is a massive consumer of Australian resources and energy. In 2019–20, the Chinese market was worth $127 billion compared with $87b for Japan, South Korea, Taiwan and India combined. Now, as COVID-19 continues, miners must also navigate Australia’s deteriorating bilateral relationship with Beijing.

Newcrest chairman Peter Hay FAICD is unconvinced the sector is ready for the mounting threat. “We don’t expect our trading partners to go into bad-behaviour mode so it’s hard to know how to deal with it. We’ve had a rolling boycott and nobody knows who will be next.”

It would cost China a great deal more to import resources from the likes of South America, but Australian suppliers could still be supplanted. “It’s obvious that diversifying markets is a priority for any business that has China as a major customer,” says Hay.

Like many Australians, CMEWA CEO Paul Everingham would like to see a return to the strong cooperative relationship of recent times, although not to the detriment of other trade relationships. “The US has been our strongest ally for 70 years and will remain so into the future, but the two relationships aren’t mutually exclusive,” he says. “My sense is that the incoming American president and his administration will be less inclined to use megaphone diplomacy and, given well-established Chinese cultural sensitivity, that quiet, honest diplomacy will serve us all much better.”

Clearly, there’s still a chance the economy could suffer from boycotts, although Hay is less pessimistic than you might think.

“The Australian economy has been incredibly resilient over the past 50 years,” he says. “I’ve no reason to suspect this won’t continue.”