Precious Metals

Gold Investing

How will operations change for miners after COVID-19? Daniel Litvin of Critical Resources recently outlined five potential macro changes to consider.

Countries have been putting all their efforts into flattening the COVID-19 curve, but companies should also look at how to respond to, manage and recover from the outbreak.

“Early and strong action will pay dividends,” Daniel Litvin of advisory firm Critical Resource said at the World Gold Forum, held online last week.

Looking at major shifts in the big picture context, Litvin mentioned three key catalysts to consider: health policies and responses; economic impacts and bailouts; and political and social fallout.

As a result of these macro changes, there are five trends Litvin expects to see in the way miners operate around the world in the near future. Read on to learn what they are.

1. Deeper geopolitical uncertainty

Litvin hypothesizes that in the next two years the world will enter a period of deeper uncertainty.

“Pre-crisis the world had been retreating from the idea of globalization … world leaders had shown themselves to be less collaborative at an international level than they had in previous years,” he explained in his presentation. “Unfortunately, we believe that the COVID-19 crisis will accentuate this trend of division … particularly if the economic crisis deepens in different countries, the populist movements may gain even more traction.”

If this forecast comes true, it might not be good for the world, but it will probably be good for the gold price, according to Litvin, due to the metal’s safe haven nature.

2. Resurgence of resource nationalism

The expert is also expecting to see a resurgence of resource nationalism in the coming years, where host governments “play tougher, but also sing sweeter” to companies.

“We believe the COVID-19 crisis will accelerate that trend because governments will be even more strapped for cash as a result of the significant bailouts they are having to put in place — they will be looking for sectors to tax … the gold sector, which is doing well as a result of the increase in price, will be an obvious sector for the governments to balance their books again.”

At the same time, Litvin said governments are expected to be keener to attract new investment in mining and the resource sector more generally.

“Once investments are made, the power is … in the hands of governments; before investments are made, the power is in the hands of companies,” he said.

3. Radical new deals with communities

At a local level, Litvin said that one of the changes the industry might see in the next couple of years is radical new deals with employees and communities.

“The COVID-19 crisis will make even more clear the commercial negative consequences from failing to protect employees and communities,” he said. “Companies will feel the expectation and the need to be at the forefront of rolling out vaccines and treatments to their employees and local communities … due to the risks for the region as a whole if there’s a weak link in any of those levels.”

He added that the boundaries of companies’ responsibilities will be extended even more into the lives of their employees, their families and into communities.

Even though mechanization might be the first thought for companies, remote and poor communities will look on mechanization with suspicion and may feel that companies are not bringing enough local economic benefits, he said.

4. Sophisticated in-country management

In the wake of the COVID-19 crisis, sophisticated in-country management will be even more critical to success, with demands on in-country management to become even greater.

“For as long as travel restrictions and a reluctance of management to travel internationally to protect their health remain, there is going to be less ability for executives at a headquarter level to ensure strong oversight of what is going on on the ground,” Livin said.

Technology could solve this to some degree, “but there is going to be even more pressure for the local management to get it right,” he added.

For Litvin, the world is growing into more regional blocks and rivalry, and that’s why asset managers and local managers are also going to be expected to manage the new regional geopolitical situations that may surge after the outbreak.

Another issue that will emerge after COVID-19 is the ability of supply chains to cope with future crises.

“That probably means less of a reliance on the global procurement function and to decide on the particular supplier of a particular input from a global roster of suppliers; rather, (it) will encourage the development of more local, national and regional supply chains, which are best placed in the hands of local management.”

5. ESG pressure to emerge again

Finally, Litvin expects a resurgence of environmental, social and governance (ESG) pressure alongside demands for corporate resilience.

In the pre-COVID-19 world, ESG was already gaining momentum among investors, with growing demands for companies to become much more proactive on climate change in particular.

“We believe the COVID-19 crisis has already brought home in populations in many countries that crises from the natural world, whether that’s pandemics or climate change, are very real, and it is likely to accelerate government moves to tackle them,” he said.

In the next couple of years, Litvin believes company resilience will not only mean good balance sheets, but will also involve supply chains, the ability to operate in future crises and have plans to mitigate the whole range of ESG topics.

“The companies that can demonstrate that resilience and that focus on ESG, broadly defined, will be better positioned than others in the post-COVID-19 world,” he said.

Don’t forget to follow us @INN_Resource for real-time updates!

Securities Disclosure: I, Priscila Barrera, hold no direct investment interest in any company mentioned in this article.



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