Article:

Diggers & Dealers 2020 - Insights from the Mining Services Sector

04 December 2020

Justin Boyce Cam , Partner, Corporate Finance |

The annual Diggers & Dealers Mining Forum went ahead in Kalgoorlie this year despite the coronavirus and subsequent travel restrictions. The absence of our Eastern state peers was felt, however, the forum provided a great opportunity to strengthen relationships with our West Australian colleagues and gain valuable insights into the mining and mining services sector. Positivity at the conference was high and it was clear the industry is looking strong heading into the New Year. 

As with previous years, BDO held a post-Diggers roundtable luncheon to discuss emerging trends and share insights gained from the mining week. In this article, we have summarised key themes of the discussion including the economic outlook, impacts of the coronavirus and expectations for 2021.

Economic outlook

The mining industry is experiencing a surge in activity attributed to iron ore producers, gold and battery minerals. Iron ore sales have reached record levels due to price peaks and increased output with most of the product destined for China. Gold prices have also been pushed higher due to the coronavirus pandemic, with exploration activity increasing by 142% since the March 2020 quarter, as reported by the BDO Explorer Quarterly Cash Update.

A bright future is also expected in the non-lithium battery market - particularly nickel - with the demand for batteries and electric vehicles predicted to rise significantly over the next decade. Tesla founder, Elon Musk, recently urged nickel miners to mine more of the metal ahead of a substantial increase in demand in the coming years. This is good news for West Australian (WA) nickel miners as the state is one of the largest producers of the metal in the world.

Rapid growth in the sector, coupled with WA expats returning to the state to escape strict COVID-19 restrictions, has led to some growing pains. The influx has increased pressure on the state's rental market, including mining communities, with accommodation shortages and delayed land releases a headache for growing mining companies. Experts predict a major property rental shortage in the coming year and are calling for the state government to implement incentives to encourage investors back into the market.

COVID-19 impacts

WA has avoided any catastrophic effects of COVID-19, and the economy is in great shape largely due to an agile mining sector. Along with the rest of the world, businesses within the mining sector have transitioned rapidly to new technology platforms to continue communicating effectively with their suppliers, clients and remote teams. This transition has made long-distance meetings more efficient and saved on costs - sending teams up north for a short meeting is no longer required. Furthermore, companies are seeing significant savings due to the lack of international travel to business meetings.

The JobKeeper program implemented by the federal government during the height of the COVID-19 pandemic is starting to scale back as the country stabilises. There are concerns that some businesses may have been kept alive artificially or funds misused, with the true impact and fallout of the scheme expected to disrupt the industry in the coming months.

People movement and staff shortages have also become an issue with compliance processes, medical regulations, blue-collar wage inflation and interstate travel restrictions, all areas of major concern for mining companies.

2021 outlook

With hundreds of projects in the pipeline, the mining industry is looking strong heading into the New Year. Stable resources such as gold and iron ore are expected to continue to support the WA economy with massive growth anticipated in sub-sectors such as nickel and copper.

Despite the challenges of 2020, including a global pandemic and unstable US politics, there is optimism for 2021. With a COVID-19 vaccine expected and a new US President elected, the outlook for 2021 is positive for the mining sector and the state.

Looking forward, it is an opportunistic time for companies in the mining and mining services sectors as the industry is seemingly the strongest it has been in years.

BDO's Mergers & Acquisitions (M&A) advisory service blends experience and capability, led by a senior team, to offer you seamless solutions for complex acquisition or divestment transactions.

M&A transactions can include complex financial, regulatory and operational issues. Our team draws on specialist capabilities from all areas of the firm as required ensuring that transactions are completed efficiently and effectively.

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