The Impact Of COVID 19 On Global Mining
Record prices for high-value minerals reflects a squeeze on global supply.
The global economic lockdown created by COVID 19 has had significant impacts on most industries and mining is no exception. Through adversity, we often find resilience and some of the developments we have witnessed in the mining industry bear testament to the importance that precious minerals play in the global economy. In this article, we delve into the impacts the global lockdown has had on the mining of high-value assets.
In an effort to protect workers from the COVID 19 and reduce its global spread, the mining industry has implemented social distancing and restricted activities in line with global guidelines. This has resulted in economic impacts that are being felt around the world.
Botswana is the world’s second-largest exporter of diamonds after Russia. Diamond mining contributes 50% of governmental revenue primarily through partnerships with De Beers and the Debswana Diamond Company. This natural resource has significantly contributed to Botswana’s economic growth making it one of the fastest-growing economies in the world before the lockdown.
Due to COVID 19 Botswana has seen its diamond exports fall by 68% in the second quarter of 2020. This was primarily caused by the closing of its borders in March which has locked out global diamond buyers who come to Gaborone to view and purchase diamonds. Diamond exports in the second quarter have fallen from $916 million in 2019 to $293 million during 2020.
As diamonds represent 70% of Botswana’s exports the country is now feeling the significant impact of the lockdown. Botswana has a population of 2.3 million people but has only reported 1,214 cases and 3 deaths. This is a minuscule volume compared to the HIV epidemic experienced in a country where it is estimated that almost 25% of the adult population has contracted the virus. Although it may be that the lockdown helped to restrict the spread of COVID 19 it’s evident that the economic impacts of the lockdown will have a greater toll on lives in Botswana than the virus itself.
The industry for precious metals has also been significantly impacted by the global economic lockdown. Mining operations, as well as supply chains, have been restricted and this has created a confluence of factors which have created a record spike in the prices for gold and silver.
As the lockdown restricted operations and the movement of goods, there has been a reduction in the volume of precious metals being produced and delivered to customers. The restriction of the supply chain has coincided with the economic impacts of the lockdown and the rampant printing of fiat currency by the Federal Reserve.
In March of this year, the Fed was printing almost $1 million per second and this was followed by unprecedented volumes of fiat being printed in April and May. The flooding of the economy with fiat dollars is set to create serious inflation and investors are moving their capital to the traditional safe havens of gold and silver. The problem now lies in the physical delivery of these investments.
The falling price of the dollar and rising demand for precious metals by investors were the primary factors that created the new record price of gold above $2,000. Demand for physical delivery of gold and silver is currently not being met by supply. This is reflected in the significant premiums being charged for gold and silver coins. In some cases, the premiums on newly minted coins have been above 50% and suppliers such as the Royal Canadian Mint are unable to provide customers with precise delivery times.
Beyond being a hedge against inflation and economic volatility the global economy relies on the production of diamonds, gold and silver. Diamonds are used in mining operations and metalworking for their abrasive and cutting properties. Although these diamonds are not suitable for use as gems their supply is connected with larger industries.
Gold is used extensively in the production of electronics and an increase in the price of gold will have knock-on effects in the electronics industry. It is estimated that there are 10 troy ounces of pure gold in every tonne of smartphones. Silver has important uses in photovoltaics which are pivotal in the rapidly expanding solar industry.
As the global supply chains for high-value minerals like diamonds, gold and silver are restricted by the economic lockdown the effects will be felt across diverse industries. Only time will tell if the economic impacts of the lockdown are worse than COVID 19 itself. It will be critical to monitor the economic impacts on the mining industry to gauge the changing health of the global economy.
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