Question

Impact of COVID-19 on Multinational Companies MNCs (such as BHP, Rio Tinto) businesses around the world.

Answer 1

The Coronavirus 2019 (Covid-19) global pandemic has not only caused infections and deaths, but it has also wreaked havoc with the global economy on a scale not seen since at least the Great Depression.¹ Covid-19 has the potential to destroy individual livelihoods, businesses, industries and entire economies. The mining sector is not immune to these impacts, and the crisis has the potential to have severe consequences in the short, medium and long-term for the industry. Understanding these impacts, and analysing their significance for the industry, and the role it plays in wider economic development is a crucial task for academic research.

The primary impact on the sector has been a dramatic contraction in demand as industrial production, and construction, has effectively halted across a large swathe of the planet, for a period yet to be determined. This reduction in demand has caused dramatic falls in the prices of a range of metals and minerals across March and April 2020 (Table 1 ). These falls have been most dramatic for aluminium and copper.

Table 1

Selected mineral prices March and April 2020 Source: www.kitco.com.

Metal	30-Day Spot Price March 4, 2020	30-Day Spot Price April 2, 2020	% reduction
Aluminium (US$/lb)	0.7772	0.6608	15
Copper (US$/lb)	2.5612	2.1917	14
Gold (US$/oz)	1641.85	1616.8	2
Lead (US$/lb)	0.8518	0.7652	10
Nickel (US$/lb)	5.6986	5.0681	11
Zinc (US$/lb)	0.8916	0.8404	6

These dramatic falls in prices have been mirrored by collapses in the shares of many of the large mining multinationals. On January 22, 2020 the share prices of BHP Billiton and Rio Tinto, two of the largest mining companies in the world, stood at US$56.34 and US$60.50 respectively.² As of March 18, 2020 BHP had lost 45% of its value, before recovering slightly to a share price of US$36.56 on April 3, 2020. Rio Tinto followed a similar path – bottoming out at US$36.42 – a 40% fall, before again recovering slowly to US$45.06 on April 3, 2020. These paths show clear parallels with the experience during the Great Financial Crash of 2008-2009 (GFC). During that shock BHP lost 68% of its value between November 2008 and October 2009. Rio Tinto suffered even more losing 88% of its value between November 2008 and February 2009. Whether the collapses in value of the large mining firms continue, and results in drops on the scale of the GFC, depends on the duration of the lockdown and the economic and social conditions that emerge in its aftermath.

A clear difference however between Covid-19 and the GFC is the experience of the gold industry. In the aftermath of the GFC gold prices surged as investors moved their money out of equities and into the safe-haven of gold. Gold prices rose 156% between November 2008 and September 2011.³ However as shown in Table 1 gold prices are in decline, and indeed slumped further in mid-March to a low of US$1474.25 on March 19, 2020. Investors and businesses have moved away from even the supposed safe haven of gold, choosing instead to hoard currency such as the US dollar, needed to fund businesses who have faced unprecedented drops in revenue. The impact of this effect can be seen by comparing the share price of Ashanti Gold, a Ghanaian based gold mining company with operations across Africa, during the GFC and now. Between November 2008 and November 2010, the company's share price rose by over 160%. Between February 24, 2020 and March 20, 2020, the company lost 38% of its value, before recovering slowly by early April, but still over 20% down from just over 6 weeks before.

In addition to impacts through lower prices mining activity itself has been hit directly by Covid-19. In Mongolia Rio Tinto was forced to suspend non-essential operations due to government regulations.⁴ Mine workers in Burkina Faso, Ghana and Chile have tested positive – likely to be the tip of an ever-growing iceberg.⁵ A number of operations in South Africa have had to shut-down production, bringing additional future capital costs from re-opening mine sites in future.⁶

These dramatic drops in prices, share prices and activity across mining companies, across all commodities, highlight the potentially catastrophic impact on the industry. The implications of these reductions remain to be seen, but should be an important focus for future research. They could include reduced investment in new operations, technology and exploration, mothballing of existing mine-sites, laying-off of workers, reducing corporate social responsibility activities, or renegotiating taxation and royalty agreements with host country governments. Should any or all of these take place the ramifications will be felt far beyond the mining sector itself.