A message from our Global Head of Natural Resources
There is no doubt that this is a difficult time for the world, with most companies globally affected in some way or another. Some Natural Resources companies are struggling more than others, particularly those in Oil & Gas, who are finding life very difficult indeed. Others are doing surprisingly well.
Short term survival has been the priority for most companies. Dusting off business continuity plans, ensuring employee safety, assessing supply chain disruption, protecting customer base and evaluating liquidity have been critical activities. For an Australian iron ore or gold company that might be much easier than for a US oilfield services company. However, once short term survival is addressed then this crisis can be seen as an opportunity to build a resilient company in the medium term which can quickly reinvent itself to take advantage of the post COVID-19 world to become a stronger company in the long term.
The ESG emphasis that all companies in the natural resources sector had focussed on in the last year may have quickly dropped out of the headlines, but it will not go away. It is essential that the Social Licence to Operate is core to the medium and long-term plans of companies at this time.
It is time to reconsider initiatives that you may have been putting off or had never considered which will make your company more resilient and stronger in the future. Consider things like permanently lowering your cost base, diversifying supply chains, automating processes, digitising mines, selling non-core assets, acquiring complementary assets or companies or partnering with other companies to share resources and risks. These topics and many others we will cover over the coming weeks.
While you are focused on survival, and the here and now, it is difficult to keep one eye focused on the long-term. However, if possible, it is important to do just that.
While the retail equity markets are taking the back seat now, institutional investors see value in the current market and have significant funds to deploy. This might be the time to reconsider your medium and long term strategy and to focus on those parts of your business while selling or spinning off the other parts of your business. A leaner, more focussed and resilient company may emerge at the other side. In doing this it is worth considering the efficient use of local assets and the opportunity to consolidate with other projects in the region to form a larger business with a bigger asset base.
Power can be a significant portion of a mine’s operating costs. With the current cost of diesel having fallen substantially it may be tempting to shelve that decision to move towards renewable power for the plant, or the move to electric vehicles. Instead it might actually be a great time to negotiate new vehicles or power supply on favourable terms which will reduce operating costs in the future.
Our industry group will be using this time to talk to as many of our clients as possible to help them resolve their issues in the short term, and the medium-long term. This may be directly through our services, or connecting them with our other clients where we see a need and/or an opportunity.
As this crisis forces us to dismantle our organisations, it will allow us the opportunity to be bold in creating new, innovative and strong companies, fit for the future.
Sherif Andrawes, Head, Global Natural Resources, BDO