Market Overview

Mining Sector Hit By Coronavirus Lockdowns, Silver Production Walloped

Mining Sector Hit By Coronavirus Lockdowns, Silver Production Walloped

The mining sector is seeing severe disruption, with activity being suspended across a number of countries due to the coronavirus pandemic and silver production affected.

Thirty-two countries have issued partial or complete lockdown orders, leading to the temporary suspension of activities at over 1,600 mines as of April 3, according to GlobalData. 

Some exempted mines are also operating with reduced numbers of workers to minimize the potential spread of the virus, which is causing a slow return for the industry.

Mining Regions Impacted

Lockdowns remain in force in countries such as Peru until May 10, Mexico until May 30, Bolivia until April 30 and Namibia until May 4.

In Quebec, the government has extended restrictions to May, but allowed mines to reopen from April 15 onward as essential services if they comply with strict measures to limit the spread of the virus.

Restrictions on mining in India, Argentina, Zimbabwe and South Africa have also been withdrawn, with mining seen as an essential service.

Silver Production Curtailed By Pandemic 

Vinneth Bajaj, mining analyst at GlobalData, explained why silver production is being severely damaged by lockdown measures.

“As of 27 April, the equivalent of 65.8% of annual global silver production was on hold. Silver mining companies such as First Majestic Silver Corp. (NYSE: AG), Hochschild, Hecla Mining Company (NYSE: HL) and Endeavour Silver Corp (NYSE: EXK) have all withdrawn their production guidance for 2020 in the wake of the outbreak,” he said.

Progress has also been halted on 23 mines under construction, including the $5.3-billion Quellaveco copper mine in Peru, which is one of the world’s biggest copper mines under development, according to GlobalData. 

“The project has an annual copper production capacity of up to 180kt and is expected to commence operations by 2022. In Chile, while a lockdown is not in force, Antofagasta has halted work on its Los Pelambres project and Teck Resources has suspended work on the Quebrada Blanca Phase II mine,” said Bajaj.

Supply Disruption Will Be Short-Lived

Supply disruptions due to the pandemic are occurring, but there is the potential that these will be relatively short-lived, said Bryan Slusarchuk, CEO of Fosterville South Exploration.

Mining companies will adapt safety and health protocols in an attempt to meet this challenge, and mining is an essential industry around the world, he said. 

“Safety and health always must remain the number one priority for mining companies, so the focus is on safe operations while mining to provide the critical materials that all of us need.”

Good Environment For Gold

From a precious metals perspective, the environment has never been better for gold, Slusarchuk said.

“Gold has been a store of wealth, a currency and a hedge against uncertainty for thousands of years and, geopolitically, monetarily and socially, there is an extreme amount of uncertainty out there.”

Price Action

The SPDR Gold Trust (NYSE: GLD) was down 1.8% at $158.80 at the close Thursday, while the VanEck Vectors Gold Miners ETF (NYSE: GDX) was down 5.2% at $32.26

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Latest Ratings for EXK

Apr 2020H.C. WainwrightReiteratesBuy
Feb 2020H.C. WainwrightReiteratesBuy
Aug 2019H.C. WainwrightMaintainsBuy

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