- Recent covid-19 related regulation in South Africa allows platinum mines to resume operations up to 50% of capacity, requiring facilities to have suitable quarantine and testing facilities.
- Companies are experiencing cash flow issues leading them to go into cash conservation mode, which has a knock on effect in the consulting environment.
- Due to pressure from the pandemic, mining companies are starting to embrace technology in their strategic thinking, which they have been reluctant to do in recent years.
- “In the next year or two, companies should prepare for another down cycle”
Ruan Daffue is a founding member of Practara, where he acts as a Lead Consultant specializing in Strategic and Financial Evaluations as well as Operational Improvement studies for companies in the Metals and Mining Industry. He joined Core Consultants founder, Lara Smith to discuss the South African mining industry, current trends, and how Practara aims to add value in both up and down markets. The following is a transcript of the Interview:
Lara Smith: Hello, I’m Lara, I’m sitting here on my couch in Tel Aviv, and I’m joined in his home by Ruan Daffue from Practara. Practara is a mining engineering consultancy in South Africa. Hi Ruan. How are you?
Ruan Daffue: Hi Lara. Thanks for having us.
Lara Smith: So day 20 lockdown, what’s keeping you guys busy?
Ruan Daffue: Well Lara, we’ve been fortunate enough that we do have a lot of projects going on at the moment. A lot of our work, fortunately enough, can happen remotely. So we entered this crisis really with a couple of projects that we had to deal with. So yeah, we’re keeping busy, even though it is challenging times in the market.
Lara Smith: What sectors in particular, in terms of the projects?
Ruan Daffue: Yeah, so we are a mining focused company, so specifically we’re doing a lot of work currently in the chrome and the coal industries, but predominantly mining focused.
Lara Smith: Okay. I understand that the coal mines were allowed to stay open to supply Eskom. Has that been the case?
Yeah. So
Ruan Daffue: They’ve not largely been affected, especially if you have a supply coal contract with Eskom and they’ve been able to operate as per normal.
Lara Smith: Okay. And they haven’t seen any force majeurs coming out of there or section 54 shutdowns ‘cause of the outbreak? Nothing yet?
Ruan Daffue: Yeah, so the force majeurs were largely, you know, it came firstly from the platinum industry, so we saw the likes of Amplats, Implats, followed by Arm, Sibanye, they’ve all declared force majeur, but obviously, with the new regulations coming out last night, we saw that, the government allowed these operations to sort of restart their operations, going back to roughly 50% of their capacity. And they’re ramping that up, hopefully by end of May, getting to some sort of normalcy in the mining industry.
Lara Smith: So they’re getting to normalcy, but what I understand is that if there’s any outbreak in the coronavirus, they will shut down, for at least two weeks? Is that how it’s going to be?
Ruan Daffue: Yeah, so there are talks that the operations have to have certain protocols in place. For example, you have to have a quarantining facility on site. There needs to be testing facilities made available. So there’s all sorts of requirements that government is mandating these operations to adhere to for them to be able to stay open. So I believe that if those. Protocols are in place, and you are able to effectively quarantine people, you would be able to stay open. If not, then you would obviously be issued with a section 54
Lara Smith: I was reading last night, some of the numbers in South Africa and they’ve only managed to, out of a country of just over 50 million, they’ve only managed to test around 87,000. What are the chances of these mines being able to adhere to the protocols and test people?
Ruan Daffue: Yeah, that’s, that is the real challenge. So I think the government has been really good at setting up these tracing teams, so everybody that had risk of exposure, when the pandemic broke out, we were able to sort of intervene right at the beginning and sort of catch it quite early. So even though our number of tests that we’ve done per capita has been quite low, you know, we’ve been able to flatten the curve quite aggressively.
So I think that’s why government is mandating these operations to sort of try and adhere to these requirements of testing, quarantining, but, you know, knowing the fact they’ve done pretty well in limiting the spread when the outbreak began. So, yeah, that will be the real challenge, there’s a lot of businesses popping up left, right and center offering heat scanners and fever scanners and testing protocols and stuff, so it’s good to see from an entrepreneurial point of view, but the efficacy of that would obviously only be proven over time.
Lara Smith: When I left South Africa in February, I saw a Hawker standing and selling masks and I was like, no, come on, what? What’s going to happen? And he was right,he saw the curve early. And that was in early February. Very good. Good on him. I hope he is making money now.
Ruan Daffue: A very scarce commodity, that.
Lara Smith: Yeah. I always feel that the mining consultancies is a barometer for the health of the mining industry because when you guys are busy and you’re getting a lot of projects from all over the sector, then you know that there’s a pickup. And I know that you are very, very busy this first part of the year.
What’s happening now? I know you still have your projects that were signed then. Is anybody signing on? What do you think is going to happen post covid 19?
Ruan Daffue: So what we are seeing is that companies or operations are definitely experiencing cash flow issues. So there’s a lot of companies going into sort of cash conservation mode, and that obviously has a knock on effect on the consulting environment.
You’re not seeing, you know, companies necessarily looking to start up massive mines during this time, or setting aside massive exploration budgets during this time because purely they have to manage their working capital requirements. So, yes, I think we’re planning on having a pretty tough accounts receivable account to deal with in the next three to six months, just purely because these operations are all looking at cash management strategies to keep their businesses afloat.
Lara Smith: As long as they still pay you.
Ruan Daffue: Yeah, exactly. No, we’re used to dealing with non-paying clients in the appropriate manner, so we feel comfortable going on payment terms of three, four months in some instances.
Lara Smith: Yeah. Okay. And going forward. So after the six months, do you see a pickup in the mining industry? A lot of people talking about a v-shape recovery, v-shape that’s slanted. What do you see?
Ruan Daffue: Well, we believe that we have experienced some good times of late, you know, pre crisis or pre pandemic, commodity prices were doing well. We saw palladium shooting the lights out, gold was doing really well. Bulk minerals, not that great, but so from a South African point of view, the operators were actually doing pretty well. You know, mining being cyclical, we think that operations should start preparing for a down cycle again, pretty soon in the next year or two. That’s just not necessarily our company view, but that’s just my personal view. Just because mining is cyclical and the pandemic has just amplified the need to think strategically about your business again, you know, and planning for those, what if scenarios, how to deal with, you know, obviously the ramifications of covid 19 on your business, but also planning for the next down cycle in some industries.
So, you know. We’ve been really busy in the past two or three years. And as you say, that’s a really good proxy for what’s happening in the mining industry. And there’s a lot of companies spending a lot of money on exploration, budget in the past two or three years, and that has manifested into a lot of project work for us, but yes, around the corner, I believe in the next year or two, companies should prepare for another down cycle.
Lara Smith: Yeah. And what’s going to be Practara’s focus?
Yeah.
Ruan Daffue: So we, as a management advisory firm, believe that we can add value across cycles. So obviously, if the times are good, we can advise companies on how to, you know, best spend the capital on viable opportunities. So advise them on which projects would cut the mustard and be palatable for their portfolio.
But also when times are down, be able to identify sort of internal improvement projects or without capital improvement projects, that doesn’t require a lot of capital, but that’s able to really push the needle on the triple bottom line. And that’s a journey that we take with clients to see sort of what the requirements are from a portfolio point of view, and then stepping through a process of identifying, you know, a strategic prospect to value.
So, yep, across the board, across cycles, we believe that we can get involved with clients in every facet of the project or asset.
Lara Smith: Very good, thank you so much Ruan. Is there anything you’d like to add before we leave?
Ruan Daffue: No, I just think, Lara, being involved in the technology space as well, is that what we’re finding quite interesting is that companies and specifically companies in the mining industry, have been very slow to respond to, you know, the digitalization of their businesses.
And probably you can weigh in on this as well, but now for the first time we’re seeing companies in their risk register or risk management processes are looking and discussing a digitization strategy. You know, what do we do to either decrease our dependence on a very labor intensive workforce, but obviously also having a process in place to evaluate technologies that are suitable for operations and then introducing them into the business in a very effective and efficient manner. So that’s a very sort of good thing that’s coming out from the pandemic is that finally mining companies are starting to embrace technology, and we’re seeing those discussions happening in boardrooms at the moment, which is good to see.
Lara Smith: Yeah, absolutely. Yeah, that’s a huge discussion in and of itself. I mean, we did a presentation of how to embrace technology in 2010 talking about internet of things, technology, and South Africa, if they’d rolled out any of that I’d be surprised. And it was always the discussion of employing people, or laying people off and we’ll just keep the mines open, and this has been a big part of it. It’s like, you know, we’ve got an employment strategy in this country. We’re not a socialistic country, but there’s been a very big jump to the left. And now we’ve got to relook at that and say, but are our minds profitable? And can they continue to be profitable without embracing the digital age?
Ruan Daffue: Yeah, and, and we’re seeing it across the board that companies that don’t have a digital strategy, that it is not able to sort of look at new ways of introducing technology into their businesses, are feeling the pressure and they need to make a decision on that. They need to keep abreast of how technology can improve their businesses. Necessity is the mother of all invention. So I think that’s the only single positive thing that I think that’s come out is that people are starting to think more strategically about their businesses, specifically from a technology point of view, so it’s been good to see.
Lara Smith: Yeah, absolutely. I mean that, like I said, is a massive topic. It’s even worth another chat to see where we can end up, not just in South Africa, by the way, but globally where the mining industry has been slow to react and this is just something that we’re seeing and you can’t stop this whole fourth revolution. It’s going to happen at some point. It’s going to touch every part of, in every sector, every part of our lives. And the mining industry is no different.
Ruan Daffue: Absolutely.
Lara Smith: Alright. Ruan, we’re going to leave it there. Thank you so much and stay safe.
Ruan Daffue: Same to you is keep safe and all the best for your business in these trying times.
Lara Smith: Thank you so much. And to you, keep well, thank you.
Ruan Daffue: Bye.
