Australian drilling contractors were poised for 2020 to be the best year for a long time, with many having their rigs committed well into the year. Brownfield drilling in and around mine sites remained strong and was keeping many of the larger contractors very busy with both surface and underground drilling. Greenfield exploration drilling was still suffering the effects of a lack of investor interest, however, there remained enough work on offer to keep a reasonable number of rigs working.
Back in the more populated coastal areas, spending on infrastructure has remained at high levels, which has certainly benefited contractors offering geotechnical and civil drilling services. There have been ongoing large-scale rail, road and tunnelling works with most of these being multi-year projects and not yet completed.
The main issue being faced by drilling contractors across all sectors has been the difficulty in finding the right people, both skilled and entry-level. This labour issue is not unique to Australia and we hear that it is being experienced in other 1st world countries with many younger people entering the workforce having different expectations.
Australia was just emerging from a horrific summer of bushfires when the impacts of COVID-19 started to be seen. That was around mid-March when restrictions were rapidly being put in place on all parts of our daily lives with many businesses forced to close their doors.
Fortunately for drilling contractors and suppliers, the federal government announced that mining, construction and agriculture were exempt from many of the restrictions being placed on other businesses due to their importance to the country's economy.
While being exempt, the new measures did require a lot of restructuring around how people interacted on site. This has particularly affected drillers working at remote mine sites with many of them being fly-in and fly-out operations. There have been several cases of drilling rigs being stood down for several weeks while rosters and accommodation are rearranged to meet new COVID-19 requirements. In a lot of cases, these rigs are already back at work or will be shortly.
Other examples of additional costs that drilling contractors have had to absorb are changes to roster lengths; requiring more people and higher wage cost. Social distancing rules are also resulting in more personnel vehicles being needed to transport workers around site operations.
The restrictions have been compounded by several states closing their borders and requiring anybody entering to undergo a 14-day quarantine period. This has been one of the biggest issues drilling contractors have faced, as it has required relocation of many personnel out of their home state and into temporary residence in another state. This takes them away from their families for longer periods and could have negative consequences.
The good news in all of this is that many contractors are still operating at an acceptable level of profitability on brownfields sites and can absorb the costs and disruptions for a limited period.
...some of the leases held by junior explorers have been inactive with drilling suspended
As part of its pandemic response, the government introduced travel restrictions in some areas of Central Australia to avoid the risk of contagion within indigenous communities. This has so far been successful, but it also meant that some of the leases held by junior explorers have been inactive with drilling suspended. Several of the states have now deferred costs associated with holding these leases to ensure their viability once the pandemic has passed. It is, therefore, a waiting game with a need to preserve remaining cash reserves until the situation changes. For those contractors still working in this sector, it is quite commercially competitive.
The feedback received from the civil construction sector is, like the mining sector in, that operations have been continuing through the pandemic, but with the necessary restrictions on social distancing and hygiene. Contractors remain busy and in further good news, several of the states are announcing infrastructure spending programmes to help stimulate employment, which will keep work ticking over.
As we navigate our way through this, the people problem remains, with drilling contractors stating that there are now fewer applicants for available entry-level roles than there were previously. With many other types of businesses having to close and lay-off staff, one would expect that there to be more applicants? A partial reason for this may be the increased government job seeker payments available during the pandemic and which could be a deterrent for people going out and looking for work. The increased payments are due to expire in September so we will have to wait and see.
So far Australia has dodged a bullet and has not been affected by COVID-19 anywhere near the extent that we have seen in other parts of the world.
The reasons for this are many and include our population being relatively spread out other than a few of the major cities, we are a large island and were able to close our borders early on and we were coming out of summer and not yet in the usual flu and cold season.
The strict social distancing and lockdown measures have also been effective, and along with some restructuring, many of us have been fortunate to be able to keep working.
The outlook from here on is, therefore, relatively optimistic. Prices for gold, iron ore and coal remain at good levels, whereas base metals are fluctuating daily. It will depend on how other countries emerge from the pandemic and what sort of stimulus programmes eventuate from it. One would expect that the global economy will need a good shot in the arm, which would be positive for infrastructure investment and with a flow-on to the resource sector.
Stay safe as we work our way through this.
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