Market Outlook: Navigating the road ahead

March 2020

By Craig Mayman

A global pandemic that began in January 2020 has created an unprecedented health and business environment, introducing many unknowns and presenting extraordinary challenges. As the markets fluctuate and the world tries to regain its footing, Schramm continues to chart a path forward that is true to the values that underpin more than a century of delivering quality products and services.

With a year marked by mergers and constrained funding for junior minors now squarely in the rearview mirror, the mining industry is looking at the road ahead with hope that the dust has settled on M&As.

It is clear in hindsight that atypical market conditions led to the irregularities the industry experienced in 2019, disrupting a positive trend that saw 2017 up by double digits over 2016 and 2018 up double digits from 2017. At the beginning of 2019, industry expected to continue this upward trend, but nobody foresaw the financing challenges and extensive M&A activity that was on the horizon. The market slump in 2019 was an anomaly, which is why there is hopefulness in 1Q 2020 that this year’s performance will be better than that of 2018.

Last year, consolidation by players like Rangold, Barrick, and Newmont created inertia, which put the brakes on exploration while the companies assimilated, reorganized and aligned business objectives. With this level of M&A activity, it was not surprising that gold exploration fell off in 2019. The good news is that consolidation on this scale is unusual, so there is little likelihood of a recurrence in the near term.

There is a case to be made for cautious optimism.

Gold is a bellwether for the industry, and the gold sector appears to be rebounding. The dust has settled with the mergers, and a high gold price and shrinking gold reserves are pushing companies toward increased exploration.

Positivity is being reflected in the mood of the industry. Certainly, the atmosphere at PDAC in Toronto in early March was more optimistic than the previous year. Although attendance was down somewhat from 2019. The drop in numbers appeared to be more a consequence of travel bans associated with curtailing the spread of the coronavirus rather than negativity in the industry.

With that said, while people appear to be hopeful, there isn’t money falling out of anyone’s pockets.

Looking at 2020 budgets, Schramm is not dependent on an uptick in rig orders, although it does expect some orders from areas like Australia – where the market is buoyant – and is prepared to meet new rig demand.

More exploration may well be in the cards down the road, but companies are not in a position today to loosen their purses strings. Instead, they will look for ways to keep legacy equipment safely up and running.

Schramm recognizes that rig owners need support to achieve that objective and is focusing on ways it can help drilling contractors remain competitive. The company is expanding aftermarket services and improving consumables and parts support to help asset owners keep their rigs working.

The road ahead might be bumpy, but Schramm is committed to working with partners to smooth out the rough patches. For more than 100 years, Schramm has succeeded because of its direct relationships with end users and its willingness to accommodate the changing demands of a dynamic market. The company keenly understands that user satisfaction is the foundation of good business. Challenging markets only underscore the importance of being adaptive to customer needs.