Inflation Hits Quarterly Results of Mining Companies Once Again

The main mining companies listed on the Mexican Stock Exchange (BMV) index reported negative results in 3Q22 due to inflationary pressures and lower metal prices. Since the previous quarter, experts have warned that more mining companies will continue to see less healthy profit margins. What is more, this negative trend is expected to continue in 2023.

In 3Q22, mining giants Grupo México and Peñoles announced lower revenues, EBITDA and net income. During the quarter, Grupo México saw a year-over-year drop of 34.51 percent in net income, which amounts to MX$11.203 billion (US$564.39 million). Adolfo Margain, Sector Analyst, Signum Research, said that in addition to inflationary pressures and low metal prices, most of Grupo México's mines are extracting minerals from areas with lower metal grades, which further reduces its profits.

In 3Q22, Peoples' profit fell 22.7 percent compared to 3Q21, totaling a loss of US$51 million. Moreover, the EBITDA is anticipated to decline 18.5 percent to US$281 million, while revenue will decline by around US$1,321 million. “For Peñoles, we expect contractions in gold production volumes and decreases in silver prices, which will result in lower revenues. About 60 percent of their income depends on these two metals,” said Margain.

Jackie Przybylowski, Analyst, BMO Capital Markets Metals & Mining, previously warned that many mining companies would be more affected by inflation in the coming months. In addition, experts cautioned that companies will suffer from lower metals prices, as the economic recovery boom fades away and fears of an economic recession have strengthened.

In 2Q22, MBN reported that several mining companies were forced to raise their cost guidance and lower their production guidance due to inflationary pressures that are driving up prices for key inputs. In 2Q22, Argonaut Gold announced that if the trend continues to increase mining costs, it will adjust its 2022 cost guidance to a higher figure. Fresnillo announced that for the coming quarters it will still have to deal with a tight labor market, global supply chain bottlenecks and inflation.

As another example, Endeavour Silver highlighted that as inflationary pressures continue to increase, the prices of key materials such as reagents, explosives, diesel and energy, as well as operating and development costs could grow. The company said it plans to mitigate these costs in 2H22 through improved monitoring and tracking of operations, improved blasting, increased milling and waste reduction.