Peñoles Could Still Grow in 2022 Despite Inflation

Amid an uncertain environment characterized by high inflation, a possible global recession and the reduction of demand for some raw materials, Industrias Peñoles, the largest gold producer in Mexico, is optimistic about growth in 2022. 

According to Rafael Rebollar, Director General, Industrias Peñoles, commodity prices during 1H22 were high, which benefited the company. Nonetheless, a possible global recession could translate to a restructuration of the company’s strategy. Rebollar stated that the company must continue to reduce costs and assure production volumes, since it is the market that sets commodity prices. 

Rebollar said that companies like Peñoles that acquire import goods are affected by the high inflation in the US. Once these effects spill over, this issue will grow. “We hope that it will not be something definitive, that it is still part of the pandemic’s disruptions. We have seen governments and central banks raising the interest rates to control inflation,” Rebollar added.

Rebollar said that the company has not suffered supply chain shortages, but it has experienced longer delivery times, which have led to higher maintenance costs. Nevertheless, Rebollar deemed them to be “not an important issue.” According to him, the odds are in favor of Peñoles to close 2022 with some growth, because the company has a similar budget to 2021 budget but achieved greater production. “2021 was a rather normal year, COVID-19’s impact was lower, I would say that 1H22 is similar to the same period last year,” Rebollar said. 

Regarding COVID-19, Rebollar stated that Mexico’s fifth wave has impacted the company’s activities, but the blow has been reduced in comparison to the third and fourth waves. He said that during its worst moment, the company sent home over 600 employees of 3,500. Currently, the company has just sent home over 160 workers. 

A drop in metal prices for gold, silver, and copper has severely affected Mexican mining companies. MBN reported the low performance of mining companies’ shares in the stock market. Industrias Peñoles' shares dropped over 21.7 percent while Grupo Mexico, Fresnillo and Minera Frisco experienced drops of 33 percent, 23.2 percent and 16.9 percent respectively. 

According to experts, the inflation rate will pressure governments and central banks to increase the interest rate. As a consequence, it will become more attractive to invest in fixed income securities than in metals. In addition, the US economic slowdown and the possible energy crisis in Europe could impact the demand of metals severely.