Peru , Mexico and Chile

Inflation hinders LatAm mining project progress

Bnamericas Published: Tuesday, October 25, 2022
Inflation hinders LatAm mining project progress

Rampant inflation is hindering project development and driving costs higher across Latin America’s mining industry, with companies digging in for continued impacts in 2023.

Russia’s invasion of Ukraine has spurred a spike in natural gas, diesel and energy prices, with mining companies also reporting spiralling costs of materials including equipment, tires, reagents and steel.

Firms are also seeing a spike in labor costs, in part due to fallout from the COVID-19 pandemic, with shipping and freight costs adding to inflationary pressures.

“Cost inflation is definitely occurring across the [mining] industry,” Joe Bormann, Fitch Ratings’ head of Latin America corporate ratings, told BNamericas. “At a general level, it’s happening to every company out there.”

Mining companies are not expecting the situation to ease substantially in the near future.

“As we look ahead, we expect that inflationary pressures and the impacts from a competitive labor market will persist into 2023, resulting in production levels and unit costs that will be similar to this year,” Newmont CEO Tom Palmer told the Q2 earnings call.


The impact is being felt in project development across Latiin America.

Newmont last month pushed back a construction decision for its US$2.0bn Yanacocha Sulfides gold-copper project in Peru by two years to 2H24 following a review of the project scope.

“As part of its review, Newmont considered the unprecedented and evolving market conditions, including the continued war in Ukraine, record inflation rates, the rising prices for commodities and raw materials, prolonged supply chain disruptions and competitive labor markets,” it said in a release.

Other projects have seen rising capex estimates.

Teck Resources and new JV partner Agnico Eagle Mines said in September that development capex for the San Nicolás copper-zinc project in Mexico could be in the US$1-1.1bn range, based on the current cost environment and estimate accuracy – up from US$842mn previously forecast.

Also in Mexico, Torex Gold is expecting higher construction costs for its Media Luna gold-copper project, estimated at US$848mn in a March feasibility study, compared to US$496mn in a 2018 PEA.

The March estimate in part reflects the current inflationary environment, Torex said at the time. “We want the project to be palatable to the market but we also want it to be credible, realistic and something we can deliver on,” CEO Jody Kuzenko told BNamericas in July.

Other companies have managed to keep project costs in check despite inflation.

SilverCrest Metals is currently ramping up operations at its US$138mn Las Chispas silver-gold mine in Mexico, which began production ahead of schedule and under budget in July.

Minera Alamos outlined a low-capex development in its Cerro de Oro PEA earlier in October, with pre-production capital costs at US$28.1mn for an asset expected to produce 58,400oz/y gold over an 8.2-year mine life.

The low capital intensity of the project despite rampant inflationary pressures is testament to the company’s business model, company president Doug Ramshaw said in a release.


Inflation was also the key driver in Pan American Silver’s decision to suspend underground operations at its Dolores gold-silver asset in Mexico, after a shortfall in grades triggered an analysis for impairment, the company said in August.

First Majestic Silver has also trimmed its spending plans due to rising costs.


Chilean copper commission Cochilco also reported higher production costs across the country’s copper assets due to global inflation and lower output.

Cash costs of larger producers in the world’s top copper mining country increased by US$0.183/lb in H1, compared to the same period last year, with 16 smaller operations seeing a much steeper rise, up US$0.542/lb.


But with mining companies continuing to benefit from strong prices of industrial and precious metals, compared to historical averages, higher costs will be passed on to consumers.

Metals prices are being pushed up in part by global shortages linked to slow project development, mine disruptions and growing demand, with consumption of metals including copper and lithium expected to soar in the coming years in the push toward renewable energy and electric vehicles.

“With the shortage of metals out there, most of those increases in price are going to be transferred on to the end users,” Bormann added.

“Buyers out there are just going to pay for it and at the end of the day they are just going to push [rising costs] onto consumers.”

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