Mexico , Suriname , Argentina , Peru , Dominican Republic and Brazil
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LatAm miners see modest cost impact from COVID-19

Bnamericas Published: Monday, May 18, 2020
LatAm miners see modest cost impact from COVID-19

Health protocols imposed in response to the COVID-19 pandemic are pushing up costs for Latin America’s precious metals miners – but the rise will be modest, according to industry leaders.

Screening and distancing measures, which are expected to remain in place for many more months, have added another layer to production costs for the region’s miners.

In addition, the sector is grappling with a temporary jump in per-ounce costs resulting from coronavirus-related suspensions, although operations are resuming as lockdown measures are eased in many jurisdictions.

However, the weakness of local currencies against the US dollar and low oil prices are lowering production costs, while companies mull the possibility of operating with permanently reduced workforces.

MINIMAL IMPACT

Changes to shift rotations and meeting sanitary and hygiene measures are leading to extra costs for Equinox Gold, with gold operations in Mexico, Brazil and the US, CEO Christian Milau told the Q1 earnings call.

The company has also spent more to boost stockpiles and supplies as COVID-19 has weighed on supply chains globally, Milau said, which will translate into higher cash costs.

“I call the impact so far pretty minimal,” he added.

Higher costs are being more than offset by foreign exchange rates and falling expenses for diesel, among others, Milau said.

Equinox reported Q1 all-in sustaining costs (AISCs) of US$968/oz gold, compared to 2020 guidance of US$1,000-1,060/oz, but these forecasts will be updated once full operations are resumed at Los Filos in Mexico.

DISTANCING – HERE FOR THE LONG HAUL?

Tom Palmer, CEO at Newmont, Latin America’s top gold producer with assets in Mexico, Argentina, Peru, Suriname and the Dominican Republic, said health measures are likely to remain in place for the long term.

Care and maintenance costs related to COVID-19 suspensions contributed to higher AISCs in Q1 of US$1,030/oz gold, up 14% from the same period last year.

The company withdrew guidance in March but expects costs to trend toward the higher end of original forecasts of around US$975/oz in 2020.

“We're in a new normal. I think for many, many months, we're going to be managing social distancing, and we're going to be managing screening onto our sites,” he told an earnings call.

Individual measures include temperature screening at entry points to sites, plus changes to worker transport, dining facilities, office cleaning and flights.

“We'll get more efficient with those costs,” he said.

“In the overall scheme of things, they're not huge, but they will be part of the cost going forward,” he added.

The message was similar at Mexico-focused Endeavour Silver.

“We don't expect a lot of extra cost,” COO Godfrey Walton told the Q1 earnings call.

“There will be some. But we implemented...temperature checking and disinfecting and cleaning. So it's added a little bit. But in the overall scheme of things, it's not a lot, and not significant.”

The company saw AISCs decline 5% in Q1 to US$18.38/oz silver, net of gold credits, but above original 2020 forecasts of US$17.00-18.00/oz.

The company has invested in improvements at its Guanaceví and Bolañitos mines, which is expected to push costs lower.

EFFICIENCY GAINS

While the COVID-19 pandemic has been hugely challenging for the mining sector, industry bosses are also looking for a silver lining.

“We already had a very keen eye on productivity before this, but what we have found is that because we stood down about 50% of people at our sites as non-essential personnel, it really allows us to take the opportunity to say, well, are they actually needed back on-site?,” Newmont COO Rob Atkinson told the call.

“Or should they be based in regions? Should they work from home? Or ultimately, should they still be working for us at all?”

This aim was mirrored by Hecla Mining CEO Phil Baker.

“We think that we cannot only weather the pandemic but we really see an opportunity to change the way we do business,” he told a call.

“We see the opportunity for improved G&A through less office cost, travel expenses and other things that we've learned.”

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