Soaring costs will hobble miners

The world’s top gold mining executives see cost pressures sticking around into next year, adding to industry headwinds fuelled by economic and political uncertainty, supply-chain disruptions and surging interest rates.

Those gathering at the Denver Gold Forum this week shared a collective view that the current economic environment is unprecedented.

Gold producers are grappling with the by-product of a hawkish US central bank whose efforts to combat inflation have supercharged the dollar and driven down bullion prices.

Gold prices are under pressure and equities tied to the metal have slumped. A gauge of gold companies has fallen 16% this year, lagging the 7.9% decline of the precious metal.

“We find ourselves living in interesting times as the global economies and geopolitical environment hit another inflection point,” said Mark Bristow, CEO of Barrick Gold Corporation.

“It’s arguable that the last time we faced such uncertainty was World War II.”

The event wrapped up just as the US Federal Reserve raised interest rates by 75 basis points for a third-straight time and signalled a more aggressive-than-expected path of hikes to come.

Investors attending the Colorado gathering privately admit they feel depressed about the level at which gold equities and prices are trading, though they also accept the near-term outlook remains challenging in the face of a stronger dollar.

The knock-on effects from Covid and impacts of Russia’s war in Ukraine are significant drivers of decades-high inflation, while a disrupted global supply chain has been adding to cost pressures for companies and consumers.

Such issues are likely to linger as the Fed continues its aggressive monetary tightening, according to mining executives.

“We’re in a very volatile economic environment at the moment,” Newmont Corporation CEO Tom Palmer said in an interview. “Look out the window: you see inflation, interest rates increasing, you’ve got the tragedy playing out in Ukraine. It’s a theme that’s broader than just the gold industry.”

Palmer sees cost inflation in labour, fuel, and energy, as well as materials and consumables “continuing into the better part of 2023”.

Rising costs are plaguing mining companies.

Gold Fields has been dealing with high labour costs which are driving up expenses in Australia, where the company has nine operating mines, according to CEO Chris Griffith.

While he has seen a cooling of fuel prices, other components key to mining, including explosives and reagents, haven’t come down yet thanks to persistent inflation.

The last time we faced such uncertainty was WWII