Surging inflation rippled through balance sheets across the mining sector, during the first quarter of 2022, raising uncertainty over how far cost will run amid supply chain disruptions and higher labour costs, owing to the Russia-Ukraine war.
Skyrocketing energy costs featured strongly among the concerns of mining firms, driven by higher commodity prices while also filtering through into higher costs of logistics and consumables.
In Ghana, the rate of inflation for April 2022, rose to as high as 23.6% in April 2022, being the highest since 2003. This rate indicates that cumulatively, average prices rose by 9.7 percentage points in the first four months, a consistent monthly rise so far in 2022.
Gold Field’s CEO Chris Griffith bemoaned the uptrend in cost of production due to rising inflation, noting that “we expected the mining sector to be challenged by high inflation at the start of the year, the impact has been worse than initially expected.” Indeed, this trajectory in prices has been very disconcerting for gold miners operating in the country, as Griffith describes the quarter as a “challenging quarter”.
Though companies reported that it was far likely they may have overcome the worst challenges posed by the COVID-19 pandemic, the Russia-Ukraine war had a “material impact”, Griffith said, adding that “despite the devastation caused by any form of war, the world is being plagued with heightened inflation, driven by high oil and gas prices and more broadly, higher commodity prices.”
Cash Costs of Companies Climb Up
Anglo Gold Ashanti, one of the top gold miners, reported that total cash costs for the first quarter was $1,041/oz, up 4% year-on-year, compared to total cash cost of $999 in Q1 2021. The company stated this was driven largely by factors beyond its control including: rising inflation ($82/oz) across several categories of input costs and higher royalties ($3/oz)- due to the higher gold prices.
“Inflationary increases in operating costs were mainly due to higher commodity prices related to oil and consumables and higher cost of services and labour.”
AngloGold Q1 2022 report
In addition, AngloGold Ashanti stated in its Q1 2022 report that “the rise in inflationary pressure was partly offset by operating improvements and an 8% increase in underground grades.”
Newmont Gold Corporation, which owns the Ahafo North and Akyem mines in Ghana, stated that its 2022 outlook assumes a $1,800 per ounce revenue gold price for Cost Attributable to Sales (CAS) and All-in sustaining costs (AISC).
This, the company observed, will reflect higher costs from inflation, royalties and production taxes. In its Q1 2022 report, the company noted that “an additional 5% of cost escalation is incorporated into our direct operating costs related to labor, energy, and material and supplies,” as part of the company’s outlook for full year 2022.
Kinross Gold, which recently divested its Ghana mine, underscored that, while it maintained its production guidance based on expected higher production in its remaining mines, the ongoing inflationary pressures and Covid-19 impact have been factored into the Company’s 2022 attributable cost of sales and capital expenditures guidance. The company stressed that it will continue “to closely monitor the impact of inflationary pressures on its operations and projects”.
For the first quarter, all major mining companies operating in the country reported higher costs (designated by AISC) compared to that of the previous year’s quarter. Newmont ($1,156 per ounce of gold, representing 11% increase from Q1 2021); Gold Fields ($1,150 per ounce of gold, representing 9% increase from Q1 2021); AngloGold Ashanti ($1,405/oz of gold, representing 9% from Q1 2021); Kinross ($1,245/oz of gold, up from $1,051 in Q1 2021).
Indeed, looking at the trajectory of rising costs, gold miners are likely to continue to face the challenge of increasing inflationary pressures owing to the persistent geopolitical tensions, posing significant threat to companies’ operations going forward.
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