Gold miners have been struggling to capitalise on higher demand for the yellow metal as higher input and operating costs weigh.
The largest gold mining company in the world, Newmont Corp shares plunged 15% post its earnings results as profit and revenue missed analysts’ expectations.
The US-based company said that the poor performance was due to high labour and diesel costs and other operating expenses.
Other top mining companies from Canada, Barrick Gold and Agnico Eagle Mines also saw their shares slump.
High labour costs plague the mining industry
Even as gold prices have surged since the start of the year, higher labour costs have plagued the operations of top mining companies.
Gold prices have surged 30% since the start of the year on a favourable outlook on interest rates and increasing safe-haven demand due to geopolitical tensions.
However, most mining companies have failed to capitalise on the upswing in prices.
“But Newmont’s results revealed that big gold producers are still wrestling with inflationary pressures, especially regarding labour costs, that have lasted longer than expected,” Bloomberg News reported.
Experts believe that if Newmont’s takeaways are accurate, then the risks would hold for the whole mining industry.
Newmont spends more to dig up gold
The US-based company said that it had spent more money digging up gold at its mines in Australia, Canada, Peru and Papua New Guinea than in the previous quarter.
Capital expenses also rose 10% on the back of expansion projects in Australia and Argentina.
Some of the company’s highest expenses were from major assets it picked up through last year’s $15 billion takeover of Newcrest Mining Ltd.
The Denver-based company is the first major gold producer to post results in an earnings season where analysts expect bumper returns for the sector.
Growing labour costs
Newmont’s growing labour cost could be a matter of concern for the broader mining sector.
Chief executive officer Tom Palmer was quoted by Bloomberg News:
It’s the labor costs where we’re seeing that escalation.
“Whether that be maintenance shutdowns, maintenance that you use to supplement your workforce, costs of running camps, costs of flying people to and from the camps — that’s where we’re seeing some escalation beyond what we’d assumed at the start of the year.”
Barrick Gold Corp misses production expectations
Last week, Barrick Gold Corporation reported lower-than-expected gold production during the third quarter due to a fall in output at its Carlin and Cortez mines in Nevada.
Barrick’s total preliminary gold output was 943,000 ounces in the third quarter ended September, compared with analysts’ estimate of 975,000 ounces.
The company reported lower gold output amid a backdrop of higher operating costs for the whole mining industry.
The second-largest gold producer in the world is expected to report its earnings results in early November.
Despite a fall in shares, gold miners may get some relief from record prices
Despite a fall in shares of mining companies and disappointment among investors, mining companies may enjoy a better fourth quarter.
Barrick said it expects a materially stronger fourth quarter to deliver 2024 production within the range of its full-year gold and copper guidance.
Additionally, Newmont posted its highest quarterly profit in five years, despite missing analysts’ expectations. This is mainly due to record high prices of gold.
Carey MacRury, a mining analyst at Canaccord Genuity told Bloomberg:
The street expectations were too high. It was negative, no doubt, but I don’t think it’s as negative as what the market’s telling us today.
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