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To the extent that Mexican peso gains ground against the dollar, mining companies like Mexico Group, Torex Gold either Cuzcatlan face a complex environment because mineral export contracts They are handled in US currency, which caused profit margins to be impacted by up to 15 percent.
Mexico Groupowned by Germán Larrea, is one of the mining companies that has been most affected by the appreciation of the peso, despite the fact that 49 percent of its operations are handled in the national currency.
“Although a high percentage of Grupo México’s sales are invoiced in dollars, an important part of the cost of sales of its operations (approximately 49 percent) is denominated in Mexican pesos, so it is not affected by the respective increase in the devaluation of the peso,” the company noted in its report for the first quarter of 2024.
However, Grupo México pointed out that has significant assets and liabilities denominated in dollarswhich has caused is exposed to exchange losses.
At the end of the first quarter, the mining and railway transportation giant recorded a 7.4 percent reduction in its net profit which stood at 864.5 million dollars, compared to 933.2 million dollars in the first quarter of 2023, partly because the prices of copper and zinc fell.
In the case of Torex Gold, company dedicated to the extraction of gold with operations in Guerrero, its vice president, Faysal Rodríguez Valenzuela, explained that the budgets of the companies in the sector contemplated an exchange rate of 20 pesos per dollar on averageHowever, so far the depreciation of the dollar has generated an impact of up to 15 percent on the profits of companies in the sector.
“For every $100 million of our costs, there is an impact of almost $20 million from the depreciation of the dollar alone. To this we must add the fluctuations in the price of gold, and then the impact we are having is even greater,” the manager explained.
He pointed out that the conflict between Russia and Ukraine hit the industry, as Ukraine is one of the main suppliers of ammonia, a basic input for explosives used in mining and for some reagents used in gold processing.
For his part, Luiz Camargo, Country Director at Cuzcatlán Miningexplained that the strength of the Mexican peso It affected mining companies that have an export vocation.
“The appreciation of the peso, for us who are exporters and mainly, we who have no influence on the final price of many metals because they are a commodity, we cannot predict the impact that the appreciation of the peso has on prices, we have to assume the consequences that exist, as in this case, that our operating costs increased,” he noted.
He added that This increase in the cost of operations forced the mining company to reduce the useful life of its mine.in such a way that the closure was anticipated 6 months and, therefore, the mine is expected to conclude operations in the first months of the second half of this year.
“Companies already we are taking the necessary measures to reduce losses, we have even adjusted our operating costs to continue having good profit margins. We hope that these measures will help us reduce the impact that we have had until now,” said the director of Minera Cuzcatlán.
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Rising prices lessen the blow
The price of gold and silver have remained in the spotlight since the end of last year, since all-time highs have since been broken, going from 1,909 to 2,354 dollars per ounce. If of silver, the price per ounce reached $469well above the $379 it was worth at the beginning of 2024.
“The truth is that gold prices have been at their best level, this has helped us reduce the losses we had been experiencing due to the appreciation of the peso against the dollar,” commented Rodríguez Valenzuela.
He added that these rising prices are expected to continue throughout the yeara fact that will help even improve the income of mining companies responsible for the extraction of metals such as gold and silver.
“In case the Mexican currency continues to rise against the dollarthe impact will be less than the one we had in 2023, when gold and silver prices went down“, said.
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