Volatile precious metal prices, environmental concerns, and project-specific concerns are the biggest risks facing gold and silver miners. However, some companies face added pressure deriving from declining production and high inflation costs.
Internal problems may affect Buenaventura growth
In Peru, Compania de Minas Buenaventura SA (ADR) (NYSE:BVN) is a leading precious metals producer. All of its operating assets are located in Peru. It operates seven wholly owned mines and holds minority interests in several important mines, including a 19.3% in the Cerro Verde copper mine, which helps diversify Compania de Minas Buenaventura SA (ADR) (NYSE:BVN) away from precious metals, and a 43.7% in the Yanacocha gold mine, one of the leading gold producers in Latin America.
The company reported weak first-quarter results due to lower metal production as well as an increase in operating costs. Net income plunged 51% year-over-year to $102.7 million. Gold production fell 12% to 243,811 ounces, as production in Yanacocha fell 22%. Silver output gained 12% to 4.72 million ounces, while zinc and lead rose 24% and 44%, respectively.
Compania de Minas Buenaventura SA (ADR) (NYSE:BVN)’s main problem is cost controls. Its Earnings Before Interest, Taxes and Depreciation (EBITDA) margin dropped 19 percentage points year-over-year. In Orcopampa, the company’s primary gold producing property, lower gold production and greater exploration efforts drove up cash operating costs per ounce by 38%.
The Conga project is intended to help replenish Yanacocha’s declining reserves and production, but it is experiencing delays due to local and environmental opposition.
Higher costs and lower prices
Newmont Mining Corp (NYSE:NEM), which has partnered with Compania de Minas Buenaventura SA (ADR) (NYSE:BVN), is engaged in the production of gold and the acquisition and development of gold properties worldwide.
Newmont Mining Corp (NYSE:NEM) also missed forecasts by posting a first-quarter adjusted net income drop of 39% year-over-year to $354 million, led by higher costs and lower commodity prices.
Gold production decreased 11% year-over-year to 1.165 million ounces, while copper production was up 9% to 38 million pounds. Also, mining costs are increasing due to declining grades, increased royalties, plus higher labor and fuel costs, among other reasons. This quarter gold costs applicable to sales were up 22%, while copper costs were up 11%.
The development-stage Long Canyon project in Nevada could help leverage Newmont Mining Corp (NYSE:NEM)’s infrastructure. Also, the Batu Hijau copper and gold mine in Indonesia, currently in a stripping phase, can improve production and costs after 2014, when