Fresnillo Eyes Higher Energy, Labor, Other Operating Costs In 2012
03/06/2012| 05:27am US/Eastern
Mexican precious metals producer Fresnillo PLC (>> Fresnillo Plc) expects annual operating unit costs to rise this year on a par with last year as higher oil prices affect not only electricity, but tyres and explosives costs as well, the company's senior executives said Tuesday.
"What we are expecting for this year is something similar to last year" in terms of cost inflation, the company's chief financial officer Mario Arreguín told journalists on a call.
He and CEO Jaime Lomelin said operating costs for items such as steel balls for milling, explosives and tyres will grow at about 10% to 12% in 2012 while diesel and electricity costs will rise by 15%. Tyre, explosive, diesel and electricity costs are likely to rise due to the close link to rising oil prices, Lomelin said.
Labor costs are also due to rise by 6.5% in Mexican pesos terms, Arreguin said.
This compares with an average rise in operating costs for such items as tyres and explosives--but not energy and labor--of 12%. Diesel and electricity costs rose 15% while labor costs rose 8.3% in dollar terms, Arreguin said.
The biggest percentage rise in operating costs was in sodium cyanide, which is used for heap leaching to extract more precious metals from the ore. Sodium cyanide expenses rose 29% in 2011.
"We were forced to import cyanide from China," Lomelin said, noting that this made the product more expensive than the usual material sourced from the U.S. Lomelin also said sodium cyanide has become scarce as mine production increases.
Arreguin said the company has hedged 50% of its expected Mexican Pesos-related costs for 2012 through various instruments. The company, which doesn't hedge its gold and silver sales, has also decided not to hedge its zinc and lead by products, which account for about 1.4% of its annual revenue.
Arreguin said that the company would reconsider hedging its zinc and lead prices if prices peak, but he said he expects zinc and lead prices to continue at around $1 a pound.
-By Alex MacDonald, Dow Jones Newswires; +44 (0)20 7842 9328; email@example.com