Labor shortages and inflation continue to challenge mining companies
Much of the world seems to be returning to normal following the COVID-19 pandemic however, the global mining industry continues to feel the effects of the pandemic in terms of labor shortages and production costs.
Reuters analyzed the quarterly reports from some of the largest mining companies in the world and found a trend of downbeat reports including from the likes of Anglo American and Antofagasta which have either lowered annual production targets or increased expected capital expenditure, laying part of the blame on the broad inflationary pressure coming from rocketing diesel prices.
As a result, analysts expect earnings to be driven lower this year and next.
RBC Capital Markets, for example, expects Anglo’s earnings before interest, taxes, depreciation, and amortisation (EBITDA) to fall by a fifth in 2022 and 12 percent in 2023.
The report also found the world’s largest miners BHP Group and Rio Tinto, also fell short of estimates for their January to March iron ore output and warned on future production of the steel-making commodity.
The common denominator was pandemic-led border controls in Western Australia state for much of the quarter that led to a dearth of mine workers and train drivers, before COVID cases surged when the curbs were lifted.
China is the primary buyer of iron ore from Australia but it will continue to reduce its crude steel output this year to curb pollution, after cutting around 30 million tonnes of production in 2021.
China's fresh COVID-19 lockdowns, an expected slowdown in global economic growth and the impact of Russia's war in Ukraine are also potent threats, analysts said.
“Lower steel production could lead to inventories rising into seasonally stronger supply, which could pressure iron ore prices,” RBC said in a note.
For copper, a period of slower global growth would also be a setback but is increasingly likely, analysts at Jefferies said.
Copper miner Freeport McMoRan cut its 2022/23 annual sales forecast despite a production jump in the first quarter. Freeport posted record profits in 2021, buoyed by rocketing prices for everything from copper and iron ore to coal, which allowed them to shower shareholders with cash.
A repeat this year seems unlikely as lower demand threatens to collide with higher inflation, subduing market prices just as costs per unit of production increase.
Anglo-Australian Rio Tinto conceded that it needed to improve its operational performance after a “challenging” quarter that saw shipments from the resource-rich Pilbara region dwindle to a three-year low.