Stifel GMP is anticipating increased operating costs stemming from the Russia-Ukraine war to have an effect on the bottom line for precious metals companies, as miners gear up to report their 1Q earnings over the next few weeks.
In a note, analysts at the firm said increased fuel prices, spurred by the war, would impact unit costs with an amplified impact on open pit operations.
However, Stifel noted that while there would likely be an impact on cash costs, most miners would not adjust their guidance expectations in 2Q.
READ: Stifel GMP maintains 'Buy' on Steppe Gold after site visit reveals steady state operation at its ATO mine in Mongolia
The war in Ukraine and inflationary pressures caused precious metal prices to spike in early March. Gold prices for the quarter posted a 4.6% increase year-over-year and silver a 3.3% increase compared to the same period last year, with nickel, zinc and copper also posting quarterly gains of 44%, 11%, and 4% respectively.
But analysts noted prices have since declined upon “the realization that a prolonged conflict in Europe may be the new normal.” Gold prices hovered around $1,910 an ounce by the end of April.
Inflation is also anticipated to have an impact on capex budgets, with greenfield projects holding the most exposure to cost spikes.
“Steel, consumables, and reagents have posted price increases as a result of the war in Ukraine, lockdowns in Shanghai, and the subsequent global supply chain reshuffle,” analysts wrote.
“Companies in the process of building greenfield projects will likely experience a negative free cash flow impact stemming from cost pressure on inputs for projects.”
Analysts also noted that miners were not out of the woods yet when it came to pandemic-related disruptions.
“Unfortunately, COVID-19 is still with us and has had a tangible effect in the form of absenteeism during the quarter,” the firm wrote.
Based on the current macroeconomic backdrop, Stifel’s analysts updated their near-term precious metals outlook, now forecasting a gold price for 2022 of $1,895 per ounce and silver price of $25.16 per ounce.
2023 and long-term assumptions remain unchanged, at $1,750 per ounce for gold and $24 per ounce for silver.
What to watch for as earnings season begins
For senior producers, Stifel is predicting Barrick Gold’s production to decrease by almost 200,000 ounces quarter-over-quarter, while Agnico Eagle Mines and Kinross Gold are both expected to report production increases for 1Q comapred to 4Q 2021.
Looking at junior players, the firm is expecting Karora Resources Inc to have boosted its production from 27,925 ounces in 4Q 2021 to 29,601 ounces for first quarter of this year.
After facing supply chain issues that impacted production at its mine in Mongolia, analysts expect Steppe Gold Limited (TSX:STGO, OTCQX:STPGF) to report production of 1,532 ounces during 1Q.
In a late April note, Stifel maintained its ‘Buy’ recommendation on the company after a site visit to the mine highlighted steady operation with a focus on growth and environmental, social, and governance (ESG) commitments.
Other producers to watch as earnings roll out include Mandalay Resources Corp, Endeavour Mining PLC (LSE:EDV, TSX:EDV, OTCQX:EDVMF), Altaley Mining Corporation (TSX-V:ATLY), Minto Metals Corp (TSX-V:MNTO), Golden Minerals Company (NYSE-A:AUMN, TSX:AUMN, ETR:7GB), Gold Resource Corporation (NYSE-A:GORO, ETR:GIH), and Great Panther Mining Limited (TSX:GPR, NYSE:GPL).
Contact Emily at emily.jarvie@proactiveinvestors.com
Follow her on Twittter @emilyjjarvie