Global logistics crunch weighs on LatAm miners

Mining companies in Latin America are being hit by a pandemic-related global logistics crunch, with labor shortages in the trucking and freight industries wreaking havoc on supply chains.

While infection rates in many parts of the region have fallen recently – reducing the impact of absenteeism at mines – the global post-lockdown economic rebound has placed huge pressure on logistics, with the mining sector continuing to be affected by a lack of shipping capacity and delayed deliveries.

The IMF expects the world economy to grow 5.9% in 2021 and 4.9% next year following a 3.1% contraction in 2020, but the figure for this year has been revised down by 0.1 percentage points in part due to supply disruptions, along with worsening pandemic dynamics in developing countries.

Southern Copper, the biggest copper producer in Peru and Mexico, is one of the mining companies to report impacts.

“The strong global economic recovery has generated significant challenges for the global shipping industry, which have led to congestion at ports, shortage of containers and a lack of space on ships,” the company said in its Q3 report.

“This situation has caused the company to experience some delays in the reception of imported materials as well as in the shipment of its products and receivable collections.”

This has not had a material impact on Southern Copper’s financial position, it added, which has been bolstered by higher prices of copper and other metals.

As a result, the firm’s net income surged 71.5% to US$868mn in Q3, compared to the same period last year.

NON-HEALTH CHALLENGES

Newmont, LatAm’s top gold producer – with assets including gold mines in Mexico, Argentina, Suriname and the Dominican Republic – also reported impacts.

“Throughout the mining sector, we are continuing to see the non-health-related challenges caused by the pandemic including labor shortages, rising input costs and supply chain disruptions,” CEO Tom Palmer told an earnings call.

On the supply chain side, the fallout has mainly been felt on freight and trucking, and pressures are expected to last at least into 2022.

“The main place that we're seeing this supply chain disruption is really on the logistics, the freight or shipping, and what's driving that is availability on inland shipping and freight, it's just the availability of truck drivers,” Newmont CTO Dean Gehring said.

“We're seeing that the manufacturers, the factories, just kind of work their way through COVID-19. They're getting back up to production. 

“But market consensus is that we're still going to see this persistent pressure through the end of the year, largely driven by the availability of people to move the products around.”

PROJECT DEVELOPMENT

As well as large producers, small mining companies which have been advancing growth projects during the pandemic have also been hit by supply chain issues.

These include Mako Mining, which reached commercial production at its San Albino gold mine in Nicaragua in July.

“From a spare parts perspective, we have to deal with the post-pandemic logistical supply crunch we are in,” CEO Akiba Leisman told BNamericas.

During construction, the company decided to invest less in spare parts in order to conserve capital, a decision which impacted mill availability in Q2-Q3.

With construction completed, Mako has since sought to address this lack of spare parts but has been held back by shipping constraints.

“It’s very difficult to get container ships to get those parts delivered,” Leisman said.

“That’s been a challenge to increase our levels of spare parts to levels we would deem as steady-state.

“We’re working through that and right now some of those efforts are coming to fruition.”

The company expects to have all spare parts on site by mid-November, and mill availability in excess of 90% going forward, the executive added.

But the challenge is much bigger than mining, according to Leisman.

“If you are a toy manufacturer and you want to get your goods into consumer economies before Christmas, good luck.

“There are going to be some challenges just because of the huge spike of demand we have had for manufactured goods, the shortages of labor we have had at ports, the shortage of trucking and rail capacity, it really was a once-in-a-generation shock to global logistics infrastructure.

“We’re problem solvers, so we’re capable of addressing some of these issues as they develop, and when the logistics industry has some time to invest in removing bottlenecks, through capex or additional hiring or more efficient operations, my guess is this will be something that’s resolved over the next year or so.”