Fitch expects lower cost pressures to improve Peñoles' profitability in 2024

Fitch Ratings expects Mexican miner Industrias Peñoles to improve its profitability in 2024. 

“Peñoles faced cost pressures in the past few years, which Fitch expects to moderate in 2024 on the back of downward inflation and Mexican peso depreciation,” the rating agency said in a Latin American metals & mining report. 

“Saucito and Fresnillo, close to 40% of Peñoles’ silver production, weakened due to declining grades, partially mitigated by cost improvement in Herradura, close to 50% of gold production”.

Fitch said that according to CRU data, Peñoles’ operations have weighted average gold AISCs (all-in sustaining costs) of US$1,164/oz, placing it in the third quartile of the global cost curve in 2023.  

In its Q3 results report, Industrias Peñoles cited a 23.4% increase in the cost of sales attributable to the strong appreciation of the peso against the US dollar (15.7% on average), which adversely impacted production costs incurred in pesos (approximately 50% of such expenses are originated in pesos), and the inflationary pressures on its inputs basket for operations, among others.

“Peñoles’ profitability is affected by increasing cost pressures in the last few years, however, Fitch expects Ebitda margin will recover to 25% in 2024 from 14.6% as of June 2023 due to cost improvements,” the agency’s report added. 

Fitch highlighted that Peñoles’ precious metals mines have an average life of about 11 years. However, the report added that “low mine life risk is mitigated by Peñoles’ track record of operating for more than 100 years and holding mining concessions of around 2.7mn acres in Mexico and South America. Peñoles adds new projects every two to three years.” 

Over 80% of the Mexican mining industry is controlled by three local companies: Grupo México, Peñoles’ precious metals subsidiary Fresnillo PLC and Industrias Peñoles, according to the country’s mining chamber Camimex.