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Fresnillo Gold Production Outlook Cut 17% Due To Coronavirus Restrictions

Gold Production
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EDITOR NOTE: As Mexico’s largest gold and silver miner cuts its projection forecast by 17%, it’s likely that other miners will follow suit. COVID-19 restrictions are partly to blame for this decline in production. This is bad news for mining shareholders but good news for gold and silver investors, as a production decline will invariably cut supply. And times of high demand, prices can skyrocket, In short, now’s the time to buy more silver and gold.

Fresnillo has cut its gold production outlook by as much as 17% lower than initially expected for 2020, as coronavirus-related restrictions in Mexico limit the number of people able to work in mines.

Shares in the Anglo-Mexican precious metals miner fell more than 5% in London trading.

The back story. FTSE 100-constituent Fresnillo is Mexico’s largest gold miner and the largest silver producer in the world. Its stock has climbed almost 100% this year, as investors looked to gold as a haven amid the coronavirus economic crisis. Prices for both the yellow metal and silver surged this summer, with gold hitting an all-time high.

In March, Fresnillo said it expected to produce between 815 and 900 koz (thousand ounces) of gold, but reduced its outlook in July to 785 to 815 koz as coronavirus restrictions impacted operations in Mexico. All mining operations were initially halted in the country before the government deemed it an essential industry in May.

What’s new. Fresnillo said on Wednesday that gold production for 2020 is now expected to be between 745 and 775 koz. Gold production in the third quarter of 2020 fell 6% compared with the second quarter, and was also down 18% from the same period last year.

The cut in production guidance is largely due to preventive measures being taken against coronavirus infections in Mexico, which limit the number of workers at open-pit mines. Fresnillo also said that lower-than-expected ore grades and restricted access to deeper areas at one mine have hit outlook.

The miner said its silver production guidance remained unchanged despite the disruption of the pandemic. Its silver mines are underground and face less of an impact from the coronavirus restrictions.

“The health and safety of our people remains our number one priority, in particular during these challenging times in the face of a global pandemic,” said the group’s chief executive, Octavio Alvídrez.

Looking ahead. Fresnillo’s latest reduction in its outlook for gold production is bad news as gold trades near record highs—and the market is taking notice. Analysts from at least four brokerages have now set target prices for Fresnillo at 5% or more lower than what the stock was trading at on Wednesday.

The market has reacted negatively to Fresnillo’s new guidance. Negative sentiment around a drop in gold production outlook may also be spilling over to other miners. Shares in London-listed Centamin dropped over 20% Wednesday despite positive financials and an increase in gold production, as the miner said gold outlook for 2021 would be lower than in 2020.

Originally posted on Barron's 

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