Miners, Explorers Weigh in on Inflation Impact and Strategies to Fight It

Junior miners make adjustments in face of inflation

Gold, which traded for US$1,530 per ounce in January 2020 before passing the US$2,000 level that August, broke that threshold again this year. It hit its highest price ever on March 8, but a strong US dollar pushed the yellow metal lower from April through July, when values tumbled to US$1,694, an 18 month low.

“I think in the past six months, our industry has been kind of in a downturn,” Chris Curran, head of corporate development and communications at Tudor Gold (TSXV:TUD.V), told INN on the sidelines of the Rule Symposium. “It’s been quieter than it has been the last couple years, definitely.”

Speaking just after the last interest rate hike from the US Federal Reserve, Curran said that perhaps the move would mark a change in investor sentiment. “I'm hoping that's going to be a turnaround right here,” he said.

Tudor's flagship asset is the Treaty Creek gold project in BC's Golden Triangle region. “We've got high leverage to the gold price,” he said. “With an increasing gold price, that will really help us attract investor interest and get them interested again, especially in companies such as ours (with) large gold deposits.”

While remaining optimistic, Curran did note that inflation is driving up the cost of services, which is a concern for both his company and the broader mining sector.

“(Inflation) hasn't really changed our outlook on advancing our project, (but) we're doing some things differently to save costs,” he said. “All our costs have gone up — gas, labor, helicopter costs — so we're being more cautious.”

In late August, Tudor released its fifth set of drill results from a Phase l exploration program at Treaty Creek. The announcement highlights “two high-grade precious metal intercepts” at the Goldstorm deposit.

In addition to the ongoing exploration program at Treaty Creek, Curran told INN about the company’s plans for the Crown property, located in the same district as Treaty Creek.

“We're actually spinning off one of our properties, Crown, which we own 100 percent of,” he said. “So if you're a Tudor Gold shareholder, for every four shares you hold of Tudor Gold, you get one (share) of the new company.”

First Majestic's Keith Neumeyer on offsetting rising costs

Concerns around how inflation is impacting mining companies' bottom lines were also raised by Keith Neumeyer, president and CEO of First Majestic Silver (TSX:FR,NYSE:AG), who noted in a Rule Symposium presentation that the firm has had to make some adjustments in the wake of today's economic conditions.

“There are some inflationary pressures to be sure. On the business side, we've seen energy costs — in Nevada, for example — go up 50 percent in the last six months. Pretty shocking,” he said at the event.

In order to offset rising energy costs, as well as costs for key materials like cyanide, ammonia and lubricants, Neumeyer explained that the silver company has looked to make cost reductions elsewhere.

“We actually reduced our budget this year,” he said, noting an 8 percent inflation rate across the business. “We also cut the budget on top of that.”

At the same time, the company's 2022 production has increased out of Mexico, allowing First Majestic to remain within its production targets. A Q2 update notes that its guidance for the year now stands at 32.5 million to 34.6 million silver equivalent ounces versus prior guidance of 32.2 million to 35.8 million silver equivalent ounces.

Uranium outlook positive, but costs still rising

It's not just oil and gas that have seen price growth as the world grapples with the need for energy and broad environmental goals. Uranium has made major gains since 2020, rising 99 percent from January of that year to the end of August this year; earlier in 2022, it even briefly passed US$65 per pound for the first time since 2011.

Even so, uranium explorers have also had to navigate inflation, geopolitical unrest and supply chain challenges.

As Ross McElroy, Fission Uranium’s (TSX:FCU,OTCQX:FCUUF) CEO, president and director, explained, the sector had been plagued by persistently low prices before 2020’s price spike.

“Everybody knows that uranium prices were well, well, well below incentive prices for probably a decade after Fukushima,” he said. McElroy went on to explain that over the last two years the incentive price, the amount needed to bring new production online and drive more exploration, is no longer US$50.

“I think the real incentive number these days is probably US$70 to US$80, and maybe that's also borne in with inflation too, right. You know, inflation does increase that," he said.

Even though uranium remains below that US$70 to US$80 incentive threshold, the sector has been getting more attention than some parts of the resource arena, and McElroy noted that he's been happy to see this increased interest as nuclear becomes an increasingly prevalent part of the clean energy transition.

“The same overall excitement in the sector is reflected in interest in Fission and our share price,” McElroy said.

Heightened investor interest has helped facilitate the advancement of the company’s PLS project, located in Saskatchewan's Athabasca Basin. Fission is currently working on the feasibility study for the asset.

“I think there's a lot more investor enthusiasm,” he said. “You really do get a sense of the sea change out there.”