How Grupo Mexico's Increased Production Amid Falling Sales
With first quarter profit tallies wrapping up, Grupo Mexico’s Mining Division has reported a 39 percent drop in overall net income, even as the company’s copper, molybdenum, silver and gold production increased throughout the quarter. This respected metals miner and railroad operator totaled a still impressive $21.8 billion in net revenue; however this total was more than 11 percent less than its previous year. Upon further insight into Grupo Mexico’s disappointing first quarter, industry experts are revealing how the organization was able to increase productivity while losing overall net income.
Adding to these already unfortunate records, the company has reported an astounding 43 percent decrease in gold sales, 28 percent in silver sales and a slight decrease in copper sales as well. Industry experts and company executives are baffled by the changes, hovering around the prevailing question: with increased production, how did Grupo Mexico come up short this quarter? The answer to this industry-wide question has manifested itself in three major areas of the mining activity: the increased movement of ore, improved grades and recovery initiatives and the increased sales of copper, moly, zinc and sulfuric acid.
In the search to understand how the mining industry’s improved grades and recovery affected production, gold and silver were showcased as its best examples. Silver production boomed 8 percent to 3.79 million ounces in this year’s first quarter alone when compared to the previous year. This jump resulted from heightened activity at the Cuajone and Buenavista mines, which was a direct result of the quarter’s improved recovery initiatives. Additionally, gold production rose 2 percent from the previous year, again due to improved grades and recovery initiatives, as well as increased production at the Toquepala mine.
Reuters reports that, “The company's [Grupo’s] production of copper, which accounts for 82 percent of Grupo Mexico's mining division revenue, increased 5 percent compared with the year-earlier period.” Also increasing to 5,606 tons, Grupo’s moly production was up 17 percent in the first quarter of this year, compared to the previous 4,810 tons from the first quarter of 2013, in addition to the organization’s increased copper production of 204,743 tons, jumping 5 percent from the previously recorded year.
After suffering a flood at one of its most profitable mines, the company knew production was going to be in flux. Grupo Mexico also released a comment on this issue concerning its increased zinc production, which rose 11 percent, stating, “[the increase] is a result of uninterrupted production at Santa Eulalia after restarting operations due to flooding,” said Grupo.
The apparent disconnect between Grupo’s increased production and lack of sales present a classic case of supply and demand imbalance, which unfortunately resulted in an overall loss for Grupo’s net revenue; however the organization is already investing in recovery measures for its future. Bouncing back from the flood of the Buenavista mine, which impacted 22,000 metric tons of production, and this quarter’s unfavorable profit tallies, the company seems to be charging full-steam ahead with its recent investments for the remainder of the year. Just recently, the Grupo Mexico Board of Directors announced an approved capital investment of $2.5 billion for its mining division.
Global iron ore production to recover by 5.1% in 2021
Global iron ore production fell by 3% to 2.2bnt in 2020. Global production is expected to grow at a compound annual growth rate (CAGR) of 3.7% to 2,663.4Mt between 2021 to 2025. The key contributors to this grow will be Brazil (6.2%), South Africa (4.1%), Australia (3.2%) and India (2.9%). Key upcoming projects expected to commence operations include South Flank in Australia (2021), Zulti in South Africa (H2 2021), Serrote Da Laje in Brazil (H2 2021) and Gudai-Darri (2022), according to GlobalData, a leading data and analytics company.
Vinneth Bajaj, Associate Project Manager at GlobalData, comments: “Declines from Brazil and India were major contributors to the reduced output in 2020. Combined production from these two countries fell from a collective 638.2Mt in 2019 to an estimated 591.1Mt in 2020. The reduced output from the iron ore giant, Vale, was the key factor behind Brazil’s reduced output, while delays in the auctioning of mines in Odisha affected India’s output in 2020.
“Miners in Australia were relatively unaffected by COVID-19 due to effective measures adopted by the Australian Government, while a speedy recovery in China led to a significant 10.4% increase in the country’s iron ore output.”
Looking ahead, the global iron ore production is expected to increase by 111.3Mt to 2,302.5Mt in 2021. Rio Tinto is expected to produce up to 340Mt of iron ore, while BHP has released production guidance of 245–255Mt, supported by the start of the Samarco project in December, which is expected to produce between 1–2Mt.The company has retained its guidance for Australian mines at 276–286Mt on a 100% basis, due to scheduled maintenance work at its ore handling plant and tie-in activity at the Area C mine and South-Flank mine.
Bajaj added: “The remaining companies are expected to produce more than 600Mt of iron ore, including FMG, whose production is expected to range between 175–180Mt supported by its Eliwana mine that commenced operations in late December 2020, and Anglo American, which is expecting to produce between 64–67Mt. Vale is expected to resume 40Mt of its production capacity, taking its overall production capacity to 350Mt in 2021, with production guidance of 315-335Mt.”