TORONTO, Dec 2 (Reuters) - Yamana Gold (YRI.TO) sees widening profit margins over the next year as declining production costs will likely outpace any further retreat in gold prices, the company’s chief executive said on Tuesday.
Speaking at an investment conference, CEO Peter Marrone said costs for inputs such as oil, combined with weaker currencies in countries where Yamana operates, mean the third quarter of 2009 will likely stand as the high point for costs.
“My view is that we are back into an environment from a cost perspective — or at least in 2009 we will be — that will be consistent with late 2004 and 2005,” he said, pointing to the last time oil prices were at current levels.
Cost inflation has been a huge headache for miners over the past few years as rising costs for oil, steel, equipment, and labor have taken some of the shine off the strong rise in metals prices since 2001.
However, after peaking at just under $150 a barrel in July, oil prices have fallen by nearly two-thirds, while falling steel demand, mine closures, and project delays have eased other cost pressures.
Gold prices XAU=, meanwhile, are down 7 percent so far this year, but have held in much better than base metals prices.
For Yamana, which has most of its operations in Chile and Brazil, the sharp fall in those countries’ currencies versus the U.S. dollar — the Chilean peso CLP= is down 24 percent and the Brazilian real BRL= has fallen 32 percent since the end of August — has reduced local costs, particularly labor.
Asked if the company might reenter the mergers and acquisitions market, which it has stayed out of since making two acquisitions last year, Marrone said he would prefer to wait until Yamana’s stock valuation improves, although he said there were opportunities in the market.
“I want to assure everyone... that we have nothing on the horizon,” he said.
Yamana expects to produce just over one million ounces of gold this year, and sees that figure rising to more than 2 million by 2012.
The company’s shares were up 47 Canadian cents, or 7.8 percent, at C$6.47 on the Toronto Stock Exchange, slightly outperforming a 5.9 percent rise for global gold stocks as a group.
$1=$1.25 Canadian Reporting by Cameron French; editing by Peter Galloway