Hector Sosa Flores – COVID-19’s Impact on the Precious Metals Market
There’s no question that COVID-19 has disrupted markets worldwide. With working restrictions, lockdowns, and supply shortages, there’s seemingly no end to the havoc this virus can cause. In the precious metals industry, COVID-19 has created a complicated landscape with both challenges and advantages.
Hector Sosa Flores is a serial entrepreneur with extensive experience dealing with the mining industry. Through Axios Group LLC, Flores traded food commodities and precious metals across the globe. Based in San Diego, California, Flores is highly educated in finance, political science, international diplomacy, and law. He studied at Boston University, Universidad Complutense de Madrid, San Diego School of Law, Universidad Autónoma de Baja California, and Harvard School of Business. Through his extensive schooling, Flores learned how to identify opportunities even in the most difficult of circumstances.
The Impact of the Pandemic
“The precious metals industry is experiencing some turmoil,” says Hector Sosa Flores. “Which isn’t surprising, but is actually beneficial for some operators.” As energy prices decline due to lowered demand and government programs aimed at aiding their citizenships during a difficult time, miners are finding benefits. In particular, open-pit mines that rely mostly on diesel and pull less from electricity grids will find that their energy costs are significantly reduced during the pandemic. “These operations can actually see increased margins,” explains Flores. “Their cost to extract the precious metals is decreased, while the overall price and demand for the product remains high.”
In fact, between January and August 2020, the cost of gold rose 28%. Other precious metals such as copper and iron are also experiencing high demand and correspondingly high prices. In countries where currency prices are low compared to the American dollar such as Mexico, Russia, and South Africa, the opportunity for high margins on precious metals is increasing as well.
“The high price and impressive margins for precious metals right now is a great opportunity for the industry,” says Hector Sosa Flores. “Increased profit opens up possibilities for consolidation.” Additional capital offers miners the opportunity to pursue mergers and acquisitions, which can streamline production and benefit the industry long term. It also frees up capital for exploration initiatives. “There is currently a gold reserve crisis,” explains Flores. “Investing in exploration could result in the discovery of additional sites where metal can be extracted for a reasonable cost and address this issue.”
Of course, the global pandemic hasn’t been good to everyone in the precious metals industry. Just like in retail, mines in various countries such as Argentina, Canada, Mexico, Peru, and South Africa have experienced lockdowns lasting as long as two weeks. Since operations have resumed, strict health and safety measures have been put in place to protect workers, their families, and the production of the mines themselves. After all, the mines cannot operate without a healthy workforce. Other challenges include supply shortages and travel restrictions that prevent skilled professionals from reaching key locations. As cases of COVID-19 begin to rise again in the fall and winter seasons, concerns abound about a second wave of lockdowns, restricting production.
Not all mines are enjoying equal benefits from reduced energy costs either. As Hector Sosa Flores explains: “underground mines require more energy and pull directly from the electricity grid. Mines in the United States, China, and Australia, for example, are not benefiting nearly as much from reduced energy costs as open-pit operations elsewhere.” They also suffer from additional restrictions, since underground mines are enclosed spaces and more optimal for virus transmission.
Overall, the precious metals industry is experiencing tumultuous time as COVID-19 continues to disrupt businesses, manufacturing, and even raw material production. While some mines are enjoying increased margins due to currency depreciation in their regions and lowered energy costs, others are not. Lockdowns and health and safety restrictions are also impacting the mines’ ability to continue extracting metal at a consistent pace, which directly affects supply and cost. Fears of additional lockdowns as cases of COVID-19 continue to affect prices on the market as well. Yet, as Hector Sosa Flores points out, where there are increased margins too is opportunity to pursue capital projects such as mergers, acquisitions, and exploration. It’s far from a simple situation.
This article does not necessarily reflect the opinions of the editors or management of EconoTimes