By Alex MacDonald
LONDON--Mexican precious metals producer Fresnillo PLC (FRES.LN) expects mining cost inflation at 7%-8% this year due to higher costs for imported goods such as explosives and higher local costs such as labor and diesel, the company's chief executive said Tuesday.
On a call with journalists, Jaime Lomelin said that wages have increased 6.5% and diesel costs are rising. He said that Mexican diesel prices are catching up to U.S. diesel prices and should result in 6% higher fuel costs between now and the end of the year.
For the second half the year Fresnillo isn't expecting a further increase in labor costs, since contracts have already been settled with unions and contractors.
Electricity prices aren't expect to increase since Mexico is producing more electricity with imported natural gas, Lomelin said, and natural gas prices in North America have dropped as a result of shale gas production.
Overall, Lomelin said he expects the company's earnings before interest, taxes, depreciation and amortization, or Ebitda, margin to hold at around 63% for the rest of the year after dropping from 71.3% in the first half of 2011. He noted that it is hard to predict future Ebitda margins since they are contingent on gold and silver price movements.
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(END) Dow Jones Newswires
July 31, 2012 04:05 ET (08:05 GMT)
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