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Annual Results

Fresnillo profits jump after record output

28 February 2017 07:41

Fresnillo posts strong overall performance for the uyear to the end of December with record silver production of 50.3 million ounces.

The group said this was in line with guidance, reflecting the initial contribution of San Julián phase I and higher grades at Fresnillo and Cienega, while gold production of 935.5 thousand ounces exceeded revised guidance.

Thew group said adjusted revenue of US$2,045.0 million was up 29.2% on increased volumes and higher metal prices.

Gross profit and EBITDA of US$882.1 million and US$1,032.0 million, were up 103.7% and 88.5% respectively.

Profit from continuing operations before net finance costs and income tax of US$676.5 million was up 237.5%.

It said the evaluation of the Mexican peso against the US dollar positively affected production costs.

Cost per tonne and cash cost decreased at all mines, due to devaluation of Mexican peso and cost reduction initiatives.

Chief executive Octavio Alvidrez said: "I am pleased to report a strong overall performance in 2016.

"We delivered record silver production of 50.3 million ounces, in line with our guidance, reflecting the initial contribution of San Julián phase I and higher grades at Fresnillo and Ciénega.

"Gold production of 935.5 thousand ounces exceeded our revised guidance, mainly as a result of the reduction in inventories at Herradura.

"Our record production, combined with higher metal prices and the devaluation of the Mexican peso during the year allowed us to deliver strong financial results in 2016 and as a result the Board has recommended a final dividend of 21.5 cents per share, equivalent to approximately US$158.4 million. "At the Fresnillo mine, despite reporting a slight improvement in silver production in 2016, we continued to experience some issues that impacted the delivery of our turnaround plan.

"However, we have implemented additional measures to increase mine preparation and expect a gradual improvement in production in 2017. "San Julian phase I was commissioned in the third quarter and contributed to our record annual production.

"It is now operating at levels above its designed capacity.

"Despite taking the decision to delay the start-up of San Julian phase II, we are pleased with the progress made during the year and are confident that this second phase will be commissioned in the second quarter of 2017. "We continued to optimise our operations in 2016; we not only made good progress with our development projects but we also increased our resource base.

"The pyrites plant and second line of the dynamic leaching plant at Herradura advanced largely according to plan, with commissioning of both due in 2018, and our exploration work resulted in an increase of our resource base at our operating mines and at projects where we have identified strong potential. "Our solid operational performance, together with higher prices, lower costs and the favourable effect of the devaluation of the Mexican peso allowed us to almost double the cash generation from our mines.

"This more than offset our capital expenditure and the payment of dividends, resulting in the Company having a cash, cash equivalents and short-term investments balance of US$912.0 million, which increased by US$412.5 million from 2015 to 2016. "Regrettably, we did not achieve our target of zero fatal accidents in 2016.

"We have put in place a number of safety programmes and best practices at all of our operations and our focus remains on prioritising safety in all of our activities and continuing to strengthen our safety culture. "For 2017, we expect further increases in production with silver reaching the 58-61 million ounces range (including Silverstream) and gold production to be between 870-900 thousand ounces.

"Capital expenditure is anticipated to be approximately US$800 million and exploration expenses US$160 million, including the capitalised portion.

"We will continue to focus on delivering further cost reductions and productivity improvements in 2017 as well as improving our safety performance to meet our zero harm target. "Our performance in 2016 again demonstrated the quality of our asset base and our low-cost and flexible operations.

"I am confident that with our focus on operational delivery, disciplined approach to investment and clear commitment to sustainable business practices, we can continue to optimise our performance and maintain our strong financial position to deliver considerable long-term value for our shareholders."

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