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Trading statements

Fresnillo on track to meet targets

23 May 2017 07:56

Fresnillo remains well positioned to continue to optimise its performance, maintain a strong financial position and deliver considerable long-term value for shareholders, chairman Alberto Bailleres will tell today's annual general meeting.

He will say: "Whilst precious metals prices remained volatile in 2016, they did recover during the year, reversing the downward trend we had seen for several years.

"At Fresnillo, we remained focused on our long-term goal: to maintain the Group's position as the world's largest primary silver company and a leading gold producer in Mexico in a profitable and sustainable manner.

"Our average realised gold and silver prices rose 10.7% and 10.3% respectively when compared to 2015.

"Against this background, we delivered record silver production of 50.3 million ounces, in line with our guidance and an increase of over 7% vs 2015, and gold production of 935.5 thousand ounces which exceeded our revised guidance and was almost 23% higher than in 2015.

"As a result of our record production, higher metal prices and the devaluation of the Mexican peso during the year, we saw robust financial results for 2016.

"We generated over US$2 billion in adjusted revenues, a rise of 29% over 2015, with a 505% increase in profit attributable to shareholders.

"We almost doubled the cash generation from our mines in 2016, which more than offset our capital expenditure and the payment of dividends, resulting in Fresnillo being net cash flow positive with a closing cash balance of US$912.0 million by year end.

"Our strong financial performance in 2016 led the Board to declare an interim dividend of 8.6 US cents per share and a final dividend of 21.5 US cents per share, totalling US$158.4 million.

"Looking at our operational performance in more detail, our record silver production reflected the initial contribution of San Julian phase I and higher grades at Fresnillo and Ciénega. We also reported record gold production for the year, mainly a result of reduced inventories at Herradura.

"San Julian phase I was commissioned in the third quarter and it is now operating at levels above its designed capacity.

"Despite the unfortunate circumstances which lead to the delay of the start-up of San Julian phase II, we are pleased to report that this second phase is on track to be commissioned at the end of the second quarter of this year.

"We remain confident that San Julian will be a successful new mine and will open up additional growth potential in the district.

"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 implemented additional measures to increase mine preparation and expect a gradual improvement in production during 2017.

"As reported in our 1Q 2017 production report, the mine continues to show positive signs with two consecutive quarters of increased ore grades and silver ounces produced and three consecutive quarters of increased ore processed.

"Our target of reaching 4,800 metres of development per month by the end of 2017 remains on track.

"Looking further at our production results for the first quarter of 2017, we reported quarterly silver production of 13.5 million ounces (including Silverstream), up 10.7% against 1Q16, and quarterly gold production of 222.3 thousand ounces.

"We remain on track to achieve our production guidance for 2017, with silver production of between 58-61 million ounces (including Silverstream), and gold production of between 870-900 thousand ounces.

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

"Regrettably, we reported three fatalities in 2016 and one in early 2017, representing a major setback to our safety programme.

"Following investigations, our management team has taken decisive steps to prevent the type of human errors that are invariably a root cause in these accidents.

"Safety continues to be our highest priority, above production and profitability.

"We recognise that even with best-in-class systems and practices in place, our safety culture must be further strengthened and deeply embedded within the Company.

"To that end, the Board's Health, Safety, Environment and Community Relations (HSECR) Committee continues to review the safety culture and values at the Company.

"In 2016 we continued to optimise our operations. Not only did we make 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.

"We received positive results from our exploration programme in 2016, with an 8.2% and 10.2% increase in total gold and silver resources respectively. Gold reserves remained stable, whilst silver reserves decreased 3.2%.

"Our resource base remains very sound as we progress towards our 2018 goals."

He will also say: "In 2017, despite the recovery we saw in 2016, we believe gold and silver prices will remain volatile.

"We therefore maintain our disciplined approach to investment: growth projects will continue to be evaluated against a range of metrics, including operational and technical factors, pricing and market considerations, as well as our financial position.

"For the near term, our focus remains on efficiency, cost control and meeting our operational commitments: the turnaround of the Fresnillo mine and the successful start-up of the second phase of San Julian.

"We will continue to set the bar higher for ourselves in other areas such as safety, governance processes and organisational effectiveness.

"It is as a result of our combined efforts, with our focus on operational delivery, disciplined approach to investment and clear commitment to sustainable business practices, that we remain well positioned to continue to optimise our performance, maintain our strong financial position and deliver considerable long-term value for our shareholders."

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