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26 Feb 2019 | 07:20

Fresnillo profits slide on lower commodity prices

Fresnillo reported Tuesday a sharp decline in annual profits as record silver, lead and zinc volumes sold were offset by lower prices and the miner offered a dour outlook warning of another 'challenging year.'

For the 12 months ended 31 December, profit before income tax fell 34.7% to $483.9m, while revenue rose 0.5% to $2.10bn.

The poor performance was blamed on decline in commodity prices, higher costs and lower than expected silver output.

Adjusted production costs rose 23.8%, mainly 'driven by the higher stripping ratio at Herradura, cost inflation and additional costs associated with higher volumes produced,' the company said.

Fresnillo produced 922,527 ounces of gold for the year, and 61.8m ounces of silver, which fell short of guidance of between 62.0m and 64.5m ounces. 'Despite the year on year increase in silver production, we reported lower silver production than anticipated and were disappointed not to meet our long-term silver target of 65 moz. This was mainly due to lower than expected ore grades at the Fresnillo and Saucito mines combined with some operational issues,' the company said. For 2019, silver production was expected to be slightly lower, in the range of 58m to 61m ounces, which the company blamed on an 'anticipated reduction in the silver ore grade at Saucito.' Gold production, meanwhile, was expected to be flat year-on-year, in the range of 910,000 to 930,000 ounces as the contribution of the second Dynamic Leaching Plant at Herradura, would be offset somewhat from a decrease in the inventory reduction.

Capital expenditure is anticipated to be approximately US$710m. The company proposed a final dividend of US$16.7 cents per share. 'Looking ahead, I expect 2019 to be another challenging year. We face a number of headwinds, including lower prices for precious metals and higher inflation,' said Octavio AlvĂ­drez, CEO. 'I also expect to see higher depreciation costs as a result of the investments we have made in recent years into the operations, while we continue to expect to work through operational issues and lower grades at certain mines during the year. All this has resulted in us slightly lowering our silver production guidance for 2019.

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