Fresnillo (FRES)'s share price headed south after the group revealed a 22 per cent fall in full-year cash profits to $567m (£371m). Overall, it was a mixed year for the Mexican precious metals miner, with a step-up in silver production set against operational problems at its Herradura open-pit gold mine. Profitability suffered due to higher adjusted production costs, and there were drags from non-cash exceptional items, including currency-translation losses.
The main challenge for the group, however, was continued weakness in precious metals markets. Earnings were hit by a 10.2 per cent decline in the group's average realised gold price to $1,258 per ounce, while average silver prices fell 18.4 per cent to $18.60 an ounce.
Gold output for the year was down 2.4 per cent, which wasn't too shabby given that mining at Herradura was halted until March 2014 due to a ban on the use of explosives. And we can expect an improved performance from the mine following the successful installation of a dynamic leaching plant, which will cut cash costs. The group managed to meet its revised guidance for the yellow metal, while silver output was ahead of guidance at 45m ounces, a 4.9 increase over 2013.
Investors can take encouragement from a strong increase in resources and reserves at Herradura during the year. Despite ongoing price weakness in its main markets - and unlike other commodity groups - Fresnillo has continued to invest in exploration to generate organic growth. During 2014, the group managed to increase its physical gold and silver reserves by 45 per cent and 21 per cent, respectively - although the estimated value of those reserves was hit by lower price assumptions. Through 2015, Fresnillo intends to allocate around $700m on capital expenditure, against $425m last year, with the bulk of the funds destined for existing works at the Herradura, Saucito and the eponymous Fresnillo mining complexes.
City has set a price target of 800p based on a net present value estimate.
| FRESNIILO (FRES) | ||||
|---|---|---|---|---|
| ORD PRICE: | 753p | MARKET VALUE: | £5.5bn | |
| TOUCH: | 752-753p | 12M HIGH / LOW: | 1,037p | 676p |
| DIVIDEND YIELD: | 0.3% | PE RATIO: | 78 | |
| NET ASSET VALUE: | 309¢ | NET DEBT: | 15% | |
| Year to 31 Dec | Turnover ($bn) | Pre-tax profit ($bn) | Earnings per share (¢) | Dividend per share (¢) |
|---|---|---|---|---|
| 2010 | 1.4 | 1.0 | 93.0 | 44.8 |
| 2011 | 2.2 | 1.5 | 126 | 103 |
| 2012 | 2.2 | 1.2 | 103 | 57.9 |
| 2013 | 1.7 | 0.4 | 32.9 | 27.3 * |
| 2014 | 1.4 | 0.3 | 14.7 | 3.0 † |
| % change | -14 | -38 | -55 | -89 |
Ex-div: 30 Apr Payment: 22 May £1 = $1.53. *Excludes special dividend of $50.1m, equivalent to 6.8¢ a share. † A special dividend was declared in 2014 of 5.0 cents per share, equivalent to $36.8m. | ||||
