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Weak gold price hits Fresnillo

Any operational progress at Fresnillo was always going to be overshadowed by last year's drop in precious metals prices.
August 7, 2014

Production outages and the sharp fall-away in precious metals prices from April 2013 onwards made for unflattering half-year comparatives for Fresnillo (FRES). But the Mexican miner still declared a special dividend and signalled it was on track to meet full-year guidance.

IC TIP: Buy at 934p

Operating profits halved to $183m (£108m), while cash-flows were down by a third to $337m – which is still pretty healthy by most standards. The profit drop was partly due to temporary disruptions at the Herradura mine after the government imposed a ban on the use of explosives. This ban has now been lifted, and gold production at Herradura was up by a third in the second quarter compared to the first. Nonetheless, the disruption meant that Fresnillo’s total gold output fell by 18.9 per cent to 191,317 ounces.

The good news is that half-year silver output was marginally higher, at 21.3m ounces, while costs shrank thanks to lower exploration charges. Two major expansion projects – Saucito II and San Julian – also remain on track and on budget.

However, Fresnillo is a commodity play, so double-digit falls in average prices for silver and gold were always going to have an overriding impact on these results. In the event, the fall in net earnings was less severe than that in underlying profits due to the revaluation of the miner's Silverstream complex.

UBS anticipates 2014 EPS of 31¢, rising to 36¢ in 2015.

FRESNILLO (FRES)
ORD PRICE:934pMARKET VALUE:£6.9bn
TOUCH:933-935p12-MONTH HIGH:1,322pLOW: 645p
DIVIDEND YIELD†:1.4%PE RATIO:51
NET ASSET VALUE:324¢NET CASH:$369m

Half-year to 30 JunTurnover ($m)Pre-tax profit ($m)Earnings per share (¢)Dividend per share† (¢)
201392625020.04.9
201467720817.7nil
% change-27-17-12-

†Excluding a special dividend of 5¢ per share, to be paid on 11 Sep, and an extraordinary dividend of 22.39¢ paid on 11 November 2013

£1 = $1.69