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Fresnillo hit by dollar strength

Fresnillo's production figures reflect improved operational execution, though gathering dollar strength remains a cause for concern.
August 4, 2015

Unsurprisingly, half-year figures for Fresnillo (FRES) underwhelmed due to faltering precious metals prices, but the Mexican miner delivered encouraging production numbers. Though revenues were on the up, gross profits fell 7 per cent to $274m (£176m). This was largely down to increased depreciation charges and higher inventory levels in 2014 that were netted against cost of sales. Reported earnings pulled back from last year, though they would have been broadly flat without $15.6m in negative currency effects and a $47.3m revaluation on the group's Silverstream contract in 2014. Fresnillo said it would defer around $130m of its capital spending budget in order to insulate the bottom line.

IC TIP: Buy at 633p

Fresnillo, the world's biggest producer of silver, delivered 23.8m ounces during the period, along with 360,000 ounces of gold - respective increases of 10.6 and 37 per cent. The figures indicate the group is on track to achieve full-year guidance on silver and an upward revision on gold. Unfortunately, prices - down 18 and 7.4 per cent respectively from the 2014 half-year - remain a key determinant in revenue expectations. And with a US rate rise in the offing, the outlook isn't exactly promising.

FRESNILLO (FRES)
ORD PRICE:633pMARKET VALUE:£4.7bn
TOUCH:632-634p12-MONTH HIGH:1,037pLOW: 617p
DIVIDEND YIELD:0.01%PE RATIO:133
NET ASSET VALUE:316¢NET DEBT:14%

Half-year to 30 JuneTurnover ($m)Pre-tax profit ($m)Earnings per share (¢)† Dividend per share (¢)
201467720817.75.0
201575213610.42.1
% change+11-35-41-58

Ex-div:13 Aug

Payment:10 Sep

£1 = $1.56. † A special dividend was declared in 2014 of 5.0 cents per share, equivalent to $36.8m.