Fresnillo shareholders will have to make do with a reduced interim dividend, after the Mexican precious metals miner revealed that a 37.3 per cent hike in production costs had eaten into half-year profits. Although Fresnillo remains a relatively low-cost producer, investors will need to take the long view as the group is intent on forging ahead with its exploration programme, which will invariably place pressure on margins and suggests the shares hold little appeal right now.
Falling grades resulted in a 6.5 per cent fall in silver production, while realised prices fell by 13.3 per cent. There was better news from the gold segment, where a 12.5 per cent rise in prices was magnified by a 20 per cent rise in production to a record high of 248,795 ounces.
But rising costs linked to contractors, new mine work at Noche Buena and raw materials reduced the cash margin, prompting a 9.2 per cent fall in cash profits to $684m (£436m). The reversal would have been more pronounced but for a favourable peso/dollar exchange rate.
Fresnillo's management is determined to expand its asset base. The emphasis on growth is reflected by a 50 per cent fall in net cash flow and a 28.3 per cent decline in the group's cash pile since the year-end to $491m.
Deutsche Bank expects 2012 EPS of $1.00 ($1.10 for 2011)
| FRESNILLO (FRES) | ||||
|---|---|---|---|---|
| ORD PRICE: | 1,453p | MARKET VALUE: | £10.4bn | |
| TOUCH: | 1,452-1,453p | 12-MONTH HIGH: | 2,213p | Low: 1,259p |
| DIVIDEND YIELD: | 4.3% | PE RATIO: | 21 | |
| NET ASSET VALUE: | 274¢ | NET CASH: | $491m | |
| Half-year to 30 June | Turnover ($bn) | Pre-tax profit ($m) | Earnings per share (¢) | Dividend per share (¢) |
|---|---|---|---|---|
| 2011 | 1.06 | 776 | 68.1 | 21.0 |
| 2012 | 1.09 | 603 | 51.1 | 15.5 |
| % change | +3 | - | - | - |
Ex-div: 15 Aug Payment: 11 Sep £1 = $1.57 | ||||
