Fresnillo shines again

Shareholders will get an interim payout of 2.3ȼ, a drop on last year and well below Jefferies’ forecast 5ȼ. But net debt (excluding lease liabilities) has come down 35 per cent from a year earlier to $265m, equivalent to 0.34 times cash profits.

Gold provided more than half of revenue for the period, with the average realised price at $1,677 an ounce (oz) from production of 364,879 oz. This was a 13 per cent volume drop year-on-year, but the combination of the high price and lower costs more than covered that decrease. The drop in value of the Mexican peso alone handed the company $35m in savings for the half. 

Its bottom line was also helped by a revaluation of the gold in leaching pads in Herradura that added $65m to the half's profit. 

Fresnillo’s key operations had a varied half. The eponymous silver mine saw a 7 per cent increase in production to 6.2m oz silver. But with the larger Saucito mine’s silver output dropping 10 per cent to 8.4m oz, overall production fell 5 per cent to 22.8m oz. Gold declined even more because of a 24 per cent drop at the Fresnillo mine, while the Herradura operation also saw a major drop because of a Covid-19 slowdown.

Chief executive Octavio Alvídrez said open-pit operations had been worst affected by shutdowns, but that underground mining had continued largely as normal, and processing of ore had continued at all sites. 

While gold getting close to $2,000 an oz and silver finally moving up over $20/oz means the miner will have a positive second half, it has lowered its full-year guidance. Gold production is expected to be between 785,000-815,000oz, down from 815,000-900,000oz previously. Forecast silver output has remained at 51m-56moz. 

Consensus estimates put full-year cash profits at $952m, a 39 per cent increase on 2019.