Join our community of smart investors

Production woes hit Fresnillo earnings

Guidance cut and earnings fall make life hard for Fresnillo investors
July 31, 2019

Fresnillo’s (FRES) production woes have sent its share price and dividend way down just as precious metals are at their highest point in years. The silver and gold miner’s half-year financial figures followed poor first-half production numbers announced on 17 July with a year-on-year cash profit crash of 45.7 per cent to $307.9m (£253m) and a severe haircut for the half-year dividend.

IC TIP: Buy at 607p

The Mexico-focused miner said the hit to its adjusted revenues was due to a mix of lower volumes and lower prices. Gold cracked $1,400 an ounce (oz) in June, and silver picked up this month, hitting a 12-month high of $16.40 an oz. Fresnillo produced 27.6m oz of silver in the six months to 30 June, a 10.4 per cent year-on-year drop, and 432,000 oz of gold, 7.1 per cent down on the first half of 2018. Full-year guidance has been cut to 55m-58m oz silver and 880,000-910,000oz of gold. 

Costs also climbed 31.7 per cent in the period due to the operational issues and a change in the way stripping costs are treated. The all-in sustaining cost (AISC) climbed over $1,000 an oz on a gold equivalent basis, a 24 per cent year-on-year increase. 

The Bloomberg consensus forecast is for adjusted 2019 EPS is 26.8¢, down 75 per cent on 2018. 

FRESNILLO (FRES)   
ORD PRICE:607pMARKET VALUE:£4.47bn
TOUCH:606.5-608p12-MONTH HIGH:1,048pLOW: 617.2p
DIVIDEND YIELD:2.6%PE RATIO:29
NET ASSET VALUE:410¢NET DEBT:14%
Half-year to 30 JuneTurnover ($bn)Pre-tax profit ($m)Earnings per share (¢)Dividend per share (¢)
20181.1232331.110.7
20191.0054.19.52.6
% change-10-83-69-76
Ex-div:8 Aug   
Payment:6 Sep   
£1=$1.22