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Fresnillo fails to make hay

Silver and gold miner sees earnings plummet despite precious metals price strength
March 3, 2020

Fresnillo (FRES) put its performance bluntly in its latest financial results: “Production did not meet our expectations in 2019”.

IC TIP: Sell at 617p

That was a shame because gold and silver hit years-long highs in the second half of the year and fellow precious metals miners were raking in the cash. Fresnillo saw cash profits fall 26 per cent year on year to $674m (£518m), off the back of costs that rose 25 per cent. Silver production was down 12 per cent on the year before, and gold dropped 5 per cent.

All-in sustaining costs (AISC) blew up at the Fresnillo and Saucito mines, climbing 52 per cent to $13.54 an ounce (oz) at the former and 27 per cent to $10.97 an oz at the latter. Costs also climbed well beyond the gold price increase at the Herradura operation, which saw its AISC go from $807 an oz to $963 an oz. Gold, which fetched an average of $1,418 an oz last year, provided over half of the company’s adjusted revenue, at $1.2bn. 

Guidance for this year puts production likely flat or lower, with the silver range 51m-56m an oz and gold range 815,000-900,000 an oz, compared with production of 54.6m oz and 876,000 oz in 2019. Chief executive Octavio Alvídrez said the company was facing “structural challenges” at the Fresnillo and Saucito mines from deeper operations, narrower veins and greater “ore variability”. 

The 2019 dividend has fallen based on the Fresnillo’s policy of paying out 33-50 per cent of after-tax profits, which means a payout of 14.5¢.

Consensus forecasts from Bloomberg have cash profits recovering in 2020, to $910m.

FRESNILLO (FRES)    
ORD PRICE:617pMARKET VALUE:£4.5bn
TOUCH:616-617p12-MONTH HIGH:921pLOW: 537p
DIVIDEND YIELD:1.8%PE RATIO:29
NET ASSET VALUE:426¢NET CASH:$324m*
Year to 31 DecTurnover ($bn)Pre-tax profit ($m)Earnings per share (¢)Dividend per share (¢)
20151.442109.65.5
20161.9172057.930.1
20172.0974076.140.4
20182.1048447.527.4
20192.1217927.714.5
% change+1-39-56-47
Ex-div:23 Apr   
Payment:2 Jun   
£1=$1.28 *Includes lease liabilities of $12.5m