Coronavirus Update

Fresnillo PLC- Financial year 2020 Preliminary Results

This content has been sourced from: https://www.investegate.co.uk/fresnillo-plc/rns/fy...

Octavio Alvídrez, CEO said:

"Against a backdrop of the significant challenge presented by Covid-19, we have prioritised the wellbeing of our people and communities while delivering a robust financial and operating performance. By engaging with all our stakeholders, we have been able to keep people safe and minimise the impact of the pandemic on our business. Even in the face of such an unprecedented challenge, I am pleased to report that we have largely stabilised production, a key priority. We remain committed to achieving our operational objectives and delivering our development projects.

Total silver production remained broadly stable and within our guidance at 53.1 million ounces. The marginally lower production compared to 2019 was due to the Covid-19 preventive measures and a lower ore grade at Saucito, mitigated by a higher grade at San Julián Disseminated Ore Body and the processing of development ore from our new Juanicipio mine for the first time. Mining operations at the Herradura and Noche Buena open pit gold mines were impacted by Covid-19 operational restrictions affecting the volumes of ore deposited, which combined with reduced workforce levels, resulted in gold production decreasing by 12.1% to 769.6 koz, within our revised guidance.

Fresnillo reported a strong financial performance with US$2,608.1 million in Adjusted Revenue in 2020, an increase of 14.9% on 2019 due mainly to better precious metals prices. Gross profit rose by 90.5% to US$879.4 million, driven by a combination of higher prices and lower costs. We declared an interim dividend of 2.3 US cents per share, with a final dividend of 23.5 US cents per share, bringing the total for the year to 25.8 US cents per share.

We took action to secure the stability and financial health of Fresnillo by taking advantage of the favourable conditions to restructure our debt. We also hedged a portion of our silver production for 2021, capitalising on unique market conditions, where spreads presented an opportunity to limit downside risk while retaining a significant upside exposure to future silver price increases.

Maximising the potential of existing operations was our key strategic focus for 2020. Although there remains more to do, we are now working smarter and with greater efficiency. Our operational improvements would have been more pronounced but for the preventive measures we introduced to counter the pandemic.

We have continued to progress our development projects. We concluded the first production stope at Juanicipio on schedule in 3Q 2020. Commissioning of the plant has been delayed to 4Q 2021 due to Covid-19 related delays with a ramp up in production to 40%-50% of the nameplate capacity by the end of the year. Juanicipio will be a major factor in the Group's future silver production. At the Fresnillo mine, we completed the construction of the new Pyrites Plant on schedule early in the fourth quarter. The start of operations has been deferred mainly due to a delay in final inspections by the authorities as a result of Covid-19 restrictions on travel and other regulatory delays. The Fresnillo flotation plant optimisation project to cope with higher content of lead and zinc was also completed on time and on budget during 4Q20 with the connection of this new circuit to the beneficiation plant carried out in the first months of 2021.

Our exploration teams continue to identify and develop potential projects for our pipeline in Mexico, including at Rodeo, which we expect to become our next open pit gold mine, as well as in Peru and Chile. We aim to present the Rodeo project for Board approval in mid-2022. Work continues to complete the final metallurgical testing and other activities to continue advancing the feasibility study of the much larger Orisyvo project.

We have made further strides in advancing the safety and sustainability of our operations.

Our 'I Care, We Care' programme is now on its third year,it has now been rolled out across the business and is a central aspect of all operational activity. Although our safety record has improved significantly over the last three years, I regret to confirm one fatal accident in the year. This incident ended a period of 16 months without a fatality at any of our operations and highlights the need for constant vigilance and renewed efforts to improve safety.

The independent audit into our 11 tailings storage facilities (TSFs) was completed and I am pleased to confirm they all remain in a stable condition. We have identified areas of improvement and, with the help of independent third party advisors, we will make targeted investments to achieve even higher safety standards. We remain committed to reducing our greenhouse gas emissions, improving our energy efficiency, and integrating clean energy sources into our electricity mix. We recognise the importance of complying with the Task Force on Climate-Related Financial Disclosure (TCFD) and will continue making progress on assessing the carbon footprint of our Strategic Plan.

We were pleased to announce the appointment of Tomás Iturriaga who joined as Chief Operating Officer, following André Sougarret's decision to return to Chile. We also welcomed Guillermo Gastélum as Vice President Exploration, following David Giles' decision to retire. I would like to thank David for his significant contribution to Fresnillo over many years

Looking ahead, silver volumes will rise by steadily increasing production at Juanicipio, and the multiple ongoing operational improvement programmes to increase production at Fresnillo. Lower ore grade at Ciénega, together with a reduced activity at Noche Buena following a change to the mining sequence and the fewer available areas as the mine approaches its planned closure, as well as slightly lower volumes at Herradura, are likely to lead to reduced gold production. However, the longer-term prospects for gold are good, supported by the potential new mines at Rodeo and Orisyvo.

We remain optimistic for the outlook for precious metals prices, though we are firmly committed to our continuing efficiency, productivity and cost reduction initiatives. Given the ongoing pandemic there is a relatively high degree of unpredictability about the year ahead, so we are cautious. However, we have proven our ability to adapt to changing circumstances and longer-term, I am confident in our future and excited about the opportunities. Fresnillo is in a good position, supported by a sound strategy, strong balance sheet, a positive culture and an experienced management team. Production has largely stabilised as expected, and the pipeline of new mines and projects - together with a series of improvement programmes - provides us with solid grounds for optimism."

Financial Highlights - 12 months to 31 December 2020

 

$ million unless stated

2020

2019

% change

Silver Production* (kOz)

53,050

54,614

(2.9)

Gold Production* (Oz)

769,618

875,913

(12.1)

Total Revenue

2,430.1

2,119.6

14.6

Adjusted Revenue**

2,608.1

2,270.2

14.9

Gross Profit

879.4

461.7

90.5

EBITDA

1,169.1

674.0

73.4

Profit Before Income Tax

551.3

178.8

208.4

Profit for the year

375.6

205.8

82.5

Basic and Diluted EPS excluding post-tax Silverstream effects (USD)***

 

0.440

0.231

90.5

*  Fresnillo attributable production, plus ounces registered in production through the Silverstream Contract

**   Adjusted Revenue is revenue as disclosed in the income statement adjusted to exclude treatment and refining charges and lead and zinc hedging

***  The weighted average number of ordinary shares was 736,893,589 for 2020 and 2019. See note 17 in the consolidated financial statements.

 

2020 Highlights

 

Rapid and united response to the threat of Covid-19, highlighting the commitment to support our workforce and local communities in line with our overall Purpose

 

· Management and the workforce collaborated to introduce a wide range of preventive measures to protect our people, including social distancing at work as well as during transportation to and from our sites, the strict use of PPE and the installation of sanitization stations.

· All vulnerable colleagues (including contractors), asked to remain at home on full pay.

· Extensive testing - 30,000 rapid test kits acquired, self isolation and tracing tactics implemented.

· Direct partnership with local communities, through donation of testing kits, hospital equipment, medical supplies including ventilators to local health authorities, in addition to food, masks and anti-bacterial gels to vulnerable people in and around our communities.

· We continued to make sure that our employment and procurement processes put the needs of local communities first. This included maintaining our payment terms and providing help to enable contractors and suppliers to implement health protocols.

· In the city of Fresnillo, we made some of our land available for a facility that increased the capacity of the local hospital.

· Worked closely with the Mexican Mining Chamber and Mining Authorities to develop national workplace guidance for our industry - and that collaboration was central to the Government's reclassification of mining as an essential industry, enabling us to ramp up our open pit operations in May 2020.

· Piloted a virus awareness programme in collaboration with the Smithsonian Museum and Innovec aimed at encouraging children to understand the dangers and then use their 'pester power' to pass the message on to their parents and other relatives.

 

Strong financial performance in 2020, supported by high precious metals prices and a robust operational performance despite Covid-19

 

· Adjusted revenue increased 14.9% year-on-year due to higher gold and silver prices, which were partially offset by the lower volumes of gold and silver sold.

· Adjusted production costs decreased by 8.0% primarily as a result of lower volume of ore processed at Herradura and Noche Buena due to Covid-19 operational restrictions and the favourable effect of the devaluation of the Mexican peso vs. US dollar.

· Cost of sales was further benefitted by the positive effect from changes in inventory in 2020 compared to that in 2019 resulting from the reassessment of gold content in the leaching pads at Herradura.

· Gross profit and EBITDA rose to US$879.4 million and US$1,169.1 million, a 90.5% and 73.4% increase over 2019.

· Restructured the Company's debt, buying back US$482.1 million from the US$800 million Senior Notes at 5.5% due in 2023 and issuing new US$850 million Senior Notes at 4.25% due in 2050.

· Locked-in prices for 7% of 2021's silver production with an average floor price of US$20 per ounce, and with an average price ceiling of approximately US$50 per ounce.

· We improved our already strong financial position, with US$1,070.4 million in cash and other liquid funds as of 31 December 2020 notwithstanding paying dividends of US$104.7 million in accordance with our policy and despite the pandemic, investing US$412.3 million in capex and spending US$107.3 million on exploration expenses to underpin our future growth.

· Recommended a final dividend of 23.5 US cents per share, which is equivalent to US$173.2 million. We anticipate that dividend payments relating to 2020 and future years will attract the withholding obligation.

 

 

Maintaining focus on operational improvement and delivering our development projects

 

· The Fresnillo Full Potential (FFP) project to exploit the great potential that exists at our Fresnillo and Saucito mines is on track: in 2020 we refined our mine planning operations, enhanced the certainty of our geological models and took action to stabilise production, focusing on controlling dilution and enhancing our blasting and drilling techniques to manage the deeper operations and narrower veins at both mines.

· Our US$22.7 million tunnel boring machine (TBM) began operations in the Fresnillo mine -  advancing over 1,300 metres by the end of December - working alongside the manufacturer, further improvements are expected in 2021. Investment in new technology is ongoing.

· The deepening of the San Carlos Shaft advanced well and once fully operational in 2022, will transport ore more efficiently and directly to the surface - reducing the haulage costs while decreasing our environmental footprint. Started in June 2016, this project has extended the shaft from 550m down to 990m, helping to provide access to 56% of the mine's reserves.

· At Saucito, we continued to deepen the Jarillas shaft to 1000 metres, which will help to provide access to deeper levels of the mine where almost half of the reserves are located. Due to be completed in 2024, this will also allow us to transport ore to the surface more efficiently and quickly than is possible using access ramps.

· The first production stope at Juanicipio concluded on schedule in 3Q 2020. Commissioning is now expected in 4Q 2021, due mainly to Covid-19 related delays. A joint project with MAG Silver in which we hold a 56% share, the mine is forecast to produce 11.7 moz of silver and 43.5 koz of gold per year on average over the life of the mine once fully operational.

· The new Pyrites Plant at the Fresnillo mine was completed on schedule early in Q4 - the start of operations has been deferred mainly due to a delay in final inspections by the authorities as a result of Covid-19 restrictions on travel and other regulatory delays. Once it becomes fully operational, and including production from the Saucito plant, we anticipate that it will produce an average of 3.5 moz of silver and 13 koz of gold per year.

· Further actions are enhancing productivity at Fresnillo, including the US$30 million plant optimisation project at Fresnillo to cope with higher content of lead and zinc from lower levels of the mine ongoing. The new flotation circuit was completed in the second half of 2020 as anticipated. T he connection of this new circuit to the beneficiation plant is expected to be undertaken in early 2021.  

· Exploration budget for 2021 increased: the potential mine at Rodeo is on track to come before the Board for approval in mid-2022. We are increasingly confident that Orisyvo will join our portfolio of operational mines in the coming years.

· Silver resources stood at 2.3 boz, a 1.6% increase over 2019 mainly as a result of exploration at Saucito. Gold resources remained stable 38.9 moz.

· Silver reserves decreased 5.5% to 457.5 moz mainly due to depletion and higher cut-off grades at Fresnillo, and an updated mine production plan at San Julián which incorporates new geotechnical criteria, mitigated by the increase at Saucito.

· Gold reserves decreased 8.8% to 8,438 koz primarily due to more stringent geotechnical and cost considerations at Herradura and depletion at Noche Buena.   

 

Cautious 2021 outlook, confidence in longer term prospects

 

· Fresnillo remains cautious for 2021 due to the continued impact of the pandemic in Mexico.

· In 2021, Fresnillo expects attributable production in the range of 53.5 to 59.5 moz of silver (including Silverstream) and 675 to 725 koz of gold.

· Silver volumes expected to benefit from increasing production at Juanicipio, while the multiple ongoing operational programmes are forecast to increase production at Fresnillo.

· Lower ore grade at Ciénega, together with reduced activity at Noche Buena in line with the mine closure plan, as well as slightly lower volumes at Herradura, are likely to lead to reduced gold production. However, the longer-term prospects for gold are good, supported by the potential new mines at Rodeo and Orisyvo.