Fresnillo Plc - Half Year Report
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Interim results for the six months to 30 June 2020
Octavio Alvídrez, Chief Executive Officer, commented:
"Our purpose is to contribute to the wellbeing of people, through the sustainable mining of silver and gold - and this has guided all our decisions throughout the COVID-19 pandemic. Our commitment to prioritise the wellbeing of our workforce and communities at all times meant that we acted promptly and rapidly adapted our activities and operations to protect health. COVID-19 has presented a challenge to Fresnillo in the first half. However, we have come together as a company and I am proud of the way we have adapted to this new environment. Above all, it has shown that our purpose is not just a set of words, but directly reflects how we act as a business.
Our extensive engagement with stakeholders, together with the high level of trust this has forged with our workforce and the government, has meant that we have been able to minimise the pandemic's impact on our operations. Production at our underground mines remains broadly in line with plan, despite a reduction in the number of workers on site. The impact on our open pit gold mines has been greater, as mining activities had to cease for around six weeks, although processing continued. However, mining has now re-started and activities are ramping up. I am also pleased our development projects continued to make progress.
The combination of higher commodity prices and lower costs has resulted in a significant rise in profitability during the first half. Our performance improvement initiatives we have set out in previous reports are having a positive impact. We remain committed to delivering a sustainable improvement in our operating performance and maintaining the momentum in the improvement plan into the second half.
We will continue to work closely with our stakeholders and believe that these partnerships will remain key to our ability to respond to whatever future challenges COVID-19 will present to our industry and our country.
We look ahead to the second half with our commitment to our people being the highest priority, and a continued determination to generate the greatest value from our mine portfolio for the benefit of all our stakeholders."
First half highlights
Contributing to the wellbeing of people during the COVID-19 pandemic
· We promptly engaged with all our key stakeholders at the onset of the pandemic, allowing us to rapidly focus on the health of our workforce and to support local communities
· We further developed health protocols at the beginning of the pandemic and have implemented rigorous preventive measures at our mines
· 20,000 COVID-19 tests have been purchased to trace suspected cases, and we have carried out nearly 5,300 random tests across our operations and projects to date
· We promptly identified the vulnerable members of the workforce and encouraged them to stay at home, on full pay
· We have worked closely with the authorities and local communities to contribute food, medical and protective equipment and means of sanitisation, as well as to support online education programmes and to invest in mental health initiatives
Financial highlights (1H20/1H19 comparisons)
· Gross profit of US$321.2m, up 56.3%, including a US$65.1 million benefit from the positive impact of the reassessment of the recoverable gold inventories on the leaching pads at Herradura
· Operating profit and EBITDA of US$216.9m and US$469.9m, up 232.1% and 52.6%, respectively
· Profit before income tax of US$127.9m, up 136.6%, including the adverse effect of the silverstream valuation of -US$31.8m (non-cash item), and foreign exchange losses of -US$41.0m.
· Profit for the period of US$56.5m, down 20.3%, virtually all as a result of the adverse effect of the 21.9% devaluation of the MXN vs USD on deferred taxes (non-cash item)
· Basic and diluted EPS from continuing operations of US$8.8 cents per share, down 7.4%
· Adjusted EPS of US$11.8 cents per share, up 40.5%
· Cash generated from operations, before changes in working capital, of US$456.2m, up 44.3%
· Free cash flow of US$242.6m in 1H20 (-US$80.7m in 1H19).
· Strong balance sheet with cash and other liquid funds as at 30 June 2020 of US$514.7m (31 December 2019: $336.6m); net debt/EBITDA of 0.34x (31 December 2019: 0.69)
· Interim dividend of US$16.9m (2.3 US cents per share)
Operational highlights (1H20/1H19 comparisons)
As disclosed in the 2Q20 production report on 22 July 2020:
· Production at our underground mines was relatively unaffected by COVID-19 in 2Q20; six weeks suspension of mining activities at the Herradura district.
· Silver production of 26.8 moz ( including Silverstream), down 2.7%, and gold production of 381.3 koz, down 11.8%
· Ongoing tests at the Herradura leaching pads have resulted in an increase of 119.3 koz of gold in inventory as of 1 January 2020 with a US$65.1 million favourable effect on the income statement
· Construction of Juanicipio slowed in 2Q20 due to certain COVID-related work restrictions but remains on track to be concluded by mid 2021 as the critical path remained unaffected and mine development continued
· Construction of the pyrites plant (phase II) at Fresnillo continued to progress, with commissioning expected in 2H20. A possible delay in final inspections by the authority as a result of COVID-19, could defer start-up of commercial production from 3Q20 to 4Q20.
· Optimisation of the Fresnillo flotation plant to cope with higher content of lead and zinc advanced according to plan and is expected to be concluded by 2H20. However commercial production is expected in 2021 as connection of the current and new flotation circuits has been postponed to year end to prioritise operational continuity in 2020.
· The programme to control costs and further operational measures to increase productivity continued to be implemented in 1H20
· 2020 exploration budget has been revised and reduced to US$120m (US$135m previously), reflecting limited ability to explore certain prospects due to travel restrictions related to COVID-19; while capex has been reduced to US$525m (US$655m previously), reflecting the deferral of some expenditures to 2021, particularly at Juanicipio and San Julián