Performance

Half Year Report - 1H20

Octavio Alvídrez, Chief Executive Officer, said: “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 restarted and activities are ramping up. I am also pleased our development projects continued to make progress.” Read full release »


1H20 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 EBITDA1 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 EPS2 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 funds3 as at 30 June 2020 of US$514.7m (31 December 2019: $336.6m); net debt/EBITDA of 0.34x4 (31 December 2019: 0.69)
  • Interim dividend of US$16.9m (2.3 US cents per share)

    1 Earnings before interest, taxes, depreciation and amortisation (EBITDA) is calculated as gross profit plus depreciation less administrative, selling and exploration expenses. 2 Prior to Silverstream valuation effects. 3 Cash and other liquid funds are disclosed in note 18(d) to the Financial Statements. 4 Net debt (Debt at 30 June 2020 – Cash and other liquid funds at 30 June 2020) divided by the EBITDA generated in the last 12 months.

Operational highlights (1H20/1H19 comparisons)

  • 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
  • Programme to control costs and 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

2020 Outlook

Despite the uncertainty, 2020 silver production guidance remains in the range of 51 to 56 moz (including Silverstream) while gold production is now expected to be in a range of 785 to 815 koz (previously 815 to 900 koz) as a result of COVID-19 related disruption.

1H20 Operational Highlights   1H20 Financial Highlights
 

Total Production

 

2Q20

1Q20

% change

2Q19

% change

1H20

1H19

% change

Silver (koz)

12,944

12,547

3.2

13,636

-5.1

25,491

26,009

-2.0

Silverstream (koz)

648

681

-4.9

782

-17.1

1,328

1,548

-14.2

Total Silver (koz)

13,592

13,228

2.8

14,418

-5.7

26,819

27,557

-2.7

Gold (oz)

184,356

196,963

-6.4

221,307

-16.7

381,319

432,417

-11.8

Lead (t)

16,180

13,905

16.4

13,039

24.1

30,085

25,164

19.6

Zinc (t)

26,726

22,655

18.0

20,654

29.4

49,381

42,406

16.4


Financial Performance

 

2019

2018

2017

2016

2015

2014

2013

2012

2011

2010

2009

2008

Total attributable silver
production incl. Silverstream (Moz)

54.6

61.8

58.7

53.0

47.0

45.0

43.0

41.0

41.9

42.1

41.3

34.8

Attributable Gold Production (koz)

875.9

922.5

911.1

935.5

761.7

596.0

425.8

473.0

448.9

369.0

276.6

263.6

EBITDA (millions of US$)

674.0

915.1

1,060.1

1,032.0

547.5

567.3

729.8

1,315.3

1,538.5

945.0

496.6

337.4

Cash flow from operating activities
before changes in working capital
(millions of US$)

685.5

930.7

1,073.7

1,023.3

537.3

568.5

750.2

1,356.7

1,612.1

983.6

548.8

405.8


Decade of progress and achievement

Prelims 27FEB17 Decade Of Progress And Achievement

Key Commitments and Targets

1. Explore » Ensure business continuity and growth by replenishing depleted reserves and maintaining a robust growth pipeline
Evaluate early-state acquisitions and maintain reserves for 10 years. Ensure organic growth and assess key acquisition opportunities.
2. Develop » Deliver growth through development projects
Deliver profitable growth by advancing new projects towards commissioning, whist optimising cash flow and returns. Maintain track record of delivery on time and on budget and focus on CAPEX control as well as specialised engineering and construction teams.
3. Operate » Maximise the potential of exisiting operations
Maximise our potential of exisiting operations whilst maintaing our position as leading low cost producer. Operate at 100% capacity and remain a low-cost producer whilst optimising mining methods and metallurgy to maintain high recovery rates.
4. Sustain » Advance and enhance the sustainability of our business and uphold our licence to operate
Strengthen our safety performance with zero tolerance for non-compliance, and increase investment and support for training and oversight. Improve general health and minimise environmental impact whilst maintaining sound relations within our communities.