Full Year 2017 Preliminary Results - FY17
Octavio Alvídrez, Chief Executive Officer, said: “I am pleased to report another resilient performance, built on the foundations of our consistent, conservative, sustainable long term strategy. We celebrate 10 years as a public company in 2018. Since 2008, we have paid US$2.5 billion in dividends, never not paid an interim and final dividend throughout this period and invested over US$4 billion in both existing operations and growing our portfolio of quality assets. Our IPO target for gold production of 750koz was reached in 2015, three years ahead of plan, while the 65moz objective for silver is on track to be achieved in 2018. Our commitment to delivering shareholder value remains. In 2017, silver production was a record 58.7 moz following the first complete year of San Julián (phase I) operating at full capacity and the start of operations at San Julián (phase II). We also achieved a solid gold production performance of 911.1 koz, exceeding our forecast range. A strong operating performance and relatively stable precious metals prices have offset some cost inflation and we have delivered sound financial results. Adjusted revenues were up 9.2% to US$2,230 million, with a 32.0% increase in profit for the year. As a result, the Board was pleased to recommend a final dividend of 29.8 US cents per share, bringing the total paid for the year to US$297.7 million. Core to our organic growth strategy is ensuring we deliver the potential of our existing assets while expanding our development pipeline. We made good progress in 2017. Operations at the Fresnillo mine continue to strengthen, performance has improved year-on-year and we expect an increase in ore throughput in 2018. The successful completion of San Julián (phase II) was a significant milestone and is expected to make a meaningful contribution to 2018 production now it is operating at full capacity. Construction of the Pyrites Plant project has continued and the Dynamic Leaching Plant at Herradura is on track. We expect to commission both projects in 2018. We also expect to approve the feasibility study of Juanicipio in the first half of 2018 and begin construction soon after. Juanicipio is the next major project for Fresnillo, and we are committed to ensuring that the mine fulfils its true potential. It is with deep regret we reported one fatality in 2017. We continue to make major strides in our safety culture, but this is a reminder that we must never cease in our efforts to improve our safety performance. Cash generation from our mines increased nearly 5% compared to 2016, reflecting the higher volumes of silver and zinc sold. This was also boosted by higher base metal prices during the year, partially offset by cost pressures and higher exploration expenses. The cash generated from our mines, together with proceeds from the Silverstream contract and the sale of a non-strategic exploration project contributed to maintaining a solid financial position, with US$896.0 million in cash and other liquid funds* as of 31 December 2017. This is despite paying dividends of US$236.6 million and investing capex of US$604.8 million. The Board and I are confident in our strategy and the ability of the management team to execute it. 2018 silver production is expected to rise to between 67-70 moz, whilst gold is expected to be in the range of 870-900 koz. Capital expenditure is anticipated to be approximately US$755 million with exploration expenses in the region of US$200 million. We will continue to maintain our disciplined approach to investment, to support our strategy and deliver shareholder returns. We will remain focused on efficiency and controlling costs to underpin projects, continuing to drive performance improvements at the Fresnillo mine, increasing production at San Julián, and developing Juanicipio. A strong balance sheet, targeted investment and operating costs among the lowest in the industry remain the key differentiating characteristics of our company.”
*Cash and other liquid funds are disclosed in Note 31 (c) to the financial statements
Operational excellence continue to deliver healthy returns;
- Adjusted revenue of US$2,233.2 million, 9.2% increase vs. 2016 primarily due to record silver volumes, an increase in zinc volumes sold and higher base metal prices
- Gross profit and EBITDA of US$925.4 million and US$1,060.1million, up 4.9% and 2.7% respectively
- Profit before taxes of USD$741.5 million, up 3.2%
- Profit for the year of USD$560.8 million, up 32.0% on 2016 primarily due to the effect of the revaluation of the Mexican peso/US dollar spot exchange rate on deferred taxes
- Cost per tonne increased across all mines mainly reflecting the Group’s cost inflation of 6.4%
- Cash generated by operations before changes in working capital increased by 4.9% to US$1,073.7 million (2016: US$1,023.3 million)
- Capital expenditures of US$604.8 million, up 39.3% vs 2016 but below guidance, mainly due to lower capex at pyrites plant project and Juanicipio
- Exploration spend of US$141.1 million, up 16.4%
- Maintained financial flexibility, with year-end cash and other liquid funds* of US$896.0 million (2016: US$912.0 million), and debt of US$800 million
- Basic and diluted EPS from continuing operations of US$0.761; adjusted EPS of US$0.653, up 31.4% and 44.2% respectively
- FY17 final dividend US$29.8c per share, equivalent to approx. US$219.6 million, recommended by the Board
*Cash and other liquid funds are disclosed in Note 31 (c) to the financial statements
- Record annual silver production of 58.7 moz (including Silverstream) up 16.6% vs. 2016, in line with guidance primarily as a result of the first complete year of San Julián (phase I) operating at full capacity and the start-up of operations at San Julián (phase II)
- Annual gold production of 911.1 koz exceeded guidance principally as a result of the full year operations at San Julián (phase I). Gold production slightly decreased -2.6% vs. 2016 due to the expected lower reduction of gold inventories and the anticipated lower ore grade deposited at the leaching pads at Herradura.
- Construction of the San Julián mine now finished with the completion of San Julián Phase II. We expect the mine to achieve average annual production of 14.2 moz of silver and 49.3 koz of gold. San Julián Phase II was commissioned on budget, and the project reached nameplate capacity as expected in Q3, highlighting our ability to bring new mining projects to fruition.
- Performance at the Fresnillo mine improved with full year silver production up 4.1% over 2016, but further actions taken to ensure a sustained improvement.
- Construction of the US$155 million Pyrites Plant remains on track, with commissioning of the leaching plant expected in 2Q18.
- Construction of the US$110 million second line of the Dynamic Leaching Plant at Herradura is on track to be commissioned in 2Q18.
- Progress at the Juanicipio project is on track and we expect to conclude the updated feasibility study in 1H18.
- Positive exploration results: Gold and silver resources up 22.7% and 6.9% respectively. Gold reserves remained stable, while silver reserves showed a decrease of 5.4%, with an increase at Saucito offset by falls at Fresnillo and Ciénega.
- 2018 exploration budget of approximately US$200 million (including capitalised exploration expenses).
- Silver production expected to be in the range of 67 to 70 moz including the Silverstream, in line with our long term guidance. Gold production expected to be in the range of 870-900 koz.
- Capital expenditure is anticipated to be approximately US$755 million.
Total Quarterly Production
|4Q17||4Q16||% change||3Q17||YTD17||YTD16||% change|
|Total Silver (koz)||16,015||13,316||20.3||14,613||58,673||50,303||16.6|
|Total attributable silver production incl Silverstream (Moz)||58.7||53.0||47.0||45.0||43.0||41.0||41.9||42.1||41.3||34.8|
|Attributable Gold Production (koz)||911.1||935.5||761.7||596.0||425.8||473.0||448.9||369.0||276.6||263.6|
|EBITDA (in millions of US$)||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$)||1,073.7||1,023.3||537.3||568.5||750.2||1,356.7||1,612.1||983.6||548.8||405.8|
Key Commitments and Targets
- Operations » Maximise the potential of existing operations
Operate at 100% capacity and remain a low-cost producer whilst optimising mining methods and metallurgy to maintain high recovery rates.
- Development » Deliver growth through development projects
Maintain track record of delivery on time and on budget and focus on CAPEX control as well as specialised engineering and construction teams.
- Exploration » Extend the growth pipeline
Deploy US$200 million in exploration investment; evaluate early-state acquisitions and maintain reserves for 10 years. Ensure organic growth and assess key acquisition opportunities.
- Sustainability » Advance and enhance the sustainability of our business
Strengthen our safety performance with zero tolerance for non-compliance, and increased investment and support for training and oversight. Improve general health and minimise our environmental impact whilst maintaining sound relations within our communities.