Performance

FY18 - Preliminary Results

Octavio Alvídrez, Chief Executive Officer, said: “Since we listed on the London Stock Exchange in 2008, we have successfully built a track record of creating value through growth and returns. We have remained committed to our stated strategy, investing in our business, growing production and delivering returns to our shareholders in what has been a volatile time for the wider mining sector. 2018 was however a more challenging year for Fresnillo. We achieved record annual silver production of 61.8 moz and a very strong gold performance of 923 koz in 2018. Gold production surpassed the expectations we had at the beginning of the year. Despite the year on year increase in silver production, we reported lower silver production than anticipated and were disappointed not to meet our long-term silver target of 65 moz. This was mainly due to lower than expected ore grades at the Fresnillo and Saucito mines combined with some operational issues. We are taking action to address this, not least by intensifying our infill drilling programmes, controlling dilution and further investment in equipment and infrastructure. The flotation plant to process historical and ongoing tailings at the Fresnillo mine is progressing and is expected to improve overall recoveries once completed. We have also invested in innovative technology to improve productivity with a new state-of-theart tunnelling machine due to be commissioned in 2019. 
A more challenging operating environment was also reflected in the financial performance for the year, with gross profit and EBITDA decreasing by 15.6% and 13.7% respectively, though margins remained strong. This decrease in gross profit was driven by the higher stripping ratio at Herradura, as well as higher depreciation and increased cost inflation across the Group, amongst other factors. These adverse factors were mitigated by the reassessment of inventories at Herradura as well as the higher production at San Julián (Disseminated Ore Body) following its first full year in operation. We maintained a solid financial position, with US$560.8 million in cash and other liquid funds notwithstanding paying dividends of US$298.1 million, investing US$668.7 million in capex and spending US$172.8 million in exploration. The Board has recommended a final dividend of US$16.7 cents per share, bringing the total paid for the year to US$201.9 million. Core to our organic growth strategy is ensuring we deliver on the potential of our existing assets while expanding our development pipeline. I fully expect to be able to make a further positive announcement on our Juanicipio development project in due course. This joint venture project is expected to further contribute to silver and gold production, delivering high returns for our business while generating additional employment in the area. With first production anticipated in the second half of 2020, Juanicipio reaffirms the world-class status of the Fresnillo district and underlines the extent of the resources that have already been discovered there, as well as those that await discovery in the future. Read full release »

FY18 Highlights

Challenging operational environment impacted financial performance

  • Adjusted revenue of US$2,243.4m, 0.5% increase vs. 2017 primarily due to record silver, lead and zinc volumes sold offset by lower prices.

  • Higher adjusted production costs, up 23.8%, mainly driven by the higher stripping ratio at Herradura, cost inflation and additional costs associated with higher volumes produced.

  • Gross profit of US$780.7 million down 15.6% respectively mainly due to lower prices, higher adjusted production costs and increased depreciation. Healthy profit margin maintained (37.1%).

  • Exploration spend of US$172.8 million, up 22.5%.

  • Profit from continuing operations of US$506.7 million, down 28.6% as a result of lower gross profit and higher exploration and administrative expenses.

  • Profit for the year of USD$350.0 million, down 37.6% on 2017 mainly due to the lower profit from continuing operations and the US$22.5 million Silverstream revaluation loss recognised in 2018, compared to the US$70.3 million gain in 2017.

  • Cash generated by operations before changes in working capital decreased by 13.3% to US$930.7 million (2017: US$1,073.9 million).

  • Capital expenditures of US$668.7 million, up 10.6% vs 2017 but below guidance, mainly due to the delay in the start of the construction of the Juanicipio project.

  • Maintained financial flexibility, with year-end cash and other liquid funds1 of US$560.8 million (2017: US$896.1 million).

  • Basic and diluted EPS from continuing operations of US$0.475; adjusted EPS of US$0.461, down 37.6% and 29.4% respectively.

  • 2018 final dividend of US$16.7 cents per share, equivalent to approximately US$123.1m, recommended by the Board.


Delivering on the potential of existing assets while expanding development pipeline

  • Commissioned leaching plant at Saucito (2Q18), first phase of this US$155 million Pyrites Plant project in the Fresnillo district.

  • Construction of the US$110 million second line of the Dynamic Leaching Plant at Herradura completed in 2018, albeit minor delays due to a longer testing period.

  • Juanicipio project continued to advance and Board approval is expected in due course.

  • Gold resources increased 1.5% mainly due to positive results at Centauro Deep; silver resources down 5.0% as a result of lower ore grade and tonnage at Saucito. Gold reserves declined 6.0% due to depletion at Noche Buena, Herradura and San Julián, while silver reserves decreased 5.1% mainly due to San Julián (Veins) and Saucito.

  • 2018 exploration budget of approximately US$140 million (including capitalised exploration expenses).

Board Change

  • In view of the demands of his recent appointment as Chairman of BBVA Bancomer, Mr Jaime Serra Puche resigned from the Board on 25 Feb, 2019. The Nominations Committee has begun a search for a new independent non-executive director of the Company.

Outlook

  • Silver production expected to be in the range of 58 to 61 moz including the Silverstream.

  • Gold production expected to be in the range of 910-930 koz.

  • Capital expenditure is anticipated to be approximately US$710 million.

FY18 Full Year Gold Silver Production                 FY18 Cash Flow Dividends

Total Production

 

4Q18

4Q17

% change

3Q18

YTD18

YTD17

% change

Silver (koz)

14,647

14,957

-2.1

14,738

58,079

54,238

7.1

Silverstream (koz)

860

1,059

-18.8

796

3,725

4,435

-16.01

Total Silver (koz)

15,507

16,015

-3.2

15,533

61,804

58,673

5.3

Gold (oz)

232,026

232,051

-0.0

225,202

922,527

911,132

1.3

Lead (t)

15,252

12,836

18.8

13,076

53,181

48,153

10.4

Zinc (t)

24,531

18,852

30.1

22,935

88,520

65,266

35.6


Financial Performance

 

2018

2017

2016

2015

2014

2013

2012

2011

2010

2009

2008

Total attributable silver production incl. Silverstream (Moz)

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)

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$)

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$)

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
Deploy US$140 million in exploration investment; 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.