Highlights (H1 2015/H1 2014 comparisons)

·    Silver production of 23.8 moz (including Silverstream), up 10.6% due to increased production resulting from the start of operations at Saucito II, which offset lower production at Fresnillo

·    Gold production of 364 koz, up 37.0% mainly due to Herradura being fully operational post the temporary explosives permit suspension which affected 1H14 production, and the dynamic leaching plant at the mine being in operation for the full half year post its start-up in March 2014, together with increased contributions from Saucito and Noche Buena

·    Significantly lower realised commodity prices (silver US$16.61 per oz, down 18.0%; gold US$1,206.10 per oz, down 7.4%) impacting financial performance

·    Profit for the period of US$76.4m, a decrease of 44.3%

·    Basic and diluted EPS US$10.4 cents per share, down 41.2%

·    Cash generation from operations remains significant at US$314.9m, down 6.5%

·    Strong balance sheet maintained – cash, cash equivalents and short term investments of US$475.7m

·    Interim dividend of US$15.5m (2.1 US cents per share) declared reflecting Board's confidence in the Company's financial position and outlook; no change to previously stated policy

·    Stage 1 of the San Julián project now expected to be commissioned in 1Q16 (vs. previous expectation of 4Q15). Pyrites project remains on track for production to commence in 2017

·    Capital expenditure for the full year 2015 now expected to be in the region of US$570m (vs. previous expectation of c. US$700m)

·    Positive drill results at Ciénega and Juanicipio projects will result in an increase in inferred resources 

·    2015 gold production guidance raised to 715-730 koz from 670-685 koz (+6.6%); full year silver production remains on track (45-47 moz, including Silverstream)

Highlights for 1H15

* Silver production includes volumes realised under the Silverstream Contract. All figures include 100% of production from the Penmont mines (Herradura, Noche Buena and Soledad-Dipolos)

¹ Adjusted revenue is the revenue shown in the income statement adjusted to add back treatment and refining costs and lead and zinc hedging. The Company considers this is a useful additional measure to help understand underlying factors driving revenue in terms of volumes sold and realised prices

² Earnings before interest, taxes, depreciation and amortisation (EBITDA) is calculated as gross profit plus depreciation less administrative, selling and exploration expenses 

³ The weighted average number of shares H1 2015 was 736.9m (736.9m in H1 2014). See Note 8 in the Interim Consolidated Financial Statements.

Octavio Alvídrez, Chief Executive Officer of Fresnillo plc, said:

 "We have had a solid first half operationally, with silver and gold production up 11% and 37% respectively. Saucito drove the increase in silver production, with the ramp up of Saucito II achieved well ahead of the three year timeframe initially anticipated. The increase in gold production was driven by Herradura and its dynamic leaching plant being fully operational throughout the period. We continue to advance development rates at Fresnillo, which should result in increased production by the year end, and we remain on track to reach steady state production at Herradura in the fourth quarter. I am confident that we are well-placed to meet our 2015 production guidance of 45-47 million ounces of silver (including the Silverstream) and our increased 2015 gold production guidance of 715-730 thousand ounces.

We have made good progress at our near-term development projects in the first half. Although we experienced some delays at San Julián, we are confident that stage 1 of the project will be commissioned early next year, and our Pyrites project remains on track to commence operations in 2017. Our advanced exploration projects are all progressing according to plan, with good exploration results achieved at Juanicipio and Centauro Deep, and a preliminary economic assessment underway for Orisyvo.

The pricing environment remains challenging, with ongoing precious metals price volatility. Our strategic objectives remain unchanged and we continue to take a long-term view, but we will also take into account the effect of market dynamics on our operating assumptions, if necessary deferring expenditures without compromising the profitable growth we continue to deliver, as evidenced by our reduced capital expenditure estimate for the full year 2015.

We are fortunate to have both the financial and operational flexibility to adapt to market conditions as needed. Our high quality, low cost assets and significant quality growth pipeline, combined with our balance sheet strength, leave us in a strong position even in challenging market circumstances."

Commentary on the Group's results

Fresnillo plc's operating results were driven by a strong performance at Saucito due to the start up and successful ramp up of Saucito II, and Herradura and its dynamic leaching plant ("DLP") being fully operational post the temporary explosives permit suspension that affected 1H14 production. Increased gold production from Noche Buena due to an increase in ore processed also contributed to this performance. Silver production from Fresnillo decreased as a result of a lower ore grade and a decrease in ore volumes processed due to the instability of some stopes and the previously announced development delays. We have taken actions to solve these issues, which should allow us to stabilise ore grades and volumes processed in 3Q15 and therefore begin to see an improvement in 4Q15 grades and production. Ciénega saw a decrease in gold production resulting from the expected decrease in gold ore grade mainly due to the depletion of richer wider veins, however silver production from the mine increased on better grades.

The increased volumes produced and sold at Saucito and Herradura positively impacted adjusted revenues. However, the significant decrease in gold and silver prices, together with the temporary operational challenges encountered at the Fresnillo mine, continued to negatively impact the Group's financial results in the first half of 2015. 

Adjusted revenues increased 9.6% to US$822.4 million as a result of the increase in volumes produced and sold, partially offset by the negative effect of the lower average realised silver and gold prices, which decreased by 18.0% and 7.4% respectively when compared to the same period of 2014.

Cost of sales increased by 25.3% over the first half of 2014. Adjusted production costs in absolute terms increased by 8.5% when compared to the first half of 2014 mainly as a result of the increased production volumes at Saucito, Noche Buena and Herradura and its DLP. This was partly mitigated by the 15.2% devaluation of the average Mexican peso / US dollar exchange rate, the decrease in production volumes at Fresnillo and Ciénega and lower diesel and electricity prices. 

The higher depreciation associated with an increased asset base following the commissioning of Saucito II in December 2014 and higher depletion factors related to the increase in production volumes at several mines also contributed to increased cost of sales. Furthermore, the variation in change in work in progress also had an adverse effect on cost of sales given the smaller increase in inventories in the first half of 2015 compared to the same period in 2014 when the Group started to build up gold inventories on Herradura's leaching pads after the disruption in operations. In addition, the Mexican peso/US dollar hedging programme to mitigate the foreign exchange risk associated with costs incurred in Mexican pesos further increased cost of sales by US$10.2 million.

Cost per tonne across all our mines benefited from the devaluation of the average Mexican peso/US dollar exchange rate and a decrease in electricity and diesel prices. Additional factors affecting cost per tonne at each mine are described below.

Cost per tonne decreased at Saucito, reflecting the economies of scale achieved following the successful ramp up of Saucito II, and at Noche Buena as a result of the economies of scale and cost reduction initiatives which included mining higher benches to reduce haulage distances.

Cost per tonne at Herradura increased, reflecting the move towards more typical cost levels at the mine, whereas in the first half of 2014 certain costs were reclassified as unproductive due to the temporary disruption of operations. Should these costs have been included within the adjusted production costs in the first half of 2014, cost per tonne would have decreased by 3.9%.

Cost per tonne at Fresnillo increased due to the lower volume of ore processed resulting from the instability of some stopes and delay in the development activities in the San Carlos and San Alberto areas.

Cost per tonne at Ciénega decreased slightly as the lower volumes of ore processed were offset by the positive effects of a decrease in contractor costs.

The increase in cost of sales more than offset the increase in revenues in the period, resulting in a 7.3% decrease in gross profit to US$273.6 million in the first half 2015.

Administrative expenses increased by 12.1% due to an increase in the cost of third party services and the additional administrative personnel hired.  

Although the exploration budget for 2015 was set at a lower level than in 2014, exploration expenses recorded in the income statement increased by 9.3% to US$75.4 million as a result of a faster pace of drilling in this period compared to the first half 2014.  

EBITDA decreased by 2.0% over the first half of 2014 as a result of the lower gross profit and increased administrative and exploration expenses, mitigated by higher depreciation, which is added back. The EBITDA margin decreased to 42.3% from 47.9% in the first half of 2014.

In the first half of 2015 there was a minor positive revaluation of the Silverstream (US$1.8 million) due to the updating of assumptions used to value the Silverstream contract, most significantly the unwinding of the discount and the difference between payments received during the six months ended 30 June 2015 and estimated payments in the valuation model at 31 December 2014. This was mostly offset by the increase in the US dollar exchange rate against the Mexican peso, an increase in the reference discount rate (LIBOR) and the forward silver price which was lower than expected given the cyclical nature of prices. However, the revaluation in the first half of 2015 compared negatively to the US$47.3 million revaluation recorded in the first half of 2014.

The 5.8% spot devaluation of the Mexican peso against the US dollar in the six months to 30 June 2015 had an adverse effect on the value of peso-denominated net current assets when converted to US dollars, resulting in a foreign exchange loss of US$15.6 million in the first half of 2015.

Net finance costs totalled US$2.9 million as a result of the interest recognised in the income statement in relation to the US$800 million debt facility raised in November 2013 (US$18.7 million) and the unwinding of the discount on provisions, which was mostly offset by the non-cash finance gain recognised in respect of the gold hedging programme put in place to protect the investment made in the acquisition of the 44% stake of Newmont in Penmont.

Profit from continuing operations before income tax decreased by 34.6% from US$208.2 million to US$136.1 million in the first half of 2015.

Income tax expense declined by 16.3% to US$48.6 million as a result of lower profits generated in the first half of 2015. The effective tax rate, excluding the special mining right, was 35.7%, and 43.9% including the effects of the special mining right.

Net profit for the period was US$76.4 million, a 44.3% decrease when compared to the first half 2014.

Cash flow generated by operations, before changes in working capital, decreased by 6.5% to US$314.9 million in the first half of 2015 as a result of lower profits. The increase in working capital of US$18.0 million resulted mainly from the increase in inventories on the leaching pads at Herradura and Noche Buena, and to a lesser extent, an increase in trade and other receivables to Met-Mex, which was partly mitigated by a decrease in prepayments and an increase in trade and other payables. This figure compared favourably to the US$71.5 increase in working capital in the first half of 2014.

Capital expenditures totalled US$229.1 million, an increase of 8.1% over the first half of 2014. Investments included construction at the San Julián project, leaching pads at Herradura and Noche Buena, development at Fresnillo and Ciénega, purchase of components for mobile equipment at Herradura and Ciénega and purchase of equipment for the expansion of the Merrill Crowe plant at Herradura. 

The Group maintained a strong balance sheet. Cash, cash equivalents and short term investments (together defined as "short term funds") as at 30 June 2015 amounted to US$475.7 million, a 5.9% increase over the year-end 2014 (US$449.3 million), but a 59.1% decrease when compared to the US$1,164.3 million in  short term funds at the end of June 2014. Taking into account the short term funds of US$475.7 million and the US$796.5 million bond, Fresnillo plc's net debt was US$320.8 million as at 30 June 2015.

The Board of Directors has declared an interim dividend of 2.1 US cents per share totalling US$15.5 million which will be paid on 10 September 2015 to shareholders on the register on 14 August 2015. This decision was made after a comprehensive review of the Company's and Group's financial situation, assuring that the Group is well placed to meet its current and future financial requirements, including its development and exploration projects. Fresnillo plc's existing dividend policy, which takes into account the profitability of the business and underlying earnings, as well as our capital requirements and cash flows while maintaining an appropriate level of dividend cover, remains in place. To reiterate the policy, a total dividend of between 33 and 50 percent of profit after tax is paid out each year in the approximate proportion of one-third to be paid as an interim dividend, two-thirds to be paid as a final dividend.

Growth

Fresnillo plc remains committed to disciplined and sustainable profitability. Our high quality growth pipeline allows us to focus on projects that have the potential to be developed into world class low-cost mines.

We have continued to progress our San Julián project, with mining works at the main ramp now concluded and further advancements made on the plant infrastructure.

However, delays in permitting, weather-related issues and a high rotation of contractor personnel due to the project's remote location, together resulted in execution delays. The San Julián leaching plant, which will process ore from the veins (stage 1) is now expected to be commissioned in 1H16. The flotation plant to process ore from the disseminated ore body (stage 2) remains on track, with commissioning expected in 4Q16.

We also advanced our Pyrites project, which is expected to increase silver and gold recovery rates by processing tailings, both historical and ongoing, from the Fresnillo and Saucito mines. Detailed engineering works continue and this project remains on track to commence operations in 2017.

Positive drill results were achieved at Ciénega and Juanicipio, which  will result in an increase in inferred resources, and good grades continued to be discovered at depth at Centauro Deep, whilst further encouraging results were achieved at Guanajuato, Rodeo and Pilarica in Peru. Preliminary economic assessments studies were advanced at Orisyvo and Lucerito.

Outlook

Our proven strategy remains consistent: we invest through the cycle, balancing growth with returns. Our operating mines provide a solid platform for growth, which we are set to deliver through our development projects and our investment in exploration to extend our growth pipeline. This is achieved within the context of a maturing sustainability framework.

Volatility in precious metals prices is expected to remain, driven by the likelihood of the US Federal Reserve increasing interest rates in the near term, geopolitical risk and concerns around the stability of the Eurozone.

However, we are well placed to address these cyclical uncertainties. The strength of our balance sheet, the quality of our assets, the low cost nature of our operations, and the attractive returns generated on our growth projects set Fresnillo apart, and provide us with the flexibility to take market conditions into account whilst continuing to invest through the cycle. As a result of our ongoing aim to control expenditures without sacrificing the optimal timing of our growth projects, the Board has evaluated our capital expenditure requirements for the remainder of 2015 and concluded that we are able to defer around US$130 million of the planned US$700 million until 2016. Capital expenditure for the full year 2015 is therefore likely to be in the region of US$570 million, a decrease of around 19% compared to previous expectations for this year, but an increase of around 34% on FY 2014. 

We remain on track to meet our 2018 production targets of 65 million ounces of silver and 750 thousand ounces of gold.

Presentation for Analysts

Octavio Alvídrez, Chief Executive Officer, Mario Arreguín, Chief Financial Officer, Roberto Díaz, Chief Operating Officer, and David Giles, Vice President, Exploration will host a presentation for analysts on Tuesday 4th August at 9am (BST) at Bank of America Merrill Lynch, 2 King Edward St, London EC1A 1HQ

For analysts unable to attend dial in details are:

Dial-in number:  +44 (0) 20 3427 0503

Conference ID:  7023610

A replay of the conference call will be available for 7 days after the call at:

Dial in number:  +44 (0) 20 3427 0598

Conference ID:  7023610

For further information, please visit our website: www.fresnilloplc.com or contact:

About Fresnillo plc

Fresnillo plc is the world's largest primary silver producer and Mexico's second largest gold producer, listed on the London and Mexican Stock Exchanges under the symbol FRES.

Fresnillo plc has six operating mines, all of them in Mexico – Fresnillo, Saucito, Ciénega (including the San Ramón satellite mine), Herradura, Soledad-Dipolos¹ and Noche Buena, two development projects – San Julián and the Pyrites plant, and four advanced exploration prospects – Orisyvo, Juanicipio, Las Casas Rosario & Cluster Cebollitas and Centauro Deep, as well as a number of other long term exploration prospects. In total, Fresnillo plc has mining concessions covering approximately 2 million hectares in Mexico.

Fresnillo plc has a strong and long tradition of mining, a proven track record of mine development, reserve replacement, and production costs in the lowest quartile of the cost curve for silver.

Fresnillo plc's goal is to maintain the Group's position as the world's largest primary silver company, producing 65 million ounces of silver and 750,000 ounces of gold by 2018.

Forward Looking Statements

Information contained in this announcement may include 'forward-looking statements'. All statements other than statements of historical facts included herein, including, without limitation, those regarding the Fresnillo Group's intentions, beliefs or current expectations concerning, amongst other things, the Fresnillo Group's results of operations, financial position, liquidity, prospects, growth, strategies and the silver and gold industries are forward-looking statements. Such forward-looking statements involve risk and uncertainty because they relate to future events and circumstances. Forward-looking statements are not guarantees of future performance and the actual results of the Fresnillo Group's operations, financial position and liquidity, and the development of the markets and the industry in which the Fresnillo Group operates, may differ materially from those described in, or suggested by, the forward-looking statements contained in this document. In addition, even if the results of operations, financial position and liquidity, and the development of the markets and the industry in which the Fresnillo Group operates are consistent with the forward-looking statements contained in this document, those results or developments may not be indicative of results or developments in subsequent periods. A number of factors could cause results and developments to differ materially from those expressed or implied by the forward-looking statements including, without limitation, general economic and business conditions, industry trends, competition, commodity prices, changes in regulation, currency fluctuations (including the US dollar and Mexican Peso exchanges rates), the Fresnillo Group's ability to recover its reserves or develop new reserves, including its ability to convert its resources into reserves and its mineral potential into resources or reserves, changes in its business strategy and political and economic uncertainty.

¹ Operations at Soledad-Dipolos are currently suspended.