Fresnillo plc today announced its financial results for the full year ended 31 December 2021.

Octavio Alvídrez, CEO said:

“The continued impact of the pandemic, combined with the new Mexican labour reform, have presented Fresnillo with operational challenges during the year. More recently, we were all devastated to report the passing of Alberto Baillères, our Honorary Chairman. Don Alberto was a remarkable man. We will miss his guidance, compassion, encouragement and faith.

Despite the challenges, we delivered a creditable performance. Silver production of 53.1 moz (including Silverstream), was marginally below guidance, but flat vs. FY20. Gold production of 751.2 koz, was however ahead of guidance, down 2.4% vs. FY20.

We reported US$2,847.9 million in adjusted revenue, an increase of 9.2%, primarily due to better prices for precious metals. Gross profit rose year-on-year by 6.5% to US$936.9 million. We maintained our strong financial position as cash and other liquid funds increased from US$1,070.4 million in 2020 to US$1,235.3 million in 2021. We declared an interim dividend of 9.90 US cents per share, with a final dividend of 24.0 US cents per share, bringing the total for the year to 33.9 US cents per share, in line with our consistent dividend policy.

Regrettably, a fourth wave of Covid-19 has reached Mexico and we began to see the impact of this in terms of staff absenteeism from the 2^nd week of December and accelerated throughout the first few weeks of the year. The safety and well-being of our people is our priority. Covid protocols remain in place, but we are relieved to see the omicron variant presents a lesser health risk. Nonetheless, we are seeing greater levels of absenteeism which in turn is having an impact across our business.

The labour reform in Mexico restricting the ability to subcontract labour came into effect from 1^st  September 2021 resulting in the requirement to internalise a high proportion of our contractor workforce. Subsequent contractor uptake has varied, with underground mines more affected resulting in an increased number of vacancies and a higher workforce turnover. This has affected equipment availability and utilisation rates. The actions we announced to address this challenge will continue, including recruitment campaigns, training and investment in new equipment. These campaigns are proving effective. We expect to have completed the staffing process in the Fresnillo District and Ciénega in the third quarter, while our open pit mines, which have seen a lesser impact, should be fully staffed during 1Q22.

We made good progress on our development projects. The new Juanicipio mine was completed at the end of 2021, as planned. However, approval to complete the tie-in to the national power grid was not granted by Comisión Federal de Electricidad (CFE), the state-owned electrical company, before year end as expected. The mill commissioning timeline was therefore extended by approximately six months. Juanicipio will be an increasingly major influence in our operations, on average producing 11.7 moz silver and 43.5 koz gold a year for the life of mine. Similar covid-related delays related to energy inspection and new requirements also affected the start-up of the new Pyrites Plant at the Fresnillo mine.

Our longer term growth pipeline remains strong. The increased exploration budget for 2021 supported an intensive programme across all our operations, with the aim of increasing the resource base, converting inferred resources into indicated, and improving the confidence of the grade distribution in our reserves.

We are making steady progress with our next development projects at Rodeo and Orisyvo, where we expect to commence production towards the end of 2024 and 2025 respectively, subject to Board approval.

We are committed to playing our part in fighting climate change by mitigating our environmental impact wherever possible. We have completed our project to install dual fuel engines that run on both Liquid Natural Gas (LNG) and diesel as planned. In 2021, 49.7% of our electricity consumption came from renewable sources and we are focused on achieving our target of using wind power to provide 75% of our electricity by 2030.

Looking ahead we remain alert to potential on-going challenges that are outside our control, not least possible further regulatory reform, inflationary pressures and of course the threat of new covid variants. Lower production and recovery rates at Herradura and the continuing workforce shortages at Saucito caused by the new labour reform – as well as the impact of recent geotechnical instability in the Saucito area – are also likely to add to the pressures we may face in 2022. In addition, the extension to the timeline for the tie-in to the national grid of both the Juanicipio plant and the Pyrites Plant mean that we now expect lower contributions than previously anticipated from these operations during 2022. 

However, we expect our exploration pipeline to continue making good progress, particularly at the Rodeo Orysivo and Guanajuato projects. Precious metals prices also established what looks to be a realistic floor towards the end of the year and our view is that a period of higher prices is the most likely outcome. We therefore look forward to 2022 with determination and confidence”

Financial Highlights – 12 months to 31 December 2021

*      Fresnillo attributable production, plus ounces registered in production through the Silverstream Contract

**     Adjusted Revenue is revenue as disclosed in the income statement adjusted to exclude treatment and refining charges and lead and zinc hedging

***   The weighted average number of ordinary shares was 736,893,589 for 2021 and 2020. See note 17 in the consolidated financial statements.

2021 Highlights

Strong financial results, supported by high precious metals prices and a robust operational performance

·    Adjusted revenue increased 9.2% over 2020 primarily due to a higher silver price.

·    Revenue increased 11.2% year-on-year to US$2,703.1 million due to the higher adjusted revenue combined with lower treatment and refining charges.

·    Adjusted production costs increased mainly as a result of a 9.6% cost inflation combined with the 5.6% average revaluation of the Mexican peso vs. US dollar.

·    Gross profit and EBITDA increased to US$936.9 million and US$1,206.3 million, a 6.5% and 3.2% increase over 2020.

·    US$1,235.3 million in cash and other liquid funds¹ as of 31 December 2021 notwithstanding paying dividends of US$245.6 million, investing US$592.1 million in capex and spending US$130.3 million on exploration expenses to underpin our future growth.

·    Net cash was US$67.5 million as at 31 December 2021. This compares to the net debt position of US$97.4 million as at 31 December 2020.

·    Final dividend of 24.0 US cents per Ordinary Share. This is in addition to the interim dividend of 9.90 US cents per share amounting to US$73.0 million. This final dividend is higher than the previous year due to the higher profit in 2021, and remains in line with the Group’s dividend policy.

Maintaining focus on operational improvement, addressing challenges of Labour Reform and Covid-19

·    To support the wellbeing of our people and their communities, we continued to engage extensively and play our part as a large employer and supportive neighbour. We maintained our investment in local healthcare including contributing testing equipment and vaccines – as well as in the provision of employment opportunities and education programmes.

·    Actions to mitigate the impact of new labour reforms include new recruitment campaigns, training and investment in new equipment, to date proving effective. We expect to complete the staffing process in the Fresnillo District and Ciénega in the 3Q 2022. Our open pit mines, which have experienced less of an impact, should be fully staffed during the first quarter of the year.

·    Infrastructure projects continued to progress:

o  The deepening of the San Carlos shaft at Fresnillo remains on track for completion in 2022.

o  At Saucito, we continued with the project to deepen the Jarillas shaft to 1,000 metres with completion in 2025; this will reduce haulage costs by providing access to deeper levels of the mine where almost half of the reserves are located.

Progressing new development projects and investing in long term future

·    Juanicipio plant construction was completed towards the end of 2021, as planned though the tie-in to the national power grid was not granted by Comisión Federal de Electricidad (CFE), the state-owned electrical company, before year end as expected. The mill commissioning timeline was therefore extended by approximately six months to comply with new requirements from Centro Nacional de Control de Energía. (CENACE), the state regulator. Juanicipio is set to be an increasingly major influence in our operations later this year, with annual silver and gold production expected to average 11.7 moz and 43.5 koz respectively over the life of mine.

·    New Pyrites Plant at the Fresnillo mine was also completed on time. Similar grid tie-in delays impacted the start-up of the plant. When fully operational, we anticipate that it will produce an average of 3.5 moz of silver and 13 koz of gold per year, including production from Saucito.

·    US$30 million plant optimisation project to improve the recovery of lead and zinc from the lower levels of the Fresnillo mine was commissioned as planned. The flotation circuit was connected on schedule early in the year and we are now seeing an improved quality of concentrates, better recovery rates and greater control of impurities.

·    The increased exploration budget for 2021 supported an intensive programme across all our operations, aiming at increasing the resource base, converting inferred resources into indicated, and improving the confidence of the grade distribution in our reserves.

o  Silver resources stood at 2.3 boz, a slight increase of 1.2% over 2020 mainly as a result of the exploration efforts at Fresnillo and San Julián Veins. Gold resources remained stable at 39.0 moz.

o  Silver reserves decreased 9.0% to 419.8 moz mainly due to depletion at Fresnillo, Saucito and San Julián (DOB). Gold reserves decreased by 7.7% to 7.8 moz primarily due to more stringent geotechnical and cost considerations at Herradura and depletion at Noche Buena.

o  Exploration continued in Peru and Chile, where we developed new drill targets and restructured our organisation and reporting procedures in order to speed up and streamline our activities.

·    Advanced exploration projects at Rodeo and Orisyvo continued to make good progress. We currently expect to commence production at Rodeo and Orisyvo towards the end of 2024 and 2025 respectively, subject to Board approval.

Cautious 2022 outlook, confidence in longer term prospects

·    Lower production and recovery rates at Herradura and the continuing workforce shortages at Saucito caused by the new labour reform – as well as the impact of seismicity in the Saucito area, will impact 2022, as will the extension to the timeline for the tie-in to the national grid of both the Juanicipio plant and the Pyrites Plant.

·    Given this context, our 2022 attributable silver production remains in the range of 50.5 to 56.5 moz (including Silverstream) while our attributable gold production continues to be in the range of 600 to 650 koz.

·    Further, Fresnillo remains positive about the outlook for precious metals prices which will support the financial performance of the business.

·    Some uncertainty remains including over inflationary pressures and potential for new regulatory change in Mexico.

·    However, our proven ability to deliver development projects on time and budget, combined with our extensive medium term pipeline provide basis for considerable confidence in the long term future.

Analyst Presentation

Fresnillo plc will be hosting a webcast presentation for analysts and investors today at 9:00am (GMT).

Registration and access will be provided on the homepage of Fresnillo’s website and directly via this link:

For those unable to access the webcast, a conference line will also be provided:

UK: +44 (0) 33 0551 0200

US: 1 866 966 5335

MX: 00 1 866 966 8830

Password: Quote “Fresnillo” when prompted by the operator

Questions may be submitted via the conference dial-in.

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 largest gold producer, listed on the London and Mexican Stock Exchanges under the symbol FRES.

Fresnillo plc has seven operating mines, all of them in Mexico – Fresnillo, Saucito, Ciénega (including Las Casas Rosario & Cluster Cebollitas), Herradura, Soledad-Dipolos¹, Noche Buena and San Julián (Veins and Disseminated Ore Body), two development projects – the Pyrites Plant at Fresnillo and Juanicipio, both of which have been completed but approvals to operate are pending, and three advanced exploration projects – Orisyvo, Rodeo and Guanajuato, as well as a number of other long term exploration prospects.

Fresnillo plc has mining concessions and exploration projects in Mexico, Peru and Chile. Fresnillo plc has a strong and long tradition of exploring, 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 and Mexico’s largest gold producer.

¹ Operations at Soledad-Dipolos are currently suspended.

Original Article: http://otp.investis.com/clients/uk/fresnillo2/rns/regulatory-story.aspx?cid=191&newsid=1558059