Octavio Alvídrez, CEO said:

“Fresnillo delivered a resilient operating performance in 2022, with our people rising to meet a number of external challenges and deliver on our production guidance. Our financial results were impacted by industry pressures included volatile precious metal prices and higher cost inflation, while our workforce continued to feel the impact of the pandemic and caused delays to our development programme, and more specific to Mexico, the labour reform which limited the use of contractors requiring us to train new employees. Despite these, gold and silver production was in line with guidance and we have made solid progress on our strategy, both maximising the potential of our current mines, while also continuing to explore on our considerable growth pipeline. Our new Juanicipio mine is now being commissioned and we expect to achieve grid connection of the new pyrites plant phase II in the second quarter. We achieved much in 2022, and I would like to thank all my colleagues for their diligence. We are announcing a final dividend for 2022 of 13.3 US cents per share to shareholders, in line with our policy. Looking ahead, we are confident in our existing operations, and excited about our growth pipeline. We are the largest silver producer in the world, have high quality assets, a consistent strategy, a very strong balance sheet, a vibrant culture, talented personnel and an experienced management team. Fresnillo’s future is bright.”

Financial Highlights – 12 months to 31 December 2022

*       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 2022 and 2021. See note 18 in the consolidated financial statements.

2022 Highlights

Resilient operating performance in line with guidance

·    Full year attributable silver production of 53.7 moz (including Silverstream), in line with guidance, slightly above FY21, with initial production from Juanicipio and increased volumes of ore processed at Fresnillo, offset by the lower ore grade at San Julián (DOB).

·    Full year attributable gold production of 635.9 koz, in line with guidance, down 15.3% vs. FY21, primarily due to a lower recovery rate as higher volumes of sulphide ore are processed and lower ore grade at Herradura, and a decrease in the volume of ore processed and lower ore grades at Noche Buena, Saucito and Ciénega.

·    Full year attributable by-product lead production decreased 6.4% vs. FY21 due to a decrease in the volume of ore processed and lower ore grade at Saucito and decreased ore grade at San Julián (DOB), mitigated by increased ore throughput and higher ore grade at Fresnillo and increased contribution from Juanicipio

Challenging operational and economic environment impacted financial results

·    Adjusted revenue decreased 8.8% over 2021 primarily due to the lower volumes of gold sold and the decrease in silver price, mitigated by the increase in silver production and higher zinc price.

·    Revenue decreased 10.0% year-on-year to US$2,433.0 million due to the lower adjusted revenue combined with higher treatment and refining charges.

·    Adjusted production costs to US$1,445.8 million, up 15.2% over 2021 mainly due to cost inflation in US dollar, costs from the start-up of operations at Juanicipio and increase in the use of infrastructure contractors, maintenance, operating materials and diesel; mitigated by lower stripping to cost at Herradura and a decrease in volume of ore processed at Saucito, Ciénega, San Julián (Veins).

·    Gross profit and EBITDA decreased to US$536.0 million and US$751.1 million, a 42.8% and 37.7% decrease over 2021.

·    Exploration spend of US$165.8 million, up 27.2% in line with our strategy to intensify exploration activities in specific targets.

·    Profit from continuing operations of US$283.6 million, down 57.5% as a result of lower gross profit and higher exploration expenses.

·    Profit for the year attributable to equity shareholders of the Group of US$271.9 million, down 35.4% on 2021 mainly due to the lower profit from continuing operations, mitigated by the US$18.8 million Silverstream revaluation gain compared to US$0.4 million loss registered in 2021 and tax income for the period of US$67.4 million, which compared favourably to the US$156.5 million tax expense in 2021 (See Financial Review section).

·    US$969.1 million in cash and other liquid funds¹ as of 31 December 2022 notwithstanding paying dividends of US$202.0 million and investing US$592.1 million in capex.

·    Net debt was US$198.7 million as at 31 December 2022. This compares to the net cash position of US$67.5 million as at 31 December 2021.

·    Final dividend of 13.3 US cents per share, amounting to US$98.0 million. This is in addition to the interim dividend of 3.40 US cents per share amounting to US$25.1 million.

·    This brings the total dividend for the year to 16.7 US cents per share, in line with the Group’s dividend policy.

Maintaining focus on operational improvement and addressing challenges of the labour reform

·    Intensive recruitment and training campaigns were completed, albeit with some impacts to productivity and development during the year, and our mines are well staffed for 2023.

·    Invested in new equipment to replace what was provided by contractors prior to the labour reform.

·    Infrastructure projects continued to progress:

o  The new pumping station was commissioned at the beginning of the year at Fresnillo, enabling us to increase pumping capacity and ensuring access to development and production areas.

o  The works to deepen the San Carlos shaft were concluded. However, modifications to the shaft infrastructure to improve its functionality once in operation were approved and implemented, thus delaying its commissioning to 2Q23.

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

Delivering growth through development projects and advancing project pipeline

·    The tie in of the Juanicipio flotation plant to the national grid was concluded by end of 2022, with commissioning starting immediately afterwards.

·    Due to the prioritisation of the connection at Juanicipio, the tie in of the Pyrites plant at Fresnillo was delayed and start up is now expected in 2Q23.

·    Land access discussions continued at Rodeo and we are now in the process of developing a scoping study.

·    Several PFS level studies advanced as scheduled at Orisyvo, together with additional land acquisition and a strengthened community engagement plan. 6,000-metre drilling programme completed during the year and we are currently preparing the geotechnical model.

·    Expect to commence drilling at the Pilarica silver and the Supaypacha gold-copper projects in Peru, following delays caused by challenges with land access, and we anticipate posting resources at Capricornio in Chile during 2023.

·    Silver resources decreased 5.0% to 2,203.9 moz primarily due to mining depletion, higher costs and cut-off grades and a more conservative approach to resource estimation in Fresnillo, Saucito and Ciénega, balanced in part by positive exploration results at the Guanajuato exploration project. Silver reserves decreased 5.6% to 396.1 moz mainly from mining depletion and higher costs and cut-off grades at Fresnillo and Saucito, and depletion at San Julián (DOB), partly offset by increased reserves from exploration at San Julián veins.

·    Gold resources remained stable at 39.1 moz. Gold reserves increased 4.4% to 8.2 moz mostly as a result of resource model improvements at Herradura, balanced in part by mining depletion at Noche Buena.

Advancing and enhancing the sustainability of our operations

·    Our goal remains Zero Harm, supported by the ‘I Care, We Care’ programme that focuses on leadership, accountability, safety culture, high potential incident management, engineering systems and lessons learnt.

·    Core safety KPIs again saw a reduction in incidents, continuing our long-term trend.

·    Continued to implement best practice governance and engineering to manage our Tailings Storage Facilities (TSF). Reviews of our facilities by the Independent Tailings Review Panel have continued: TSF at Juanicipio became our first facility to fully meet Canadian Dam Association (CDA), Mining Association of Canada (MAC), International Commission on Large Dams (ICOLD) and International Council on Mining and Metals (ICMM) principles from the earliest days of its development, design and construction.

·    Initiated our Women for Women Mentorship Programme with a first generation of mentors and mentees to foster female talent.

·    Conducted thorough evaluations of technical and environmental factors in Noche Buena as part of its closure plan.

2023 outlook and longer term prospects

·    Attributable silver production expected to be in the range of 57.0 to 64.0 moz (including Silverstream).

·    Attributable gold production expected to be in the range of 590 to 640 koz.

·    Capital expenditure is anticipated to be approximately US$630 million as we continue to invest in mining works and sustaining capex, including replacing equipment from contractors, while exploration expenses are expected to be c. US$175 million.

·    Global macroeconomic and geopolitical factors likely to continue impacting our business:

o  Precious metals prices are expected to continue to be volatile and influenced by Government policies.

o  Inflationary pressures are expected to continue affecting our costs

·    We have undertaken a full scale appraisal of costs resulting in dozens of initiatives to reduce non-essential costs, including:

o  Optimisation of staffing plans, including rationalisation of contractor roles, to increase productivity and improve efficiency

o  An assessment in 2023 across all mines to confirm the optimal development rate

o  At Fresnillo:

§ New pumping station commissioned which improves extraction efficiency

§ Deepening of the San Carlos shaft leading to reduced haulage costs

o  At Saucito:

§ Modifications to mine plan resulting in improved logistics within the mine

o  At Herradura:

§ Optimisation of slopes leading to lower stripping and haulage costs

§ Installation of duel fuel systems on trucks to reduce diesel consumption

§ Modifications to mine plan resulting in improved logistics within the mine

·    Our proven ability to deliver development projects, the investments we are making into personnel and infrastructure, along with our extensive medium-term pipeline provide a base for considerable confidence in the long-term future of the business.

Analyst Presentation

Fresnillo plc will be hosting a webcast presentation for analysts and investors today at 9:00am (GMT). A link to the webcast will be made available on Fresnillo’s homepage: www.fresnilloplc.com or can be accessed directly here https://kvgo.com/IJLO/Fresnillo_FY22_Preliminary_Results

Questions may be submitted via the webcast.

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

Conference Call Dial-in;

Mexico: 00 1 866 966 8830

UK-Wide: +44 (0) 33 0551 0200

UK Toll-Free: 0808 109 0700

USA Local: +1 786 697 3501

USA Toll-Free: 866 580 3963

Password: Fresnillo

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 eight operating mines, all of them in Mexico – Fresnillo, Saucito, Juanicipio, Ciénega, Herradura, Soledad-Dipolos¹, Noche Buena and San Julián (Veins and Disseminated Ore Body), one development project – the Pyrites Plant at Fresnillo, which has been completed and is awaiting tie-in of the plant to the national electricity grid, and four advanced exploration projects – Orisyvo, Rodeo, Guanajuato and Tajitos 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.

Chairman’s statement

Alejandro Baillères

Steady progress in challenging times

In common with organisations across the world, this was a challenging year for Fresnillo that saw us battle against a number of factors that were to a large extent beyond our immediate control, including high volatility in metals prices and inflationary pressures, among others. While some of these challenges were global in nature, others were more specifically related to the mining sector in Mexico.

Against this backdrop, Fresnillo plc’s operational performance was in line with our expectations. As our Chief Executive reports in his statement, we have made steady progress during the year. Thanks to the support and engagement of all our stakeholders, we are a resilient and responsible business, and we are committed to deliver returns to shareholders while also laying foundations for future prosperity.

Reaching our targets

Silver production was broadly stable on the previous year while gold was down, both in line with our guidance.

We achieved US$2,597.2 million in adjusted revenue during the year. This represented a decrease of 8.8%, primarily due to the decrease in the volume of gold produced and lower prices for silver. Gross profit decreased year-on-year by 42.8% to US$536.0 million, primarily driven by the decrease in the volume of gold sold, lower silver prices, the adverse effect of cost inflation, and the increased consumption of operating materials, maintenance and contractors, which significantly impacted cost of sales. Cash and other liquid funds decreased from US$1,235.3 million to US$969.1 million as the use of funds, primarily the investment in capital expenditure and dividend payments, was higher than the cash generated by the mines.

We recognise that we live in uncertain times and will always approach each challenge with an open mind, tailoring our response to meet the circumstances we encounter – always with optimal outcomes for our stakeholders at the forefront of our minds.  However, in one key aspect of our business we remain steadfastly constant: we will never forsake long-term prosperity for short-term gain. Our strategy is well established, and our dividend policy remains unchanged. We aim to pay out 33-50% of profit after tax each year, while making certain adjustments to exclude non-cash effects in the income statement. Dividends are paid in the approximate ratio of one-third as an interim dividend and two-thirds as a final dividend. Before declaring a dividend, the Board carries out a detailed analysis of the profitability of the business, underlying earnings, capital requirements and cash flow. Our goal is to maintain enough flexibility to be able to react to movements in precious metals prices and seize attractive business opportunities.

For 2022, we declared an interim dividend of 3.40 US cents per share, with a final dividend of 13.30 US cents per share, bringing the total for the year to 16.70 US cents per share.

Navigating global challenges…

In terms of the macro challenges that faced so many businesses during 2022, we continued to be impacted by Covid-19 with a fourth and then a fifth wave reaching Mexico. Although absenteeism understandably rose for a period, the impact on our operations was limited. Guided by our Purpose – to contribute to the wellbeing of people through the sustainable mining of silver and gold – we continued to protect the health and safety of our teams. We worked with the authorities to implement strict protocols to help prevent the spread of the virus and facilitated vaccinations for our people and their communities. These measures are now permanent features of our operations. At the year end, the vast majority of our workforce had been fully vaccinated with two doses and almost half had received their booster.

Covid-19 and commercial tensions between the US and China meant that we also faced supply chain issues during the year, and these affected the timely delivery of equipment and spare parts. In addition, we saw inflation begin to impact the business, with increases in operating materials, contractor costs and other inputs, especially in the second half of the year.

…as well as those closer to home

Turning to the mining industry in Mexico, a number of specific challenges have placed additional stresses on our Group in recent times.

Firstly, the new labour legislation – which restricts our ability to subcontract labour – continued to disrupt our activities, although not to the same extent as in the prior year. This legislation created great pressure on our workforce, which had historically comprised a high percentage of contractor personnel, and meant that we had to adjust our business model and recruit more people into our in-house workforce, especially difficult in a hot labour market. The recruitment initiatives which our management teams have been implementing have borne fruit, and all our mines are now either fully staffed or very close to it.

Secondly, we experienced significant delays in completing the tie-ins to the national power grid for both our new mine at Juanicipio and the new Pyrites Plant at the Fresnillo mine. Both these development projects were expected to be operational early in 2022, bringing valuable income and jobs to local communities. However, additional requirements and cautionary measures from the authorities meant that Juanicipio was not able to commence operations until the first quarter in 2023, with the start up of operations at the Pyrites Plant now expected to follow in the second quarter of the year.

With similar results, we have also continued to be impacted by delays to permitting processes, which have increased in both complexity and timescale. Our exploration teams work hard to identify potentially profitable mines that are therefore able, in turn, to bring prosperity to local communities, including many in poor and remote regions, and unforeseen delays in obtaining permits can have a negative knock-on effect.

Since 2018, we have sourced an average of over 50% of electricity from wind power. However, we have been frustrated in some of our attempts to play our part in mitigating climate change. Our goal is for wind power to provide 75% of our electricity by 2030, but our ability to reach that target requires the support of Mexico’s energy policy. Furthermore, although we have now completed our investment in the facilities to enable our Herradura haulage fleet to run on dual fuel (diesel and LNG) engines, which will further cut our carbon emissions, approval from the authorities to use certain infrastructure was delayed but has now been approved.

What these issues demonstrate is that a closer and more proactive working relationship with the Government in Mexico and its various departments – and their equivalents in Peru and Chile – would bring great benefits to all parties involved. I know that we are all striving to achieve the same things for our country: strong growth, economic stability, high quality jobs and support for local communities. During the coming months we will redouble our efforts to engage with governments and other authorities in a spirit of trust and mutual respect in order to help identify a smooth path ahead that achieves all our diverse objectives.

Board activities

The Board met regularly throughout the year and discussed a range of matters, including the ongoing impacts of the labour reform, Covid-19, inflation and supply chain issues. A significant degree of Board focus was directed towards the delays in commissioning experienced at Juanicipio. This new mine will be an important asset for Fresnillo in the years to come and it was very pleasing to see the efforts of the entire Fresnillo team eventually rewarded when the tie-in to the grid was finally approved in December 2022.

The Board also conducted strategy discussions on the course of the company as well as on both the Diversity Programme and the Sustainability Strategy. In 2022 the Group successfully increased the participation of women in the workforce, in line with our Purpose and our values. We regard the increasing participation and inclusion of women as the first step in our journey to making diversity a competitive advantage. The ‘Women for Women Mentoring Programme’ is now in place, and we are actively developing leadership and support networks. One of the programme’s key outcomes will be the appointment of more women to superintendent positions across our operations.

Turning to the Sustainability Strategy, through the HSECR Committee the Board has continued to develop a programme and structures for monitoring and responding to tails dams potential risks as well as a climate-related risks and opportunities and our TCFD obligations in particular. Although it was disappointing that Fresnillo was excluded from the FTSE4Good Index in 2022, we remain totally committed to decreasing carbon emissions and setting science-based targets in the future subject to Mexican energy policy. The steps we are taking require heavy investment and time to yield results – but we are confident that we are heading in the right direction and will look to return to the FTSE4Good Index as soon as that is possible.

Following last year’s Board Evaluation Review, the Board introduced an additional working session which specifically focused on the Company’s Risk Framework – including assessment processes, appetite and tolerance – as well as the long-term Strategic Plan covering the years to 2037.

Board changes

There were no changes to the Board this year, with all of the Directors being re-elected at the 2022 AGM.

Outlook

Once again, our Purpose will be the corporate and ethical compass that directs all our actions and ensures that we contribute to the wellbeing of all our stakeholders – shareholders and our people as well as local communities, the environment and society at large.

While challenges will remain and global macro issues such as probable economic recession will continue to play a major role in our financial performance and bring with them a degree of uncertainty, I am confident that we will maintain the steady progress of the last 12 months. We have managed the fallout from the labour reform well and, although nothing is certain, Covid-19 appears finally to be in retreat across the world. Our new mine at Juanicipio is set to make an important contribution to silver production in the months and years ahead and we expect a number of other exciting projects to progress through our pipeline and become productive operations.

On behalf of the Board, I would like to place on record our gratitude to all those who have helped shape what has ultimately been a year of progress – our management teams, our workforce and their communities, and the many suppliers and partners who work so hard to support us. By continuing to work together, we will be able to look ahead to future growth and prosperity, investing in Mexico, Perú and Chile and their people to deliver on the huge potential of Fresnillo and the opportunities these countries offer.

Alejandro Baillères

Chairman

Chief Executive’s statement

Octavio Alvídrez

Addressing our challenges, achieving our goals

Despite challenges, our mines performed to plan in 2022. Fresnillo has again proved to be a resilient business with the ability to adapt in the face of volatile external factors, and our ambitions for long-term growth remain solidly in place and achievable.

The Fresnillo Purpose was pivotal in our response to the challenges we faced during the year. Our relentless focus on the wellbeing of people touches every aspect of how we operate, from protecting the health and safety of the teams working in our mines – and the environment – to how we engage with stakeholders and negotiate with communities for access to land for exploration activities.

In particular, our Purpose guided all our efforts to address the impact of the recent labour reform and the Covid-19 pandemic. Our approach towards our people sits at the heart of what makes Fresnillo a responsible business and an employer of choice – and we worked hard to give our teams the help and support they and their communities needed.

In 2022, this support again included the provision of vaccinations and healthcare, educational opportunities and jobs, as well as comprehensive induction programmes and attractive benefits packages to help employees make the transition from being contractors to being part of our unionised workforce, in line with new requirements necessitated by the labour reform.

Production highlights and price review

Silver production was broadly comparable to last year, while gold production reduced. Both of these results were as expected and in line with our guidance.

Total silver production was stable at 53.7 moz (53.1 moz in 2021), with increased contribution from Juanicipio and continued improvement in volumes processed at Fresnillo partially offset by the lower ore throughput and expected grade variability at San Julián Disseminated Ore Body (DOB).

As anticipated, gold production decreased by 15.3% to 635.9 koz. This was primarily due to a decrease in the recovery rate and lower ore grade at Herradura, the expected decrease in production at Noche Buena as the mine approaches the end of its life, and a lower volume of ore processed and ore grade at Saucito and Ciénega.

Attributable by-product lead production decreased 6.4% to 52,950 tonnes primarily due to a decrease in volume of ore processed and lower ore grade at Saucito and decreased ore grade at San Julián (DOB). Attributable by-product zinc production remained broadly stable at 99,153 tonnes. 

The gradual reduction in precious metals prices that characterised the second half of 2021 was briefly reversed in the first quarter of the year, as geopolitical tensions in Russia and Ukraine temporarily drove up prices. However, with central banks continuing to increase interest rates to control inflation and the US dollar becoming stronger, precious metals prices again embarked on a downward trend for most of the rest of the year, as investors sought returns elsewhere. Over the course of 2022, the average realised silver price was US$21.7 per ounce, a decrease of 12.76%, while the gold price remained flat at US$1,799.3 per ounce. The average price for zinc increased by 15.9%, whereas that for lead decreased by 3.7%.

Barring more uncertainty impacting confidence, I expect precious metals prices have now established a realistic floor and the coming months are likely to see prices react positively.

Consistent and resilient strategy

Since our IPO in 2008, Fresnillo has remained true to the same strategy. Based on four strategic pillars and now proven across more than a decade, this strategy has steered our Company through good times as well as more challenging conditions. Below, I report on how we have performed against each of the pillars.

Maximising the potential of existing operations

The availability of a trained, experienced workforce continued to challenge our production ambitions during 2022, although our efforts to mitigate its impact have proved increasingly successful.

Following the new labour reform introduced by the Mexican Government in 2021, which restricted our ability to use contractors, we have worked hard to recruit, train and retain employees in our in-house workforce. We have achieved almost all of the goals we identified at the start of the year and all our operations now benefit from a stable workforce. By the year end, we had completed the staffing process in the Fresnillo District, San Julián and Ciénega. Overall, our mines are now being worked by close to a full complement of unionised teams.

The restrictions on outsourcing also continued to reduce the availability of equipment, some of which had historically been provided by contractors. In response, we rapidly invested in significant amounts of new equipment, but unfortunately some of these orders have been affected by global supply chain bottlenecks and the subsequent delays in deliveries have impacted production.

Ultimately, and despite the short-term challenges it has brought, the switch from relying on contractors and their equipment to working with our own people and resources will be positive. It will give us greater stability and control over our operations and help us to build a more aligned culture and resilient business.

Although we will always be vigilant and carefully monitor any outbreaks, no matter how minor, the Covid-19 pandemic appears to be increasingly under control. We experienced a fourth and then a fifth wave during 2022, but supported by our Purpose we were able to keep absenteeism and illness to a minimum and production at our mines was largely unaffected. We continue to follow strict protocols, as advised by the authorities, and have encouraged and supported vaccination of our workforce and communities, collaborating with health authorities to make vaccines available in the remote locations where we operate. Close to 81% of our workforce have been fully vaccinated with two doses, and 41% have received the booster. We will continue to implement testing campaigns across our operations, development and exploration projects and corporate offices.

Alongside our work to manage Covid-19 and the fallout from the labour reform, our investments in infrastructure have also helped us to maximise the potential of our existing operations. For example, we are set to enjoy the benefits of the deepened San Carlos shaft at our Fresnillo mine. When complete, the shaft will provide easier and faster access to more than half of the mine’s reserves – reducing haulage times and costs, and resulting in lower emissions due to fewer trucks working in the mine. The new pumping station commissioned at the beginning of the year at Fresnillo enabled us to increase pumping capacity and ensured access to development and production areas.

Delivering growth through development projects

Everybody associated with Fresnillo was delighted to see our new mine at Juanicipio finally tied-in to the national power grid in December 2022. Although the mine was completed on target in late 2021, we experienced delays due to additional testing requirements by the Centro Nacional de Control de Energía (CENACE). Safety is of course always our top priority, and while the delays were unexpected, we fully support the prudent approach taken by the electricity regulator. 

Commissioning began immediately after the tie-in and Juanicipio will make a material contribution to our performance from 2023 onwards. We expect silver and gold production to reach annual averages of 11.7 moz and 43.5 koz respectively. During 2022, ore from Juanicipio continued to be processed through the Fresnillo and Saucito flotation plants.

At phase II of the Pyrites Plant at Fresnillo, we experienced delays in the tie-in to the grid. As we prioritised the process at Juanicipio, the timetable for the tie-in of the Pyrites Plant was extended by a few weeks. We currently expect operations to commence in the second quarter of 2023 and anticipate that the plant will produce an average of 3.5 moz of silver and 14 koz of gold per year, including production from Saucito.

The potential project to install vibrating screens to improve milling capacity at the Fresnillo mine remains under consideration. The new flotation circuit is already improving the recovery of lead and zinc from the lower levels at Fresnillo, and we will re-evaluate the merits of the vibrating screens once production at the mine reaches at least 8,000 tons per day.

Extending the growth pipeline

As the successful development of Juanicipio demonstrates, our exploration teams have a track record of strengthening our asset portfolio across the price cycles of precious metals. While the exploration budget for 2022 was reduced marginally from the previous year in response to compressed margins and the labour reform challenges, we nevertheless continued to make good progress on advanced and priority early-stage projects in Mexico, Peru and Chile. In total, we drilled 955,798 metres across the portfolio with our teams of geologists carrying out an intensive field-based programme at several promising prospective sites.

At Rodeo, we continued negotiations to acquire the right to access land, and we hope to conclude these by mid year. We successfully negotiated rights for 2.8 million cubic meters of water and are now developing a scoping study. Located in the state of Durango, this gold-silver project has inferred resources amounting to 1.3 moz of gold and 13.8 moz of silver and potential for further growth.

The gold project at Orisyvo continued advancing and several activities are progressing even faster than at Rodeo, with some development works expected to start in 2023. We concluded negotiations regarding land access for the construction of the tailings dam, water dam and industrial area in 2022, and will initially fund developments via risk capex as the pre-feasibility and feasibility stages continue. We carried out a 2,049-metre drilling programme during the year and are currently preparing the geotechnical model. We also continued exploration activities at the silver-gold Guanajuato project, drilling a total of over 66,000 metres with encouraging results.

In Peru, we are looking forward to drilling commencing at the Pilarica silver and the Supaypacha gold-copper projects, following delays caused by challenges with land access, and we anticipate posting resources at Capricornio in Chile during 2023.

Silver resources decreased 5.0% to 2,203.9 moz primarily due to mining depletion, higher costs and cut-off grades and a more conservative approach to resource estimation in Fresnillo, Saucito and Ciénega, balanced in part by positive exploration results at the Guanajuato exploration project; gold resources remained stable at 39.1 moz. Silver reserves decreased 5.6% to 396.1 moz mainly from mining depletion and higher costs and cut-off grades at Fresnillo and Saucito, and depletion at San Julián (DOB), partly offset by increased reserves from exploration at San Julián veins. Gold reserves increased 4.4% to 8.2 moz mostly as a result of resource model improvements at Herradura, balanced in part by mining depletion at Noche Buena.

For 2023, the exploration budget will remain broadly in line with that for 2022.

Advancing and enhancing the sustainability of our operations

Our goal is zero harm. This ambition is supported by the comprehensive ‘I Care, We Care’ programme that focuses on leadership, accountability, safety culture, high potential incident management, engineering systems and lessons learnt. In 2022 we focused our efforts on implementing critical controls and visible leadership practices across our mining operations.

Our core safety KPIs saw a slight reduction in incidents, continuing our long-term trend. The Total Recordable frequency rate improved from 10.4 injuries per one million hours worked to 10.3, with the Lost Time Injury rate falling from 5.8 to 5.4. However, none of this success can overshadow the sadness and regret that we experienced at the loss of a colleague’s life early in 2022, which was a sober reminder of the work ahead. We must never relax or become complacent as we pursue zero harm.

During the last 12 months, we continued to implement best practice governance and engineering to manage our Tailings Storage Facilities (TSF). Our aim is to ensure that our standards match global best practice, and we are now moving from implementing short-term solutions that meet immediate needs to long-term answers that match the life of our mines and will protect the future safety of local communities. As this approach embraces the building of new and larger TSFs where appropriate, we recognise the requirement for higher capex although this will stabilise over time.

Reviews of our facilities by the Independent Tailings Review Panel have continued, with virtual and in-person site visits providing recommendations that guide our implementation plans. We are developing our Emergency and Response Plans and maturing our Tailings Management System, which includes a dashboard to monitor key indicators for every level of involvement and responsibility. Among the year’s key achievements, the TSF at Juanicipio became our first facility to fully meet Canadian Dam Association (CDA), Mining Association of Canada (MAC), International Commission on Large Dams (ICOLD) and International Council on Mining and Metals (ICMM) principles from the earliest days of its development, design and construction.

We continue to mature our capabilities to disclose climate-related financial information, joining the TCFD Consortium in Mexico during the year in order to share best practices and participating in the Financial Reporting Council’s (FRC) Lab Net-zero Disclosures research project. We launched a Climate Modelling project with the University of Arizona to generate future climate projections under different scenarios, and this will support the development of our adaptation strategy.

However, it was disappointing that two of our key climate change mitigation initiatives failed to make the progress we had expected. The project to install dual fuel engines that run on both Liquid Natural Gas and diesel was completed as planned but start-up was delayed as we awaited official permits from the Government, which have since been received. Furthermore, our long-term goal for 75% of our electricity consumption to be provided by wind power by 2030 may be impacted by the Government’s energy reforms. We are working with the authorities to gain clarity around this issue, which we believe can make important contributions to Mexico’s drive to combat climate change.

Our commitment to our Purpose underlines the importance of deeply integrating responsible business practices into our business model while understanding the factors that affect stakeholders at all critical decision-making levels. It was disappointing to be omitted from the FTSE4Good Index after being included in it for four successive years. However, we acknowledge that we need to move faster and go further in setting targets to reduce emissions at a time when expectations around this topic are increasing. We are redoubling our efforts to identify and assess decarbonisation pathways, whether through new technologies or energy efficiencies.

Looking ahead

Global macroeconomic and geopolitical factors that all businesses faced during 2022 are likely to continue impacting our prospects. Despite the best efforts of our partners, the commercial tensions between the US and China and post-Covid issues will constrict supply chains and lead to delivery delays for mining equipment and spare parts. If major economies enter or remain in recession, then we expect to see a negative impact on demand. Meanwhile, although a slowdown in rising interest rates may lift prices for precious metals, inflationary pressures will continue affecting our costs.

Challenges that are more native to Mexico – such as delays in permits and the granting of concessions as well as political issues including energy reform – will also impact the business, and here I echo the thoughts of our Chairman. We will work with regional and national government departments, and with all relevant local authorities, to ease any bureaucratic delays that may prevent us making further good progress. Our Purpose is to support the wellbeing of people – and that includes bringing prosperity and valuable jobs to local communities, as well as paying our taxes to support the ambitions of the Government.

Our business is rich with potential. We have stabilised operations at our existing mines and look forward to the Juanicipio mine increasing our total production in 2023 and beyond. At the same time, we expect to increase resources at several projects that are moving along our pipeline. Indeed, we anticipate some of these projects to make their way into our operational portfolio in the next two to three years.

Finally, I wish to thank the Board and our people for their continued support during 2022. I believe we have worked together well and made good progress in what have at times been challenging circumstances. While some of those challenges will continue, we are committed to working through them and to fulfil the potential of our portfolio and pipeline. Our prospects are bright.

– Octavio Alvídrez

Chief Executive Officer

Original Article: http://otp.investis.com/clients/uk/fresnillo2/rns/regulatory-story.aspx?cid=191&newsid=1672835