Fresnillo plc (LON:FRES) will hold its Annual General Meeting today. The Chairman, Mr. Alejandro Baillères, will make the following statement:
“This time last year, we were still coming to terms with the near-term impact of Covid-19. It is tragic that a year later, the world continues to fight the effects of this pandemic. I would like to offer my sympathies to all those who have been affected by this terrible disease and thank all those in the health, social services and science communities who continue to work so hard to lead us towards recovery.
Our Purpose is to contribute to the wellbeing of people through the sustainable mining of silver and gold. By living up to our Purpose throughout the pandemic, we have been able to protect and support our people, maintain production close to the expected levels and continue to contribute to the wellbeing of our stakeholders.
Despite the disruption caused by Covid-19 and the measures we introduced to mitigate its effect, production of silver from our underground mines generally remained within expected ranges. Gold production was lower than anticipated, largely due to the six weeks’ interruption of mineral extraction at our open pit operations as initially mandated by the authorities. This is a good performance under the circumstances.
Fresnillo achieved a strong financial performance in 2020, with total adjusted revenue of over $2.6 billion, up almost 15% and gross profit up by 90.5% to US$879.4 million, driven by a combination of higher prices and lower costs. We took steps to ensure the stability and financial health of Fresnillo, with measures including a limited and targeted hedging programme as a result of the unique market conditions which presented an opportunity to reduce downside risk while retaining significant upside exposure to future silver price increases. We also bought back just over 60% of the outstanding debt that was due to mature in 2023 in addition to placing US$850 million of new debt due to mature in 2050. This new debt has an annual interest rate lower than the original bond set to expire in 2023, reducing our annual financing costs and lowering the balloon payment due in three years’ time.
Fresnillo is a proud Mexican business and an integral part of many communities. More than ever, this partnership has been central to the health and wellbeing of local people. We shared our Covid-19 tests with communities in remote locations and donated medical and preventive equipment to local health authorities. We also donated food, masks and anti-bacterial gels to vulnerable people, and continued to put the needs of local communities first. That included maintaining our payment terms and providing help to enable contractors and suppliers to implement health protocols. We have also run local community awareness programmes and continue to support the local health authorities wherever we can.
We worked closely with the Mining Ministry of Mexico to develop national workplace guidance for our industry – that collaboration was central to the Government’s reclassification of mining as an essential industry, enabling us to reopen our open pit operations in May 2020.
Throughout the pandemic, we have continued to focus on operational improvement. I am pleased to say that the Fresnillo Full Potential plan is starting to have an impact and the new state-of-the-art Tunnel Boring Machine, designed in conjunction with the manufacturer specifically for the Fresnillo mine, also successfully began operations. Though some working restrictions remain in place, progress to date gives us cause for cautious optimism.
In terms of future growth, construction of our new Juanicipio mine has progressed and is on track to be operational by 4Q 2021. Production will also be increased when the recently-completed Pyrites Flotation Plant at Fresnillo is operational.
Our exploration teams continue to identify and develop potential projects for our pipeline, including at Rodeo, which we expect to become our next open pit gold mine.
Safety remains our core focus. Although our safety record has improved over the last decade, the need for constant vigilance was underlined with the tragic death of a colleague after a fatal accident, the first such incident in 16 months. These incidents affect us all deeply and serve to make us more determined to ensure our people stay safe. Our ‘I Care, We Care’ programme has now been rolled out across the business, and we continue to target a steady improvement in all health and safety metrics.
In 2020 we also advanced our broader ESG strategy. We took steps to review and, where possible, intensify sustainable practices at all of our operations, becoming a registered supporter of the Task Force on Climate-related Financial Disclosures (TCFD) during the year. We were again recognised as one of the World’s Most Ethical Companies by Ethisphere and retained our membership of the FTSE4Good Index. In Mexico, our team was proud to win the Ethics and Values Award from the Mexican Council of Industrial Chambers and to be commended for our standards of corporate integrity by Integridad Corporativa 500.
It was with profound sadness that in November we learned of the death of Luis Robles, who served as an independent Non-Executive Director since May 2019. Luis brought a great wealth of knowledge, experience and energy to our Company and will be sorely missed.
The Board was delighted that Guadalupe de la Vega was elected as an independent Non-executive Director at the 2020 Annual General Meeting. Her appointment ensures that Fresnillo complies with the Hampton-Alexander Review requirement that at least 33% of Board members should be women. With racial inequality and ethnic diversity coming into greater focus, it was pleasing to see the Parker Review report that Fresnillo plc met the ethnicity target for FTSE 100 companies in 2020.
We have also announced other changes to the Board. Jaime Lomelín retired as a Director during the year, having served on the Board since the IPO, initially as our Chief Executive Officer and since 2012 as a Non-executive Director. The Board is grateful to him for his wise counsel, and I am delighted that he will continue to act as an adviser, ensuring that we will still benefit from his valuable experience.
The Nominations Committee has recommended to the Board that Mr Héctor Rangel be proposed for election as an independent Non-executive Director and Mr Eduardo Cepeda as a Non-executive Director at the AGM. Héctor and Eduardo bring with them huge experience and knowledge and are both highly respected in the Mexican business community after long track records predominantly in the banking sectors. I know they will make valuable contributions to the stewardship of the Company.
We said farewell to two members of our Executive Committee during the year. Our COO André Sougarret returned to his native Chile while David Giles retired from his role as Vice President of Exploration. I thank them both for the expertise and experience they brought to our Company. I would like to welcome their successors Tomás Iturriaga and Guillermo Gastélum respectively.
I would like to also pay personal tribute to my father Alberto Baillères, who stepped down as Chairman in April. He has chaired Fresnillo with distinction since our listing in London, though his leadership of the Group extends over half a century. On behalf of the Board I would like to thank him for his immense contribution, not just to Fresnillo, but also for the much broader role he has played in the development of the Mexican economy as well as his service to the Mexican people both as a businessman and philanthropist during his extraordinary career. I am delighted he has accepted the Board’s invitation to become Honorary President, so we can continue to benefit from his considerable experience and deep knowledge.
It is an honour to be stepping up to become Chairman of your company. I am privileged to have the support of a fantastic Board and a committed, expert management team executing a proven long-term strategy. Under my Chairmanship, we will remain faithful to our core principles, ensuring we continue to adapt to make sure we always behave in a way that is faithful to our purpose, while delivering shareholder value.
Fresnillo is in a strong position, supported by a proven strategy, a positive culture and an expert executive team. Production has stabilised as expected and the pipeline of new mines and projects – together with a series of improvement programmes, as well as an improving outlook more generally – provides us with solid grounds for optimism.
On behalf of the Board, I would like to thank all our people who have worked so hard to deliver satisfactory production results in the face of extremely challenging conditions.
Thank you.
Mr Alejandro Baillères
Chairman of the Board”
