Fresnillo Plc reports solid year of production, ahead of guidance

Fresnillo plc (LON:FRES) has announced its fourth quarter production report for the three months ended 31 December 2024.

Octavio Alvídrez, Fresnillo Chief Executive Officer, said:

“I am pleased to report another solid year of production, in line with, or in the case of gold, slightly ahead of the guidance we gave at the start of the year. The result highlights our efforts to drive consistency and resilience across our portfolio. Lead and zinc production were also up strongly over the year again showing the improved overall result over the course of the year. Improved cost performance and increased metals prices contributed to strong profitability in 2024. Our priorities for 2025 are clear. Safety is our key focus while we continue to drive efficiencies and cost reduction initiatives across our mine sites.”

HIGHLIGHTS

Silver

·    Full year attributable silver production (including Silverstream) of 56.3 moz remained flat vs. FY23 and was in line with guidance (55.0 to 62.0 moz). This was mainly explained by the higher ore grades and increased volumes of ore processed at San Julián Veins and Saucito and, to a lesser extent, the higher contribution of Juanicipio following the first full year of operation at the beneficiation plant. These factors were offset by the decreased production at San Julián DOB as it approached the end of its life, a decrease in volume of ore processed and lower ore grade at Fresnillo, and lower contribution from the Silverstream agreement.

·    Quarterly attributable silver production of 13.7 moz (including Silverstream) was down 5.1% vs. 3Q24 primarily due to the cessation of mining activities at San Julián DOB in November 2024 and a lower ore grade at Juanicipio. This was partly mitigated by the higher ore grade at Saucito.

·    Quarterly attributable silver production (including Silverstream) decreased 3.3% vs. 4Q23, mainly due the cessation of mining activities at San Julián DOB and a decreased volume of ore processed and lower ore grade at Fresnillo, partly offset by the higher ore grades and increased volumes of ore processed at Saucito and San Julián Veins.

Gold

·    Full year attributable gold production of 631.6 koz, slightly ahead of guidance (580 to 630 koz), up 3.4% vs. FY23 mainly due to the higher ore grade at Fresnillo and increased ore processed and higher ore grades at Saucito and San Julián Veins. This was partly offset by a reduction in gold ounces recovered from the leaching pads at Noche Buena, following the cessation of mining activities in May 2023.

·    Quarterly attributable gold production of 203.9 koz, up 30.1% vs. 3Q24, primarily due to higher ore grade and recovery rate at Herradura and, to a lesser extent, higher ore grades at Saucito.

·    Quarterly attributable gold production increased 33.6% vs. 4Q23 primarily due to the increased volume of ore processed at Herradura and, to a lesser extent, a higher ore grade and an increase in volume of ore processed at Saucito and a higher ore grade at Fresnillo. This was partly offset by the mine closure plan at Noche Buena.

By-Products

•     Full year attributable by-product lead and zinc production up 14.8% and 8.3% vs. FY23 respectively, mainly due to higher ore grades at Fresnillo and Juanicipio and increased volume of ore processed and higher lead ore grade at Saucito, partly offset by the decreased contribution from San Julián DOB.

•     Quarterly attributable by-product lead production decreased 4.8% vs. 3Q24 due to the lower contribution from San Julián DOB and decreased ore processed at Fresnillo, partly mitigated by the increased volume of ore processed and a higher ore grade at Saucito.

•     Quarterly attributable by-product zinc production decreased 10.4% vs. 3Q24 mainly due to the decreased contribution from San Julián DOB, and decreased volume of ore processed and lower ore grade at Fresnillo.

•     Quarterly attributable by-product lead production up 6.1% vs. 4Q23 due to the higher ore grade at Fresnillo and Juanicipio, partly offset by the decreased contribution from San Julián DOB.

•     Quarterly attributable by-product zinc production remained flat vs. 4Q23 primarily due to a higher ore grade and improved recovery rate at Fresnillo, offset by the decreased contribution from San Julián DOB and a lower ore grade at Saucito.

Expressed in silver equivalent ounces^[1], production was 106.8 moz, up 1.6% (105.1 moz).

SAFETY PERFORMANCE

Safety remains our key priority. Our work to identify preventive measures, focusing on training and maintaining stringent adherence to our safety policies to provide a safer environment for our workforce, is continuous. We are committed to instilling a true culture of safety across our business and to meeting our Zero Fatalities target.

OUTLOOK

2025 silver guidance and 2026 expected silver production are unchanged.

In line with our strategy to focus on profit margins at the mines, the decrease in the 2025 gold guidance reflects an adjustment to the mine plan at Herradura, whereby the most profitable gold ounces will be extracted and volumes of waste material moved decreased. In parallel, metallurgical and underground mining optimisation projects continue, together with the ongoing analysis of brownfield projects, to further enhance the production platform and cost base for the 2026-2030 period, while we continue advancing our greenfield projects, Rodeo, Tajitos, Orisyvo and Guanajuato.

RESERVES AND RESOURCES

Estimated Mineral Resources^[2] are presented on an inclusive basis at all mines except for exploration. Silver in consolidated overall mineral resources of 2.25bn oz (+1.2% vs 2023) due to additional drill hole information and revised economic assumptions at the Guanajuato and Lucerito exploration projects and the Fresnillo mine, offset by depletion at most of our mines. Gold in consolidated overall mineral resources of 38.5 moz, up 1.4% vs 2023, primarily driven by the positive exploration results at Guanajuato, Lucerito and Candameña, partly offset by depletion at our underground mines.

Silver in consolidated overall ore reserves^[3] of 331.3moz, down 7.1% vs 2023, mainly driven by mining depletion, revised economic assumptions and a more conservative approach to reserve estimation at San Julián and Ciénega. Gold in consolidated overall ore reserves of 7.2 moz, up 2.5% vs 2023, mostly due to the higher price, revised economic assumptions and cut-off grades at Herradura.

Following several years of refining our geotechnical models and improving our ore control and grade reconciliation process, the Company will report proven reserves at all its underground mines this year.

As in previous years, SRK and AMC continue the final stages of their audit and further detail of the Company’s exploration results, together with an analysis of the figures above will be provided with the Full Year Results.

ITEMS IMPACTING THE FINANCIAL STATEMENTS

Ahead of the release of the Company’s Full Year Results, we are providing an update on factors expected to impact several items in the financial statements, subject to the conclusion of the audit over the coming weeks.

Income and cash flow statements

The average realised gold and silver prices increased 25.3% and 21.7% vs 2023, respectively. The average realised zinc price also increased 8.7% year-on-year, while the average realised lead price decreased 2.7%. These variations, combined with the increase in the volumes of all metals sold, and lower treatment and refining charges, are expected to result in an increase in Revenues of between 25-35% vs 2023.

The cost reduction initiatives across our mines, and to a lesser extent, the positive effect of the devaluation of the Mexican peso against the US dollar during the second half of the year which resulted in a 3% average devaluation of the Mexican peso against the US dollar across the full year, is expected to have a 2-3% reduction in the Group’s consolidated adjusted production costs when compared to 2023.

As a result, Gross profit is anticipated to be within the range of US$1.2-1.3 billion, up more than 135%. Profit from continuing operations is expected to be further benefitted by the lower administrative, corporate and exploration expenses and increase to a range of US$930-950 million in 2024, up more than 500%.

Free cash flow^[4] is estimated to be within the range of US$820-US$850 million, with expected cash and cash equivalents at year end amounting to US$1.2-US$1.3 billion.

Extraordinary non-cash items

As reported on 12th November 2024, Fresnillo received a notification from Industrias Peñoles that its Sabinas mine is experiencing operational difficulties impacting silver production. We have initiated a joint analysis with Peñoles to assess the operational difficulties and financial situation at the Sabinas mine and the process is expected to continue for four to five months. However, based on the best information currently available and applying the same criteria (mechanics) to value the Silverstream that we have used since the IPO, Fresnillo expects, subject to the results of the external audit, that the 2024 book value of the Silverstream contract on its balance sheet will decrease significantly, which will affect the income statement. We will update the market with any further detail as part of our year-end financial reporting.

The effective tax rate for corporate income tax in the income statement was negative in the last two years (-179.8% in 2023 and -27.1% in 2022) due to the favourable impact of the spot revaluation of the Mexican peso against the US dollar on deferred taxes as a result of the change in tax value of assets and liabilities^[5]. As Fresnillo highlighted in the past, this favourable impact on deferred taxes has reversed with the significant recent spot devaluation of the Mexican peso (approximately 20%). As a result, the effective tax rate, excluding the special mining rights, in 2024 is expected to be higher than 50%, above the 30% statutory tax rate. Note this does not affect actual tax paid as reflected in the cashflow statement.

All the above figures are subject to change until the external audit procedures are concluded.

FULL YEAR FINANCIAL RESULTS

Fresnillo will announce its full year 2024 results on 4th March 2025.