5th Aug 2014 07:41
LONDON (Alliance News) - Fresnillo PLC Tuesday said pretax profit fell in the first half of 2014 as revenues were hit by lower commodity prices and a fall in gold production, but it maintained its full year production guidance and declared a 5.0 US cents special dividend.
The precious metals miner, operating in Mexico, said pretax profit fell 17% to USD208.2 million for the six months ended June 30 from USD249.8 million the previous year, as revenues dropped 27% to USD677.1 million.
The company said revenue fell primarily due to lower commodity prices during the period as comparable silver prices fell 17.9% and gold prices fell 11.5%.
Fresnillo also was hit by a fall in gold production, particularly in its first quarter, which arose from a dispute with the local community about explosives permits at its Minera Penmont operations. It said these issues were now resolved, and gold production is returning to normal levels.
During the period, the company also faced lower-grade ore recovery from its Fresnillo and Cienega mines and increased its volumes and efficiency measures to compensate.
Fresnillo said its cost of sales fell 6.1% with its cost per tonne level falling at its Fresnillo and Cienega sites in the first half, as cost reduction initiatives and economies of scale programmes were achieved at the mines.
However, the company said cost per tonne at its Noche Buena site was hit by higher personnel and maintenance costs associated with the replacement of contractors by unionised workers relocated to Noche Buena from its suspended Soledad-Dipolos mine.
In March, the company announced a 65% fall in pretax profit to USD418.7 million in 2013 as revenues fell 25% to USD1.62 million due to lower metals prices, lower gold production and a revaluation loss on its Silverstream mine asset.
On Tuesday, the company said it posted a USD47.3 million revaluation gain on the Silverstream asset due to higher forward silver prices, lower interest rates and higher silver ounces sold during the period.
It added that it reduced its exploration expenses by 40% during the period to USD69.0 million, helping reduce the fall in pretax profit.
Fresnillo also said that despite bringing forward and paying out its 2014 dividend in November 2013, it has declared a special dividend of 5.0 US cents per share, which will be paid out in September.
In July, the company said its total silver production for its second quarter compared to the previous year was flat as increased Silverstream production offset lower production elsewhere, while its gold production rates continued to be low as a result of explosion permit problems and stoppages earlier in the year.
Fresnillo said at the time that the increase from Silverstream was due to positive production at its Sabinas mine as a result of accessing stopes with higher ore grades, but its fall in normal production was generally due to lower grades from its Fresnillo mine which is naturally declining over time and saw some delays to operations due to mechanical failures.
The company said its second quarter gold production fell 8.2% as a result of a stoppage of operations at its Soledad-Dipolos sites following a court order secured by the Ejido agrarian community and the temporary suspension of its explosives permit at Herradura, which was newly permitted by the Mexican authorities at the end of February.
Fresnillo said on Tuesday that it remains optimistic on both silver and gold guidance for the full year 2014, and sees production rates of 43 million silver ounces and 450,000 attributable gold ounces over the year.
The company also reiterated that construction of its Saucito II project remains on track to be completed in the fourth quarter, while construction of the leaching plant at its San Julian site has started and is on track to start production in the second half 2015.
Fresnillo shares were flat at 941.50 pence early Tuesday.
By Tom McIvor; [email protected]; @TomMcIvor1
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