4th Mar 2015 11:40
LONDON (Alliance News) - Fresnillo PLC shares fell on Wednesday after it reported a steep drop in profit in 2014, as it was hit by a drop in gold production, falling precious metals prices, higher production costs, and the strengthening of the dollar against the Mexican peso.
Fresnillo shares were down 4.7% to 754.49 pence per share on Wednesday morning, the worst performing stock in the FTSE 100.
The gold and silver miner forecast that its production will improve in 2015 and pledged to continue investing in growth projects, increasing its capital expenditure budget in 2015, even though its focus this year will be on improving efficiency and productivity and maintaining its cost position and margins.
Fresnillo reported a pretax profit of USD251.1 million for 2014, down 40% from USD418.7 million in 2013, as revenue dropped 12.5% to USD1.41 billion from USD1.62 billion and higher production costs helped push its earnings before interest, tax, depreciation and amortisation margin down to 40.1% from 45.2%. Its net profit dropped to USD108.4 million from USD240.4 million.
It said silver production hit an annual record at 45 million ounces, up 4.9% on 2013 and above the 43.0 million ounce guidance it had given for 2014. That resulted from increased ore processing at its Saucito mine and the contribution from its Silverstream contract.
The Silverstream contract was signed by Fresnillo with Mexican-based Penoles in 2007, which entitled Fresnillo to proceeds from Penole's Sabinas mine.
Still, average realised silver prices fell 18% on the year to USD18.6 per ounce.
"Silver grades at Fresnillo continued to decline but measures implemented to control dilution and improve contractor efficiency will deliver improved production in the second half 2015," it said in a statement.
Gold production dropped to 596,000 ounces, down 2.4% on the year due to a stoppage at Soledad-Dipolos. The average realised gold price fell 10.2% on the year to USD1,257.7 an ounce.
"For 2015 we have given priority to optimising output from the Fresnillo and Ciénega mines, ramping up Saucito II, delivering San Julián on time and on budget, advancing our assessment of Orisyvo, evaluating mine plan options for Mega Centauro as the natural evolution of Herradura's Centauro pit, and progressing our advanced exploration projects," the company said in a statement.
In 2014, operations at Saucito II mine in Mexico began, and the mine is expected to produce 8.4 million ounces of silver and 35,000 ounces of gold annually when it reaches full capacity. The San Julian mine, also in Mexico, is expected to start production in the fourth quarter and to add 10.3 million ounces of silver and 44,000 ounces of gold per year.
Capital expenditure in 2014 totalled USD425.6 million, primarily to the construction of the Saucito II and San Julián projects. Fresnillo said its capital expenditure plan for 2015 will increase to USD700 million.
However, the company said if gold and silver prices "continue to decline for an extended period of time" it will defer certain projects to safeguard the company's cash balance, said Fresnillo, which in turn would reduce its budget.
On top of the capital expenditure budget, the company will also spend USD170 million on exploration and early stage underground development in 2015, down 7.9% from the USD184.5 million in 2014.
"Exploration remains core to our organic growth strategy and a key element in extending mine life," said Chief Executive Octavio Alvídrez.
At the end of the year, Fresnillo reported a balance of USD449.3 million in cash, cash equivalents and short term investments, while total debt stood at USD796.2 million, providing the company with "low leverage and significant financial flexibility", it said.
"I am confident that Fresnillo has the operational and financial strength to address the challenges we may face. Our financial flexibility, combined with management's ability to tailor mine plans, development expenditures and exploration parameters in accordance with external market conditions, ensures that we optimise performance in the current environment," said Chairman Alberto Bailleres.
Fresnillo said it will pay a final dividend of USD3.0 cents a share for 2014.
By Steve McGrath; [email protected]; @stevemcgrath1 and Joshua Warner; [email protected]; @JoshAlliance
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