Octavio Alvídrez, Chief Executive Officer, said:
“Production has continued to recover towards target levels since the first quarter as we begin to see the positive impact of operational measures and investments we have made into infrastructure, equipment and infill drilling, in particular at our Fresnillo and Saucito mines. The improvement and growth initiatives at all our operations, combined with the impact of the change to the accounting treatment of stripping costs at Herradura, have resulted in higher costs for the period.
I was pleased to have confirmed Board approval for our next major growth project; the Juanicipio mine. Since then, progress on Juanicipio has been rapid with multiple engineering milestones delivered, and construction on track for our 2020 year-end commissioning target.
As we have previously guided, we expected 2019 to be challenging and we remain cautious. We have therefore decided to reduce our full year production guidance, driven by lower-than-expected ore grades and ore throughput at the Fresnillo mine, a delay in the construction of a leaching pad at Herradura and the lower ore throughput at the dynamic leaching plant. However, we will continue to work hard to ensure the improvements we have seen this quarter are maintained in the second half of the year.”
|2Q 19||1Q 19||% change||2Q 18||% change||1H 19||1H 18||% change|
|Total Silver (koz)||14,418||13,138||9.7||15,343||-6.0||27,557||30,764||-10.4|
• Quarterly silver production of 14.4 moz (including Silverstream) up 9.7% vs. 1Q19 driven by higher ore grades and volume of ore processed at both Fresnillo and San Julián Disseminated Ore Body (DOB), and higher recovery rates at Saucito.
• Quarterly silver production (including Silverstream) down 6.0% vs. 2Q18 due to expected lower ore grade and volume of ore processed at Saucito, and lower ore grade at Fresnillo.
• First half silver production (including Silverstream) down 10.4% vs. 1H18 due to lower volumes of ore processed and lower ore grades at both Fresnillo and Saucito.
• Quarterly gold production of 221.3 koz, up 4.8% vs. 1Q19 mainly due to a higher volume of ore processed and higher grade at Noche Buena and Fresnillo, and an increased ore grade and higher recovery rate at Herradura.
• Quarterly gold production down 5.4% vs. 2Q18 as a result of a lower volume of ore processed at Noche Buena and lower ore grade and ore processed at Saucito.
• First half gold production down 7.1% vs. 1H18 primarily driven by a lower volume of ore processed at Noche Buena and lower speed of recovery and ore processed at Herradura.
• Quarterly by-product lead production increased 7.5% vs. 1Q19 due to a higher volume of ore processed and higher ore grade at Fresnillo. Quarterly and first half lead production remained at similar levels vs. 2Q18 and 1H18.
• Quarterly by-product zinc production decreased 5.0% vs. 1Q19 driven by lower grades at Saucito, mitigated by a higher ore grade at Fresnillo and Ciénega. Quarterly by-product zinc production decreased 6.2% vs. 2Q18 due to a lower ore grade and volume of ore processed at Saucito and lower ore grade and recovery rate at Fresnillo. First half by-product zinc production increased 3.3% vs. 1H18 due to higher grades and recovery rates at both Saucito and Ciénega, offset by a lower ore grade and rate of recovery at Fresnillo.
• Construction of the Juanicipio project commenced immediately after Board approval in April 2019. Good progress has been made on engineering and early stage construction works in accordance with plan. The project is expected to be concluded by late 2020.
• Construction of the Pyrites plant (phase II) in the Fresnillo district remains on track and on budget, with commissioning expected in the second half of 2020.
• Fresnillo flotation plant optimisation to cope with higher content of lead and zinc is progressing according to plan and is expected to be concluded on time by 2H20.
We have reduced our FY19 production guidance as follows and for the reasons noted below:
• 2019 silver production guidance is decreased from 58-61 moz to 55-58 moz (including Silverstream) mainly due to lower ore grades and ore throughput at the Fresnillo mine.
• 2019 gold production guidance of 910-930 koz gold is decreased to 880-910 koz mainly driven by the delay in the construction of a leaching pad at Herradura and lower ore processed at the DLP.
Estimated Cost Guidance
A combination of events has affected production costs, depreciation charges, exploration costs and administrative and corporate expenses. To facilitate estimates of the expected 2019 First Half Financial Results we are providing the following guidance relative to 1H18:
1H19 adjusted production costs have been impacted by the following events:
- Previously disclosed accounting reclassification: ~US$45 million
- Previously disclosed growth initiatives: ~US$45 million
- Previously disclosed cost inflation guidance: ~US$15 million
- Increased use of consumables, maintenance and contractor costs associated with longer haulage distances, narrower veins, better equipment availability and infill drilling: ~US$30 million
The aggregate impact of these items will increase adjusted production costs for 1H19 by approximately US$135 million, compared to 1H18.
• The commissioning of new assets such as the pyrites plant and the 2nd line of the dynamic leaching plant, tailings dam at San Julián and additional equipment at all our operations, together with the amortisation of capitalised mining works and stripping will increase the 1H19 depreciation by approximately US$50 million, in accordance with our accounting policies.
• Having accelerated exercise exploration activities, we have spent an additional US$5 million in 1H19 versus 1H18, with an upward revised guidance of US$160 million (including capitalised exploration expenses of US$10 million) for 2019.
• New operations and the development of new projects, together with additional advisory services have increased administrative and corporate expenses by approximately US$5 million.
Please note that these financial effects stated above are unaudited numbers and the result of an estimated variation analysis (1H19 vs 1H18).
Management will host a conference call for analysts and investors on Wednesday 17th July at 8:00am (London time). The dial in details are as follows:
UK: 0808 109 0700
Int’l access: +44 (0) 20 3003 2666
Participant password: Fresnillo
A replay of the call will also be available for seven days after the event and details to access it will be published in our website after the conference call.
Fresnillo will announce its 2019 Interim Results on 30th of July 2019.