Fresnillo reports a solid quarter of production, in line with expectations

Fresnillo plc (LON:FRES) has announced its second quarter production report for the three months ended 30 June 2022.

Octavio Alvídrez, Chief Executive Officer, said:

“I am pleased to report a solid quarter of production, in line with our expectations. We are making good operational progress, despite the ongoing impact of the pandemic and global supply chain bottlenecks, which are likely to persist in the second half. We continue to address the challenges presented by the Mexico labour reform which limits the use of contractors. Our recruitment and training campaigns are proving effective and we should complete this process by year end in our underground mines, while our open pit mines are now fully staffed. We expect to achieve the tie-in of the Juanicipio plant, our next major growth project, to the national electricity grid over the coming weeks and to start commissioning and ramp-up of operations soon after. We remain on track to meet our full year guidance.”

TOTAL PRODUCTION

HIGHLIGHTS

Silver

•    Quarterly attributable silver production of 14.4 moz (including Silverstream), up 8.1% vs. 1Q22 driven by a higher volume of ore processed and higher ore grades at Fresnillo and Saucito and a higher ore grade at San Julián Disseminated Ore Body (DOB).

•    Quarterly attributable silver production (including Silverstream) decreased 3.6% vs. 2Q21 due to the expected lower ore grade and decreased volume of ore processed at San Julián DOB. This was mitigated by the increased contribution of ore from Juanicipio.

•    First half attributable silver production of 27.6 moz (including Silverstream), in line with 1H21 as the expected lower ore grade at San Julián DOB and lower volume of ore processed at Saucito was offset by the increased contribution of ore from Juanicipio.

Gold

•     Quarterly attributable gold production of 159.0 koz, up 6.1% vs. 1Q22, primarily due to the expected higher volume of ore processed at Herradura and Noche Buena.

•     Quarterly attributable gold production decreased 20.6% vs. 2Q21 mainly due to a lower recovery rate and the expected decrease in the volume of ore processed at Herradura.

•     First half attributable gold production of 308.8 koz, down 27.9% vs. 1H21 primarily due to a decrease in the volume of ore processed and lower ore grade at Herradura and Saucito.  

Silver Equivalent Basis

Attributable quarterly silver equivalent ounces of 27.1 moz in 2Q22 (2Q21: 30.9 moz) and attributable first half silver equivalent ounces of 52.3 moz (1H21: 61.8 moz).

OPERATING ENVIRONMENT

The labour reform in Mexico which restricts subcontracting of labour came into effect from 1st September 2021 resulting in the requirement to internalise a high proportion of our contractor workforce. The actions we announced to address this short term challenge, including recruitment campaigns, training and investment in new equipment, are on-going. We expect to complete the staffing process in the Fresnillo District, San Julián and Ciénega by year end, and as previously reported, our open pit mines are now fully staffed. The challenges set out in the first quarter, including a tight labour market, global supply chain bottlenecks and cost inflation remain and these will have some impact in the second half of the year.

COVID-19 UPDATE

As reported during the previous quarter, we saw a drop in Covid-related absenteeism across our operations from March onwards and have seen a more limited impact on our operations during 2Q22. Though we have implemented strict protocols to limit the spread of the virus, a fifth wave has now reached Mexico and we are seeing a rise in positive cases in the country. Should this trend continue, we will see an increase in Covid-related absenteeism in the second half. The safety and well-being of our people is our priority, and we continue to closely monitor the spread of the virus and implement a range of safety measures across our business.

By-Products

•     Quarterly attributable by-product lead and zinc production increased 18.7% and 13.0% vs. 1Q22 respectively, driven primarily by higher volumes of ore processed and ore grades at Saucito and Fresnillo and higher ore grades at San Julián DOB.

•     Quarterly attributable by-product lead and zinc production decreased 11.3% and 3.2% vs. 2Q21 respectively, due to lower volumes of ore processed and lower ore grades at Saucito and San Julián DOB.

•   Similarly, first half attributable by-product lead and zinc production decreased 15.6% and 5.7% vs. 1H21 respectively, primarily due to lower volumes of ore processed and ore grades at Saucito and a decrease in ore grades at San Julián DOB.

DEVELOPMENT PROJECTS

We expect to complete the tie-in of the Juanicipio plant and Pyrites Plant at Fresnillo to the national electricity grid in the coming weeks. Commissioning of the Juanicipio plant will follow soon after with the ramp up of the plant beginning towards the end of the third quarter.

SAFETY PERFORMANCE

The safety and wellbeing of our people remains our absolute priority and we continue to nurture a strong safety culture across all our mines through the reinforcement of our safety training and the monitoring of the adherence to our safety policies. The ‘I Care, We Care’ programme continues to be rolled out across the business and is a central aspect of all operations and new development projects.

2022 OUTLOOK

We remain on track to meet our 2022 full year guidance of 50.5 to 56.5 moz of attributable silver (including Silverstream) and 600 to 650 koz of attributable gold production.

INTERIM RESULTS

Fresnillo will announce its 2022 Interim Results on 2^nd of August 2022.