REG - Fresnillo Plc - Half-year Report
30/07/2024 07:00
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RNS Number : 3353Y Fresnillo PLC 30 July 2024
Fresnillo plc
21 Upper Brook Street
London W1K 7PY
United Kingdom
www.fresnilloplc.com (http://www.fresnilloplc.com)
30 July 2024
Fresnillo plc interim results
for the six months to 30 June 2024
Octavio Alvídrez, Chief Executive Officer, commented:
"I am pleased to report an increase in profitability over the period, driven
by a steady production performance combined with careful cost management and
higher gold and silver prices. As a result, we are able to confirm an increase
in dividends to our shareholders in line with our policy.
"We remain confident in the outlook. We are on track to meet full year
production guidance and we are committed to managing our operations
efficiently without compromising on the safety of our people or on continued
investment into our longer term growth pipeline."
First half highlights
Financial highlights (1H24/1H23 comparisons)
· Adjusted Revenues 1 (#_ftn1) of US$1,560.2m, up 9.0%; mainly due to
higher gold and silver prices, and increased volumes of silver, zinc and lead
sold, partly offset by a decreased volume of gold sold.
· Revenues of US$1,488.3m, up 10.8%.
· Adjusted production costs 2 (#_ftn2) of US$844.2m, up 9.1% over 1H23
primarily due to longer haulage distances and deeper mines which increased
maintenance costs, contractors and diesel consumption - mainly at Herradura
and Fresnillo; the revaluation of the Mexican peso vs. the US dollar; cost
inflation; and the higher volumes of ore processed at some of our mines.
· Cost of sales of US$1,095.9m, up 3.3% mainly as a result of the
higher adjusted production costs and increased depreciation, partly mitigated
by the positive effect of the variation in change in inventories.
· Gross profit and EBITDA 3 (#_ftn3) of US$392.4m and US$544.2m, up
38.8% and 55.1%, respectively.
· Exploration expenses of US$77.2m, down 20.3% as exploration spend was
front-loaded in 1H23.
· Profit from continuing operations before net finance costs and income
tax and profit before income tax of US$235.2m and US$277.8m, up 189.7% and
480.4%, respectively.
· Profit for the period of US$117.7m, up 31.2% from US$89.7m.
· Basic and diluted EPS from continuing operations of US$10.7 cents per
share, up 21.6%.
· Adjusted EPS 4 (#_ftn4) of US$4.4 cents per share, down 57.7% vs.
1H23.
· Cash generated from operations, before changes in working capital, of
US$547.9m, up 69.7%.
· Free cash flow 5 (#_ftn5) of US$187.4m in 1H24 (US$18.7m in 1H23).
· Strong balance sheet with cash and other liquid funds as at 30 June
2024 of US$691.0m (31 December 2023: $889.7m); net debt/EBITDA of 0.17x(6) (31
December 2023: 0.46x).
· Interim dividend of 6.40 US cents per share, totaling US$47.2m (1H23:
US$10.3m).
Operational highlights (1H24/1H23 comparisons)
As disclosed in the 2Q24 production report on 24 July 2024:
· First half attributable silver production of 28.2 moz (including
Silverstream), broadly unchanged vs. 1H23.
· First half attributable gold production of 270.9 koz, down 16.8% vs.
1H23.
· Ongoing focus on safety, cost control and productivity.
Highlights for 1H24
US$ million unless stated H1 24 H1 23 % change
Silver production (koz) * 28,169 28,018 0.5
Gold production (oz) 270,872 325,415 (16.8)
Total revenues 1,488.3 1,343.3 10.8
Adjusted revenues(1) 1,560.2 1,430.8 9.0
Cost of Sales 1,095.9 1,060.6 3.3
Gross profit 392.4 282.7 38.8
Adjusted production costs(2) 844.2 773.9 9.1
Exploration expenses 77.2 96.9 20.3
EBITDA(3) 544.2 351.0 55.0
Profit for the period 117.7 89.7 31.2
Cash generated by operations before changes in working capital 547.9 322.9 69.7
Basic and Diluted EPS (US$)(4) 0.107 0.088 21.6
Basic and Diluted EPS, excluding post-tax Silverstream revaluation effects 0.044 0.104 (57.7)
(US$)
Dividend per ordinary share (US$) 0.064 0.014 357.1
* Silver production includes volumes realised under the Silverstream contract
(1) Adjusted revenues are the revenues shown in the income statement adjusted
to add back treatment and refining charges and the effects of metals prices
hedging. The Company considers this is a useful additional measure to help
understand underlying factors driving revenue in terms of volumes sold and
realised prices
(2) Adjusted production costs are calculated as cost of sales less
depreciation, profit sharing, hedging, change in inventories and unproductive
costs. The Company considers this a useful additional measure to help
understand underlying factors driving production costs in terms of the
different stages involved in the mining and plant processes, including
efficiencies and inefficiencies as the case may be and other factors outside
the Company's control such as cost inflation or changes in accounting
criteria.
(3) Earnings before interest, taxes, depreciation and amortisation (EBITDA) is
calculated as profit for the year from continuing operations before income
tax, less finance income, plus finance costs, less foreign exchange
gain/(loss), less revaluation effects of the Silverstream contract and other
operating income plus other operating expenses and depreciation.
(4) The weighted average number of shares for H1 2024 and H1 2023 was 736.9m.
See Note 8 in the Interim Consolidated Financial Statements.
Commentary on the Group's results
Operating results
First half attributable silver production of 28.2 moz (including Silverstream)
broadly unchanged vs. 1H23 with the higher ore grade and increased volume of
ore processed at San Julián Veins, Saucito and Ciénega, and the increased
contribution from Juanicipio, offset by the lower production from San Julián
DOB and the decreased volume of ore processed and lower ore grade at
Fresnillo.
First half gold production of 270.9 koz, down 16.8% vs. 1H23 mainly due to
lower ore grade and decreased volume of ore processed at Herradura and the
mine closure plan at Noche Buena, partly offset by the increase in volume of
ore processed and higher ore grade at San Julián Veins and Ciénega, and
higher ore grade at Fresnillo.
First half attributable by-product lead and zinc production up 16.3% and 11.3%
vs. 1H23 respectively, mainly due to increased volume of ore processed and
higher ore grades at Saucito and Juanicipio, partly offset by the decreased
contribution from San Julián DOB.
Our safety indicators improved in 1H24, with the Total Recordable Injury
Frequency Rate (TRIFR) and the Lost-time Injury Frequency Rate (LTIFR)
decreasing to 7.87 (12.08 in FY 2023) and 5.36 (7.40 in FY 2023) in 1H24,
respectively. Though we welcome this performance, we must continue to work
hard to ensure the safety of our people across all our operations. To that
end, we are sad to report of a fatal incident earlier this year resulting in
the tragic loss of one of our colleagues. We continue reinforcing the
mechanisms of our 'I Care, We Care' philosophy across our business to instill
a true culture of safety, while enhancing leadership practices and improving
safety management tools across all our operations.
Financial results
Total revenue increased by 10.8% to US$1,488.3 million in 1H24, mainly due to
the higher gold and silver prices and increased volumes of silver, zinc and
lead sold, partly offset by the decrease in gold ounces sold.
The average realised silver price increased 18.5% from US$23.3 per ounce in
1H23 to US$27.6 per ounce in 1H24, while the average realised gold price rose
11.4%, from US$1,948.9 per ounce in 1H23 to US$2,171.9 per ounce in 1H24. The
average realised lead by-product price increased to US$96.1 cents per pound,
up 2.5% vs 1H23, while the average realised zinc by-product price remained at
US$122.4 cents per pound.
Adjusted production costs 6 (#_ftn6) increased by 9.1% to US$844.2 million in
1H24. The US$70.3 million increase resulted mainly from: i) longer haulage
distances and deeper mines which increased maintenance and contractor costs
and diesel consumption, mainly at Herradura and Fresnillo (+US$50.0 million);
ii) the adverse effect of the 6.1% average revaluation of the Mexican peso vs.
the US dollar (+US$30.8 million); iii) underlying cost inflation (1.7%)
excluding the revaluation of the Mexican peso vs. US dollar (+US$18.8
million); iv) higher volume of ore processed at some of the mines (+US$26.7
million); and v) others (+US$4.9 million). These adverse effects were
mitigated by efficiencies and economies of scale achieved mainly at Saucito,
Juanicipio, Ciénega and San Julián veins (-US$60.9 million).
The higher depreciation, primarily of the asset base at San Julián DOB as it
approaches the end of its life, and the additional asset base at Juanicipio
also contributed to the increase in cost of sales.
These adverse effects were mitigated by the favourable effects of the
variation in the change in inventories, and the non-occurrence of unproductive
costs in 1H24 vs. the negative effect in 1H23 mainly related to fixed costs
incurred during the temporary illegal stoppage at Herradura and Noche Buena.
The factors mentioned above resulted in a 3.3% increase in cost of sales
compared with 1H23.
The increase in revenues more than offset the rise in cost of sales, resulting
in a 38.8% increase in gross profit to US$392.4 million in 1H24.
Exploration expenses of US$77.2 million for 1H24 decreased 20.3% from the
US$96.9 million in 1H23 as the exploration programme was accelerated at both
brownfield and greenfield projects in the latter period.
In 1H24, net other operating expense of US$4.8 million was recognised in the
income statement. This compared favourably to the net other operating expense
of US$33.5 million registered in 1H23, mainly driven by the identification of
certain suspected illegal extraction of gold ounces from the Soledad-Dipolos
leaching pads.
Driven by an increase in gross profit, EBITDA increased by 55.1%, with EBITDA
margin rising from 26.1% in 1H23 to 36.6% in 1H24. Similarly, profit from
continuing operations before net finance costs and income tax increased from
US$81.2 million in 1H23 to US$235.2 million in 1H24.
The total Silverstream effect recorded in the 1H24 income statement was a gain
of US$66.5 million (US$21.5 million amortisation profit and US$45.0 million
revaluation gain), which compared favourably to the net loss of US$17.0
million registered in 1H23. The positive revaluation was mainly driven by the
increase in the forward silver price curve, while the negative revaluation in
1H23 was mainly driven by a reduction in reserves and resources at the Sabinas
mine.
The increase in profit from continuing operations, together with the total
Silverstream gain, boosted profit from continuing operations before income tax
from US$47.9 million in 1H23 to US$277.8 million in 1H24.
Income tax expense for the period was US$89.5 million, compared to the US$19.5
million income tax credit in 1H23. The effective tax rate, excluding the
special mining rights, was 32.2% (1H23: -40.7%), which was slightly above the
30% statutory tax rate. This variance resulted from the differences between
the tax and the accounting treatment. In 1H24 the main reason was related to
the effect of the 8.8% devaluation of the Mexican peso/US dollar spot exchange
rate on the tax value of assets and liabilities; which was mitigated by the
effect of the inflation rate (Mexican Consumer Price Index) that impacted
the inflationary uplift of the tax base for assets and liabilities and the
effect of the devaluation of the Mexican peso on the dollar denominated net
monetary position.
Mining rights for the first half of 2024 was US$70.6 million compared to
mining rights income of US$22.3 million recognised in 1H23. The reasons for
the tax rate in mining rights were the same as the ones affecting income tax.
Profit for the period increased from US$89.7 million in 1H23 to US$117.7 in
1H24, a 31.2% increase half-on-half as a result of the factors described
above. Profit due to non-controlling interests was US$39.0 million reflecting
the profit generated at Juanicipio, where MAG Silver owns 44% of the
outstanding shares. Accordingly, the profit attributable to equity
shareholders of the Group was US$78.6 million, a 21.5% increase half-on-half.
Excluding the effects of the Silverstream contract, profit for the year
decreased from US$101.6 million to US$71.2 million, a 29.9% decrease.
Cash generated by operations before changes in working capital increased by
69.7% to US$547.9 million, mainly as a result of the higher profit from
continuing operations generated in the year.
Capital expenditure in 1H24 totalled US$170.3 million, a 25.2% decrease over
1H23. Investments during the period included mine development and stripping,
purchase of in-mine equipment, construction of a leaching pad at Herradura,
the deepening of the San Carlos and Jarillas shafts and investments in
tailings dams.
Other uses of funds during the period were income tax, special mining rights
and profit sharing paid of US$71.4 million (US$192.8 million in 1H23),
repayments of loans by minority shareholders of US$43.3 million (capital
contribution and loans granted by minority shareholders US$25.0 million in
1H23), and dividends paid of US$31.0 million (US$98.0 million in 1H23).
Fresnillo plc continued to maintain a solid financial position during the
period with cash and cash equivalents of US$691.0 million as of 30 June 2024,
increasing 29.3% versus 31 December 2023 and decreasing 22.3% versus 30 June
2023 following the repayment of the outstanding 5.5% Senior Notes due in
November 2023. Taking into account the cash and cash equivalents of US$691.0
million and the US$839.2 million outstanding Senior Notes, Fresnillo plc's net
debt is US$148.2 million as at 30 June 2024. This compares to the net debt
position of US$304.4 million as at 31 December 2023. Considering these
variations, the balance sheet at 30 June 2024 remains strong, with a net debt
/ EBITDA ratio of 0.17x 7 (#_ftn7)
Creation of the Business Development executive role and appointment of new
Business Development Vice President
Fresnillo is pleased to announce the creation of a new executive role for its
development and growth: Vice President of Business Development. This new
executive role will be part of the Executive Committee (ExCo), together with
Octavio Alvídrez (Chief Executive Officer), Mario Arreguín (Chief Financial
Officer), Guillermo Gastelum (Vice President of Exploration), Tomás Iturriaga
(Chief Operating Officer Central) and Daniel Diez (Chief Operating Officer
North). The Company is transferring Marcelo Ramos, who held the role of Vice
President of Business Development at Baluarte Minero (part of Peñoles), to
Fresnillo plc with effect from 30 July 2024. Mr Ramos has more than 20 years
of international metals and mining sector experience across different
commodities such as gold and base metals, primarily leading M&A across
different regions including North America, South America, Australia and Asia.
Prior to working in Peñoles, he was Vice President of Business Development of
Oceana Gold Corporation in Colorado US. Mr Ramos has a Bachelor degree of
Industrial Engineering from the Universidade Federal do Rio de Janeiro, and an
MBA from the Alliance Manchester Business School.
Interim Dividend
The Board of Directors has declared an interim dividend of 6.40 US cents per
Ordinary Share totalling US$47.2 million, which will be paid on 17 September
2024 to shareholders on the register on 9 August 2024. The dividend will be
paid in UK pounds sterling unless shareholders elect to be paid in US dollars.
This interim dividend is higher than the previous period due to the increase
in profit in 1H24, and remains in line with the Group's dividend policy. This
decision was made after a comprehensive review of the Group's financial
situation, assuring that the Group is well placed to meet its current and
future financial requirements, including its development and exploration
projects.
As previously disclosed, the corporate income tax reform introduced in Mexico
in 2014 created a withholding tax obligation of 10% (including to foreign
nationals). The 2024 interim dividend will be subject to this withholding
obligation.
Outlook
2024 guidance remains unchanged. Attributable silver production expected to be
in the range of 55.0 to 62.0 moz (including Silverstream) while attributable
gold production is expected to be in the range of 580 to 630 koz. Expressed in
silver equivalent ounces 8 (#_ftn8) , production is expected to be 101 -112
million ounces.
Exploration expenses for 2024 has been slightly decreased and are expected to
be c. US$170 million.
Capex for 2024 has been reviewed from US$440 million to US$410 million.
Analyst Presentation
Fresnillo plc will be hosting a webcast presentation for analysts and
investors today at 9:00am (GMT). A link to the webcast will be made available
on Fresnillo's homepage: www.fresnilloplc.com or can be accessed directly
here:
https://www.lsegissuerservices.com/spark/Fresnillo/events/adf8b940-c38c-424b-8655-05cf79b9bfa4
(https://www.lsegissuerservices.com/spark/Fresnillo/events/adf8b940-c38c-424b-8655-05cf79b9bfa4)
Event registration: https://registrations.events/direct/LON563350
For further information, please visit our website: www.fresnilloplc.com
(http://www.fresnilloplc.com) or contact:
Fresnillo plc
London Office Tel: +44(0)20 7339 2470
Gabriela Mayor, Head of Investor Relations
Mark Mochalski
Mexico City Office Tel: +52 55 52 79 3206
Ana Belém Zárate
Powerscourt Tel: +44(0)20 7250 1446
Peter Ogden
ABOUT FRESNILLO PLC
Fresnillo plc is the world's largest primary silver producer and Mexico's
largest gold producer, listed on the London and Mexican Stock Exchanges under
the symbol FRES.
Fresnillo plc has eight operating mines, all of them in Mexico - Fresnillo,
Saucito, Juanicipio, Ciénega, Herradura, Soledad-Dipolos(1), Noche Buena(2)
and San Julián (Veins and Disseminated Ore Body) and four advanced
exploration projects - Orisyvo, Rodeo, Guanajuato and Tajitos as well as a
number of other long term exploration prospects.
Fresnillo plc has mining concessions and exploration projects in Mexico, Peru
and Chile. Fresnillo plc has a strong and long tradition of exploring, mining,
a proven track record of mine development, reserve replacement, and production
costs in the lowest quartile of the cost curve for silver. Fresnillo plc's
goal is to maintain the Group's position as the world's largest primary silver
company and Mexico's largest gold producer.
(1) Operations at Soledad-Dipolos are currently suspended.
(2) Mineral extraction concluded in May 2023, however leaching of gold content
inventories at the leaching pads continues.
FORWARD LOOKING STATEMENTS
Information contained in this announcement may include 'forward-looking
statements'. All statements other than statements of historical facts included
herein, including, without limitation, those regarding the Fresnillo Group's
intentions, beliefs or current expectations concerning, amongst other things,
the Fresnillo Group's results of operations, financial position, liquidity,
prospects, growth, strategies and the silver and gold industries are
forward-looking statements. Such forward-looking statements involve risk and
uncertainty because they relate to future events and circumstances.
Forward-looking statements are not guarantees of future performance and the
actual results of the Fresnillo Group's operations, financial position and
liquidity, and the development of the markets and the industry in which the
Fresnillo Group operates, may differ materially from those described in, or
suggested by, the forward-looking statements contained in this document. In
addition, even if the results of operations, financial position and liquidity,
and the development of the markets and the industry in which the Fresnillo
Group operates are consistent with the forward-looking statements contained in
this document, those results or developments may not be indicative of results
or developments in subsequent periods. A number of factors could cause results
and developments to differ materially from those expressed or implied by the
forward-looking statements including, without limitation, general economic and
business conditions, industry trends, competition, commodity prices, changes
in regulation, currency fluctuations (including the US dollar and Mexican Peso
exchanges rates), the Fresnillo Group's ability to recover its reserves or
develop new reserves, including its ability to convert its resources into
reserves and its mineral potential into resources or reserves, changes in its
business strategy and political and economic uncertainty.
H1 2024 Operational Review
Production
Production H1 2024 H1 2023 % change
Silver (koz) 27,155 26,472 2.6
Silverstream prod'n (koz) 1,014 1,546 (34.4)
Total Silver prod'n (koz) 28,169 28,018 0.5
Gold (oz) 270,872 325,415 (16.8)
Lead (t) 31,830 27,363 16.3
Zinc (t) 55,397 49,788 11.3
First half attributable silver production of 28.2 moz (including Silverstream)
broadly unchanged vs. 1H23 with the higher ore grade and increased volume of
ore processed at San Julián Veins, Saucito and Ciénega, and the increased
contribution from Juanicipio, offset by the lower production from San Julián
DOB and the decreased volume of ore processed and lower ore grade at
Fresnillo.
First half gold production of 270.9 koz, down 16.8% vs. 1H23 mainly due to
lower ore grade and decreased volume of ore processed at Herradura and the
mine closure plan at Noche Buena, partly offset by the increase in volume of
ore processed and higher ore grade at San Julián Veins and Ciénega, and
higher ore grade at Fresnillo.
First half attributable by-product lead and zinc production up 16.3% and 11.3%
vs. 1H23 respectively, mainly due to increased volume of ore processed and
higher ore grades at Saucito and Juanicipio, partly offset by the decreased
contribution from San Julián DOB.
Fresnillo mine production
H1 2024 H1 2023 % change
Ore Processed (t) 1,211,992 1,336,142 (9.3)
Production
Silver (koz) 5,259 6,789 (22.5)
Gold (oz) 23,155 19,747 17.3
Lead (t) 12,625 10,972 15.1
Zinc (t) 22,928 22,790 0.6
Ore Grades
Silver (g/t) 151 177 (14.7)
Gold (g/t) 0.80 0.64 25.0
Lead (%) 1.21 0.96 26.0
Zinc (%) 2.59 2.27 14.1
First half silver production decreased 22.5% vs. 1H23 mainly driven by the
higher proportion of volumes extracted from the western areas of the mine with
lower silver ore grade but higher gold and base metal contents. The decrease
in volumes of ore processed was explained by: i) lower availability of ore to
feed the beneficiation plant as ore was hauled via ramps while the two
sections of the deepened San Carlos shaft are connected; ii) poor ground
conditions in some areas which required additional ground support adding to
the mining cycle time; and iii) narrower veins than anticipated in the mine
plan. The lower ore grade was mainly due to: i) delays in development; ii) the
narrower veins with high silver content, and iii) variations with the
geological model.
Orders for additional in-mine equipment, fit for narrower veins, have been
placed, while additional bolting equipment arrived on site at the beginning of
June and will contribute to a more expeditious preparation of new stopes.
Mine development rates remained broadly stable half on half at an average of
3,109m per month in 1H24 (1H23: 3,197m per month).
First half by-product gold production increased 17.3% vs. 1H23 primarily
driven by the higher ore grade, partially offset by the decreased volume of
ore processed.
Silver ore grade in 2024 is expected to be in the range of 160 to 180 g/t,
while the gold ore grade is estimated to be between 0.70 to 0.80 g/t.
The commissioning of the San Carlos shaft has been delayed to 2H24 as the
installation of the cables to connect the two sections of the shaft will be
concluded in 3Q24. This project is expected to support a reduction in haulage
costs.
Saucito mine production
H1 2024 H1 2023 % change
Ore Processed (t) 1,174,570 1,034,921 13.5
Production
Silver (koz) 6,811 5,811 17.2
Gold (oz) 37,658 40,080 (6.0)
Lead (t) 10,566 8,251 28.1
Zinc (t) 15,603 12,993 20.1
Ore Grades
Silver (g/t) 203 197 3.0
Gold (g/t) 1.29 1.52 (15.1)
Lead (%) 1.05 0.95 10.5
Zinc (%) 1.72 1.65 4.2
First half silver production increased by 17.2% vs. 1H23, primarily due to the
higher ore grade, and increased volume of ore processed driven by the
increased productivity and availability of equipment.
First half by-product gold production decreased 6.0% vs. 1H23, primarily due
to the lower ore grade, partially mitigated by the higher volume of ore
processed.
Full year 2023 silver ore grade is expected to be in the range of 210-220 g/t,
while the gold ore grade is estimated to be between 1.10-1.30 g/t.
PYRITES PLANT
H1 2024* H1 2023* % change
Pyrite Concentrates Processed (t) 76,421 67,243 13.6
Production
Silver (koz) 846 307 175.6
Gold (oz) 1,339 764 75.3
Ore Grades
Silver (g/t) 539 207 160.4
Gold (g/t) 2.19 1.59 37.7
* Includes concentrates of Fe from Saucito and Fresnillo.
Juanicipio - Attributable
H1 2024 H1 2023* % change
Ore Processed (t) 370,875 335,855 10.4
Production
Silver (koz) 5,280 4,214 25.3
Gold (oz) 10,744 9,351 14.9
Lead (t) 4,741 2,718 74.4
Zinc (t) 8,510 4,309 97.5
Ore Grades
Silver (g/t) 488 448 8.9
Gold (g/t) 1.26 1.18 6.8
Lead (%) 1.46 0.94 55.3
Zinc (%) 2.74 1.74 57.5
* Includes ore processed as part of the initial tests during the commissioning
of the Juanicipio plant and ore processed at the Fresnillo and Saucito
beneficiation plants.
Attributable first half silver and gold production increased significantly vs.
1H23 as commissioning of the flotation plant concluded in 1Q23 and it was
fully ramped up by 3Q23.
The silver ore grade for 2024 has been reviewed and is expected to be in the
range of 420-460 g/t.
Ciénega mine production
H1 2024 H1 2023 % change
Ore Processed (t) 519,542 501,401 3.6
Production
Gold (oz) 20,668 17,434 18.5
Silver (koz) 2,581 1,991 29.6
Lead (t) 1,634 1,504 8.6
Zinc (t) 1,644 1,921 (14.4)
Ore Grades
Gold (g/t) 1.34 1.18 13.6
Silver (g/t) 179 144 24.3
Lead (%) 0.48 0.47 2.1
Zinc (%) 0.59 0.72 (18.1)
First half gold and silver production increased 18.5% and 29.6% vs. 1H23 due
to the higher ore grade grade at the Jessica Transversal and Taspana Sur areas
and, to a lesser extent, increased dilution control at the Virgen and
Virginias areas. The increased volume of ore processed was driven by the
contribution from the Taspana area and the timely preparation of stopes.
The gold and silver ore grades for 2024 are estimated to be in the ranges of
1.1-1.3 g/t and 160-180 g/t respectively.
San Julián mine production
H1 2024 H1 2023 % change
Ore Processed Veins (t) 592,646 558,257 6.1
Ore Processed DOB(t) 960,227 1,050,158 (8.6)
Total production at San Julián
Gold (oz) 25,428 22,292 14.1
Silver (koz) 6,156 7,008 (12.2)
Production Veins
Gold (oz) 24,326 20,464 18.9
Silver (koz) 4,061 2,480 63.8
Production DOB
Gold (oz) 1,102 1,828 (39.7)
Silver (koz) 2,096 4,528 (53.7)
Lead (t) 2,264 3,917 (42.2)
Zinc (t) 6,713 7,775 (13.7)
Ore Grades Veins
Gold (g/t) 1.35 1.20 12.7
Silver (g/t) 234 152 53.8
Ore Grades DOB
Gold (g/t) 0.06 0.09 (33.3)
Silver (g/t) 81 156 (48.1)
Lead (%) 0.32 0.48 (33.3)
Zinc (%) 0.95 0.99 (4.0)
San Julián Veins
First half silver and gold production increased vs. 1H23 mainly due to the
higher ore grades at the San Antonio, La Dura and Eliza veins, and the
increased volume of ore processed.
Silver and gold ore grades were reviewed, and through an optimised mine
sequence, are expected to be in the ranges of 200-220 g/t and 1.20-1.40 g/t,
respectively.
San Julián Disseminated Ore Body
First half silver production decreased vs. 1H23 as a result of the gradual
decrease in production at this mine, with mining activities expected to
conclude in 3Q24.
We expect the 2024 silver ore grade to be around 70g/t.
Herradura mine production
H1 2024 H1 2023 % change
Ore Processed (t) 10,451,639 11,705,553 (10.7)
Total Volume Hauled (t) 49,234,362 50,669,525 (2.8)
Production
Gold (oz) 141,686 189,869 (25.4)
Silver (koz) 219 344 (36.3)
Ore Grades
Gold (g/t) 0.63 0.74 (14.9)
Silver (g/t) 1.18 1.55 (23.9)
Half year gold production decreased 25.4% vs. 1H23 primarily due to the lower
ore grade. This was due to heavy rain, which delayed access to higher grade
oxidised ore areas. As a result, the mine plan was changed and a greater
proportion of sulphide ore was deposited on the leaching pads and processed,
impacting both ore grade and recovery rates.
Gold production was also affected by the lower volume of ore processed in
1H24, albeit in accordance with the mine plan.
The gold ore grade in 2024 is expected to be in the range of 0.60-0.70 g/t.
Noche Buena mine production
First half gold production totalled 10,452 ounces. As previously announced,
mining activities concluded in May 2023, and the closure plan continues as
expected.
Below we provide an update on other projects which are expected to contribute
to our medium and long term growth. These projects have not yet been approved
by the Board and are subject to ongoing internal review. However, certain
minor works and exploration activities might be in progress in preparation for
Board approval and as such, are included within the 2024 approved capex and
exploration budget.
Advanced exploration projects
Rodeo
Rodeo is an open pit, heap leaching gold project located in central Durango
state. 1.2 million ounces of gold occur in a volcanic rock-hosted disseminated
ore body showing thorough oxidation down to depths exceeding 200 metres. Good
metallurgical recoveries have been obtained from ores coming from a projected
low strip ratio open pit. During 1H24 negotiations for land access with local
communities yielded positive results, having reached preliminary agreements
which are being formalised through contracts. It is expected that exploration
will resume in 2H24; the drilling programme will be focused in increasing the
resources in the main pit area and in obtaining samples for detailed
metallurgical test work. Nearby disseminated gold showings will be
drill-tested as well. Updates of the mineral resource estimation and
preliminary economic assessment will follow. Other studies in progress include
the evaluation of alternatives for road access and water and energy supply,
preliminary engineering of the projected open pit and processing facilities,
and minor adjustments to the district-reaching community engagement programme
in place.
Orisyvo
Orisyvo is a world-class, high-sulphidation epithermal, disseminated gold
deposit located in the Sierra Madre mountains of Chihuahua state, hosting
open-pit constrained total resources of 9.6 million ounces of gold. The
project is in the pre-feasibility stage aiming at the development of an
underground operation and associated infrastructure, which includes mineral
processing and tailings storage facilities. Good progress was attained during
1H24, with studies focusing on the optimisation of the expected capital
expenditure, operating costs, and metallurgical recoveries through the
evaluation of state-of-the-art technologies, which have delivered promising
results. The land acquisition strategy and the evaluation of road access and
water and energy supply options is progressing as scheduled. Results of the
pre-feasibility studies are expected in 2H24.
Simultaneously, a region-wide community and local government engagement
programme focused in several initiatives on educational, health, environmental
care and entrepreneurship topics suggested by local stakeholders continues to
operate, in preparation for the required indigenous consultation processes.
Tajitos
Tajitos is a low strip ratio open-pit, heap-leach, disseminated gold project
located in the Herradura Corridor of northwestern Sonora state. In 1H24,
10,524 metres of core and reverse circulation drilling were completed in the
main resource area, including 2,948 metres of PQ diameter holes designed for
metallurgical investigations on columns. Additional gold recovery studies were
completed in mineralised rocks coming from surface and from historical core
available, both giving encouraging results. It is expected that the full
evaluation of the main resource area will be completed in 2H24, to be followed
by the update of the mineral resources and the preliminary economic
assessment. Drilling has started in the western, underexplored sector of the
project, delivering interesting gold-bearing intervals worth following-up.
Environmental studies associated with the potential development of this
project have started, and a community relations programme is ongoing in the
region surrounding the project, including the Caborca municipality.
Guanajuato
Guanajuato is a historic, world-class gold and silver epithermal vein field
stretching more than 40 kilometres along the central Mexican state of
Guanajuato. 40,759 metres or core drilling were completed during 1H24 on two
areas: (i) the historic, central part of the project, which includes the
Torres, Peregrina, and San Gregorio areas, and (ii) the emerging southern area
where a significant discovery of silver-rich veins has been made. Focus has
been on the latter, since a preliminary conceptual study showed good economic
potential for its development. Step-out drilling, metallurgical
investigations, environmental permitting, and community engagement are the
main ongoing activities in this project.
Exploration
Exploration drilling meterage completed by Fresnillo plc during 1H24 amounted
to 391,301 metres, 86% of which was devoted to brownfields targets. The focus
of the mine exploration teams continues to be infill drilling to: (i) improve
the certainty of reserves for short and medium-term mine planning; and (ii)
upgrade the resources category from inferred to indicated, to foster reserve
replenishment. Brownfields exploration is also carried out by the Exploration
Division, devoting 62% of its drilling metres of the period to the evaluation
of targets around the Fresnillo and San Julián districts and to the Tajitos
and Central Guanajuato projects.
Greenfield exploration in Mexico includes resuming drilling in 2H24 at
Lucerito and Candameña, where detailed technical and logistical preparation
is ongoing. Drilling is also scheduled for this period at Capricornio and
Pencahue in Chile. In Peru, regional community engagement plans are advancing
at Supaypacha, Santo Domingo and Chiclayo, aiming at drill-testing several
high exploration potential targets in 2025.
Evaluation of Fresnillo properties in Mexico, Peru, and Chile is advancing to
continue strengthening and optimising our portfolio, in compliance with our
strategic long term view of consolidating districts.
In the first six months, US$77.0 million of exploration expenses were recorded
in the income statement, a decrease of 20.5% over 1H23. Total risk capital
budgeted in exploration for the full year 2024 was reviewed and decreased to
approximately US$175 million (including US$5 million capitalised).
Related party transactions
Details of related party transactions that have taken place in the first six
months of the current financial year are detailed in note 16 of the interim
consolidated financial statements.
Sustainability performance
Our Purpose to "Contribute to the wellbeing of people through the sustainable
mining of silver and gold" underscores the importance of integrating
responsible business practices deeply into our business model and considering
factors that affect our stakeholders at every critical decision-making level.
Ethics
As a Company, we hold ourselves to the highest ethical standards and believe
that our actions and behaviour should always reflect our corporate values:
Confidence, Responsibility and Respect, Integrity and Loyalty (CRIL).
We launched this period's Ethics and Integrity Training Programme, focusing on
high-risk areas like procurement, contract management, and project management.
It covers topics such as Anti-bribery and Corruption, Conflict of interest,
Harassment and Fraud prevention, the Whistleblowing mechanism, and Regulatory
compliance. The annual programme also contemplates in person sessions in the
second half of the year.
The Behaviour Commissioners continue to handle cases related to the Harassment
Prevention Programme across our mining units. Additionally, we've increased
the participation of Commission members by integrating more union
representatives in all operating units. We also expect to issue an updated
version of the Harassment Prevention Protocol, incorporating experiences and
lessons learnt since its 2020 original issuance.
In other aspects of our Compliance Programme, we have made significant strides
in key areas. We successfully implemented a new software to automate and
optimise the third-party due diligence process, followed by comprehensive
staff training, resulting in improved response times and decision-making.
Additionally, we meticulously documented the processes, roles, and
responsibilities of key personnel and are closely monitoring regulatory
compliance in critical infrastructure and activities. Meanwhile, we continue
to develop the cybersecurity governance framework, ensuring robust protection
and management of our digital assets.
People
Our workforce is vital to achieve our organisational purpose. Our goal is to
cultivate an inclusive culture where diversity is valued, and all employees
feel respected and empowered to reach their full potential.
We have continued to increase the participation of women in our workforce. The
percentage of unionised and non-unionised women reached 14.38% (13.86% in
2023) while our overall total workforce, including contractors, reached 12.36%
(11.88% in 2023). We expect to maintain this upward trend and make progress in
both of our gender targets by 2025: 12% of women in our workforce and 8% women
in managerial roles. Finally, we continue our commitment with workforce
transparency, through our annual submission to the Workforce Disclosure
Initiative survey, now housed at the Thomson Reuters Foundation.
Table 1. Workforce composition
As at June 30, As at December 31, 2023 % Change
2024
Unionised employees 5,638 5,680 -0.74
Non-unionised employees 1,593 1,580 0.82
Total unionised and non-unionised employees 7,231 7,260 -0.40
Unionised and non-unionised women (%) 14.38 13.86 -
Contractors 11,834 12,516 -5.45
Total workforce 19,065 19,776 -3.60
Total women (%) 12.36 11.88 -
We aim to attract, develop, and retain top talent, ensuring long-term
engagement with our workforce. We promote leadership development programmes
and actively collaborate with unions to foster trust through ongoing dialogue.
During the period, as part of the attract component of our strategy, we
received Earth Sciences residents across all our business units, as well as
the continuation of our dual professional internship training programme in
partnership with the National Polytechnic Institute (IPN), Zacatecas Campus.
As part of the develop component of our strategy, we also launched the
inaugural Effective Supervision Diploma for the maintenance personnel of our
Fresnillo unit, to develop both technical and soft competencies that equip
them to lead their teams effectively. We expect to extend this programme to
all other units within the Company.
Table 2. Turnover
As at June 30, 2024 As at June 30, 2023
Voluntary turnover (%) 4.02 5.10
Total turnover (%) 6.53 12.36
Safety
Safety is a fundamental value at Fresnillo. We prioritise our workforce's
wellbeing by embodying a profound love for life through the daily practice of
our 'I Care, We Care' philosophy. With prevention at the heart of our
strategy, our target is to eliminate fatal accidents, minimise exposure to
risk, avoid harm to people and damage to assets.
From 2018 to June 2024, we have achieved a 62% decrease in Total Recordable
Injury Frequency Rates (TRIFR), and a 38% decrease in Lost Time Injury
Frequency Rates (LTIFR) per million hours worked. Our performance results to
the first half of the year show a decrease as well compared to the previous
reporting period: a 7.87 TRIFR (12.08 in 2023) and a 5.36 LTIFR (7.40 in
2023). Despite these favourable results, it is with deep sorrow that we inform
of the tragic loss of one of our colleagues earlier in the year.
Table 3. TRIFR and LTIFR performance*
As at June 30, As at December 31, 2023 % Change
2024
Total Recordable Injury Frequency Rates (TRIFR) 7.87 12.08 -34.85
Lost Time Injury Frequency Rates (LTIFR) 5.36 7.40 -27.57
* Frequencies for every 1,000,000 hours worked
Recognising that behavioural change is a key element to the success of our
safety journey, the Company is actively dedicating significant time and
resources to foster a disciplined application of controls, enhance leadership
qualities, and improve accountability processes at every level of the
organisation. Since the last quarter of 2023, and throughout 2024, we've
implemented the following actions, contributing considerably to the period's
performance:
• Matured the 'I Care, We Care' Operational
Committee focusing on building, empowering, and leading safe operations as the
ideal way to do business and ensure the wellbeing of our people.
• Initiated a programme to develop technical and
safety management standards with the participation of multidisciplinary teams,
including safety personnel.
• Implemented a communication strategy to support
the integration and positioning of our 'I Care, We Care' philosophy into daily
operations, and as a core business identity.
• Started quality verification of leadership
practices (Coaching Mode), piloted the quality verification of the Hazard
Identification and Risk Assessment (IPER) mechanism (Coaching Mode) and
accident investigation quality evaluations (desktop and field evaluations).
• Launched the 'Safety Leadership Survey' to assess
the perception on the field of our safety strategy among mid-level managers
and business partners. Results will be used to foster initiatives that
continue contributing to maturing our safety culture.
• Strengthened the accountability processes for
leadership roles (executive and managerial levels), including business
partners, through field support and performance evaluations.
• Expanded the top critical risks from 5 to 10 in
all our business units and advanced the performance standard evaluations for
the initial top 5, updating the risk portfolio as part of the 'Learning
Environment' strategic line.
• Improved the analysis of preventive reporting with
a detailed drill-down approach for deeper insights and effective direction of
efforts.
• Updated and launched the version 2.0 of the HSECR
Suite software, considering feedback from multiple teams across different
sites, part of the continuous improvement for leadership practices and safety
management tools at all command levels.
• Progressed in forming permanent emergency brigades
in each mining unit and in their training programmes as well. The purpose is
to establish best practices, even above legal requirements.
We strive to achieve our aspirational goal of zero harm by continuously
reinforcing, renewing, and improving the management processes and mechanisms
of our 'I Care, We Care' philosophy. This approach demonstrates our commitment
to safe operations, fosters a mature preventive safety culture, and ensures
the wellbeing of our workers.
Health
Our foremost commitment is to safeguard the wellbeing of our people by
ensuring a safe and healthy work environment.
In recent years, our health strategy has expanded beyond occupational health
programmes, defining five lines of action to ensure a healthier, safer, and
more productive workplace for all our employees: 1) Health Surveillance, 2)
Integral Wellbeing, 3) Industrial Care, 4) Development and Innovation, and 5)
Emergency Preparedness.
We aim to pre-emptively identify and manage the health risks to which our
workforce is exposed. Thus, industrial hygiene and ergonomics were introduced
to the 'I Care, We Care' Operational Committee and three initiatives of the
2024-2025 action plan have begun deployment, including ergonomic stairs in
haulage trucks at Penmont, comprehensive temperature control programme at
Fresnillo and active breaks for the prevention of musculoskeletal injuries at
Ciénega. While our health teams primarily focus on prevention, emergency
response remains a core competency, with 50 workers currently undergoing their
First Aid Technician training.
Preventive care and the promotion of healthier lifestyles can limit certain
chronic diseases and enhance overall wellness and fitness for work.
Consequently, we continue to address both physical and mental health,
promoting nutrition, sports, and healthy lifestyle habits. During the period,
we pursued the 'Fit Challenge', with 1,010 employees enrolled, and sports
tournaments, featuring over 80 football, basketball, volleyball, and baseball
teams.
We continue working towards the 'Safe and Healthy Workplace Environments'
certification of all our business units by the Mexican Institute of Social
Security (IMSS), a voluntary programme to implement strategies and measures to
improve health, safety, and wellbeing of workers, as well as productivity and
quality in the workplace. During this period, we achieved the recertification
of Herradura and Fresnillo mining units.
Finally, we obtained the 'Exceptional Enterprises' award for our initiative 'I
Care, We Care in Health', in recognition of the commitment to our workforce
and value creation, by the Institute for the Promotion of Quality (IFC).
Environment
We optimise resource use to curb our impacts and are accountable for our
environmental footprint. We are also committed to implementing effective
measures to safeguard biodiversity and ensure that it is not adversely
affected by our operations.
To pursue these ambitions and achieve operational efficiency, we launched a
project in Ciénega to repurpose auxiliary treated wastewater discharges for
mine services, thereby reducing mine water consumption. Additionally, we
continued with the mine water substitution project at the Fresnillo District,
considerably increasing Saucito's share of municipal treated wastewater
consumption. Finally, we initiated a new project in Herradura's maintenance
department to treat the oil skimmer pond with bacteria, aiming to reduce
contaminated soil.
We have considerably increased our renewable electricity consumption from 53%
in 2023 to over 70% in the first half of the period, closing the gap to our
goal of 75% by 2030. We also initiated a formal process of energy consumption
forecasting aligned to our Strategic Plan base case.
During the period, we have conducted remediation activities, such as species
relocation and reforestation campaigns. We also held annual environmental
fairs across our mining units in commemoration of the World Environment Day,
World Water Day, and World Recycling Day. These events included conferences,
recycling campaigns, reforestation, and clean-up activities, among others,
organised in collaboration with volunteers from our workforce, communities and
business partners. These experiences help instil an environmentally conscious
culture across our Company.
Tailings Storage Facilities
We implement best governance and engineering practices to manage our Tailings
Storage Facilities (TSFs) to fulfil our goal of protecting local communities
and the environment by managing waste responsibly.
During the first half of the year, relevant activities have been carried out
in tailings management. The implementation of the Tailings Management System
continued to progress, completing the Dam Safety Review (DSR) and Dam Breach
Analysis (DBA) for Herradura's TSF.
In the Fresnillo mine, the original design of the San Carlos TSF was optimised
to extend its useful life. In San Julián, the completion of the TSF's Phase 3
construction was finalised, including reinforcement of the containment berm,
meeting international best practices standards, such as the guideline of the
Mining Association of Canada (MAC), the International Commission on Large Dams
(ICOLD) and the Canadian Dam Association (CDA).
Community Relations
Our community strategy encompasses all phases of the mining lifecycle.
Recognising the strategic importance of going beyond our social license to
operate, we aim to earn and maintain community trust through accountability,
meaningful engagement, and support for their key concerns. By working
collaboratively, we ensure that we develop and grow together.
During the period, we have implemented the 'Exploring to Understand'
programme, whose objective is to create social ambassadors from each mining
unit to build stronger relationships with the communities where we operate, as
well as the 'Social Challenges in Mining' sensitisation workshops for our
business partners, to build Human Rights and behavioural awareness. We also
have strengthened ties with the communitarian committees we have become a part
of, seeking to consolidate high impact projects.
Aligned with the UN Sustainable Development Goals, we continue to build a
robust portfolio of social investments through strategic alliances with civil
society and the three tiers of government. We focus specifically on four
pillars of action: 1) Quality Education, 2) Good Health and Wellbeing, 3)
Clean Water and Sanitation, and 4) Decent Work and Economic Growth.
1. Sustainable Development Goal 3: Good Health and Wellbeing
During the period, we continued providing medical appointments to communities
across our mining sites. Additionally, we carried out the Community Health
Weeks in partnership with the UNAM Foundation and local health authorities in
Ciénega, San Julián and the Fresnillo District, benefitting over 4,000
people with dental care, ophthalmology, physical therapy, and general medical
appointments.
We have continued the Leaders on the Horizon programme with FutbolMas to
foster community development through sports, promoting peace, resilience, and
social engagement. During this period, we held its second edition in
Herradura, featuring training workshops for adults and youths to become sports
leaders and benefit children in their communities. Similarly, in Guanajuato
Centro, we organised a socio-sports league involving community parents, to
strengthen social cohesion. In the Fresnillo District, we also begun
renovating the Fresnillo Sports Unit to promote sports, wellbeing, and
community interaction. Additionally, efforts are underway to establish a
basketball academy at 'El Nacional,' along with ongoing efforts on the
baseball academy, tennis club, and the Santos-Fresnillo football academy in
both the Fresnillo District and Herradura. Finally, we conducted workshops in
communities near Juanicipio on vocational guidance, school bullying, and
mental health.
2. Sustainable Development Goal 6: Clean Water and Sanitation
We have continued to strengthen alliances with civil society and the
government, successfully rehabilitating the 15 de Septiembre community water
well through a tripartite collaboration between Herradura, the municipal
government, and the community. Additionally, through the San Julián community
committee, in partnership with AC FORMAC and the support of the Chihuahua
state government, work continues to consolidate the community's collective
water system. In Saucito, we are assisting local authorities in securing a new
well to replace the current one. We also participate in the Ciénega de
Nuestra Señora water committee, driving an infrastructure project that
anticipates significant financial contributions from the state government.
3. Sustainable Development Goal 4: Quality Education
In partnership with the Zacatecas and Sonora education ministries and INNOVEC,
the 'PREST MATH' programme was launched to enhance math skills among primary
school children in Fresnillo and Herradura communities, with plans to expand
it to San Julián. The 'Picando Letras' programme continues in Herradura,
Juanicipio, Saucito, and Ciénega, promoting reading activities in local
schools and implementing the 'Tools for Peacebuilding' module to reduce stress
among children and youth in violent environments. Finally, we resumed the
Larousse Books programme, focused on subjects that support learning at school.
We continue to sponsor teams for the 'FIRST Robotics' competition at the
Laguna Regional FIRST, supporting a total of six teams. This year, two of them
received awards and both competed in the World Championship in Houston, Texas,
one of them achieving the 'Spirit Award'. Moreover, the 'LaSalle Excellence
Scholarship' Programme has evolved to increase the campuses we have
collaboration agreements with, aiming to allow the top students of our FIRST
teams to benefit from a full undergraduate scholarship in their home states.
During this period, we also saw the graduation of two students from this
programme, originating from neighbouring communities to Herradura and
Ciénega.
4. Sustainable Development Goal 8: Decent Work and Economic Growth
We continue to strengthen partnerships with NGOs, civil associations, and
different tiers of government and have standardised the process for
entrepreneurial project promotion in our communities. In the Fresnillo
District, partnering with the Rural Development Education Brigade 46 and the
municipal DIF, we continued deploying programmes aimed at developing skills
for entrepreneurs, and in collaboration with Pro Empleo, we seek to
consolidate at least one enterprise from each of our mines by the second half
of the year.
FINANCIAL REVIEW
The interim consolidated financial statements of the Group for the six months
ended 30 June 2024 have been prepared in accordance with IAS 34 Interim
Financial Reporting as issued by the IASB and as adopted by the UK. All
comparisons refer to the first halves of 2024 and 2023, unless otherwise
noted. The financial information and half year on half year variations are
presented in US dollars, except where indicated. Management recommends reading
this section in conjunction with the Interim Financial Statements and their
accompanying Notes.
INCOME STATEMENT
1H 2024 US$ million 1H 2023 US$ million Amount Change US$ million Change %
Adjusted revenue 9 (#_ftn9) 1,560.2 1,430.8 129.5 9.0
Total revenue 1,488.3 1,343.3 144.9 10.8
Cost of sales 1,095.9 1,060.6 35.3 3.3
Gross profit 392.4 282.7 109.7 38.8
Exploration expenses 77.2 96.9 (19.7) (20.3)
Operating profit 235.2 81.2 154.0 189.7
EBITDA 10 (#_ftn10) 544.2 351.0 193.2 55.1
Income tax expense including special mining rights 160.1 (41.8) 201.9 N/A
Profit for the period 117.7 89.7 28.0 31.2
Profit for the period, excluding post-tax Silverstream effects 71.2 101.6 (30.4) (29.9)
Basic and diluted earnings per share (US$/share) (5) 0.107 0.088 0.019 21.6
Basic and diluted earnings per share, excluding post-tax Silverstream effects 0.044 0.104 (0.060) (57.7)
(US$/share)
The Group's financial results are largely determined by the performance of our
operations. However, there are other factors such as a number of macroeconomic
variables, that lie beyond our control and which affect financial results.
These include:
METALS PRICES
The average realised silver price increased 18.5% from US$23.3 per ounce in
1H23 to US$27.6 per ounce in 1H24, while the average realised gold price rose
11.5%, from US$1,948.9 per ounce in 1H23 to US$2,171.9 per ounce in 1H24. The
average realised lead by-product price increased to US$96.1 cents per pound,
up 2.5% vs 1H23, while the average realised zinc by-product price remained
stable at US$122.4 cents per pound.
MX$/US$ EXCHANGE RATE
The Mexican peso/US dollar spot exchange rate at 30 June 2024 was $18.38 per
US dollar, compared to the exchange rate at 31 December 2023 of $16.89 per US
dollar. The 8.8% spot devaluation had a negative effect on deferred taxes and
mining rights.
The average spot Mexican peso/US dollar exchange rate decreased from $18.21
per US dollar in 1H23 to $17.10 per US dollar in 1H24. As a result, there was
an adverse effect of US$30.8 million on the Group's costs denominated in
Mexican pesos (approximately 45% of total costs) when converted to US dollars.
COST INFLATION
In 1H24, cost inflation (increase in unit price) considering Fresnillo plc's
basket of goods and services was 6.5% (including the adverse effect of the
average revaluation of the Mexican peso vs. US dollar). Underlying cost
inflation (cost inflation excluding the revaluation of the Mexican peso vs. US
dollar) was 1.7%. The main components of our cost inflation (including the
effect of the revaluation of the Mexican peso vs. US dollar) basket are listed
below:
Labour
Unionised employees received on average a 7% increase in wages in Mexican
pesos, while non-unionised employees received on average a 6% increase in
wages in Mexican pesos; when converted to US dollars, this resulted in a
weighted average labour inflation of 14.1%.
Energy
Electricity
The weighted average cost of electricity in US dollars decreased 19.1% from
US$10.50 cents per kw in 1H23 to US$8.50 cents per kw in the same period of
2024, reflecting a decrease in the average generating cost of the Comisión
Federal de Electricidad (CFE), the national utility.
Diesel
The weighted average cost of diesel in US dollars increased 14.6% to 117.97 US
cents per litre in 1H24, compared to 102.97 US cents per litre in 1H23. This
resulted primarily from the revaluation of the Mexican peso vs. US dollar and
the decrease in the subsidy granted by the Mexican Government through the tax
that is applied to diesel and gasoline in Mexico.
Operating materials
Half on half change in unit price %
Lubricants 6.3
Tyres 2.3
Other reagents (1.6)
Steel balls for milling (4.7)
Explosives (5.0)
Steel for drilling (5.4)
Sodium cyanide (20.8)
Weighted average of all operating materials (5.0)
Unit prices of the majority of key operating materials significantly decreased
in US dollar terms, except for lubricants and tyres. As a result, the weighted
average unit prices of all operating materials over the half decreased by
5.0%.
Contractors
Agreements are signed individually with each contractor company and include
specific terms and conditions that cover not only labour, but also operating
materials, equipment and maintenance, amongst others. Contractor costs are
mainly denominated in Mexican pesos and are an important component of our
total production costs. In 1H24, increases per unit (i.e. per metre developed/
per tonne hauled) granted to contractors, resulted in a weighted average
increase of 7.2% in US dollars, after considering the revaluation of the
Mexican peso vs. US dollar.
Maintenance
Unit prices of spare parts for maintenance increased by 8.0% on average in US
dollar terms.
Other costs
Other cost components include freight which increased by an estimated 16.1% in
US dollars, while insurance costs decreased by 1.5% in US dollars. The
remaining cost inflation components experienced average inflation of 18.7% in
US dollars over 1H23.
The effects of the above external factors, combined with the Group's internal
variables, are further described below through the main line items of the
income statement.
REVENUE
CONSOLIDATED REVENUE( 1)
1H 2024 1H 2023 Amount Change %
US$ million
US$ million
US$ million
Adjusted revenue (( 11 (#_ftn11) )) 1,560.2 1,430.8 129.5 9.0
Treatment and refining charges (72.0) (87.4) 15.5 (17.7)
Total revenue 1,488.3 1,343.3 144.9 10.8
Adjusted revenue increased by US$129.5 million mainly due to the higher gold
and silver prices and increased volumes of silver, zinc and lead sold, partly
offset by the decrease in gold ounces sold. Total revenue increased by 10.8%
to US$1,488.3 million in 1H24.
ADJUSTED REVENUE(11) BY METAL
1H 2024 1H 2023
US$ million % US$ million % Volume Variance Price Total net
US$ million
Variance
change
US$ million
US$ million
%
Gold 580.3 37.2 625.0 43.7 (128.1) 83.3 (44.7) (7.2)
Silver 774.0 49.6 632.4 44.2 37.7 103.8 141.6 22.4
Lead 67.7 4.3 55.1 3.9 11.1 1.5 12.6 22.9
Zinc 138.2 8.9 118.2 8.3 20.1 (0.1) 20.0 16.9
Total adjusted revenue 1,560.2 100 1,430.8 100 (59.2) 188.6 129.5 9.0
The higher volume of silver sold was primarily driven by the increased
contribution of Juanicipio, and the higher ore grade and increased volume of
ore processed at San Julián Veins, Saucito and Ciénega. The decrease in gold
volumes sold were primarily due to the lower ore grade and decreased volume of
ore processed at Herradura and the mine closure plan at Noche Buena (for
further detail, see 1H24 Operational Review).
Changes in the contribution by metal were the result of the relative changes
in metal prices and volumes produced. The increased volumes of silver sold at
higher prices boosted silver contribution from 44.2% in 1H23 to 49.6% in 1H24,
while gold decreased its contribution to total adjusted revenues from 43.7% in
1H23 to 37.2% in 1H24. Zinc and lead contribution to total adjusted revenues
increased slightly primarily driven by the higher volumes sold.
ADJUSTED REVENUEBY Mine
The contribution by metal and by mine to Adjusted revenues is expected to
change further in the future, as precious metals prices fluctuate.
1H 2024 1H 2023
(US$ million) % (US$ million) %
Saucito 327.0 21.0 252.7 17.7
Juanicipio 309.0 19.8 215.5 15.1
Herradura 305.4 19.6 379.7 26.5
Fresnillo 260.6 16.7 243.4 17.0
San Julián (Veins) 159.1 10.2 96.0 6.7
Ciénega 113.4 7.3 80.6 5.6
San Julián (DOB) 65.0 4.1 114.1 8.0
Noche Buena 20.7 1.3 48.8 3.4
Total 1,560.2 100 1,430.8 100
VOLUMES OF METAL SOLD
1H 2024 % contribution 1H 2023 % contribution % change
of each mine
of each mine
Silver (koz)
Juanicipio 8,267 28.9% 6,879 25.4% 20.2
Saucito 5,551 19.4% 5,099 18.8% 8.9
Fresnillo 4,644 16.2% 6,042 22.3% (23.1)
San Julián (Veins) 3,910 13.7% 2,415 8.9% 61.9
Ciénega 2,346 8.2% 1,797 6.6% 30.6
San Julián (DOB) 1,663 5.8% 3,776 14.0% (56.0)
Pyrites Plant at Saucito 1,437 5.0% 698 2.6% 105.9
Pyrites Plant at Fresnillo 595 2.1% 67 2.6% 788.1
Herradura 211 0.7% 350 1.3% (39.7)
Noche Buena 2 0.0% 3 0.0% (33.3)
Total silver (koz) 28,626 100% 27,126 100% 5.5
Gold (oz)
Herradura 134,998 52.0% 191,073 59.4% (29.3)
Saucito 33,349 12.8% 36,083 11.2% (7.6)
San Julián (Veins) 23,619 9.1% 20,183 6.3% 17.0
Ciénega 19,193 7.4% 16,187 5.0% 18.6
Fresnillo 18,741 7.2% 15,918 5.0% 17.7
Juanicipio 16,095 6.2% 14,791 4.6% 8.8
Noche Buena 9,065 3.5% 24,742 7.7% (63.4)
Pyrites Plant at Saucito 3,353 1.3% 1,595 0.5% 110.2
Pyrites plant at Fresnillo 658 0.3% 160 0.0% 311.3
San Julián (DOB) 492 0.2% 893 0.3% (44.9)
Total gold (oz) 259,563 100% 321,625 100% (19.3)
Lead (t)
Fresnillo 11,146 34.9% 9,829 36.9% 13.4
Saucito 9,589 30.0% 7,443 27.9% 28.8
Juanicipio 7,698 24.1% 4,379 16.4% 75.8
San Julián (DOB) 2,027 6.3% 3,626 13.6% (44.1)
Ciénega 1,508 4.7% 1,392 5.2% 8.3
Total lead (t) 31,968 100% 26,669 100% 19.9
Zinc (t)
Fresnillo 18,827 36.8% 18,753 42.8% 0.4
Saucito 13,132 25.6% 10,726 24.5% 22.4
Juanicipio 12,286 24.0% 6,291 14.4% 95.3
San Julián (DOB) 5,612 11.0% 6,371 14.6% (11.9)
Ciénega 1,357 2.6% 1,636 3.7% (17.1)
Total zinc (t) 51,214 100% 43,777 100% 17.0
TREATMENT AND REFINING CHARGES
Similar to previous years, the 2024 treatment and refining charges(( 12
(#_ftn12) )) (TRCs) per tonne and per ounce are currently being negotiated
with Met-Mex (Peñoles' smelter and refinery) in accordance with international
benchmarks and will apply retrospectively from January 2024. We expect these
negotiations to conclude in 2H24.
Treatment charges per tonne of lead concentrate and silver refining charges
decreased in dollar terms by 10.5% and 31.5%, respectively. Treatment charges
per tonne of zinc concentrate increased by 4.9% half-on-half. This factors,
combined with the higher volumes of lead and zinc concentrates shipped from
our mines to Met-Mex, resulted in a 17.7% decrease in treatment and refining
charges set out in the income statement in absolute terms when compared to
1H23.
COST OF SALES
1H 2024 1H 2023 Amount Change %
US$ million
US$ million
US$ million
Adjusted production costs (( 13 (#_ftn13) )) 844.2 773.9 70.3 9.1
Depreciation 304.2 236.3 67.9 28.7
Profit sharing 6.0 2.9 3.1 106.9
Hedging 0.0 (0.1) 0.1 (100.0)
Change in inventories (58.5) 26.3 (84.8) N/A
Unproductive costs(( 14 (#_ftn14) )) 0.0 21.5 (21.5) (100.0)
Cost of sales 1,095.9 1,060.6 35.3 3.3
Cost of sales increased 3.3% to US$1,095.9 million in 1H24. The US$35.3
million increase is explained by the following combination of factors:
• An increase in Adjusted production costs (+US$70.3 million). This was
primarily due to: i) longer haulage distances and deeper mines which increased
maintenance and contractors costs and diesel consumption, mainly at Herradura
and Fresnillo (+US$50.0 million); ii) the adverse effect of the 6.1% average
revaluation of the Mexican peso vs. the US dollar (+US$30.8 million); iii)
underlying cost inflation (1.7%) excluding the revaluation of the Mexican peso
vs. US dollar (+US$18.8 million) - these two factors combined resulted in a
cost inflation in US dollars of 6.5%, which increased adjusted production cost
by US$49.6 million; iv) higher volume of ore processed at some of the mines
(+US$26.7 million); and v) others (+US$4.9 million). These adverse effects
were mitigated by efficiencies and economies of scale achieved mainly at
Saucito, Juanicipio, Ciénega and San Julián veins (-US$60.9 million).
• Depreciation (+US$67.9 million). This is mainly due to the increased
depreciation of the asset base at San Julián DOB as it approaches the end of
its life, and the depreciation of the additional asset base at Juanicipio.
• Profit sharing (+US$3.1 million) due to higher profits at some of the
operating mines.
These negative effects were mitigated by:
• The variation in the change in inventories had a positive effect of
US$84.8 million versus 1H23 primarily due to an increase in the weighted
average cost of inventories on the leaching pads at Herradura, whereas in
1H23, an increase in the number of gold ounces (30.7 thousand ounces)
estimated on the leaching pads reduced the weighted average cost of inventory
at Herradura (see notes 2c and 5 to the financial statements),
• The non-occurrence of unproductive costs in 1H24 vs. the negative
effect in 1H23 of the unproductive costs (US$21.5 million) mainly related to
fixed costs incurred during the temporary illegal stoppage at Herradura and
Noche Buena.
COST PER TONNE, CASH COST PER OUNCE AND ALL-IN SUSTAINING COST (AISC)
Cost per tonne is a key indicator to measure the effects of changes in
production costs and cost control performance at each mine. This indicator is
calculated as total production costs, plus ordinary mining rights, less
depreciation, profit sharing and exchange rate hedging effects, divided by
total tonnage processed. We have included cost per tonne hauled/moved as we
believe it is a useful indicator to thoroughly analyse cost performance for
the open pit mines.
Cost per tonne 1H 2024 1H 2023 % change
Fresnillo US$/tonne milled 114.68 91.69 25.1
Saucito US$/tonne milled 139.87 137.67 1.6
Juanicipio US$/tonne milled 119.72 123.97 (3.4)
San Julián (Veins) US$/tonne milled 108.19 107.32 0.8
San Julián (DOB) US$/tonne milled 46.86 49.50 (5.3)
Ciénega US$/tonne milled 128.83 141.45 (8.9)
Herradura US$/tonne deposited 26.47 19.41 36.3
Herradura US$/tonne hauled 6.02 4.86 23.8
Noche Buena US$/tonne deposited N/A 10.19 N/A
Noche Buena US$/tonne hauled N/A 3.04 N/A
Fresnillo: Cost per tonne increased 25.1% to US$114.7 in 1H24, driven mainly
by the increase in maintenance, personnel and contractor costs, and
additionally by the adverse effect of the 6.1% revaluation of the Mexican peso
vs the US dollar, the lower volume of ore processed, and the underlying cost
inflation.
Saucito: Cost per tonne remained broadly stable at US$139.9, as the adverse
effects of the 6.1% revaluation of the Mexican peso vs the US dollar and the
underlying cost inflation together with the increase in the volume of by
products with high gold and silver contents purchased from Met-Mex (smelting
and refining company). These were offset by the higher volumes of ore
processed and the decrease in the use of development and infrastructure
contractor.
Juanicipio: Cost per tonne decreased as efficiencies were achieved due to the
economies of scale.
San Julián Veins: Cost per tonne remained broadly stable at US$108.2, as the
adverse effects of the 6.1% revaluation of the Mexican peso vs the US dollar
and the underlying cost inflation were offset by the decrease in maintenance
costs and lower consumption of electricity and the higher volumes of ore
processed.
San Julián (DOB): Cost per tonne decreased 5.3% to US$46.9, mainly driven by
the decrease in consumption of steel, reagents and electricity, partly offset
by the adverse effect of the 6.1% revaluation of the Mexican peso vs the US
dollar and the underlying cost inflation, together with the lower volume of
ore processed as this mine approaches the end of its life.
Ciénega: Cost per tonne decreased 8.9% to US$128.8 mainly driven by lower
contractors and maintenance costs as a result of the initiatives to reduce
costs at this mine, despite the adverse effect of the 6% revaluation of the
Mexican peso/US dollar exchange rate and the underlying cost inflation.
Herradura: Cost per tonne of ore deposited increased by 36.3% to US$26.47
primarily due to the increase in diesel consumption related to longer haulage
distances and deeper pits, the adverse effect of the 6.1% revaluation of the
Mexican peso vs the US dollar, cost inflation and lower volumes of ore
processed (see H1 2024 Operational Review) .
Noche Buena: There is no comparable figure for 1H24 as mineral extraction
concluded in May 2023, however leaching of gold contents inventories at the
leaching pads continues.
Cash cost per ounce when compared to the corresponding metal price, is an
indicator of the ability of the mine to generate competitive profit margins.
Given the polymetallic nature of most of our mines, the methodology to
calculate this indicator has been changed from a "by product" to "per
equivalent ounce" basis as this is more representative. Cash cost per ounce is
now being calculated as the total cash cost (cost of sales plus treatment and
refining charges, less depreciation) divided by the silver or gold equivalent
ounces sold. 1H 2023 figures have been restated to be comparable to those of
1H 2024.
Cash cost per ounce 1H 2024 1H 2023 % change
Fresnillo US$ per eq. silver ounce 16.41 14.70 11.6
Saucito US$ per eq. silver ounce 15.02 14.96 0.4
Juanicipio US$ per eq. silver ounce 8.33 12.11 (31.2)
San Julián (Veins) US$ per eq. silver ounce 11.10 14.54 (23.7)
San Julián (DOB) US$ per eq. silver ounce 20.29 12.80 58.5
Ciénega US$ per eq. gold ounce 1,395.43 1,827.53 (23.6)
Herradura US$ per eq. gold ounce 1,617.99 1,284.57 26.0
Noche Buena US$ per eq. gold ounce N/A 1,574.26 N/A
Fresnillo: Cash cost per silver ounce increased by 11.6% mainly as a result of
the higher cost per tonne together with the lower volume of equivalent silver
ounces (-8.3%). This was mitigated by the lower treatment and refining charges
and higher gold, lead and zinc ore grades.
Saucito: Cash cost per silver ounce remained at US$15.0 per equivalent silver
ounce.
Juanicipio: Cash cost per silver ounce decreased by 31.2% primarily due to the
higher ore grades and lower cost per tonne.
San Julián Veins: Cash cost per ounce of silver decreased 23.7% due to the
higher gold and silver ore grades.
San Julián (DOB): Cash cost per silver ounce increased to US$20.3 per
equivalent silver ounce driven by the lower silver ore grade (-48.1%).
Ciénega: The decrease in cash cost per gold ounce to US$1,395.43 per
equivalent gold ounce in 1H24 was primarily due to the higher gold (+13.6%)
and silver (+24.3%) ore grades and the lower cost per tonne.
Herradura: Cash cost per gold ounce increased to US$1,617.99 mainly due to the
lower gold ore grade and the increase in cost per tonne.
Noche Buena: There is no comparable figure for 1H24 as mineral extraction
concluded in May 2023, however leaching of gold contents inventories at the
leaching pads continues.
In addition to the traditional cash cost, the Group is reporting All-In
Sustaining Cost (AISC).
This cost metric is calculated as traditional cash cost plus on-site general,
corporate and administrative costs, community costs related to current
operations, capitalised stripping and underground mine development, sustaining
capital expenditures and remediation expenses. Similarly to cash cost, AISC is
now being calculated using equivalent silver or gold ounces as opposed to
deducting the revenues of by products.
We consider AISC to be a reasonable indicator of a mine's ability to generate
free cash flow when compared with the corresponding metal price. We also
believe it is a means to monitor not only current production costs, but also
sustaining costs as it includes mine development costs incurred to prepare the
mine for future production, as well as sustaining capex. 1H 2023 figures have
been restated to be comparable to those of 1H 2024.
ALL-IN SUSTAINING COST (AISC)
AISC 1H 2024 1H 2023 % change
Fresnillo US$ per eq. silver ounce 23.04 20.33 13.3
Saucito US$ per eq. silver ounce 20.52 21.75 (5.7)
Juanicipio US$ per eq. silver ounce 11.24 17.04 (34.1)
San Julián (Veins) US$ per eq. silver ounce 16.14 24.42 (33.9)
San Julián (DOB) US$ per eq. silver ounce 24.69 15.14 63.1
Ciénega US$ per eq. gold ounce 1,668.44 2,590.47 (35.6)
Herradura US$ per eq. gold ounce 1,914.73 1,503.10 27.4
Noche Buena US$ per eq. gold ounce N/A 1,646.03 N/A
Fresnillo: All-in sustaining cost increased 13.3% over 1H23 primarily due to a
higher cash cost and an increase in capitalised mine development per ounce.
Saucito: All-in sustaining cost decreased 5.7% to US$20.52 per equivalent
ounce due to a decrease in capitalised mine development per ounce and a lower
sustaining capex.
Juanicipio: All in sustaining cost decreased 34.1% primarily driven by the
lower cash cost and a decrease in sustaining capex.
San Julián Veins: All-in sustaining cost decreased to US$16.14 per ounce due
to a lower cash cost and a decrease in sustaining capex.
San Julián DOB: All-in sustaining cost increased to US$24.69 per ounce driven
by the increase in cash cost and higher sustaining capex per ounce.
Ciénega: The decrease in all-in sustaining cost was primarily driven by the
lower cash cost, together with decreased sustain capex and lower capitalised
mine development per ounce.
Herradura: All-in sustaining cost increased by 27.4% mainly due to the higher
cash cost.
Noche Buena: There is no comparable figure for 1H24 as mineral extraction
concluded in May 2023, however leaching of gold contents inventories at the
leaching pads continues.
GROSS PROFIT
Gross profit, excluding hedging gains and losses, is a key financial indicator
of profitability at each business unit and the Fresnillo Group as a whole.
Total gross profit, including hedging gains and losses, increased by 38.8%
from US$282.7 million in 1H23 to US$392.4 million in 1H24.
The US$109.7 million increase in gross profit was mainly explained by: i) the
higher gold, silver and lead prices (+US$188.6 million); ii) the variation in
change of inventories (+US$84.8 million); iii) the efficiencies and economies
of scales achieved at Saucito, Juanicipio, Ciénega and San Julián (Veins)
(+US$60.9 million); iv) the lower treatment and refining charges (+US$15.5
million); and v) others (+US$11.2 million). These positive effects were
partly offset by: i) the net effect of the lower ore grades and higher volumes
processed (-US$83.7 million); ii) the increase in depreciation, mainly at San
Julián DOB, Juanicipio, Ciénega and Saucito (-US$67.9 million); iii) the
negative effect on costs related to longer haulage distances and deeper mines,
which increased consumption of maintenance, contractors and diesel (-US$50.0
million); iv) the MXP/USD revaluation effect (-US$30.8 million); and v)
underlying cost inflation (-US$18.8 million).
Juanicipio became the largest contributor to the Group's consolidated gross
profit with its contribution increasing from 29.0% in 1H23 to 43.5% in 1H24.
Gross profit at Saucito more than doubled; with its percentage share
increasing to 21.7%. Fresnillo's share of the Group's total gross profit
decreased to 14.1% in 1H24, despite the 22.0% increase in its gross profit.
The lower volumes of gold sold at Herradura in 1H24 lowered its gross profit
to US$38.6 million and decreased its contribution to the Group's consolidated
gross profit from 31.9% to 9.9% in 1H24. The increased ore grades, together
with the initiatives to reduce costs at Ciénega, began to bear fruit and
generated a gross profit of US$11.1 million. Gross profit at Noche Buena and
San Julián DOB decreased as production levels continued to decline as they
approached the end of their lives.
Notwithstanding, Noche Buena generated a net cash flow from operating
activities and capex of US$11.0 million.
CONTRIBUTION BY MINE TO CONSOLIDATED GROSS PROFIT, EXCLUDING HEDGING GAINS AND
LOSSES
1H 2024 1H 2023 Change
US$ million % US$ million % US$ million %
Juanicipio 170.3 43.5 79.0 29.0 91.3 115.6
Saucito 85.1 21.7 39.8 14.6 45.3 113.8
Fresnillo 55.0 14.1 45.1 16.6 9,9 22.0
Herradura 38.6 9.9 86.8 31.9 (48.2) (55.5)
San Julián 32.2 8.2 36.4 13.4 (4.2) (11.5)
Ciénega 11.1 2.8 (17.9) (6.6) 29.0 N/A
Noche Buena (1.0) (0.3) 3.0 1.1 (4.0) N/A
Total for operating mines 391.3 100.0 272.2 100.0 119.1 43.8
Metal hedging and other subsidiaries 1.1 10.5 (9.4) (89.5)
Total Fresnillo plc 392.4 282.7 109.7 38.8
ADMINISTRATIVE AND CORPORATE EXPENSES
Administrative and corporate expenses remained broadly stable at US$55.3
million in 1H24.
EXPLORATION EXPENSES
Business unit/project (US$ million) Exploration expenses 1H 2024 Exploration Capitalised expenses 1H 2024 Capitalised
expenses 1H 2023
expenses 1H 2023
Ciénega 1.4 4.2 - -
Fresnillo 9.0 10.1 - -
Herradura 2.4 2.8 - -
Saucito 5.7 6.4 - -
Noche Buena 0.2 0.7 - -
San Julián 7.3 10.6 - -
Orisyvo 4.8 2.1 0.2 -
Centauro Deep 0.3 0.3 - -
Guanajuato 8.4 9.2 0.2 -
Juanicipio 3.4 3.9 - -
Others 34.3 46.6 0.1 0.4
Total 77.2 96.9 0.5 0.4
Exploration expenses decreased by 20.3% from US$96.9 million in 1H23 to
US$77.2 million in 1H24, as spend was front loaded in 1H23. Exploration
activities continued to aim at increasing the resource base, converting
resources into reserves and improving the confidence of the grade distribution
in reserves. In addition, US$0.5 million was capitalised in 1H24. As a result,
risk capital invested in exploration decreased 20.1%, from US$97.3 million in
1H23 to US$77.7 million in 1H24. The full year guidance has been reviewed and
is now expected to be c. US$170 million.
EBITDA
1H 2024 1H 2023 Amount Change %
US$ million
US$ million
US$ million
Profit from continuing operations before income tax 277.8 47.9 229.9 480.0
- Finance income (19.2) (26.5) 7.3 (27.5)
+ Finance costs 39.1 46.0 (6.9) (15.0)
+ Revaluation effects of Silverstream contract (66.4) 17.0 (83.4) N/A
- Foreign exchange gain (loss), net 3.9 (3.2) 7,1 N/A
- Other operating income (6.6) (1.9) (4.7) 247.4
+ Other operating expense 11.4 35.4 (24.0) (67.8)
+ Depreciation 304.2 236.3 67.9 28.7
EBITDA 544.2 351.0 193.2 55.0
EBITDA margin 36.6% 26.1%
EBITDA is a gauge of the Group's financial performance and a key indicator to
measure debt capacity. It is calculated as profit for the year from continuing
operations before income tax, less finance income, plus finance costs, less
foreign exchange gain / (loss), plus the net Silverstream effects and other
operating income plus other operating expenses and depreciation. In 1H24,
EBITDA increased 55.0% to US$544.2 million primarily driven by the higher
gross profit and, to a lesser extent, a lower exploration expense. As a
result, EBITDA margin expressed as a percentage of revenue increased, from
26.1% in 1H23 to 36.6% in 1H24.
OTHER OPERATING INCOME AND EXPENSE
In 1H24, a net loss of US$4.8 million was recognised in the income statement
mainly related to the write-off of obsolete spare parts inventories. This
compared favourably to the net loss of US$33.5 million registered in 1H23,
mainly driven by the identification of certain suspected illegal extraction of
gold ounces from the Soledad-Dipolos leaching pads.
SILVERSTREAM EFFECTS
The Silverstream contract is accounted for as a derivative financial
instrument carried at fair value. The net Silverstream effect recorded in the
1H24 income statement was a gain of US$66.5 million (US$21.5 million
amortisation profit and US$45.0 million revaluation gain), which compared
favourably to the net loss of US$17.0 million registered in 1H23. The positive
revaluation in 1H24 was mainly driven by the increase in the forward silver
price curve, whilst the negative revaluation in 1H23 was mainly driven by a
reduction in reserves and resources at the Sabinas mine.
The Group expects that further unrealised gains or losses related to the
valuation of the Silverstream will be taken to the income statement in
accordance with silver price cyclicality or changes in the variables
considered in valuing this contract. Further information related to the
Silverstream contract is provided in the balance sheet section and in notes 10
and 18 to the consolidated financial statements.
NET FINANCE COSTS
Net finance costs remained broadly unchanged at US$20.0 million in 1H24
(US$19.5 million in 1H23). Financial expenses in 1H24 included mainly the
interest paid on the 4.250% Senior Notes due 2050, net of interest gains on
our cash balance.
FOREIGN EXCHANGE
A foreign exchange loss of US$3.9 million was recorded over the period mainly
driven by the effect of the variation of the Mexican peso/US dollar exchange
rate on the value of peso-denominated net monetary asset position. This
compared negatively to the US$3.2 million gain registered in 1H23.
TAXATION
Income tax expense for the period was US$89.5 million, compared to the US$19.5
million income tax credit in 1H23. The effective tax rate, excluding the
special mining rights, was 32.2%, which was above the 30% statutory tax rate.
This variance resulted from the differences between the tax and the accounting
treatment. In 1H24 the main reason was related to the effect of the 8.8%
devaluation of the Mexican peso/US dollar spot exchange rate on the tax value
of assets and liabilities; which was mitigated by the effect of the inflation
rate (Mexican Consumer Price Index) that impacted the inflationary uplift of
the tax base for assets and liabilities and the effect of the devaluation of
the Mexican peso on the dollar denominated net monetary position.
The effective tax rate, excluding the special mining rights, was -40.7% in
1H23.
Mining rights for the first half of 2024 was US$70.6 million compared to
mining rights income of US$22.3 million recognised in 1H23. The reasons for
the variation in mining rights were the same as the ones affecting income tax.
PROFIT FOR THE PERIOD
Profit for the period increased from US$89.7 million in 1H23 to US$117.7
million in 1H24, a 31.2% increase period-on-period due to the factors
described above. Profit due to non-controlling interests was US$39.0 million,
up 56.2%, reflecting the profit generated at Juanicipio, where MAG Silver owns
44% of the outstanding shares. Accordingly, profit attributable to equity
shareholders of the Group was US$78.6 million, a 21.5% increase half-on-half.
Excluding the effects of the Silverstream contract, profit for the year
decreased from US$101.6 million in 1H23 to US$71.2 million, a 29.9% decrease.
CASH FLOW
A summary of the key items from the cash flow statement is set out below:
1H 2024 1H 2023 Amount Change %
US$ million
US$ million
US$ million
Cash generated by operations before changes in working capital 547.9 322.9 225.0 69.7
(Increase)/decrease in working capital (76.9) 75.4 (152.3) N/A
Taxes and employee profit sharing paid (71.4) (192.8) 121.4 (63.0)
Net cash from operating activities 399.6 205.5 194.1 94.4
Silverstream contract 13.7 20.2 (6.5) (32.2)
(Repayment of loans)/Capital contributions and loans granted by minority (43.3) 25.0 (68.3) N/A
shareholders
Purchase of property, plant and equipment (170.3) (227.8) 57.5 (25.2)
Dividends paid to shareholders of the Company (31.0) (98.0) 67.0 (68.4)
Financial expenses and foreign exchange effects (9.6) 1.5 (11.1) N/A
Net increase/decrease in cash during the period after foreign exchange 156.4 (79.4) 235.8 N/A
differences
Cash and cash equivalents at 30 June 691.0 889.7 (198.7) (22.3)
Cash generated by operations before changes in working capital increased by
69.7% to US$547.9 million, mainly as a result of the higher profits generated
in the period. Working capital increased US$76.9 million, mainly due to: i) a
US$46.3 million increase in inventories; and ii) a decrease in trade and other
payables of US$30.0 million.
Taxes, mining rights and employee profit sharing paid decreased to US$71.4
million, down 63.0% vs 1H23, mainly due to: i) the lower final income tax paid
in 1H24, net of provisional taxes paid (corresponding to the 2023 tax fiscal
year); ii) the decrease in provisional tax payments paid in 1H24; iii) a
decrease in mining rights; and iv) lower profit sharing paid.
As a result of the above factors, net cash from operating activities increased
94.4% from US$205.5 million in 1H23 to US$399.6 million in 1H24.
The Group received US$13.7 million related to the proceeds of the Silverstream
contract.
Main uses of funds were:
i) the purchase of property, plant and equipment for a total of US$170.3
million, a 25.2% decrease over 1H23. Capital expenditures for 1H24 are
described below:
PURCHASE OF PROPERTY, PLANT AND EQUIPMENT
1H 2024
US$ million
Saucito mine 52.0 Mine development, purchase of in-mine equipment, deepening of the Jarillas
shaft and tailings dam.
Fresnillo mine 43.0 Mine development and mining works, purchase of in-mine equipment, deepening of
the San Carlos shaft and tailings dam.
San Julián Veins and DOB 29.0 Mining works, tailings dam and purchase of in-mine equipment.
Herradura mine 21.9 Stripping, construction of leaching pads and purchase of mine equipment.
Juanicipio mine 16.4 Mine development and equipment
Ciénega mine 7.6 Mining works and purchase of in-mine equipment.
Other 0.4 Minera Bermejal.
Total purchase of property, plant and equipment 170.3
ii) Repayment of loans granted by minority shareholders US$43.3 million.
iii) Dividends paid to shareholders of the Group in 1H24 totalled US$31.0
million, a 68.4% decrease over 1H23 as a result of the 2023 final dividend of
4.20 cents per share paid in May 2024, in line with our dividend policy.
iii) Financial expense and foreign exchange effects of US$9.6 million in 1H24.
Financial expenses in 1H24 included the interest paid on the 4.250% Senior
Notes due 2050. Interest received during the period totalled US$19.2 million
(US$27.0 million in 1H23).
The sources and uses of funds described above resulted in a net increase in
cash and cash equivalents of US$156.4 million, which combined with the
US$534.6 million balance at the beginning of the year resulted in cash and
cash equivalents of US$691.0 million at the end of June 2024.
BALANCE SHEET
Fresnillo plc continued to maintain a solid financial position during the
period with cash and cash equivalents of US$691.0 million as of 30 June 2024,
increasing 29.3% versus 31 December 2023 and decreasing 22.3% versus 30 June
2023. Taking into account the cash and cash equivalents of US$691.0 million
and the US$839.2 million outstanding Senior Notes, Fresnillo plc's net debt is
US$148.2 million as at 30 June 2024. This compares to the net debt position of
US$304.4 million as at 31 December 2023. Considering these variations, the
balance sheet at 30 June 2024 remains strong, with a net debt / EBITDA ratio
of 0.17x(( 15 (#_ftn15) ))
Inventories increased 8.7% over the 2023 year-end figure to US$579.0 million,
mainly driven by the increase in the cost per ounce registered in the
inventories at Herradura.
Trade and other receivables increased 7.6% to US$518.9 million mainly as a
result of the increased volumes of lead and zinc concentrates sold to Met-Mex
and the higher gold and silver prices.
The change in the value of the Silverstream derivative from US$482.3 million
at the end of the 2023 to US$532.0 million as of 30 June 2024 reflects
proceeds of US$16.8 million in the period (US$8.6 million in cash and US$8.2
million in accounts receivables) and the Silverstream revaluation effect in
the income statement of US$66.5 million.
The net book value of property, plant and equipment was US$2,693.1 million at
the end of June, representing a 5.9% decrease when compared to the US$2,860.9
million at 31 December 2023. The US$167.8 million decrease was mainly due to
increased depreciation.
The Group's total equity was US$4,167.2 million as of 30 June 2024, a 2.5%
increase over 31 December 2023. This was mainly explained by the increase in
retained earnings, reflecting the 1H24 profit.
GOING CONCERN
The Group's business activities, together with the factors likely to affect
its future development, performance and position are set out above above in
the Operational Review, with further detail in the Annual Report 2023. The
financial position of the Group, its cash flows and liquidity position are
described in the Financial Review.
In addition, the Group's objectives, policies and processes for managing its
capital; its financial risk management objectives; details of its financial
instruments; and its exposures to credit risk and liquidity risk were set out
in the Annual Report 2023.
In making their assessment of the Group's ability to manage its future cash
requirements, the Directors have considered the Company and Group budgets and
the cash flow forecasts for the period to 31 December 2025 (the 'going concern
period'). The Directors have also considered the cash position at 30 June 2024
(US$691.0 million). In addition, they reviewed a more conservative cash flow
scenario with reduced silver and gold prices of US$23.7/ounce and
US$1,940/ounce respectively throughout the going concern's period, whilst
maintaining current budgeted expenditure while only considering projects
approved by the Executive Committee. This resulted in a lower cash position,
but still increase the cash balance year on year, maintaining sufficient
liquidity throughout the period. Finally, to maintain a strong liquidity,
during January 2024, the Company entered into a committed syndicated revolving
credit facility (the 'facility') with a maximum amount available of US$350.0
million. The terms of this facility include financial covenants related to
leverage and interest cover ratios and the facility is available for a period
of five years.
Under all going concern scenarios modelled, management forecasts compliance
with such covenants.
The Directors have further calculated prices (US$17.0 /ounce and US$1,349
/ounce for silver and gold respectively), which should prevail to the end of
2025 would result in cash balances decreasing to minimal levels (by the end of
2025) to comply with the leverage covenants that the revolving credit facility
requires in order to have available the US$350 million credit line. In this
exercise no mitigations are applied.
Should metal prices remain below the stressed prices above for an extended
period, management have identified specific elements of capital and
exploration expenditures which could be deferred without adversely affecting
production profiles throughout the period.
On the other hand, management could amend the mining plans to concentrate on
production with a higher margin in order to accelerate cash generation without
affecting the integrity of the mine plans.
After reviewing all of the above considerations, the Directors have a
reasonable expectation that management have sufficient flexibility in adverse
circumstances to maintain adequate resources to continue in operational
existence for the foreseeable future. The Directors, therefore, continue to
adopt the going concern basis of accounting in preparing the annual financial
statements.
DIVIDENDS
The Board of Directors has declared an interim dividend of 6.4 US cents per
Ordinary Share totalling US$47.2 million, which will be paid on 17 September
2024 to shareholders on the register on 9 August 2024. The dividend will be
paid in UK pounds sterling unless shareholders elect to be paid in US dollars.
This interim dividend is higher than the previous period due to the increase
in profit in 1H24, and remains in line with the Group's dividend policy. This
decision was made after a comprehensive review of the Group's financial
situation, assuring that the Group is well placed to meet its current and
future financial requirements, including its development and exploration
projects.
As previously disclosed, the corporate income tax reform introduced in Mexico
in 2014 created a withholding tax obligation of 10% (including to foreign
nationals). The 2024 interim dividend will be subject to this withholding
obligation.
MANAGING OUR RISKS AND OPPORTUNITIES WITH RESILIENCE
Effective risk management is an essential part of our culture and strategy.
The accurate and timely identification, assessment and management of principal
and emerging risks give us a clear understanding of the actions required to
achieve our objectives. We have embedded a global risk management framework
across Fresnillo plc which aims to always ensure consistency and the
application of the appropriate level of oversight.
Key elements of integrated risk management:
· We recognise that risks are inherent to our business: Only
through adequate risk management can internal stakeholders be effectively
supported in making key strategic decisions and implementing our strategy.
· Exposure to risks must be consistent with our risk appetite: The
Board defines and regularly reviews the acceptable level of exposure to
emerging and principal risks: Risks are aligned with our risk appetite, taking
into consideration the balance between threats and opportunities.
· We are all responsible for managing risks: Each business activity
carries out risk evaluations to ensure the sound identification, management,
monitoring and reporting of risks that could impact the achievement of our
goals.
· Risk is analysed using a consistent framework: Our risk
management methodology is applied to all our operating, projects, exploration
activities and support areas, so that we have a comprehensive view of the
uncertainties that could affect us in achieving our strategic goals.
· We are committed to continuous improvement: Lessons learned, and
best practices are incorporated into our procedures to protect and unlock
value sustainably.
I. How we manage risk.
As explained in our 2023 Annual Report, the company ended last year with good
progress in risk management, including the implementation of actions that
mitigated our most significant risks. In parallel, the Enterprise Risk
Management team developed a training program focused on identifying and
mitigating the Company's most exposed risks, which was rolled out across the
business to increase awareness of our risk culture. During this first half of
the year, we continued to improve our risk framework by increasing the use of
metrics and scenarios to more accurately articulate the risk appetite and
tolerance limits within which we wish to operate.
We maintain a risk register through a robust assessment of the potential
principal risks that could affect the Company's performance. This register
ensures that principal risks are identified in a thorough and systematic way
and that agreed definitions of risk are used.
Defining risk appetite is key in embedding the risk management system into our
organisational culture. The Company's risk appetite statement helps to align
our strategy with the objectives of each business unit, clarifying which risk
levels are, or are not, acceptable. It promotes consistent decision-making on
risk, allied to the strategic focus and risk/reward balance approved by the
Board.
During the first part of 2024, our risk team focused its efforts on
identifying and assessing: potential action by the government, security,
climate change and emerging risks. For the second part of the year, we will be
assessing: fraud, cybersecurity, access to land and community relations risks.
II. Key thematic areas to consider in 2024.
The assessment of principal and emerging risks, considers factors internal and
external to Fresnillo plc. The uncertainty and disruptions seen in the global
business landscape last year continue to intensify the pressure on the risk
and control environment. Most organisations continue to suffer from supply
chain uncertainties, inflation impacts and geopolitical uncertainties. We
identify the key thematic areas and related risks that we need to be aware of.
The thematic areas below include both principal and emerging risks. While not
an exhaustive list of thematic areas, they can serve as a starting point for
assessing the Fresnillo plc risk profile and control environment through 2024:
External Pressures Operational Challenges Technology
-Economic & Geopolitical Uncertainty -Profitability, Inflation and Liquidity -Cyber Security
-Environmental, Social and Governance (ESG) -Talent management and retention -Data Privacy and Governance
-Third-party relations & Supply Chain -Operational Resilience -Digital disruption and emerging technology
III. Assessment of Principal Risks for the first half of the year 2024.
It has been necessary to reassess the principal risks outlined in the 2023
Annual Report, rethink their materiality, likelihood, and impact, and reassess
related mitigation actions, due to the effects caused by:
a) The impact of the results of the presidential elections in Mexico have
generated uncertainty for investors and volatility in the markets and exchange
rate.
b) Mexico's new mining law, which considers the prohibition of new mining
concessions, prohibition for open-pit mines and the restriction of water use
in mining operations.
c) Increased insecurity and organized crime in the regions surrounding our
mining operations.
d) Russia's war with Ukraine and Hamas's war with Israel, and attacks on
commercial shipping in the Red Sea by Iranian-backed Houthi rebels, which
generate geopolitical instability and supply chain disruptions.
e) Disruptions to supply chains for critical inputs and rising inflation,
leading to increased operating costs; and
f) Consequences of climate change.
The following is a description of the principal risks with the greatest impact
and likelihood of occurrence during the first half of the year 2024:
Principal risks Risk description Factors contributing to risk Mitigation actions
Potential actions by the government Regulatory actions can have an adverse impact on the Company. These could On June 2, general elections were held in Mexico, where a total of 629 federal 1. With the news of the new mining law, risk scenarios were developed for each
include stricter environmental regulations, forms of procurement or positions were elected: 500 seats in the Chamber of Deputies, 128 Senate change and impact, considering the legal and operational criteria to implement
explosives, more challenging permit processes, more onerous tax compliance seats, and the Mexican presidency, during which, Claudia Sheinbaum Pardo, was the necessary mitigation and prevention measures. These scenarios are
obligations for us and our contractors, as well as more frequent reviews by elected as president, representing the same political parties that brought constantly being updated.
(Political, legal, regulatory and concessions) tax authorities. President Andrés Manuel López Obrador to power in 2018.
2. Commitment to constant communication with all levels of government.
The right of indigenous communities to be consulted regarding mining Regarding the chambers of Congress, the mentioned parties will control the
concessions could potentially affect the granting of new concessions in majority of seats in both the Senate (though without a qualified majority) and
Mexico. the House of Deputies (with a qualified majority); additionally, this
coalition secured a majority in 27 state legislatures, granting them extensive 3. Increased monitoring of the processes being implemented at the Ministry of
legislative power at both the federal and state levels. Labour and Economy.
The federal government aims to discourage the generation of energy based on
clean sources and to encourage that from fuel oil and coal.
This political landscape is particularly important as these majorities provide 4. We remain alert to the changes proposed by the authorities, including
the coalition with a virtual "free pass" to approve any initiative or law energy and mining tax initiatives, so that we can respond in a timely and
reform, including constitutional amendments. This implies the potential for relevant manner.
We paid special attention to the following aspects: significant changes in several areas, including mining, without facing any
strong opposition in Congress.
5. We continue to collaborate with other members of the mining community
•Government actions that negatively impact the mining industry.
through the Mexican Mining Chamber to lobby against any new harmful taxes,
As such, it is important to remember that, just over a year after the royalties or regulations. We also support industry lobbying efforts to improve
•Regulatory changes to mining rights and adverse fiscal changes. publication of the decree on reforms to the Mining Law, the National Waters the general public's understanding of the mining industry.
Law, the Ecological Balance Law, and the General Waste Law, these are
•Increase in the frequency of the reviews by the tax authorities with currently under review by the Supreme Court of Justice of the Nation. This
special focus on the mining industry. review was provoked by an action of unconstitutionality filed by opposition
parliamentary representatives. The mentioned reform was repealed, modified,
•Inability to obtain necessary water concessions because of government and added several provisions that substantially affect the mining industry's
control or private interests. operations.
•Failures/delays in obtaining the required environmental permits.
Among the most relevant provisions of this reform are the mandatory prior
consultation with Indigenous communities and original peoples linked to
obtaining consent before granting new concessions; the reduction of the
validity period of mining concessions; the restriction of mining in protected
areas and areas with water stress; and the prohibition of open pit mining,
among other measures. These modifications have raised significant concerns in
the mining sector, which believes that these new regulations could
significantly hinder mining operations in Mexico.
However, there is a possibility that the Supreme Court will declare the reform
invalid due to violations committed during the legislative process. This
possibility has generated expectations in the sector that the court will
restore the regulatory framework prior to the reform.
Principal risks Risk description Factors contributing to risk Mitigation actions
Security Our employees, contractors and suppliers face the risk of theft, kidnapping, · Increased presence of organised crime in the vicinities of mining 1. Our property security teams closely monitor the security situation,
extortion or damage due to insecurity in some of the regions where we operate. units, particularly in Fresnillo, Saucito, Juanicipio and Herradura & maintaining clear internal communications and coordinating work in areas of
Noche Buena mines. greater insecurity.
The influence and dispute of territories by drug cartels, other criminal
elements and general anarchy in some of the regions where we operate, combined · A severe increase in the number of high impact crimes (homicide, 2. We have adopted the following practices to manage our security
with our exploration activities and projects in certain areas of drug deposit, kidnapping, extortion) in the regions where our mining units are located: risks and prevent and treat possible incidents:
transfer or cultivation, makes working in these areas a particular risk to us. Fresnillo, Zacatecas & Caborca, Sonora.
3. Close and constant communication with federal and state security
The Federal Government created the Secretariat of Citizen Security and · Increase in theft of mobile equipment such as Toyota-type vans in authorities.
Protection as part of the comprehensive strategy to reduce insecurity. It also Fresnillo District.
created the National Guard, mostly comprising military personnel, with the aim
of combating organised crime and drug cartels. Unfortunately, in most states
the state or local police are unprepared and ill-equipped to combat organised
4. Regular interactions and meetings with the National Guard.
crime, have low wages and are sometimes infiltrated by criminal elements. · Possible thefts of assets in mining units and/or during their
transport.
5. An increase in the number of anti-doping tests at the start of the
According to information from the Secretariat of Security and Citizen
day in the mining units.
Protection, the National Guard and the Attorney General's Office of the · Roadblocks or blockages on the roads and/or highways near the
Republic, the presence of organised crime and high-impact crimes (homicide, mining units.
kidnapping and extortion) increased in 2023, in the states where our business
units and projects are located, such as Zacatecas, Guanajuato, and Sonora. 6. Frequent inspections inside the mines to verify that drugs are not
consumed and sold.
The main risks we face are:
7. Drug consumption prevention campaigns, with a focus on employees.
-High-impact robberies.
-Theft of assets such as minerals, equipment, instruments, inputs, etc.
8. An increase in logistical controls in order to reduce the potential
-Consumption and sale of toxic substances in our mining units. for theft of mineral concentrate. These controls include the use of real-time
tracking technology; surveillance cameras to identify alterations in the
-Homicide, kidnappings, extortions and vandalism. transported material; protection and support services on distribution routes;
reduction in the number of authorised stops to optimise delivery times and
minimise exposure of trucks transporting ore concentrates or doré.
Principal risks Risk description Factors contributing to risk Mitigation actions
Global macroeconomic developments and cost Metal price performance for both gold and silver, has not been affected for · Increased operating costs due to higher prices for critical 1. Regarding critical inputs for operations and projects, supplies have
the time being. Even the price of gold has reached record levels. We see this inputs such as steel, cyanide, copper, diesel, haulage equipment, oxygen and been secured for this year through alliances and agreements with suppliers and
risk as stable with no threat in the short term. truck tyres. contractors.
(Energy and supply chain disruptions, inflation, productivity and operational
cost)
On the other hand, about global macroeconomic development, during the first · The impact of Russia-Ukraine war on supply chains has been 2. We constantly seek to maintain a broad supplier base to ensure a range
half of 2024, we saw increases in operating costs and greater inflationary global, prolonged, and comprised a series of major shocks to companies' of options for the purchase of critical inputs and reduce the likelihood of
pressures, together with a shortage of critical inputs and equipment. We logistical systems. shortages.
expect this situation continue during the second part of the year and in 2025.
· Disruptions in the value chain of critical inputs for our 3. We focus on cost, efficiency and capital discipline to deliver a
This condition could create an adverse impact on our operations, costs, sales operations such as spare parts (primarily delivered by land transport from the competitive total cost of operation and maintenance.
and profits, and potentially on the economic viability of projects. US and maritime transport from China and Europe).
4. We increase cost competitiveness by improving the quality of the
· Disruptions also include reduced availability of maintenance supplier and contractor portfolio.
teams/contractors to resolve issues, resulting in delays.
IV. Our Principal Risk matrix.
A consistent assessment of the probability and impact of risk occurrence is
fundamental to establishing, prioritising and managing the risk profile of the
Company. In common with many organisations and in line with good practice, we
use a probability and impact matrix for this purpose.
Relative Principal Risk Risk Risk Level Risk Main Focus***
position Appetite* Velocity**
1H´24 v. 2023
1H´24 ARA´23
1 1 Potential actions by the government (political, legal, fiscal, labour, Low Very High Stable with attention High Strategic, Economic, ESG
regulatory and concessions)
2 2 Security Low Very High Stable with attention High Operational, ESG
3 3 Global macroeconomic developments & cost (energy and supply chain Low High Stable with attention High Economic, Operational
disruptions, inflation, productivity and operational cost)
4 4 Impact of metals prices (commodity prices and exchange rates) High High Stable High Economic
5 5 Human Resources (attract and retain requisite skilled people/talent crisis) Medium High Stable Medium Strategic, Operational
6 6 Cybersecurity Low High Stable with attention High Strategic, Operational
7 7 Projects (performance risk) Medium High Stable Medium Economic, Operational
8 8 Safety (incidents due to unsafe acts or conditions could lead to injuries or Low High Stable High Operational, ESG
fatalities)
9 9 Union Relations (labour relations) Low High Stable Medium Operational, ESG
10 10 Access to Land (full land rights) Medium Medium Stable with attention Medium Strategic, Operational
11 11 Licence to Operate (community relations) Low Medium Stable Medium Operational, ESG
12 12 Exploration (new ore resources) High Medium Stable Low Operational, Strategic
13 13 Climate change (ESG) Medium Medium Stable Low Operational, Strategic, ESG
14 14 Tailings dams (overflow or collapse of tailings deposits) Low Medium Stable High Operational, ESG
15 15 Environmental Incidents (cyanide spills and chemical contamination) Low Medium Stable High Operational, ESG
*Appetite = Determined by the Board
**Risk Velocity:
High: Impact within 6 months of risk occurring
Medium: Impact between 6 and 12 months of risk occurring
Low: Impact after more than 12 months of risk occurring
***Main Focus:
Strategic - risks arising from uncertainties that may impact our ability to
achieve our strategic objectives.
Economic - risks that directly impact financial performance and realisation of
future economic benefits.
Operational - risks arising from our business that have the potential to
impact people, environment, community and operational performance including
our supply chain.
Environment - risks arising from our business that have the potential to
impact on air, land, water, ecosystems and human health.
Social - risks arising from our business that have the potential to impact on
society, including health and safety.
Governance - risks arising from our workplace culture, business conduct and
governance.
ESG - Environmental + Social + Governance.
V. Emerging Risks.
We define an emerging risk as a: "new manifestation of risk that cannot yet be
fully assessed, a risk that is known to some degree but is not likely to
materialise or have an impact for several years, or a risk that the company is
not aware of but that could, due to emerging macro trends in the mid or
long-term future, have significant implications for the achievement of our
strategic plan". Furthermore, we consider emerging risks in the context of
longer-term impact and shorter-term risk velocity.
We have therefore defined emerging risks as those risks captured on a risk
register that: (I) are likely to be of significant scale beyond a five-year
timeframe; or (II) have the velocity to significantly increase in severity
within the five-year period. To strengthen our emerging risks management
framework, during 2024 we carried out activities to: a) identify new emerging
risks; b) re-assess emerging risks identified in 2022-23; c) deploy effective
monitoring mechanisms; d) carry out horizon scanning to consider disruptive
scenarios, and e) implement mitigating control actions and enhance our risk
awareness culture. This process involved workshops, surveys and meetings with
the risk's owners, business unit leaders, support and corporate areas,
Executive Committee, as well as suppliers, contractors and stakeholders. We
also consulted third party information from global risk reports, academic
publications, risk consulting experts and industry benchmarks. Our risk
management standards promote communication of up-to-date information on the
Company and industry risks, trends and emerging risks.
The emerging risk assessment conducted during the first half of the year
concluded that the risks we present in the 2023 annual report are in place,
except for the following changes:
· New emerging risks are included:
"Unexpected mine-closure liabilities that have the potential to increase
costs". - The process of 'mine closure' becomes an emerging risk with respect
to the resources that will need to be allocated to meet the standards required
by the corresponding regulations. Costs could be high, and the budget may not
be available in a timely manner. It is possible that the federal or state
government could increase environmental requirements and procedures to close
mines. We have the short-term closures of the Cienega and San Julian mines, so
it makes sense to include this new emerging risk.
· The risk of "Pandemics and infectious diseases" is removed from
the emerging risk matrix as has decreased in probability of occurrence.
VI. Our Emerging Risk matrix.
1H´24 Emerging Risk Risk Level ARA´23 Change Reasons for inclusion or increase
v. ARA 2023
1 Geopolitical instability High 1 Increase A series of intertwined dynamics are exacerbating volatility in global
markets: the Gaza war, Russia's invasion of Ukraine, attacks on commercial
(Linked to Global macroeconomic development Principal Risk) shipping in the Red Sea by Iran-backed Houthi rebels, the U.S.-China
competition and Presidential elections in many parts of the world, such as the
U.S.
2 Water stress and drought High 2 Stable with attention
(Linked to Climate Change Principal Risk)
3 Technological disruption & the rapid proliferation of Artificial Medium 4 Stable
Intelligence
(Linked to Cybersecurity Principal Risk)
4 Transition to a low-carbon future (decarbonization) Medium 3 Stable
(Linked to Climate Change Principal Risk)
5 Future of the workforce Medium 5 Stable
(Linked to Human Resources Principal Risk)
6 Increased expectations of society and investors Medium 6 Stable
7 Replacement on depletion of ore reserves Medium 7 Stable
(Linked to Exploration Principal Risk)
8 Unexpected mine-closure liabilities that have the potential to increase costs Low - New The process of 'mine closure' becomes an emerging risk with respect to the
resources that will need to be allocated to meet the standards required by the
corresponding regulations. Costs could be high, and the budget may not be
available in a timely manner.
Statement of directors' responsibilities
The Directors of the Company hereby confirm that to the best of their
knowledge:
· the condensed set of financial statements has been prepared in
accordance with IAS 34 Interim Financial Reporting as issued by the
International Accounting Standards Board IASB and as adopted by UK and gives a
true and fair view of the assets, liabilities, financial position and profit
and loss account of the Fresnillo Group as required by DTR 4.2.4; and
· the interim management report includes a fair review of the
information required by
o DTR 4.2.7 (being an indication of important events that have occurred during
the first six months of the financial year and their impact on the condensed
set of financial statements; and a description of the principle risks and
uncertainties for the remaining six months of the year); and
o DTR 4.2.8 (being related party transactions that have taken place in the
first six months of the current financial year and that have materially
affected the financial position or performance of the entity during that
period and changes since the last annual report).
The Directors of the Company are:
Alejandro Baillères Chairman
Arturo Fernández Non-executive director
Fernando Ruiz Non-executive director
Eduardo Cepeda Non-executive director
Charlie Jacobs Non-executive director
Alberto Tiburcio Independent non-executive director
Dame Judith Macgregor Senior Independent non-executive director
Georgina Kessel Independent non-executive director
Guadalupe de la Vega Independent non-executive director
Héctor Rangel Independent non-executive director
Rosa Vázquez Independent non-executive director
Luz Adriana Ramírez Independent non-executive director
On behalf of the board of directors of Fresnillo plc
Octavio Alvídrez
Chief Executive Officer
INDEPENDENT REVIEW REPORT TO FRESNILLO PLC
Conclusion
We have been engaged by the Company to review the condensed set of financial
statements in the half-yearly financial report for the six months ended 30
June 2024 which comprises Interim Consolidated Income Statement, Interim
Consolidated Statement of Comprehensive Income, Interim Consolidated Balance
Sheet, Interim Consolidated Statement of Cash Flows and the related notes 1 to
18. We have read the other information contained in the half yearly financial
report and considered whether it contains any apparent misstatements or
material inconsistencies with the information in the condensed set of
financial statements.
Based on our review, nothing has come to our attention that causes us to
believe that the condensed set of financial statements in the half-yearly
financial report for the six months ended 30 June 2024 is not prepared, in all
material respects, in accordance with UK adopted International Accounting
Standard 34 and the Disclosure Guidance and Transparency Rules of the United
Kingdom's Financial Conduct Authority.
Basis for Conclusion
We conducted our review in accordance with International Standard on Review
Engagements 2410 (UK) "Review of Interim Financial Information Performed by
the Independent Auditor of the Entity" issued by the Financial Reporting
Council. A review of interim financial information consists of making
enquiries, primarily of persons responsible for financial and accounting
matters, and applying analytical and other review procedures. A review is
substantially less in scope than an audit conducted in accordance with
International Standards on Auditing (UK) and consequently does not enable us
to obtain assurance that we would become aware of all significant matters that
might be identified in an audit. Accordingly, we do not express an audit
opinion.
As disclosed in note 2a, the annual financial statements of the group are
prepared in accordance with UK adopted international accounting standards. The
condensed set of financial statements included in this half-yearly financial
report has been prepared in accordance with UK adopted International
Accounting Standard 34, "Interim Financial Reporting".
Conclusions Relating to Going Concern
Based on our review procedures, which are less extensive than those performed
in an audit as described in the Basis for Conclusion section of this report,
nothing has come to our attention to suggest that management have
inappropriately adopted the going concern basis of accounting or that
management have identified material uncertainties relating to going concern
that are not appropriately disclosed.
This conclusion is based on the review procedures performed in accordance with
International Standard on Review Engagements 2410 (UK) "Review of Interim
Financial Information Performed by the Independent Auditor of the Entity"
issued by the Financial Reporting Council, however future events or conditions
may cause the entity to cease to continue as a going concern.
Responsibilities of the directors
The directors are responsible for preparing the half-yearly financial report
in accordance with the Disclosure Guidance and Transparency Rules of the
United Kingdom's Financial Conduct Authority.
In preparing the half-yearly financial report, the directors are responsible
for assessing the company's ability to continue as a going concern,
disclosing, as applicable, matters related to going concern and using the
going concern basis of accounting unless the directors either intend to
liquidate the company or to cease operations, or have no realistic alternative
but to do so.
Auditor's Responsibilities for the review of the financial information
In reviewing the half-yearly report, we are responsible for expressing to the
Company a conclusion on the condensed set of financial statements in the
half-yearly financial report. Our conclusion, including our Conclusions
Relating to Going Concern, are based on procedures that are less extensive
than audit procedures, as described in the Basis for Conclusion paragraph of
this report.
Use of our report
This report is made solely to the Company in accordance with guidance
contained in International Standard on Review Engagements 2410 (UK) "Review of
Interim Financial Information Performed by the Independent Auditor of the
Entity" issued by the Financial Reporting Council. To the fullest extent
permitted by law, we do not accept or assume responsibility to anyone other
than the Company, for our work, for this report, or for the conclusions we
have formed.
Ernst & Young LLP
London
30 July 2024
Interim Consolidated Income Statement
Notes For the six months ended 30 June
2024 (Unaudited) 2023 (Unaudited)
(in thousands of US dollars)
| Pre-Silverstream revaluation effect Silverstream revaluation effect Total Pre- Silverstream revaluation effect Silverstream revaluation effect Total
Continuing operations:
Revenues 4 1,488,252 1,488,252 1,343,333 1,343,333
Cost of sales 5 (1,095,868) (1,095,868) (1,060,647) (1,060,647)
Gross profit 392,384 392,384 282,686 282,686
Administrative expenses (55,299) (55,299) (54,766) (54,766)
Exploration expenses (77,203) (77,203) (96,862) (96,862)
Selling expenses (19,959) (19,959) (16,415) (16,415)
Other operating income 6,640 6,640 1,916 1,916
Other operating expenses (11,410) (11,410) (35,399) (35,399)
Profit from continuing operations before net finance costs and income tax 235,153 235,153 81,160 81,160
Finance income 6 19,162 19,162 26,473 26,473
Finance costs 6 (39,147) (39,147) (46,010) (46,010)
Revaluation effects of Silverstream contract 10 66,459 66,459 (17,009) (17,009)
Foreign exchange (gain)/loss (3,852) (3,852) 3,241 3,241
Profit from continuing operations before income tax 211,316 66,459 277,775 64,864 (17,009) 47,855
Corporate income tax 7 (69,576) (19,938) (89,514) 14,437 5,103 19,540
Special mining right 7 (70,585) (70,585) 22,325 22,325
Income tax (expense)/credit 7 (140,161) (19,938) (160,099) 36,762 5,103 41,865
Profit for the period from continuing operations 71,155 46,521 117,676 101,626 (11,906) 89,720
Attributable to:
Equity shareholders of the Company 32,125 46,521 78,646 76,632 (11,906) 64,726
Non-controlling interests 39,030 39,030 24,994 24,994
71,155 46,521 117,676 101,626 (11,906) 89,720
Earnings per share: (US$)
Basic and diluted earnings per ordinary share from continuing operations 8 0.107 0.088
Adjusted earnings per share: (US$)
Adjusted basic and diluted earnings per ordinary share from continuing 8 0.044 0.104
operations
Interim Consolidated Statement of Comprehensive Income
For the six months ended 30 June
2024 2023
(Unaudited) (Unaudited)
(in thousands of US dollars)
Profit for the period 117,676 89,720
Other comprehensive income
Items that may be reclassified subsequently to profit or loss:
Foreign currency translation 1,077 (3,078)
Net other comprehensive income/(loss) that may be reclassified subsequently to 1,077 (3,078)
profit or loss
Items that will not be reclassified to profit or loss:
Changes in the fair value of cash flow hedges (172) 72
Total effect of cash flow hedges (172) 72
Changes in the fair value of equity investments at fair value through other 17,593 (43,989)
comprehensive income (FVOCI)
Income tax effect on items that will not be reclassified to profit or loss (5,227) 13,175
Net other comprehensive income/(loss) that will not be reclassified to loss or 12,194 (30,742)
profit
Other comprehensive income/(loss), net of tax 13,271 (33,820)
Total comprehensive income, net of tax 130,947 55,900
Attributable to:
Equity shareholders of the Company 91,937 30,935
Non-controlling interests 39,010 24,965
130,947 55,900
Interim Consolidated Balance Sheet
Notes As of 30 June As of 31 December
2024 2023
(Unaudited) (Audited)
(in thousands of US dollars)
ASSETS
Non-current assets
Property, plant and equipment (PPE) 9 2,693,148 2,860,916
Equity instruments at FVOCI 18 125,584 107,991
Silverstream contract 10,18 482,588 446,538
Deferred tax asset 7 646,389 665,302
Inventories 11 69,760 69,760
Other receivables 12 494 43,528
Other assets 3,994 4,553
4,021,957 4,198,588
Current assets
Inventories 11 509,232 462,973
Trade and other receivables 12 472,101 419,666
Income tax recoverable 46,776 62,740
Prepayments 11,586 23,178
Derivative financial instruments 18 - 79
Silverstream contract 10,18 49,385 35,802
Cash and cash equivalents 13 690,970 534,580
1,780,050 1,539,018
Total assets 5,802,007 5,737,606
EQUITY AND LIABILITIES
Capital and reserves attributable to shareholders of the Company
Share capital 368,546 368,546
Share premium 1,153,817 1,153,817
Capital reserve (526,910) (526,910)
Hedging reserve (63) 50
Fair value reserve of financial assets at FVOCI 54,906 42,591
Foreign currency translation reserve (3,127) (4,204)
Retained earnings 2,785,658 2,737,962
3,832,827 3,771,852
Non-controlling interests 334,356 295,345
Total equity 4,167,183 4,067,197
Non-current liabilities
Interest-bearing loans 839,200 839,002
Notes payable - 22,726
Lease liabilities 9,617 9,777
Provision for mine closure cost 271,681 280,467
Provision for pensions and other post-employment benefit plans 13,354 13,211
Deferred tax liability 7 198,144 133,202
1,331,996 1,298,385
Current liabilities
Trade and other payables 209,990 258,105
Notes payable 51,133 72,634
Income tax payable 20,266 21,779
Derivative financial instruments 18 109 -
Lease liabilities 2,623 4,813
Provision for mine closure cost 11,849 11,849
Employee profit sharing 6,858 2,844
302,828 372,024
Total liabilities 1,634,824 1,670,409
Total equity and liabilities 5,802,007 5,737,606
Interim Consolidated Statement of Cash Flows
Notes For the six months ended 30 June
2024 2023
(Unaudited) (Unaudited)
(in thousands of US dollars)
Net cash from operating activities 17 399,574 205,497
Cash flows from investing activities
Purchase of property, plant and equipment (170,278) (227,752)
Proceeds from the sale of property, plant and equipment and other assets 574 422
Silverstream contract 10 13,677 20,187
Interest received 19,162 27,024
Purchase of equity instruments at FVOCI - (2,313)
Net cash used in investing activities (136,865) (182,432)
Cash flows from financing activities
Proceeds from notes payable(1) - 22,726
Payment of note payable (43,301) -
Principal elements of lease payment (3,306) (3,878)
Dividends paid to shareholders of the Company(2) (30,978) (98,033)
Capital contribution(3) - 2,309
Interest paid(4, 5) (24,126) (29,867)
Net cash used in financing activities (101,711) (106,743)
Net increase/(decrease) in cash and cash equivalents during the period 160,998 (83,678)
Effect of exchange rate on cash and cash equivalents (4,608) 4,302
Cash and cash equivalents at 1 January 13 534,580 969,060
Cash and cash equivalents at 30 June 13 690,970 889,684
(1) Corresponds to interest-bearing notes payable received from Minera los
Lagartos, S.A. de C.V. which holds a non-controlling interest in Juanicipio
project.
(2) Includes the effect of hedging of dividend payments made in currencies
other than US dollar (note 14).
(3) Corresponds to capital contributions provided by Minera los Lagartos, S.A.
de C.V.
(4) Total interest during the six months ended 30 June 2023 less amounts
capitalised totalling US$2.0 million which is included within the caption
Purchase of property, plant and equipment.
(5) As of 30 Junes 2024 includes US$0.5 million related to a commitment fee in
respect of undrawn amounts of the syndicated revolving credit facility entered
by the Group. No amounts have been drawdown from the credit facility as of 30
June 2024.
Interim Consolidated Statement of Changes in Equity
Notes Share Share Capital reserve Hedging Fair value Foreign Retained Total attributable Non-controlling interests Total
capital
premium
currency
earnings
equity
Reserve reserve of
translation to shareholders
reserve
financial of the Company
assets at
FVOCI
(in thousands of US dollars)
Balance at 1 January 2023 (Audited) 368,546 1,153,817 (526,910) (91) 79,786 (1,886) 2,612,469 3,685,731 231,206 3,916,937
Profit for the period 64,726 64,726 24,994 89,720
Other comprehensive income, net of tax - - - 79 (30,792) (3,078) - (33,791) (29) (33,820)
Total comprehensive income for the period 79 (30,792) (3,078) 64,726 30,935 24,965 55,900
Hedging gain transferred to the carrying value of PPE purchased during the - - - 41 - - - 41 42 83
period
Capital contribution - - - - - - - - 2,309 2,309
Dividends paid 14 - - - - - - (98,006) (98,006) - (98,006)
Balance at 30 June 2023 (Unaudited) 368,546 1,153,817 (526,910) 29 48,994 (4,964) 2,579,189 3,618,701 258,522 3,877,223
Balance at 1 January 2024 (Audited) 368,546 1,153,817 (526,910) 50 42,591 (4,204) 2,737,962 3,771,852 295,345 4,067,197
Profit for the period 78,646 78,646 39,030 117,676
Other comprehensive income, net of tax - - - (101) 12,315 1,077 - 13,291 (20) 13,271
Total comprehensive income for the period (101) 12,315 1,077 78,646 91,937 39,010 130,947
Hedging gain transferred to the carrying value of PPE purchased during the - - - (12) - - - (12) 1 (11)
period
Dividends paid 14 - - - - - - (30,950) (30,950) - (30,950)
Balance at 30 June 2024 (Unaudited) 368,546 1,153,817 (526,910) (63) 54,906 (3,127) 2,785,658 3,832,827 334,356 4,167,183
Notes to the Interim Condensed Consolidated Financial Statements
1 Corporate Information
Fresnillo plc ("the Company", together with its subsidiaries, "the Group") is
a public limited company registered in England and Wales with the registered
number 6344120.
Industrias Peñoles S.A.B. de C.V. ("Peñoles") currently owns 75 percent of
the shares of the Company and the ultimate controlling party of the Company is
the Baillères family, whose beneficial interest is held through Peñoles. The
registered address of Peñoles is Calzada Legaria 549, Mexico City 11250.
Copies of Peñoles' accounts can be obtained from www.penoles.com.mx. Further
information on related party balances and transactions with Peñoles group
companies is disclosed in Note 16.
The interim condensed consolidated financial statements of the Group for the
six months ended 30 June 2024 ("interim consolidated financial statements")
were authorised for issue by the Board of Directors of Fresnillo plc on 30
July 2024.
The Group's principal business is the mining and beneficiation of non-ferrous
minerals, and the sale of related production. The primary contents of this
production are silver, gold, lead and zinc. Further information about the
Group's operating mines and its principal activities is disclosed in Note 3.
2 Significant accounting policies
(a) Basis of preparation and statement of compliance
The interim consolidated financial statements of the Group for the six months
ended 30 June 2024 have been prepared in accordance with IAS 34 Interim
Financial Reporting as issued by the International Accounting Standards Board
IASB and as adopted by the UK.
These interim consolidated financial statements do not constitute statutory
accounts as defined in section 435 of the Companies Act 2006. A copy of the
statutory accounts for the year ended 31 December 2023 has been delivered to
the Registrar of Companies. The auditor's report in accordance with Chapter 3
of Part 16 of the Companies Act 2006 in relation to those accounts was
unqualified, did not include a reference to any matters to which the auditor
drew attention by way of emphasis without qualifying the report and did not
contain a statement under section 498(2) or section 498(3) of the UK Companies
Act 2006.
The interim consolidated financial statements have been prepared on a
historical cost basis, except for trade receivables, derivative financial
instruments, equity securities and defined benefit pension scheme assets which
have been measured at fair value.
The interim consolidated financial statements are presented in dollars of the
United States of America (US dollars or US$) and all values are rounded to the
nearest thousand ($000) except where otherwise indicated.
The impact of seasonality or cyclicality on operations is not considered
significant on the interim consolidated financial statements.
(b) Basis of consolidation
The interim consolidated financial statements set out the Group's financial
position as of 30 June 2024 and 31 December 2023, and its operations and cash
flows for the six-month periods ended 30 June 2024 and 30 June 2023.
The basis of consolidation adopted in the preparation of the interim
consolidated financial statements is consistent with that applied in the
preparation of the consolidated financial statements for the year ended 31
December 2023.
(c) Changes in accounting policies and presentation
The accounting policies adopted in the preparation of the interim consolidated
financial statements are consistent with those applied in the preparation of
the consolidated financial statements for the year ended 31 December 2023.
New standards, amendments and interpretations as adopted by the Group
A number of new or amended standards became applicable for the current
reporting period. The Group did not have to change its accounting policies or
make retrospective adjustments as a result of adopting these standards.
Impact of standards issued but not yet applied by the Group
The IASB has issued other amendments resulting from improvements to IFRSs that
management considers do not have any impact on the accounting policies,
financial position or performance of the Group. The Group has not early
adopted any standard, interpretation or amendment that was issued but is not
yet effective.
Significant accounting judgments, estimates and assumptions
Significant accounting judgments, estimates and assumptions are consistent
with those disclosed in the consolidated financial statements for the year
ended 31 December 2023..
(d) Going concern
The Group's business activities, together with the factors likely to affect
its future development, performance and position are set out above above in
the Operational Review, with further detail in the Annual Report 2023. The
financial position of the Group, its cash flows and liquidity position are
described in the Financial Review.
In addition, the Group's objectives, policies and processes for managing its
capital; its financial risk management objectives; details of its financial
instruments; and its exposures to credit risk and liquidity risk were set out
in the Annual Report 2023.
In making their assessment of the Group's ability to manage its future cash
requirements, the Directors have considered the Company and Group budgets and
the cash flow forecasts for the period to 31 December 2025 (the 'going concern
period'). The Directors have also considered the cash position at 30 June 2024
(US$ 691.0 million). In addition, they reviewed a more conservative cash flow
scenario with reduced silver and gold prices of US$23.7/ounce and
US$1,940/ounce respectively throughout the going concern's period, whilst
maintaining current budgeted expenditure while only considering projects
approved by the Executive Committee. This resulted in a lower cash position,
but still increase the cash balance year on year, maintaining sufficient
liquidity throughout the period. Finally, to maintain a strong liquidity,
during January 2024, the Company entered into a committed syndicated revolving
credit facility (the 'facility') with a maximum amount available of US$350.0
million. The terms of this facility include financial covenants related to
leverage and interest cover ratios and the facility is available for a period
of five years.
Under all going concern scenarios modelled, management forecasts compliance
with such covenants.
The Directors have further calculated prices (US$17.0 /ounce and US$1,349
/ounce for silver and gold respectively), which should prevail to the end of
2025 would result in cash balances decreasing to minimal levels (by the end of
2025) to comply with the leverage covenants that the revolving credit facility
requires in order to have available the US$350 million credit line. In this
exercise no mitigations are applied.
Should metal prices remain below the stressed prices above for an extended
period, management have identified specific elements of capital and
exploration expenditures which could be deferred without adversely affecting
production profiles throughout the period.
On the other hand, management could amend the mining plans to concentrate on
production with a higher margin in order to accelerate cash generation without
affecting the integrity of the mine plans.
After reviewing all of the above considerations, the Directors have a
reasonable expectation that management have sufficient flexibility in adverse
circumstances to maintain adequate resources to continue in operational
existence for the foreseeable future. The Directors, therefore, continue to
adopt the going concern basis of accounting in preparing the annual financial
statements.
3 Segment reporting
For management purposes, the Group is organised into operating segments based
on producing mines.
At 30 June 2024 the Group has seven reportable operating segments represented
by seven producing mines as follows:
The Fresnillo mine, located in the State of Zacatecas, an underground silver
mine;
The Saucito mine, located in the State of Zacatecas, an underground silver
mine;
The Cienega mine, located in the State of Durango, an underground gold mine;
The Herradura mine, located in the State of Sonora, a surface gold mine;
The Noche Buena mine, located in the State of Sonora, a surface gold mine;
The San Julian mine, located on the border of Chihuahua / Durango states, an
underground silver-gold mine; and
The Juanicipio mine, located in the State of Zacatecas, an underground silver
mine.
The operating performance and financial results for each of these mines are
reviewed by management. As the Group´s Chief Operating Decision Maker (CODM)
does not review segment assets and liabilities, the Group has not disclosed
this information.
In the six months ended 30 June 2024 99.8% of revenue was derived from
customers based in Mexico (six months ended 30 June 2023: all revenue was
derived from customers based in Mexico).
Management monitors the results of its operating segments separately for the
purpose of performance assessment and making decisions about resource
allocation. Segment performance is evaluated without taking into account
certain adjustments included in Revenue as reported in the Interim
Consolidated Income Statement, and certain costs included within Cost of sales
and Gross profit which are considered to be outside of the control of the
operating management of the mines. The table below provides a reconciliation
from segment profit to Gross profit as per the Interim Consolidated Income
Statement. Administrative expenses, Exploration expenses, Selling expenses,
and Other income and expenses not related to production activities included in
the Interim Consolidated Income Statement are not allocated to operating
segments. Also, the Group's financing (including Finance cost and Finance
income) and Income taxes are managed on a Group basis and are not allocated to
operating segments. Transactions between reportable segments are accounted for
on an arm's length basis similar to transactions with third parties.
Operating segments
The following tables present revenue and profit information regarding the
Group's operating segments for the six months ended 30 June 2024 and 2023,
respectively. Revenues for the six months ended 30 June 2024 and 2023 include
those derived from contracts with customers and other revenues, as shown in
note 4.
Six months ended 30 June 2024
US$ thousands Fresnillo Herradura Cienega Saucito Noche San Julian Juanicipio Other(4) Adjustments and eliminations Total
Buena
( )
Revenues:
Third party(1) 219,855 305,047 109,958 325,815 20,470 216,491 290,616 - - 1,488,252
Inter-Segment 14,663 152 25,918 (40,733) -
Segment revenues 234,518 305,047 109,958 325,815 20,470 216,491 290,768 25,918 (40,733) 1,488,252
Segment profit(2) 102,952 60,540 43,183 146,493 (408) 110,630 214,756 25,187 (737) 702,596
Depreciation and amortisation (304,230)
Employee profit sharing (5,982)
Gross profit as per the income statement 392,384
Capital expenditure(3) 42,984 21,915 7,659 51,983 - 28,956 16,363 418 170,278
(1) During 2024 all segment revenues were related to sales to Met-Mex, except
in Juanicipio which includes sales to other external customers of US$5.6
million.
(2) The Group's CODM primarily uses this measure to monitor the operating
results directly related to the production of its business units separately to
make decisions about resource allocation and performance assessment. Segment
profit excluding foreign exchange hedging gains, depreciation and amortisation
and employee profit sharing.
(3) Capital expenditure represents the cash outflow in respect of additions to
property, plant and equipment, including stripping cost, mine development and
purchase of mine equipment, excluding additions relating to changes in the
mine closure provision. Significant additions include expansions of tailings
damn at Saucito and San Julian, mining works at San Julian, Fresnillo and
Saucito and striping cost at Herradura mine.
(4) Other inter-segment revenue corresponds to leasing services provided by
Minera Bermejal, S.A. de C.V; capital expenditure mainly corresponds to Minera
Bermejal, S. de R.L. de C.V.
Six months ended 30 June 2023
US$ thousands Fresnillo Herradura Cienega Saucito Noche San Julian Juanicipio(3) Other(4) Adjustments and eliminations Total
Buena
Revenues:
Third party 221,728 379,509 76,150 308,791 48,436 197,639 111,080 - - 1,343,333
Inter-Segment 250 75,177 54,031 (129,458) -
Segment revenues 221,978 379,509 76,150 308,791 48,436 197,639 186,257 54,031 (129,458) 1,343,333
Segment profit(1) 91,241 82,283 5,116 92,242 5,047 87,442 104,837 11,040 42,599 521,847
Depreciation and amortisation (236,310)
Employee profit sharing (2,851)
Gross profit as per the income statement 282,686
Capital expenditure(2) 43,470 28,732 23,927 54,120 2 34,348 41,289 1,864 227,752
(1) The Group's CODM primarily uses this measure to monitor the operating
results directly related to the production of its business units separately to
make decisions about resource allocation and performance assessment. Segment
profit excluding foreign exchange hedging gains, depreciation and amortisation
and employee profit sharing. Segment profit for Fresnillo and Saucito
considers the sales and the corresponding processing cost of the ore from
Juanicipio.
(2) Capital expenditure represents the cash outflow in respect of additions to
property, plant and equipment, including stripping cost, mine development and
purchase of mine equipment, excluding additions relating to changes in the
mine closure provision. Significant additions include striping cost at
Herradura mine, mining works at San Julian and Fresnillo and expansions of
tailings dam at Saucito and Fresnillo.
(3) The ore production of Juanicipio mine has been partially processed through
Fresnillo and Saucito facilities while achieving name plate capacity of plant
facilities.
(4) Other inter-segment revenue corresponds to leasing services provided by
Minera Bermejal, S.A. de C.V; capital expenditure mainly corresponds to Minera
Bermejal, S. de R.L. de C.V.
4 Revenues
Revenues reflect the sale of goods, being concentrates, doré, slag,
precipitates and activated carbon of which the primary contents are silver,
gold, lead and zinc.
(a) Revenues
Six months ended 30 June
2024 2023
(in thousands of US dollars)
Revenues from contracts with customers 1,491,486 1,351,158
Revenues from other sources
Provisional pricing adjustment on products sold (3,234) (7,825)
1,488,252 1,343,333
(b) Revenues by product sold
Six months ended 30 June
2024 2023
(in thousands of US dollars)
Lead concentrates (containing silver, gold, lead and by-products) 743,456 638,354
Doré and slag (containing gold, silver and by-products) 288,355 387,037
Zinc concentrates (containing zinc, silver and by-products) 178,156 141,458
Precipitates (containing gold and silver) 235,540 135,577
Activated carbon (containing gold, silver and by-products) 37,162 40,907
Iron concentrates (containing silver, gold, lead and by-products) 5,583 -
1,488,252 1,343,333
(c) Value of metal content in products sold
Invoiced revenues are derived from the value of metal content which is
determined by commodity market prices and adjusted for the treatment and
refining charges to be incurred by the metallurgical complex of our customer.
The value of the metal content of the products sold, before treatment and
refining charges is considered as an alternative performance measure for the
Group. The Group considers this a useful additional measure to help understand
underlying factors driving revenue in terms of volumes sold and realised
prices. The value of production sold by metal is as follows:
Six months ended 30 June
2024 2023
(in thousands of US dollars)
Silver 774,027 632,446
Gold 580,296 625,040
Zinc 67,696 118,163
Lead 138,199 55,111
Value of metal content in products sold 1,560,218 1,430,760
Refining and treatment charges(1) (71,966) (87,427)
Total revenues(2) 1,488,252 1,343,333
(1) The methodology to determine the refining and treatment charges takes into
account industry benchmark charges and adjustments to reflect ore composition
and transport costs, refer to note 16(b).
(2) Includes provisional price adjustments which represent changes in the fair
value of trade receivables resulting in a loss of US$3.2 million (2023: loss
of US$7.8 million).
The average realised prices for the gold and silver content of products sold
prior to the deduction of treatment and refining charges, were:
Six months ended 30 June
2024 2023
(in US dollars per ounce)
Gold(3) 2,171.91 1,948.08
Silver(3) 27.62 23.31
(3) For the purpose of the calculation, revenue by content of products sold
does not include the results from hedging.
5 Cost of sales
Six months ended 30 June
2024 2023
(in thousands of US dollars)
Depreciation and amortisation 304,230 236,310
Contractors 184,292 191,241
Operating materials 158,785 139,970
Maintenance and repairs 156,077 139,460
Energy 134,874 127,710
Personnel expenses(1) 123,172 103,936
Mine equipment leased 37,751 32,924
Mining concession rights and contributions 13,447 12,087
Surveillance 11,054 12,147
Insurance 6,618 6,034
IT services 4,064 2,198
Freight 4,044 4,958
Other(2) 15,964 4,043
Cost of production 1,154,372 1,013,018
Unabsorbed production costs(3) - 21,481
Loss/(gain) on foreign currency hedges 29 (132)
Change in work in progress and finished goods (ore inventories) (4) (58,533) 26,280
Cost of sales 1,095,868 1,060,647
(1) Personnel expenses include employees' profit sharing of US$6.0 million for
the six months ended 30 June 2024 (six months ended 30 June 2023: US$2.9
million).
(2) Mainly include buildings cleaning and maintenance services, short-term and
low value leases and communications services.
(3) During 2023 corresponds to fixed cost at Juanicipio and pyrites plant of
US$3.9 million and US$1.7 million respectively, non-productive cost for the
temporary stoppage of activities in Penmont US$11.9 million and non-productive
fixed mine cost incurred in Noche Buena resulting from finalisation of mining
activities US$4.0 million.
(4) Refer to 2023 Consolidated Financial Statements for more detail related to
change in work in progress inventories for the six months ended 30 June 2023
following a change in estimation.
6 Finance income and finance costs
Six months ended 30 June
2024 2023
(in thousands of US dollars)
Finance income:
Interest on short-term deposits and investments 17,037 24,434
Interest on tax receivables 2,105 1,663
Other 20 376
19,162 26,473
Finance costs:
Interest on interest-bearing loans and notes payables 22,904 30,353
Interest on lease liabilities 511 561
Unwinding of discount on provisions 13,210 11,103
Other 2,522 3,993
39,147 46,010
7 Income tax expense
Six months ended 30 June
2024 2023
(in thousands of US dollars)
Current corporate income tax:
Income tax charge 60,355 26,800
Amounts (over)/under provided in previous periods (158) 4,515
60,197 31,315
Deferred corporate income tax:
Origination and reversal of temporary differences 9,379 (45,752)
Revaluation effects of Silverstream contract 19,938 (5,103)
29,317 (50,855)
Corporate income tax 89,514 (19,540)
Current special mining right:
Special mining right charge(1) 21,251 9,655
21,251 9,655
Deferred special mining right:
Origination and reversal of temporary differences 49,334 (31,980)
Special mining right 70,585 (22,325)
Income tax expense/(credit) as reported in the income statement 160,099 (41,865)
(1) The total mining concession rights paid during the six-month period were
US$16.2 million (2023: US$14.8 million) and have been recognised in the income
statement within cost of sales and exploration expenses.
Tax charged within the six-month period ended 30 June 2024 has been calculated
by applying the effective rate of tax which is expected to apply to the Group
for the period ended 31 December 2024 using rates substantively enacted by 30
June 2024 as required by IAS 34 Interim Financial Reporting. The effective
income tax rate expected for the full financial year was 37.07%, generating an
income tax expense of US$102.9 million. The lower income tax as of 30 June
2024 compared to US$102.9 million is due to the one-time effect recorded in
the period of US$13.4 million as a result of the update of tax values of
Juanicipio's property, plant and equipment for assets expensed during 2021
to 2023, which had an impact on the effective tax rate of (4.85)%
The effective tax rate for corporate income tax for the six months ended 30
June 2024 is 32.23% (six months ended 30 June 2023: (40.83%)) and 60.42%
including the special mining right (six months ended 30 June 2023: (87.48%)).
The main factors that increase the effective tax rate for corporate income tax
above 30% are the foreign exchange effect on tax value of assets and
liabilities 25.16% offset by the uplift of tax values corresponding to fixed
assets (9.55)%, the Special Mining Right credit (7.62)% and the incentive for
Norther Border Zone (1.66)%. The net deferred tax asset decrease to US$448.2
million (31 December 2023: net deferred tax asset of US$520.8 million)
primarily due the increase of deferred tax liabilities in respect of
provisional sales.
8 Earnings per share
Earnings per share ('EPS') is calculated by dividing profit for the period
attributable to equity shareholders of the Company by the weighted average
number of ordinary shares in issue during the period.
The Company has no dilutive potential ordinary shares.
For the six months ended 30 June 2024 and 30 June 2023, earnings per share
have been calculated as follows:
Six months ended 30 June
2024 2023
(in thousands of US dollars)
Earnings:
Profit from continuing operations attributable to equity holders of the 78,646 64,726
Company
Adjusted profit from continuing operations attributable to equity holders of 32,125 76,632
the Company
Adjusted profit is profit as disclosed in the Interim Consolidated Income
Statement adjusted to exclude revaluation effects of the Silverstream contract
of US$66.4 million gain (US$46.5 million net of tax) (2023: US$17.0 million
loss and US$11.9 million net of tax).
Adjusted earnings per share have been provided in order to provide a measure
of the underlying performance of the Group, prior to the revaluation effects
of the Silverstream contract, a derivative financial instrument.
Six months ended 30 June
2024 2023
Number of shares:
Weighted average number of ordinary shares in issue ('000) 736,894 736,894
Six months ended 30 June
2024 2023
Earnings per share:
Basic and diluted earnings per ordinary share from continuing operations (US$) 0.107 0.088
Adjusted basic and diluted earnings per ordinary share from continuing
operations (US$)
0.044 0.104
9 Property, plant and equipment
The changes in property, plant and equipment, including right-of-use assets,
during the six months ended 30 June 2024 are principally additions of US$135.6
million (six months ended 30 June 2023: US$250.2 million) and depreciation and
amortisation of US$302.9 million, of which US$0.7 million was capitalised as a
part of the cost of other fixed assets (six months ended 30 June 2023:
US$241.4 million, of which US$1.3 million was capitalised). Significant
additions include expansion of tailings dam at Saucito and San Julian, mining
works at San Julian, Fresnillo and Saucito and stripping cost at Herradura
mine.
As of 30 June 2024, the Group has contractual commitments related to the
construction and acquisition of property, plant and equipment of US$78.9
million (30 June 2023: US$144.9 million).
10 Silverstream contract
On 31 December 2007, the Group entered into an agreement with Peñoles through
which it is entitled to receive the proceeds received by the Peñoles Group in
respect of the refined silver sold from the Sabinas Mine ('Sabinas'), a
base-metals mine owned and operated by the Peñoles Group. The agreement
required an upfront payment of US$350 million by Fresnillo. In addition, a per
ounce cash payment of US$2.00 in years one to five and US$5.00 thereafter
(subject to an inflationary adjustment that commenced from 31 December 2013)
is payable to Peñoles. The cash payment per ounce for the period ended 30
June 2024 was US$5.74 per ounce (30 June 2023: US$5.65 per ounce). Under the
contract, the Group has the option to receive a net cash settlement from
Peñoles attributable to the silver produced and sold from Sabinas, to take
delivery of an equivalent amount of refined silver or to receive settlement in
the form of both cash and silver. If, by 31 December 2032, the amount of
silver produced by Sabinas is less than 60 million ounces, a further payment
is due from Peñoles of US$1.0 per ounce of shortfall.
The Silverstream contract represents a derivative financial instrument which
has been recorded at Fair Value Through Profit or Loss (FVPL) and classified
within non-current and current assets as appropriate. The term of the
derivative is based on Sabinas' life of mine which is currently 21 years.
Changes in the contract's fair value, other than those represented by the
realisation of the asset through the receipt of either cash or refined silver,
are charged or credited to the Interim Consolidated Income Statement.
In the six months ended 30 June 2024, total proceeds received in cash were
US$13.7 million (2023: US$20.2 million) of which, US$5.0 million was in
respect of proceeds receivable as at 31 December 2023 (2022: US$8.3 million).
Cash received in respect of the period of US$8.6 million (six months ended 30
June 2023: US$11.8 million) corresponds to 0.73 million ounces of payable
silver (six months ended 30 June 2023: 1.16 million ounces). As at 30 June
2024, a further US$8.2 million (30 June 2023: US$5.4 million) of cash
corresponding to 346,983 ounces of silver is due (30 June 2023: 323,626
ounces).
A reconciliation of the beginning balance to the ending balance as at 30 June
2024 and 31 December 2023 is shown below.
30 June 31 December 2023
2024
(in thousands of US dollars)
Beginning balance 482,340 511,474
Cash received in respect of the period (8,628) (31,816)
Cash receivable (8,198) (5,050)
Remeasurement gain recognised in profit or loss 66,459 7,732
Ending balance 531,973 482,340
Less - Current portion 49,385 35,802
Non-current portion 482,588 446,538
The US$66.4 million unrealised earnings recorded in the Interim Consolidated
Income Statement (six months ended 30 June 2023: US$17.0 million loss)
resulted mainly from an increase in the forward silver price curve, partially
offset by the amortization of payments and the effect of a higher discount
rate.
Significant assumptions used in the valuation of the Silverstream contract are
as follows:
- Forecasted volumes (millions of ounces/moz)
- Silver to be produced and sold over the life of mine 82.0 moz (31 December
2023: 82.8 moz)
- Average annual silver to be produced and sold 3.7 moz (31 December 2023: 3.5
moz)
- Weighted average discount rate 10.30% (31 December 2023: 9.79%)
- Future silver prices (US$ per ounce)
As at 2H 2024 /2024 2025 2026 2027 2028 Long-term
30 June 2024 29.42 30.69 32.10 32.88 33.33 20.00
31 December 2023 24.41 25.44 26.43 26.64 26.85 19.58
The fair value of the Silverstream contract is determined using a valuation
model including unobservable inputs (Level 3). This derivative has a term of
over 24 years and the valuation model utilises several inputs that are not
based on observable market data due to the nature of these inputs and/or the
duration of the contract. Inputs that have a significant effect on the
recorded fair value are the volume of silver that will be produced and sold
from the Sabinas mine over the contract life, the future price of silver and
the discount rate used to discount future cash flows. Other inputs into the
valuation are future inflation and future foreign exchange rates between the
Mexican peso and US dollar.
In line with what a market participant would consider, the model includes the
proportion of resources that are expected to be converted into reserves. Out
of the 82.0 million ounces included in the model, 45% relates to reserves and
55% relates to resources (which were adjusted by a conversion factor of 50%
(2023: 50% respectively)). For purposes of the fair value measurement, those
resources are assumed to be mined once reserves are exhausted. This approach
has been applied consistently in both 2024 and 2023.
The estimate of the volume of silver that will be produced and sold from the
Sabinas mine requires estimates of the recoverable silver reserves and
resources, the related production profile based on the Sabinas mine plan and
the expected recovery of silver from ore mined. The estimation of these inputs
is subject to a range of operating assumptions and may change over time.
Estimates of reserves and resources are updated annually by Peñoles, the
operator and sole interest holder in the Sabinas mine and provided to the
Company. The production profile and estimated payable silver that will be
recovered from ore mined is based on the operational mine plan, with certain
amendments to reflect a basis that a market participant would consider, that
is provided to the Company by Peñoles. The inputs assume no interruption in
production over the life of the Silverstream contract and production levels
which are consistent with those achieved in recent years.
Management regularly assesses a range of reasonably possible alternatives for
those significant unobservable inputs described above and determines their
impact on the total fair value. The fair value of the Silverstream contract is
significantly sensitive to a reasonably possible change in future silver
price. the discount rate used to discount future cash flows and total volume
of silver expected to be produced over the life of mine. The sensitivity of
these key inputs is as follows:
As at Commodity price Discount rate Volumes produced
Increase/ Effect on profit before tax: increase/ Basis point increase/ Effect on profit before tax: increase/ Increase/ Effect on profit before tax: increase/
(decrease) in
(decrease)
(decrease)
(decrease)
(decrease)
(decrease)
silver price
US$ thousands
in interest rate
US$ thousands
in reserves and resources
US$ thousands
30 June 2024 20% 136,252 50 (16,925) 10% 53,197
(15%) (102,187) (50) 17,911 (10%) (53,197)
31 December 2023 10% 63,222 - - 10% 48,141
(10%) (63,222) (75) 27,473 (10%) (48,141)
Management considers that an appropriate sensitivity for volumes produced and
sold is on the total recoverable reserve and resource quantities over the
contract term rather than annual production volumes over the mine life.
The significant unobservable inputs are not interrelated. The Sabinas mine is
a polymetallic mine that contains copper, lead and zinc as well as silver,
which is produced as a by-product. Therefore, changes to base metals prices
(rather than the price of silver) are most relevant to the Sabinas mine
production plans and the overall economic assessment of the mine.
The effects on profit before tax and equity of reasonably possible changes to
the inflation rates and the US dollar exchange rate compared to the Mexican
peso on the Silverstream contract are not material. The Group's exposure to
reasonably possible changes in other currencies is not material.
11 Inventories
As at 30 June As at 31 December 2023
2024
(in thousands of US dollars)
Finished goods(1) 59,967 34,212
Work in progress(2) 344,302 314,802
Ore stockpile(3) 8,035 4,779
Operating materials and spare parts 176,583 185,624
Inventories at lower of cost and net realisable value 588,887 539,417
Allowance for obsolete and slow-moving inventories (9,895) (6,684)
Balance at lower of cost and net realisable value 578,992 532,733
Less - Current portion 509,232 462,973
Non-current portion(4) 69,760 69,760
(1) Finished goods include metals contained in concentrates and doré bars,
and concentrates on hand or in transit to a smelter or refinery.
(2) Work in progress includes metals contained in ores on leaching pads for an
amount of US$324.3 million (2023: US$292.7 million) and in stockpiles US$20.0
million (2023: US$22.1 million) that will be processed in dynamic leaching
plants (note 2(c)).
(3) Ore stockpile includes ore mineral obtained at Juanicipio.
(4) Non-current inventories relate to ore in leaching pads where the leaching
process has stopped and is not expected to restart within twelve months. As at
30 June 2023 and 31 December 2023 non-current inventories corresponds to
Soledad & Dipolos mine unit (note 2 (c)).
12 Trade and other receivables
c As at 30 June As at 31 December 2023
2024
(in thousands of US dollars)
Trade receivables from related parties (Note 16)(1) 356,723 306,668
Value Added Tax receivable 95,205 93,010
Other receivables from related parties 9,507 11,509
Other trade receivables(1) 2,395 174
Other receivables 8,641 8,658
472,471 420,019
Expected credit loss of 'Other receivables' (370) (353)
472,101 419,666
Other receivables classified as non-current assets:
Other receivables 494 773
Value Added Tax receivable - 42,755
494 43,528
472,595 463,194
(1)Trade receivables from related parties and other trade receivables are
valued at fair value based on forward market prices.
Balances corresponding to Value Added Tax receivables and US$6.8 million
within Other receivables (2023: US$6.2 million) are not financial assets.
13 Cash and cash equivalents
The Group considers cash and cash equivalents when planning its operations and
in order to achieve its treasury objectives.
As at 30 June As at 31 December 2023
2024
(in thousands of US dollars)
Cash at bank and on hand 6,088 3,556
Short-term deposits 684,882 531,024
Cash and cash equivalents 690,970 534,580
Cash at bank earns interest at floating rates based on daily bank deposits.
Short-term deposits are made for varying periods of between one day and three
months, depending on the immediate cash requirements of the Group, and earn
interest at the respective short-term deposit rates. Short-term deposits can
be withdrawn at short notice without any penalty or loss in value.
14 Dividends paid
Dividends declared and authorised by the Company are as follows:
Per share Amounts
US Cents US$ Million
Six months ended 30 June 2024
Total dividends paid during the period(1) 4.20 30.9
Six months ended 30 June 2023
Total dividends paid during the period(2) 13.3 98.0
(1) Final dividend for 2023 approved at the Annual General Meeting on 21 May
2024 and paid on 29 May 2024.
(2) Final dividend for 2022 approved at the Annual General Meeting on 23 May
2023 and paid on 26 May 2023.
A reconciliation between dividend declared, dividends recognised in retained
earnings and dividend presented in the cash flow statements is as follows:
Six months ended 30 June
2024 2023
US$ thousands
US$ thousands
Dividends declared and authorised 30,950 98,006
Foreign exchange effect - -
Dividends recognised in retained earnings 30,950 98,006
Foreign exchange and hedging effect 28 27
Dividends paid 30,978 98,033
The directors have declared an interim dividend of US$6.4 cents per share and
is not recognised as a liability as at 30 June 2024. Dividends paid from the
profits generated from 1 January 2014 to residents in Mexico and to
non-resident shareholders may be subject to an additional tax of up to 10%,
which will be withheld by the Group.
15 Contingencies
The contingencies in the Group's annual consolidated financial statements for
the year ended 31 December 2023 as published in the 2023 Annual Report, are
still applicable as of 30 June 2024, with the following updates:
On 4 July 2024, the SAT issued the tax assessment ruling regarding the 2016
tax audit of Comercializadora de Metales Fresnillo where it confirmed its
findings on the tax treatment of the Silverstream premium payment amounting to
US$16.8 million, which includes the effect of time value of the money,
penalties and surcharges. The Company will file an administrative appeal no
later than 29 August 2024 to challenge the SAT assessment.
The tax audits in respect of the Silverstream transaction for the years 2017
and 2018 are ongoing, however management expects the SAT to also challenge the
tax treatment of the Silverstream premium payment as in the case of the 2016
tax audit. It is not practical to determine the amount of any potential claims
or the likelihood of any unfavourable outcome arising from this or any future
inspections that may be initiated.
The Directors and their external tax advisors consider management´s
interpretation of the relevant legislation and assessment of taxation to be
appropriate, that the Group has complied with all regulations and paid or
accrued all taxes and withholdings that are applicable and that it is probable
that the Group's tax position will be sustained.
16 Related party balances and transactions
The Group had the following related party transactions during the six months
ended 30 June 2024 and 30 June 2023 and balances as at 30 June 2024 and 31
December 2023.
Related parties are those entities owned or controlled by the ultimate
controlling party, as well as those who have a minority participation in Group
companies and key management personnel of the Group.
(a) Related party accounts receivable and payable
Accounts receivable Accounts payable
As at 30 June 2024 As at 31 December 2023 As at 30 June 2024 As at 31 December 2023
(in thousands of US dollars)
Trade:
Metalúrgica Met-Mex Peñoles, S.A. de C.V. 356,723 306,668 7,179 5,840
Other:
Industrias Peñoles, S.A.B. de C.V. 8,198 5,050 - -
Metalúrgica Met-Mex Peñoles, S.A. de C.V. 30 261 306 739
Servicios Administrativos Peñoles, S.A de C.V. - - 7,981 24,486
Servicios Especializados Peñoles, S.A. de C.V. - - 5,434 7,147
Fuentes de Energía Peñoles, S.A. de C.V. - - 6,405 6,239
Termoeléctrica Peñoles, S. de R.L. de C.V. - - 2,833 3,362
Eólica de Coahuila S.A. de C.V. - - 2,490 2,986
Minera Capela, S.A. de C.V. - - 27 -
Peñoles Tecnología, S.A. de C.V. - - 1,132 1,261
Minera Capela, S.A. de C.V. - - - 9
Grupo Nacional Provincial, S.A. B. de C.V. 1,230 5,715 - -
Other 49 483 2,549 4,365
366,230 318,177 36,336 56,434
Related party accounts receivable and payable will be settled in cash.
Other balances due from related parties:
As at 30 June 2024 As at 31 December 2023
(in thousands of US dollars)
Silverstream contract:
Industrias Peñoles, S.A.B. de C.V. 531,973 482,340
The Silverstream contract can be settled in either silver or cash. Details of
the Silverstream contract are provided in note 10.
(b) Principal transactions with affiliates are as follows:
Six months ended 30 June
2024 2023
(in thousands of US dollars)
Income:
Sales(1):
Metalúrgica Met-Mex Peñoles, S.A. de C.V. 1,482,686 1,343,333
Other income 915 1,180
Total income 1,483,601 1,344,513
(1) Figures do not include the effects of hedging as the derivative
transactions are not undertaken with related parties.
( )
Six months ended 30 June
2024 2023
(in thousands of US dollars)
Expenses:
Administrative Services:
Servicios Administrativos Peñoles, S.A. de C.V.(2) 27,798 29,438
Servicios Especializados Peñoles, S.A. de C.V. (3) 8,852 8,830
Peñoles Tecnología, S.A. de C.V. 2,389 4,479
39,039 42,747
Energy:
Fuentes de Energía Peñoles, S.A. de C.V. 15,183 4,801
Termoeléctrica Peñoles, S. de R.L. de C.V. 9,009 14,614
Eólica de Coahuila, S.A. de C.V. 27,457 13,927
51,649 33,342
Operating materials and spare parts:
Wideco Inc 2,720 2,503
Metalúrgica Met-Mex Peñoles, S.A. de C.V. 29,828 15,613
32,548 18,116
Equipment repairs and administrative services:
Serviminas, S.A. de C.V. 576 3,849
Insurance premiums:
Grupo Nacional Provincial, S.A.B. de C.V. 2,224 1,597
Other expenses 1,354 3,175
Total expenses 127,390 102,826
( )(2 Includes US$0.5 million (2023: US$0.3 million) corresponding to
expenses reimbursed.)
( 3 Includes US$4.2 million (2023: US$6.7 million) relating to engineering
costs that were capitalised.)
(c) Compensation of key management personnel of the Group
Key management personnel include the members of the Board of Directors and the
Executive Committee who receive remuneration.
Six months ended 30 June
2024 2023
(in thousands of US dollars)
Salaries and bonuses 2,015 1,700
Post-employment pension 248 126
Other benefits 148 139
Total compensation paid to key management personnel 2,411 1,965
17 Notes to the consolidated statement of cash flows
Notes Six months ended 30 June
2024 2023
(in thousands of US dollars)
Reconciliation of profit for the period to net cash generated from operating
activities
Profit for the period 117,676 89,720
Adjustments to reconcile profit for the period to net cash inflows from
operating activities:
Depreciation and amortisation 304,781 236,924
Employee profit sharing 6,403 2,935
Deferred income tax expense/(credit) 7 78,651 (82,835)
Current income tax expense 7 81,448 40,970
Loss on the sale of property, plant and equipment 209 841
Net finance costs 14,732 19,529
Foreign exchange gain 9,668 (2,874)
Difference between pension contributions paid and amounts recognised in the 829 731
income statement
Non-cash movement on derivatives - (2)
Changes in fair value of Silverstream 10 (66,459) 17,009
Operating cash flow before change in working capital 547,938 322,948
Working capital adjustments
(Increase)/decrease in trade and other receivables (12,817) 22,791
Decrease in prepayments and other assets 12,154 9,201
(Increase)/decrease in inventories (46,259) 43,718
Decrease in trade and other payables (30,022) (326)
Cash generated from operations 470,994 398,332
Income tax paid(1) (69,358) (182,078)
Employee profit sharing paid (2,062) (10,757)
Net cash from operating activities 399,574 205,497
(1) Income tax paid includes US$46.5 million corresponding to corporate income
tax (June 2023: US$135.5 million) and US$22.9 million corresponding to special
mining right (June 2023: US$46.5 million), for further information refer to
note 7.
18 Financial instruments
a. Classification
As at 30 June 2024
US$ thousands
Financial assets: Amortised Fair value through OCI Fair value (hedging instruments) Fair value through profit or loss
cost
Trade and other receivables (1) 6,883 - - 364,921
Equity instruments at FVOCI - 125,584 - -
Silverstream contract - - - 531,973
Financial liabilities: Amortised Fair value (hedging instruments) Fair value through profit or loss
Cost
Interest-bearing loans 839,200 - -
Trade and other payables 126,381 - -
Notes payable(2) 51,133 - -
Derivative financial instruments - 109 -
( )
As at 31 December 2023
US$ thousands
Financial assets: Amortised Fair value through OCI Fair value (hedging instruments) Fair value through profit or loss
cost
Trade and other receivables (1) 9,894 - - 311,718
Equity instruments at FVOCI - 107,991 - -
Silverstream contract - - - 482,340
Derivative financial instruments - - 79 -
Financial liabilities: Amortised Fair value (hedging instruments) Fair value through profit or loss
Cost
Interest-bearing loans 839,002 - -
Trade and other payables 174,544 - -
Notes payable(2) 95,360 - -
(1 Trade and other receivables and embedded derivative within sales contracts
are presented net in Trade and other receivables in the balance sheet.)
(2 Corresponds to interest-bearing notes payable received from Minera los
Lagartos, S.A. de C.V. which holds a non-controlling interest in Juanicipio
project. The notes are denominated in US Dollars and bear interest at a rate
that ranges between 6.76% to 7.34% with a maturity of six to twelve months
US$51.1 million short-term (2023: nine to eighteen months US$72.6 million
short-term and US$22.7 million long-term,). During the year, proceeds and
payments from these Notes amounted to US$nil million and US$43.3 million
respectively (2023: US$22.7 million and US$33.0 million). Interest paid amount
US$4.0 million (2023: US$7.6 million).)
b. Fair value measurement
Fair value hierarchy
The Group uses valuation techniques that are appropriate in the circumstances
and for which sufficient data are available to measure fair value, maximising
the use of relevant observable inputs and minimising the use of unobservable
inputs.
All assets and liabilities for which fair value is measured or disclosed in
the interim consolidated financial statements are categorised within the fair
value hierarchy, described as follows, based on the lowest level input that is
significant to the fair value measurement as a whole:
Level 1 - Quoted (unadjusted) market prices in active markets for identical
assets or liabilities
Level 2 - Valuation techniques for which the lowest level input that is
significant to the fair value measurement is directly or indirectly observable
Level 3 - Valuation techniques for which the lowest level input that is
significant to the fair value measurement is unobservable
For assets and liabilities that are recognised in the financial statements on
a recurring basis, the Group determines whether transfers have occurred
between levels in the hierarchy by re-assessing categorisation (based on the
lowest level input that is significant to the fair value measurement as a
whole) at the end of each reporting period.
For the purpose of fair value disclosures, the Group has determined classes of
assets and liabilities on the basis of the nature, characteristics and risks
of the asset or liability and the level of the fair value hierarchy as
explained above.
The value of financial assets and liabilities other than those measured at
fair value are as follows:
Carrying amount Fair value
30 June 31 December 2023 30 June 31 December 2023
2024 2024
US$ thousands
Financial assets:
Trade and other receivables 6,883 9,894 6,883 9,894
Financial liabilities:
Interest-bearing loans(1) 839,200 839,002 645,745
Trade and other payables 126,381 174,544 51,133 174,544
Notes payable 51,133 95,360 126,381 95,324
(1) Interest-bearing loans are categorised in Level 1 of the fair value
hierarchy.
The carrying amounts of all other financial instruments are measured at fair
value.
The financial assets and liabilities measured at fair value are categorised
into the fair value hierarchy as follows:
As of 30 June 2024
Fair value measure using
Quoted prices in active markets Significant observable (Level 2) Significant unobservable (Level 3) Total
(Level 1)
US$ thousands
Financial assets:
Trade receivables - - 356,723 356,723
Other receivables from related parties(1) - - 8,198 8,198
Silverstream contract (Note 10) - - 531,973 531,973
Other financial assets:
Equity instruments at FVOCI 125,584 - - 125,584
125,584 - 896,894 1,022,478
Financial liabilities:
Derivative financial instruments:
Option and forward foreign exchange contracts - 109 - 109
- 109 - 109
(1 This balance corresponds to the cash receivable related to the Silverstream
contract, see note 10.)
As of 31 December 2023
Fair value measure using
Quoted prices in active markets (Level 1) Significant observable (Level 2) Significant unobservable (Level 3) Total
US$ thousands
Financial assets:
Trade receivables - - 306,668 306,668
Other receivables from related parties(1) - - 5,050 5,050
Derivative financial instruments:
Option and forward foreign exchange contracts - 79 - 79
Silverstream contract - - 482,340 482,340
Other financial assets:
Equity instruments at FVOCI 107,991 - - 107,991
107,991 79 794,058 902,128
(1 This balance corresponds to the cash receivable related to the Silverstream
contract, see note 10.)
There have been no significant transfers between Level 1 and Level 2 of the
fair value hierarchy, and no transfers into or out of Level 3 fair value
measurements.
A reconciliation of the opening balance to the closing balance for Level 3
financial instruments other than Silverstream and the related receivable with
the contract (which is disclosed in Note 10) is shown below:
2024 2023
US$ thousands
Balance at 1 January 307,302 275,844
Sales 1,491,486 1,351,158
Cash collection (1,436,436) (1,351,089)
Changes in fair value 5,556 (4,969)
Realised embedded derivatives during the year (8,790) (2,856)
Balance at 30 June 359,118 268,088
The fair value of financial assets and liabilities is included at reflects the
amount at which the instrument could be exchanged in a current transaction
between willing parties, other than in a forced or liquidation sale.
Valuation techniques
The following valuation techniques were used to estimate the fair values:
Option commodity contracts
The Group enters into derivative financial instruments with various
counterparties, principally financial institutions with investment grade
credit ratings. The Level 2 option commodity contracts are measured based on
observable spot commodity prices, the yield curves of the respective commodity
as well as the commodity basis spreads between the respective commodities. The
option contracts are valued using the Black-Scholes model, the significant
inputs to which include observable spot commodities price, interest rates and
the volatility of the commodity.
Option and forward foreign exchange contracts
The Group enters into derivative financial instruments with various
counterparties, principally financial institutions with investment grade
credit ratings. The Level 2 foreign currency forward contracts are measured
based on observable spot exchange rates, the yield curves of the respective
currencies as well as the currency basis spreads between the respective
currencies. The foreign currency option contracts are valued using the
Black-Scholes model, the significant inputs to which include observable spot
exchange rates, interest rates and the volatility of the currency.
Silverstream contract
For further information relating to the valuation techniques were used to
estimate the fair value of the Silverstream contract as well as the
sensitivity of the valuation to the key inputs are disclosed in note 10.
Equity investments
The fair value of equity investments is derived from quoted market prices in
active markets.
Interest-bearing loans
The fair value of the Group's interest-bearing loan is derived from quoted
market prices in active markets.
Trade receivables
Sales of concentrates, precipitates and doré bars are 'provisionally priced'
and revenue is initially recognised using this provisional price and the
Group's best estimate of the contained metal. Revenue is subject to final
price and metal content adjustments subsequent to the date of delivery. This
price exposure is considered to be an embedded derivative and therefore the
entire related trade receivable is measured at fair value.
At each reporting date, the provisionally priced metal content is revalued
based on the forward selling price for the quotational period stipulated in
the relevant sales contract. The selling price of metals can be reliably
measured as these metals are actively traded on international exchanges but
the estimated metal content is a non-observable input to this valuation.
c. Capital management
The primary objective of the Group's capital management is to ensure that it
maintains a strong credit rating and healthy capital ratios that support
its business and maximise shareholder value. Management considers capital to
consist of equity and interest-bearing loans, including loans from related
parties, as disclosed in the balance sheet, excluding net unrealised gains or
losses on revaluation of cash flow hedges and debt instruments. In order to
ensure an appropriate return for shareholder's capital invested in the Group
management thoroughly evaluates all material projects and potential
acquisitions and approves them at its Executive Committee before submission to
the Board for ultimate approval, where applicable. The Group's dividend policy
is based on the profitability of the business and underlying growth in
earnings of the Group, as well as its capital requirements and cash flows,
including cash flows from the Silverstream.
One of the Group's metrics of capital is cash and other liquid assets which as
at 30 June 2024 and 2023 consisted of only cash and cash equivalents.
1 (#_ftnref1) Adjusted revenues are the revenues shown in the income
statement adjusted to add back treatment and refining charges and the effects
of metals prices hedging. The Company considers this is a useful additional
measure to help understand underlying factors driving revenue in terms of
volumes sold and realised prices.
2 (#_ftnref2) Adjusted production costs are calculated as cost of sales less
depreciation, profit sharing, hedging, change in inventories and unproductive
costs. The Company considers this a useful additional measure to help
understand underlying factors driving production costs in terms of the
different stages involved in the mining and plant processes, including
efficiencies and inefficiencies as the case may be and other factors outside
the Company's control such as cost inflation or changes in accounting
criteria.
3 (#_ftnref3) Earnings before interest, taxes, depreciation and amortisation
(EBITDA) is calculated as profit for the year from continuing operations
before income tax, less finance income, plus finance costs, less foreign
exchange gain/(loss), less revaluation effects of the Silverstream contract
and other operating income plus other operating expenses and depreciation.
4 (#_ftnref4) Adjusted earnings per share (EPS) is profit as disclosed in
the Interim Consolidated Income Statement adjusted to exclude the revaluation
effects of the Silverstream contract, divided by the average ordinary number
of shares in issue in the period.
5 (#_ftnref5) Free cash flow calculated as net cash flow after the effect of
foreign exchange on cash, less dividend payments.
(6) Net Debt/EBITDA is calculated as debt at 30 June 2024 less Cash and cash
equivalents at 30 June 2024 divided by the EBITDA generated in the last 12
months.
6 (#_ftnref6) Adjusted production cost is calculated as total production
costs less depreciation, profit sharing and the effects of exchange rate
hedging.
7 (#_ftnref7) Net debt is calculated as debt at 30 June 2024 less Cash and
other liquid funds at 30 June 2023 divided by the EBITDA generated in the last
12 months
8 (#_ftnref8) Au:Ag ratio of 80:1
9 (#_ftnref9) Adjusted revenue is revenue as disclosed in the income
statement adjusted to exclude treatment and refining charges and metals prices
hedging.
10 (#_ftnref10) Earnings before interest, taxes, depreciation and
amortisation (EBITDA) is calculated as profit for the year from continuing
operations before income tax, less finance income, plus finance costs, less
foreign exchange gain/(loss), plus revaluation effects of the Silverstream
contract and other operating income plus other operating expenses and
depreciation.
11 (#_ftnref11) Adjusted revenue is revenue as disclosed in the income
statement adjusted to exclude treatment and refining charges and metals prices
hedging.
12 (#_ftnref12) Treatment and refining charges include the cost of treatment
and refining as well as the margin charged by the refiner.
13 (#_ftnref13) Adjusted production costs are calculated as cost of sales
less depreciation, profit sharing, hedging, change in inventories and
unproductive costs. The Company considers this a useful additional measure to
help understand underlying factors driving production costs in terms of the
different stages involved in the mining and plant processes, including
efficiencies and inefficiencies as the case may be and other factors outside
the Company's control such as cost inflation or changes in accounting
criteria.
14 (#_ftnref14) Unproductive costs primarily include unabsorbed production
costs such as non-productive cost for the temporary illegal stoppage at
Herradura, fixed costs incurred at Juanicipio and pyrites plant, and fixed
mine costs at Noche Buena as a result of the end of its mine life.
15 (#_ftnref15) Net debt is calculated as debt at 30 June 2023 less Cash and
other liquid funds at 30 June 2023 divided by the EBITDA generated in the last
12 months.
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