Gold and silver miner Fresnillo (FRES) was one of the biggest risers in the FTSE 100 this morning, despite reducing its gold guidance with output hit by coronavirus-led disruptions.
Shares in the Mexican miner jumped 7.25% to £11.46 following its second quarter production report, in which it said gold production was expected to be in a range of 785 to 815 koz, down from its previous guidance of 815 to 900 koz.
Gold production for the three months to 30 June fell 6.4% compared to the previous quarter to 184 koz and decreased 16.7% compared to the same period a year ago, as a lower volume of ore was processed at its Herradura and Noche Buena mines due to coronavirus restrictions.
SILVER BOOST
However, the company maintained its silver guidance for the full year as production rose 2.8% compared to the previous quarter to 13.6m ounces, but was still down 5.7% compared to the previous year due to the expected lower ore grade at its Saucito mine, and to a lesser extent at its San Julian mine.
Fresnillo’s share price has been boosted in recent months thanks to a rising gold price but also the surge in demand for silver, which has now topped $20 an ounce after hitting a six-year high.
This has also helped narrow the gold-silver ratio, which is the amount of silver it would take to buy an ounce of gold and is used by traders to help measure the value of gold and silver relative to each other, and therefore provided a boost for mainly silver producing companies like Fresnillo.
The ratio, which stood at a record 124 in March this year as the silver price lagged, currently stands around the 85 times mark with gold prices of $1,848 per ounce and silver prices of $21.70 an ounce. Analysts at Citi see this ratio narrowing to a range between 75-85 in the next six months.
ANTOFAGASTA TO HIT LOWER END OF GUIDANCE
Meanwhile Chile-focused copper miner Antofagasta (ANTO) said it expected to meet the lower end of its full year guidance as production dropped in the second quarter.
Copper output in the three months to 30 June fell 8.4% compared to the previous quarter to 177,700 tonnes, mainly because of expected lower ore grades at Centinela Concentrates.
Looking ahead, the company said it would maintain guidance for the full year at the low end of its original 725,000-to-755,000 tonne range, at a net cash cost of $1.20/lb.
Analysts described the production numbers from Antofagasta as ‘solid’ and ‘quite respectable’, with Killik & Co analyst Andrew Duncan saying the company’s tight cost control ‘continues to be a bright spot’.
Cash costs before by-product credits in the quarter were $1.50/lb, 1c/lb lower than the previous quarter, and for the first half of the year were $1.51/lb, 9% lower than in the same period last year primarily because of the weaker Chilean peso, lower input prices and tighter cost control.
