Gold and silver Fresnillo (FRES) has frequently disappointed the market in the past couple of years and today was no different as it reported a big fall in full year profit.
In results for the year to 31 December 2019, the Mexican miner recorded a 63% drop in reported pre-tax profit to $178.8m, down from $483.9m in 2018.
Total revenue edged 0.8% higher to $2.12bn, but earnings before interest, taxes, depreciation and amortisation (EBITDA) dropped 26.3% to $674m as the firm’s cost of sales jumped significantly.
It declared a final dividend of 11.9 US cents per share, well down on the 27.4 cents paid out in 2018.
PROFIT DROP NOT SURPRISING
The results weren’t a complete surprise to the market due to Fresnillo’s already-flagged production numbers, and its share price responded accordingly, falling 3% to 602p.
Despite a big rally in the gold price in 2019, the miner failed to take advantage with gold production down 5.1% to 875,913oz while production of silver, which has also had a strong run, down 11.6% to 54,614koz.
The gold problems were mainly due to lower production at its Noche Buena mine and lower grades at its San Julián Veins project. While silver production was down due to lower grades at three of its mines.
READ MORE ABOUT FRESNILLO HERE
Going forward, the outlook for this year doesn’t look much better for Fresnillo with little production growth expected even if it hits the top of its target range.
The miner is expecting production to be somewhere between 51,000-56,000koz of silver, and 815,000-900,000oz of gold, in 2020.
GROWTH IN 2021
However, it expects growth to accelerate in 2021, driven by operational improvements at four of its mines, while its cost management initiatives should also start to have an impact by then.
Fresnillo CEO Octavio Alvídrez said, ‘Our focus in 2020 is on maximising the potential of our existing operations. We are committed to working smarter and more efficiently in order to extract maximum value from our asset base.
‘We have implemented a major performance improvement plan across our portfolio that includes intensive infill drilling to improve the certainty of the geological model, dilution control and raising development rates, together with actions to address contractor productivity and equipment availability.
‘We are investing in infrastructure, plant and machinery including the new Tunnel Boring Machine which is now being ramped up at Fresnillo - one of the first of its kind. We have also begun to define a new programme to control costs and increase productivity.
‘Though it will take time for these measures to take full effect, we do expect production to stabilise in 2020 and start increasing during 2021.’
