Businesses able to perform in the current climate of economic vulnerability will attract admirers and offers. Mexican focussed mining giant Fresnillo (LON:FRES) is producing more gold than anticipated, has cost cutting initiatives in place at its producing mines and is cashing in on precious metals price strength. Little surprise then the group is rumoured to be turning the heads of potential suitors.
Recent rumours suggest that Mexican billionaire Carlos Slim has been taking a close look at Fresnillo and is preparing a cash offer of around £8.6 billion or £12 per share. Given the recent share price action it is clear that the market remains sceptical as to the validity of these claims and shares have yet to breach the £11 mark.
For mining companies, production is key and Q1 2010 was a robust quarter all round for Fresnillo with the only real blot on the copybook a 20% decline in silver produced from the Silverstream contract with Penoles, Fresnillo's controlling shareholder.
Focussing on the individual mines, and the flagship Fresnillo mine continued to lead the way on the silver front producing 8.8 million ounces, 3.5% higher than the corresponding period of 2009 and 5,600 ounces of gold, an 8% drop on Q1 2009. Cienega meanwhile saw production increase across both metals producing 366,000 ounces of silver and 27,000 ounces of gold, improvements of 15% and 17.5% respectively.
Indeed, the company's gold focussed mines fared extremely well. Herradurra produced almost 40,000 ounces of gold, up 15.6% on the corresponding quarter of 2009 whilst debutant Soledad-Dipolos mine contributed a better than expected 11,300 ounces.
Should any interested potential suitors be impressed by the current production numbers they will surely be salivating at the company's ambition at a time when the erosion of faith in paper currencies promises to spur investment demand in gold and silver. Management plans to double the company's present annual rate of production by 2018, to 65 million ounces of silver and 400,000 ounces of gold, opening a new mine or expanding an existing mine every year for the next four years.
To reach these lofty targets Fresnillo must constantly explore prospects and developing projects... and this is very much the case. On the development front, the Saucito project is on track to start producing next year. As far as exploration goes the company is extremely active. The main projects at San Juan, San…
