REG - Fresnillo Plc - Annual General Meeting Statement <Origin Href="QuoteRef">FRES.L</Origin>

FresnilloAnnouncement

15/07/2015 17:59

RNS Number : 4028N
Fresnillo PLC
18 May 2015
 Fresnillo plc
28 Grosvenor Street
London W1K 4QR
United Kingdom
www.fresnilloplc.com
Annual General Meeting Statement
Fresnillo plc will hold its Annual General Meeting today at 12pm (noon) in London, and Mr. Alberto Baillres, Chairman, will make the following statement:
"Welcome all, and thank you for coming to the Fresnillo plc Annual General Meeting.
2014 was again a challenging year for precious metals producers, with a further decline in prices affecting all companies in the sector. However, our high quality assets, low cost operations, strong balance sheet and solid pipeline of organic growth projects again provided some protection and allowed us to deliver a robust operational and financial performance. Furthermore, we took advantage of this challenging industry environment in our acquisition of the remaining 44% of the Penmont Joint Venture for $450 million, substantially strengthening our gold production and resource base and allowing us to increase our 2018 gold production target from 500 thousand ounces to 750 thousand ounces. Our 2018 silver production target of 65 million ounces remains in place.
Our annual silver production of 45 million ounces in 2014 exceeded our budget and in gold we met our revised production guidance following the Penmont acquisition, producing 596 thousand ounces over the year. 2014 was of course not without its operational challenges, in particular a lower ore grade at the Fresnillo mine, the stoppage of operations at Soledad-Dipolos, and processing capacity issues at Herradura. However, these factors were mitigated by increased production at other mines and we are confident that the measures we put in place during the year at Fresnillo and Herradura will result in improved production in 2015. In addition, in 2014 we saw the start-up of the dynamic leaching plant at Herradura and we made excellent progress at our development projects, with the commissioning of Saucito II in December on time and on budget and San Julian set to start up by the end of this year. This progress was achieved in the context of a maturing sustainability framework and a continuously improving safety culture.
In our recent Production Report for the first quarter of 2015, we reported a strong start to the year, with production of over 12 million ounces of silver and 182 thousand ounces of gold and we remain on track to achieve our 2015 production guidance of 45 to 47 million ounces of silver, and 670 to 685 thousand ounces of gold. Furthermore, during the quarter we improved development work at the Fresnillo mine and started to see the results of the measures being taken to solve the challenges faced at Herradura in 2014.
Turning now to exploration, our strategy of continued investment in exploration to underpin organic growth yielded good results in 2014. Although the total investment in exploration was reduced from the original US$225.0 million budget to US$184.5 million, as costs for contracted exploration and drilling declined, the pace of progress was essentially unchanged from plan. We added 3 million ounces of gold (an increase of 45%) and 102 million ounces of silver (an increase of 21%) to our reserves, although lower price assumptions led to a narrower increase in gold resources and a 6% decrease in silver resources. We were particularly encouraged by the strong increase in resources and reserves at Herradura, underscoring the value of our acquisition. 
Our financial performance in 2014 was affected by a 10% decline in our average realised gold price, which fell to US$1,257.7 per ounce, and an 18% fall in our average realised silver price, to US$18.6 per ounce. We reported adjusted revenue of US$1,545.0 million in 2014, EBITDA of US$567.3 million and operating profit of US$245.6 million. These figures reflect the aforementioned decline in average realised silver and gold prices, as well as lower volumes of gold sold and increased stripping in the Herradura District in accordance with our mine plans, increased depreciation expenses as new projects came into operations and lower ore grades at Fresnillo and Cinega, all of which were partially mitigated by lower refining charges and the devaluation of the Mexican peso against the US dollar.
While profit margins remain strong despite lower precious metal prices, they did decline in 2014. However cost control measures and efficiency improvements allowed us to maintain our position as a low cash cost producer. Furthermore, we maintained our strong balance sheet, reporting cash, cash equivalents and short-term investments totalling US$449.3 million at 31 December 2014, while total debt on the balance sheet was US$796.2 million, providing us with low leverage and significant financial flexibility.
In line with our conservative growth strategy, Fresnillo initiated a one-off hedging programme in 2014 to protect the value of the investment made in the Penmont acquisition, allowing for partial exposure to gold prices. This phased hedging programme was strictly limited to the 44% of Penmont (and associated companies) acquired, implemented at management's discretion depending on prevailing market conditions. The Group's hedging policy remains unchanged for the remainder of the portfolio, providing shareholders with full exposure to gold and silver prices.
In July 2014 the Board conducted a comprehensive review of the Company's current and future financial requirements and found that the balance sheet was well placed to meet capital expenditure plans and future potential growth opportunities. Thus, while the 2014 dividend was brought forward and paid in November 2013, a special dividend was declared in 2014 of 5.0 US cents per share, equivalent to US$36.8 million. Whilst industry conditions have clearly deteriorated since that time, we remain committed to prudent financial policies that ensure sufficient cash on hand to invest in existing operations, profitable growth, and shareholder returns. Based on the Group's long-term dividend policy, the Directors have recommended a final dividend of 3.0 US cents per share, equivalent to US$22.1 million, which will be paid, subject to shareholder approval at today's Annual General Meeting, on 22 May 2015 to shareholders on the register on 1 May 2015.
I am also pleased to report that in 2014 the maturity of our Health, Safety, Environment and Community Relations (HSECR) System advanced according to plan, ensuring we will meet our 2016 targets. Efforts to integrate Health, Safety and Environment under a single Integrated Management System resulted in Cinega becoming the first business unit to achieve a joint certification in Occupational Health and Safety Management System 18001 / ISO 14001, followed by Fresnillo and Penmont, which achieved the certification later in the year.
Such certifications are important, of course, but it is the people behind the policies and practices who are most important. We have made much progress in safety matters, yet I am deeply saddened to report one fatality during the year; this led to extensive internal reviews with management and contractors. Safety must always be our number one priority, deeply embedded in our culture.
With regards to the Board, in 2014 we welcomed Brbara Garza Lagera, Jaime Serra Puche and Charles Jacobs to the Board. Their diverse backgrounds and significant experience will greatly support the Company and the Board, and I look forward to continued collaboration with all my Board colleagues, whose insights and engagement I value greatly. 
I remain committed to our proven strategy in precious metals. Our priority, for 2015 and beyond, is firmly set on value creation. Thus, management must continue to focus on managing ore grades, optimising capacity and volume of ore processed, bringing on new projects, and extending the profitable growth pipeline, all while continuing to contain costs, enhance sustainability practices, and uphold our commitment to stakeholders.
I remain confident that Fresnillo has the operational and financial strength to address the challenges we may face. Our financial flexibility, combined with management's ability to tailor mine plans, development expenditures and exploration parameters in accordance with external market conditions, ensures that we optimise performance in the current environment. At the same time, the quality of our asset base, our robust balance sheet and our commitment to sustainable growth offer a long-term value creation opportunity as we continue to invest through the cycles. 
Finally, I would like to extend my appreciation to the people of Fresnillo plc for their efforts and commitment to sustainable growth and value creation. It is to their credit that we are well placed to address today's cyclical uncertainties.
Thank You."
For further information, please visit our website: www.fresnilloplc.com or contact:
Fresnillo plc
London
Gabriela Mayor, Head of Investor Relations
Floriana Michalowska
Tel: +44(0)20 7339 2470
Mexico
Ana Belm Zrate
Tel: +52 55 52 79 3206
Bell Pottinger
Gavin Davis
Daniel Thole
Marianna Bowes
Tel: +44(0)20 3772 2500
   

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