REG - Fresnillo Plc - Financial Results for the Year Ended 31 Dec 2015 <Origin Href="QuoteRef">FRES.L</Origin> - Part 2
01/03/2016 07:12
- Part 2: For the preceding part double click ID:nRSA5523Qa
13.3% over 2014. The US$118.7 million increase is explained by
the following combination of factors:
· A decrease in adjusted production costs (-US$43.5 million): This was mainly driven by: i) the efficiencies achieved
at Saucito, Noche Buena, Ciénega and the dynamic leaching plant resulting from the economies of scale (-US$53.2 million);
ii) the favourable effect of the devaluation of the Mexican peso/US dollar exchange rate when converting peso-denominated
costs to US dollars (-US$48.0 million); iii) energy costs, excluding foreign exchange effects, decreased due to lower unit
prices of electricity and diesel (-US$12.6 million); iv) the lower volumes of ore processed at Fresnillo (-US$10.2
million); and v) others (-US$4.6 million) including a decrease in the unit cost of consumables priced in US dollars
(electricity, operating materials, spare parts, diesel, etc.); partially offset by the increase in unit cost of personnel
(excluding foreign exchange effects) and other items in pesos. These positive effects were partially offset by: i) the
increased ore throughput at Saucito, Noche Buena and Herradura (US$70.2 million); ii) additional adjusted production costs
resulting from a full year of operations at the DLP (US$5.2 million); and iii) contractor costs increased as a result of a
greater number of contractors used to carry out development, mainly at the Fresnillo mine, and an increase in the unit fees
charged by contractors in Mexican pesos (US$9.7 million).
The positive effect of adjusted production costs was more than offset by increases in:
· Variation in change in work in progress (+US$111.0 million). This was mainly explained by the increase in ore
inventories in 2014 at Herradura as a result of not having sufficient capacity at the Merrill Crowe plant to process all
the rich solution coming from both the pads and the new dynamic leaching plant; and at Noche Buena as part of the ramp-up
to the new expanded capacity. This year, the bottle neck at Herradura was eliminated and Noche Buena operated steadily,
resulting in a small reduction in inventory. Additionally, this year due to the continued drop in gold price we recognised
a write down of US$5.01 million in the value of inventories at Soledad and Dipolos.
· Depreciation (+US$35.0 million): The increase was explained by the higher depreciation recorded at Saucito as a
result of the start-up of Saucito II, additional mining works depreciated at Fresnillo and increased depletion factors
mainly at Herradura and Noche Buena.
· Hedging (+US$27.5): The Group enters into certain exchange rate derivative instruments as part of a programme to
manage its exposure to foreign exchange risk associated with costs incurred in Mexican pesos. The Company had short term
forward dollar sales of US$ 116.5 million mature during the year at an average rate of $15.735 MXN/USD, resulting in a
US$186,875 profit recognised in the income statement. As of 31 December, the where no outstanding forward instruments.
Additionally, the Group entered into a combination of put and call options structured at zero cost (collars). In 2015,
these derivatives were used to hedge US$279.5 million of costs denominated in Mexican pesos with average floor and cap
exchange rates of $13.488 and $14.422 per US dollar respectively, resulting in a US$28.42 million loss recorded in the
income statement. The total outstanding position using collar structures as of 31 December 2015 was US$198.0 million with
maturity dates throughout 2015 with average floor and cap exchange rates of $14.92 and $17.97 per US dollar respectively.
These instruments guarantee a minimum exchange rate should the market fall below the floor exchange rate. Between the floor
and cap exchange rates the Group sells US dollars at the market rate, and when the Mexican peso per US dollar exchange rate
goes above the cap rate, the Company is obliged to sell US dollars at the contract rate.
· Profit sharing (+US$0.2 million): Slight increase due to higher profit base at Saucito and Penmont (Herradura and
Noche Buena), as each Fresnillo subsidiary pays profit sharing individually.
· Others (-US$11.5 million): The change in others is principally relates to unproductive costs incurred in the first
quarter of 2014 related to the limited operations at Herradura due to the temporary suspension of the explosives permit,
that situation was solved and thus no unproductive costs were recognised this year.
Cost per tonne, cash cost per ounce and all-in sustaining cost
Cost per tonne, calculated as total production costs less depreciation, profit sharing and exchange rate hedging effects,
divided by total tonnage milled or deposited, is a key indicator to measure the effects of mining inflation and cost
control performance at each mine and the Group as a whole. We have included cost per tonne hauled/moved as we believe it is
a useful indicator to thoroughly analyse cost performance for the open pit mines.
Cost per tonne
2015 2014 Change %
Fresnillo US$/tonne milled 48.20 47.29 1.9
Saucito US$/tonne milled 42.49 59.14 (28.2)
Ciénega US$/tonne milled 62.99 70.84 (11.1)
Herradura US$/tonne deposited 8.68 9.29 (6.6)
Herradura US$/tonne hauled 2.66 2.37 12.2
Noche Buena US$/tonne deposited 7.93 9.98 (20.5)
Noche Buena US$/tonne hauled 1.67 1.68 (0.6)
Soledad-Dipolos US$/tonne deposited - - N/A
Cash cost per ounce, calculated as total cash cost (cost of sales plus treatment and refining charges less depreciation)
less revenues from by-products divided by the silver or gold ounces sold, when compared to the corresponding metal price,
is an indicator of the ability of the mine to cover its production costs.
Cash cost per ounce
2015 2014 Change %
Fresnillo US$ per silver ounce 5.60 5.29 5.9
Saucito US$ per silver ounce 1.15 2.48 (53.4)
Ciénega US$ per gold ounce 245.5 288.0 (14.8)
Herradura US$ per gold ounce 472.5 465.4 1.5
Noche Buena US$ per gold ounce 972.7 945.6 2.9
Soledad-Dipolos US$ per gold ounce - - N/A
The particular variations in cash cost for each mine are explained as follows:
Fresnillo: US$5.60/oz (2015) vs US$5.29/oz (2014), (+5.9%)
The increase in cash cost per ounce is mainly explained by the lower volumes of silver sold, reflecting lower ore
throughput and decline in ore grade (+US$1.46/oz); higher treatment and refining charges per silver ounce due to: lower
silver ore grade which implies producing more concentrate per ounce of silver, higher zinc and lead ore grades which
increases the volume of concentrates, and an increase in the participation of zinc concentrate which has a higher per unit
treatment charge (+US$0.28/oz); and higher cost per tonne (+US$0.12/oz). This was partly mitigated by higher by-product
credits per silver ounce due to the increase in lead and zinc volumes (-US$1.40/oz); and lower profit sharing
(-US$0.14/oz).
Saucito: US$1.15/oz (2015) vs US$2.48/oz (2014), ( -53.4%)
The decrease was driven by the lower cost per tonne (-US$1.71/oz); and higher by-product credits per ounce of silver
resulting from increased gold, lead and zinc volumes sold (-US$0.44/oz). These positive effects were partly offset by the
expected lower silver grade (+US$0.45/oz); higher treatment and refining charges resulting from the same reasons as
mentioned for the Fresnillo mine (+US$0.25/oz); and higher profit sharing (+US$0.13/oz).
Ciénega: US$245.49/oz (2015) vs US$288.00/oz (2014), ( -14.8%)
The decrease in cash cost was primarily explained by higher by-product credits per ounce of gold due to the increased
volumes of silver and lead sold (-US$198.32/oz); the decrease in cost per tonne (-US$108.62/oz); and others (-US$5.83).
These favourable factors were partially offset by the expected decrease in gold grade (+US$221.58/oz); and higher treatment
and refining charges resulting from lower gold ore grade which implies producing more concentrate per ounce of gold, and
higher lead and zinc ore grades which increase the volume of concentrates (+US$48.68/oz).
Herradura: US$472.53/oz (2015) vs US$465.42/oz (2014), ( +1.5%)
The increase in cash cost resulted from: an adverse inventory valuation effect, as ounces with a lower cost of production
in the current period are mixed with the initial higher cost of inventory affecting cost of sales (+US$78.52/oz); and lower
by-product credits per gold ounce due to the lower silver price and decreased volumes of silver sold (+US$27.45/oz). These
negative effects were partly mitigated by: i) the unproductive costs recorded in 2014 in relation to the stoppage
(-US$52.81/oz); ii) the lower cost per tonne (-US$33.89/oz); iii) higher ore grade (-US$8.45/oz); and iv) others
(-US$3.70/oz).
Noche Buena: US$972.74/oz (2015) vs US$945.63/oz (2014), ( +2.9%)
The increase in cash cost per ounce was mainly explained by i) the adverse inventory valuation effect mentioned for the
Herradura mine (+US$164.27/oz); ii) the lower gold grade (+US$73.03/oz); and iii) others (+US$6.08/oz). These adverse
effects were partially offset by the lower cost per tonne (-US$216.26/oz).
Soledad-Dipolos: There were no comparable figures in 2015 and 2014 due to the suspended operations.
In addition to the traditional cash cost described above, the Group is reporting all-in sustaining costs (AISC), in
accordance with the guidelines issued by the World Gold Council.
This cost metric is calculated as traditional cash cost plus on-site general, corporate and administrative costs, community
costs related to current operations, capitalised stripping and underground mine development, sustaining capital
expenditures and remediation expenses.
Management considers all-in sustaining costs a reasonable indicator of the mine's ability to generate free cash flow when
compared with the corresponding metal price, and a means to monitor current production costs and sustaining costs as it
includes mine development costs incurred to prepare the mine for future production, as well as sustaining capex.
All-in sustaining cost
2015 2014 Change %
Fresnillo US$ per silver ounce 11.48 9.84 16.7
Saucito US$ per silver ounce 7.11 5.43 31.0
Ciénega US$ per gold ounce 710.37 786.40 (9.7)
Herradura US$ per gold ounce 888.04 862.19 3.0
Noche Buena US$ per gold ounce 1,015.40 1,051.00 (3.4)
Soledad-Dipolos US$ per gold ounce - - N/A
Fresnillo: Higher, mainly due to the increase in capitalised development and mining works to move towards full capacity
operations with access to sufficient stopes; and the higher cash cost detailed above.
Saucito: Higher, as a result of the increase in capex invested in the expansion and in efficiency projects; which was
partly mitigated by the lower cash cost detailed above.
Ciénega: Lower, primarily explained by the decrease in development, mining works and sustaining capex; and the lower cash
cost detailed above.
Herradura: Higher, due mainly to the temporary increase in capitalised stripping costs and higher sustaining capex; and to
a lesser extent, the higher cash cost detailed above.
Noche Buena: Lower, driven by the decrease in capitalised stripping costs; sustaining capex and lower cash cost detailed
above.
Soledad-Dipolos: There were no comparable figures in 2015 and 2014 due to the suspended operations.
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.
Contribution by mine to consolidated gross profit, excluding hedging gains and losses
2015 2014 Change
US$ million % US$ million % Amount %
Saucito 198.7 44.4 188.9 33.3 9.8 5.2
Herradura 163.3 36.5 136.2 24.0 27.1 19.9
Fresnillo 83.1 18.5 206.7 36.4 (123.6) (59.8)
Ciénega 17.1 3.8 40.8 7.2 (23.7) (58.1)
Noche Buena (1.2) (0.3) 11.5 2.0 (12.7) N/A
Soledad-Dipolos (13.0) (2.9) (16.5) (2.9) 3.5 (21.2)
Total for operating mines 448.0 100.0 567.6 100.0 (119.6) (21.1)
MXP/USD exchange rate hedging (losses) and gains (28.6) (1.1) (27.5) N/A
Other subsidiaries 13.6 (45.4) 59.0 N/A
Total Fresnillo plc 433.1 521.1 (88.0) (16.9)
Total gross profit, net of hedging gains and losses, decreased 16.9% to US$433.1 million in 2015.
The US$88.0 million decrease in gross profit was mainly explained by: i) the adverse effect of lower silver and gold prices
(-US$187.0 million); ii) the 8.2% decrease in ore throughput and 14.9% decrease in silver grade at the Fresnillo mine
(-US$64.3 million); iii) higher depreciation (-US$35.0 million); and iv) other effects (-US$8.4 million).
The above factors were partially mitigated by higher gross profit related to: i) increased ore volumes processed at Saucito
(+US$117.2 million); ii) the 19.2% devaluation of the Mexican peso/US dollar (+US$48.0 million); iii) the positive effect
of reaching steady state at Herradura (+US$23.8 million); iv) the first full year of operations at the dynamic leaching
plant (+US$13.4 million); and v) higher ore grades at Herradura (+US$4.3 million).
On a per mine basis, Saucito became the largest contributor to the Group´s consolidated gross profit reflecting the
increased volumes produced and sold as a result of the ramp-up of Saucito II and strong margins generated at this mine,
despite the lower metal prices. Gross profit at Herradura increased 19.9% to US$163.3 million in 2015 due to Herradura and
its DLP being operational for the full year, the ramp-up to steady state and the commissioning of the second Merrill Crowe
plant. This increased Herradura's share of the Group's consolidated gross profit from 24.0% in 2014 to 36.5% in 2015. Gross
profit at the Fresnillo mine decreased 59.8% to US$83.1 million in 2015, reflecting the adverse effect of the lower volumes
produced and the decrease in metal prices, which reduced Fresnillo's contribution to the Group's total gross profit to
18.5%. Gross profit at Ciénega decreased 58.1% as a result of the lower sales volumes of gold and the decline in metal
prices, which reduced its share of the Group's total to 3.8%. Lastly, at Noche Buena, the favourable effect of higher gold
volumes produced and sold did not fully offset the impact of lower gold price and higher costs, generating a loss of US$1.2
million (including depreciation of US$43.5 million).
Administrative expenses
Administrative expenses decreased 7.0% from US$67.5 million to US$62.8 million due mainly to a decrease in non-recurring
engineering and construction services provided by Servicios Industriales Peñoles, S.A.B. de C.V. and the positive effect of
the devaluation of the Mexican peso against the US dollars in administrative expenses denominated in pesos.
Exploration expenses
Business unit / project (US$ millions) Exploration expenses 2015 Exploration expenses 2014 Capitalised expenses 2015 Capitalised expenses 2014
Ciénega 20.5 27.6
Fresnillo 10.1 5.6
Herradura 11.9 14.7
Soledad-Dipolos - -
Saucito 8.6 3.2
Noche Buena 3.7 10.1
San Ramón 4.5 4.9
San Julián 3.3 4.4
Orisyvo 13.3 15.2 0.4 1.2
Centauro Deep 10.0 34.4 0.4 2.7
Guanajuato 3.9 4.0
Juanicipio 0.0 0.0 9.9 10.1
Others 50.4 44.7 0.4 1.7
TOTAL 140.2 168.8 11.1 15.7
Exploration expenses in 2015 totalled US$140.2 million, a 16.9% decrease over 2014, as a result of management's decision to
continue reducing the expenditure given the decline in precious metals prices. Good results were obtained at a number of
key exploration sites, and the resource base was expanded despite lower price assumptions. An additional US$11.1 million
was recorded in association with mining works at Juanicipio and minor equipment acquired at the Centauro Deep and Orisyvo
projects. Furthermore, unit costs for exploration and drilling came down substantially, which allowed for similar rates of
advancement at a lower investment. As a result, total investment in exploration of US$151.3 million in 2015 decreased 18.0%
over 2014, below the original budgeted figure of US$170 million. In 2016, risk capital invested in exploration is expected
to be within the range of US$135-US$140 million, of which US$25 million is estimated to be capitalised.
EBITDA
2015US$ million 2014US$ million Amount Change%
Gross Profit 433.1 521.1 (88.0) (16.9)
+ Depreciation 331.2 296.2 35.0 11.8
- Administrative expenses (62.8) (67.5) 4.7 (7.0)
- Exploration expenses (140.2) (168.8) 28.5 (16.9)
- Selling expenses (13.7) (13.6) (0.1) 0.7
EBITDA 547.5 567.3 (19.8) (3.5)
EBITDA margin 37.9 40.1
A gauge of the Group's financial performance and key indicator to measure debt capacity is EBITDA, which is calculated as
gross profit plus depreciation, less administrative, selling and exploration expenses. In 2015, EBITDA decreased 3.5% to
US$547.5 million mainly due to the lower gross profit, which was partially mitigated by lower exploration and
administrative expenses. EBITDA margin expressed as a percentage of revenues declined accordingly, from 40.1% in 2014 to
37.9% in 2015.
Other expenses
Other expenses decreased by 37.9% to US$15.9 million in 2015. This included disposals of fixed assets, remediation works
carried out at the Saucito, Herradura, Fresnillo and Ciénega mines and costs incurred in the maintenance of closed mines.
This positively compares to the US$25.5 million loss registered in the 2014 income statement.
Silverstream effects
The Silverstream contract is accounted for as a derivative financial instrument carried at fair value. The revaluation of
the Silverstream contract generated a US$6.1 million non-cash gain mainly as a result of the increase in resources at
Sabinas, which more than offset the lower forward price of silver and the higher discount rate used. In addition, a US$21.6
million non-cash gain was generated by: i) the unwinding of the discounted values (US$20.3); and ii) the difference between
payments (volume and price) actually received and accrued in 2015 and payments estimated in the valuation model as at 31
December 2014 (US$1.3). The total effect recorded in the 2015 income statement was US$27.7 million, which represented a
64.0% decrease from the US$77.0 million registered in 2014.
Since the IPO, cumulative cash received has been US$502.0 million, while total non-cash revaluation gains of US$550.3
million have been taken to the income statement. The Group expects further unrealised gains or losses will be taken to the
income statement in accordance with the cyclical behaviour of the silver price or changes in the variables considered in
valuing this contract. Further information related to the Silverstream contract is provided in the Balance Sheet section
below and in notes 15 and 32 to the Consolidated Financial Statements.
Finance costs and income
Finance costs in 2015 decreased mainly due to the decline from US$43.6 million to US$35.1 million in accrued interest
payable in relation to the US$800 million principal amount of 5.500% Senior Notes.
In 2014 we entered into derivative contracts to protect the value of the Penmont acquisition. As at 31 December 2015, the
outstanding collar derivative instruments mature over the period from January 2016 to December 2019 and hedge gold
production of 1.3 million ounces with a floor price of US$1,100 per ounce and capped weighted average price of US$1,426 per
ounce. In 2015, we recognised changes in the time value of the outstanding hedge position, resulting in a US$59.7 million
non-cash gain recorded in the income statement.
Foreign exchange
A foreign exchange loss of US$36.2 million was recorded in 2015 as a result of the 16.9% devaluation of the Mexican peso
against the US dollar. This loss adversely compares to the US$24.4 million loss recognised in 2014.
The Group also enters into certain exchange rate derivative instruments as part of a programme to manage its exposure to
foreign exchange associated with the purchase of equipment denominated in Euro (EUR) and Swedish Krona (SEK). At year end,
the total EUR and SEK outstanding net forward position was zero EUR and SEK 14.46 million with maturity dates through to
March 2016.
Volumes that expired during 2015 were EUR 2.42 million with a weighted average strike of 1.193 usd/eur and SEK 59.67
million with a weighted average strike of 8.23 SEK/USD, which generated losses of US$0.1 million and US$0.9 million
respectively. Both results were recognised in the income statement.
Taxation
Corporate income tax expense of US$129.0 million increased 9.1% over 2014 despite the lower profit base in 2015. This was
mainly explained by the devaluation of the Mexican peso against the US dollar, which increased deferred income taxes,
generated by higher differences arising between the carrying amount of assets and liabilities (denominated in US dollars)
and their tax bases (denominated in Mexican pesos). As a result, the effective tax rate was 60.7%, significantly above the
statutory corporate tax rate of 30%. Furthermore, US$14.0 million related to the special mining rights was registered in
the income statement in 2015. Including the effect of mining rights, the effective tax rate was 67.3%.
Profit for the year
Profit for the year decreased by 40.7% to US$69.4 million, whilst profit attributable to equity shareholders of the Group
declined by 35.0% from US$108.4 million to US$70.5 million in 2015.
Excluding the effects of the Silverstream Contract, profit for the year decreased 20.9% to US$50.0 million. Similarly,
profit attributable to equity shareholders of the Group, excluding the Silverstream effects, declined by 6.2% to US$51.1
million.
Cash Flow
A summary of the key items from the cash flow statement is set out below:
2015US$ million 2014US$ million AmountUS$ Change%
Cash generated by operations before changes in working capital 537.3 568.5 (31.2) (5.5)
Decrease/(Increase) in working capital 51.3 (183.4) 234.7 (128.0)
Taxes and employee profit sharing paid (45.8) (263.5) 217.7 (82.6)
Net cash from operating activities 542.9 121.6 421.3 346.5
Silverstream Contract 39.4 58.8 (19.3) (32.9)
Purchase of property, plant & equipment (474.7) (425.6) (49.1) 11.5
Dividends paid to shareholders of the Company (37.5) (87.0) 49.4 (56.8)
Net interest (paid) (30.5) (37.6) 7.1 (18.8)
Purchase of minority shares - (450.5) 450.5 N/A
Net increase/(decrease) in cash during the period before foreign exchange differences 52.2 (798.2) 850.2 N/A
Cash, cash equivalents and short-term investments at 31 December* 500.1 449.3 50.8 11.3
* As disclosed in the Consolidated Cash Flow Statement, cash and cash equivalents at 31 December 2015 totalled US$381.4
million and short-term investment held in fixed-term bank deposits amounted US$118.7 million. In 2014, cash and cash
equivalents at 31 December 2014 accounted for US$154.3 million and short-term investments amounted to US$295.0 million.
Cash generated by operations before changes in working capital decreased by 5.5% to US$537.3 million, mainly as a result of
the lower profits generated in the year. Working capital decreased US$51.3 million mainly due to: i) a decrease in trade
and other receivables resulting mainly from the lower metal prices (US$58.2 million); ii) a decrease in inventories (US$5.0
million); and iii) a decrease in prepayments and other assets (US$0.9 million). These reductions in working capital were
partially offset by a decrease in trade and other payables (US$12.8 million).
Taxes and employee profit sharing paid decreased 82.6% over 2014 to US$45.8 million, mainly as a result of lower profits
generated.
As a result of the above factors, net cash from operating activities increased significantly from US$121.6 million in 2014
to US$542.9 million in 2015.
Other sources of cash were the proceeds from the Silverstream Contract of US$39.4 million.
The above funds were mainly used to purchase property plant and equipment for a total of US$474.7 million, which
represented a 11.5% increase over 2014.This was below the revised guidance of US$570 million as a result of the deferral of
some expenditures in light of the prevailing low precious metal prices. Capital expenditures for 2015 are further described
below:
Purchase of property, plant and equipment
2015US$ million
Fresnillo mine 205.6 Mine development and purchase of in-mine equipment such as pumps, jumbos and a raiseboring machine. Construction of ramps and mining works, purchase of equipment for the leaching plant and acquisition of land at San Julián (US$150.3 million), and the Orisyvo project (US$1.2 million)
Saucito mine 108.3 Mining works and purchase of in-mine equipment
Herradura mine 119.7 Stripping activities, construction of leaching pad, sustaining capex and construction of the second Merrill Crowe plant
Ciénega mine 24.6 Development, replacement of in-mine equipment, purchase of equipment to optimise the milling process and employees' facilities
Noche Buena 2.6 Expansion of smelting capacity at the beneficiation plant, construction of leaching pads and diesel supply station
Juanicipio project 9.9 Exploration expenses
Other 4.0 Exploraciones Mineras Parreña and SAFSA
Total purchase of property, plant and equip. 474.7
Dividends paid to shareholders of the Group in 2015 totalled US$37.5 million, a 56.8% decrease from 2014, in line with our
dividend policy that includes a consideration of profits generated in the period. The 2015 payment included: i) the final
2014 dividend of US$22.1 million; and ii) the 2015 interim dividend paid in September of US$15.5 million.
Net interest of US$30.5 million was paid, mainly reflecting the interest paid in relation with the issuance of the US$800
million principal amount of 5.500% Senior Notes.
The sources and uses of funds described above resulted in a net increase of US$52.0 million in cash and cash equivalents,
which combined with the US$449.3 million balance at the beginning of the year and the US$1.2 million unfavourable effect of
the exchange rate resulted in cash, cash equivalents and short-term investments of US$500.1 million at the end of 2015.
Balance Sheet
Fresnillo plc continues to prioritise and maintain a strong, flexible financial position.
Cash, cash equivalents and short-term investments increased during the year to US$500.1 million as explained above.
Inventories slightly decreased 1.6% to US$300.6 million due to the decreased inventories of lead concentrate at Saucito,
which more than offset the increase in inventories of gold deposited on the leaching pads at Herradura and Noche Buena.
Trade and other receivables of US$305.7 million decreased 33.0% as a result of the decrease in prices which reduced
receivables from Met-Mex.
The change in the value of the Silverstream derivative from US$392.3 million at the beginning of the year to US$384.8
million as of 31 December 2015 reflects proceeds of US$35.2 million corresponding to 2015, (US$32.5 million in cash and
US$2.7 million in receivables) and the Silverstream effect in the income statement of US$27.7 million.
The net book value of property, plant and equipment was US$2,138.6 million at year end, representing an 8.6% increase over
2014. The US$169.2 million increase was mainly explained by the capitalised development works at Fresnillo and Saucito;
construction of San Julián and of the Merrill Crowe plant at Herradura; purchase of additional in-mine equipment and
surface land; and construction of leaching pads at Herradura.
The Group's total equity was US$2,374.3 million as of 31 December 2015, a 3.1% increase over 2014. This was mainly
explained by the increase in retained earnings, reflecting the 2014 profit, less dividend paid during the year, and the net
unrealised gains on cash flow hedges.
Dividends
Based on the Group's 2015 performance, the Directors have recommended a final dividend of 3.35 US cents per Ordinary Share,
which will be paid on 9 May 2016 to shareholders on the register on 22 April 2016. The dividend will be paid in UK pounds
sterling unless shareholders elect to be paid in US dollars. This is in addition to the interim dividend of 2.1 US cents
per share totalling U$15.5 million.
RISK MANAGEMENT FRAMEWORK
Risk management framework
Risk is inherent in all business activities. We maintain a comprehensive risk management framework that serves to identify,
assess and respond to our principal risks. Our approach is not intended to eliminate risk entirely, but rather to provide
the structural means to identify, prioritise and manage the risks involved in our activities in order to support our value
creation objectives.
Governance
The Board of Directors is responsible for maintaining the Company's risk management and internal control systems. The
Board's mandate includes defining risk appetite and monitoring risk exposures to ensure that the nature and extent of
significant risks taken by the Company are aligned with our overall goals and strategic objectives.
In accordance with our governance practices, the Audit Committee supports the Board of Directors in monitoring the
Company´s risk exposures and is responsible for reviewing the effectiveness of the risk management and internal control
systems. The Risk Manager and Internal Audit supports the Audit Committee in evaluating the design and operating
effectiveness of the risk mitigation strategies and the internal controls implemented by management.
Executive Management reviews strategic objectives and risk appetite, assesses the level of risk related to achieving these
objectives, and incorporates controls into the strategic and operating plans to mitigate them. This top down risk
identification and assessment process helps to ensure that the bottom up process performed at the business unit level is
aligned with and focused on current strategy and objectives.
Risk management system
The annual and ongoing elements of the Group's risk management process are controlled by well-established risk
identification, assessment and monitoring processes. We have progressed in embedding a risk management culture amongst all
employees, however this is an ongoing process and we are still working to demonstrate this with evidence collected through
the monitoring of our controls to mitigate risks.
We have continued to build on our existing risk management framework, enhancing risk management and internal control
systems across the business in line with changes to the UK Corporate Governance Code.
In addition to the permanent risk management activities, our priority for 2016 is to continue promoting a 'monitoring
environment' which consists of validating the effectiveness of our current controls in order to support the Board in their
responsibilities, which include monitoring and reviewing risk management and the internal control systems.
2015 risk assessment
The annual risk assessment exercise across all our operations, advanced projects, exploration offices, support and
corporate areas identified and evaluated 104 risks in 2015. This universe was narrowed down into major risks monitored by
Executive Management and the Audit Committee, and then further consolidated into eleven principal risks closely monitored
by Executive Management and the Board of Directors.
For the bottom up process, the teams in charge of each business unit determined the perceived level of risk for their
individual unit. Executive Management then reviewed and challenged each perceived level through the evaluation of certain
controls and relative risk levels, and compared it to Fresnillo plc's risk universe as a whole. The result of this exercise
is used as another input for the selection of the principal risks of Fresnillo plc. The same risk analysis was conducted on
advanced projects, detailing the specific risks faced by each project according to the unique characteristics and
conditions of each site.
We believe there were a number of developments in 2015 that have the potential to adversely impact the entire Mexican
mining industry. These include Mexico's transition towards indigenous consultation (which is an emerging initiative but
worth monitoring); the perceived level of corruption across Mexico remaining high; continued legal challenges to the mining
industry by individuals and local communities who may seek to disregard previous land agreements; and due to lower metal
prices, profit levels have been impacted and also profit sharing to employees and union workers has decreased. As a result
of these changes we determined that the following risk rating levels facing Fresnillo plc have increased: 'potential
actions by the government', 'security', 'access to land' and 'union relations'. As with all our key risks, the Board and
the Executive Committee continue to closely monitor them.
Statement of Directors' responsibilities
I confirm on behalf of the Board that to the best of its knowledge:
a) the financial statements, prepared in accordance with International Financial Reporting Standards as adopted by the
European Commission, give a true and fair view of the assets, liabilities, financial position and profit and loss of the
Company and the undertakings included in the consolidation taken as a whole; and
b) the management report includes a fair review of the development and performance of the business, and the position of the
Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal
risks and uncertainties that they face.
For and on behalf of the Board
Guy Wilson
Senior Independent Director
29 February 2016
Consolidated Income Statement
Year ended 31 December
Year ended 31 December 2015 Year ended 31 December 2014
Notes US$ thousands US$ thousands
Pre-Silverstream Silverstream Total Pre-Silverstream Silverstream Total
revaluation revaluation revaluation revaluation
effect effect effect effect
Continuing operations:
Revenues 5 1,444,386 1,444,386 1,413,701 1,413,701
Cost of sales 6 (1,011,316) (1,011,316) (892,647) (892,647)
Gross profit 433,070 433,070 521,054 521,054
Administrative expenses (62,820) (62,820) (67,540) (67,540)
Exploration expenses 7 (140,246) (140,246) (168,784) (168,784)
Selling expenses (13,693) (13,693) (13,610) (13,610)
Other operating income 9 778 778 580 580
Other operating expenses 9 (16,650) (16,650) (26,122) (26,122)
Profit from continuing operations before net finance costs and income tax 200,439 200,439 245,578 245,578
Finance income 10 65,838 65,838 7,460 7,460
Finance costs 10 (45,463) (45,463) (54,616) (54,616)
Revaluation effects of Silverstream contract 15 - 27,720 27,720 - 77,054 77,054
Foreign exchange loss (36,180) (36,180) (24,411) (24,411)
Profit from continuing operations before income tax 184,634 27,720 212,354 174,011 77,054 251,065
Corporate income tax 11 (120,690) (8,316) (129,006) (95,155) (23,116) (118,271)
Special mining right 11 (13,958) (13,958) (15,700) (15,700)
Income tax expense 11 (134,648) (8,316) (142,964) (110,855) (23,116) (133,971)
Profit for the year from continuing operations 49,986 19,404 69,390 63,156 53,938 117,094
Attributable to:
Equity shareholders of the Company 51,119 19,404 70,523 54,511 53,938 108,449
Non-controlling interest (1,133) (1,133) 8,645 8,645
49,986 19,404 69,390 63,156 53,938 117,094
Earnings per share: (US$)
Basic and diluted earnings per Ordinary Share from continuing operations 12 - 0.096 - 0.147
Adjusted earnings per share: (US$)
Adjusted basic and diluted earnings per Ordinary Share from continuing operations 12 0.069 - 0.074 -
Consolidated Statement of Comprehensive Income
Year ended 31 December
Year ended 31 December
Notes 2015 2014
US$ thousands US$ thousands
Profit for the year 69,390 117,094
Other comprehensive income/(expense)
Items that may be reclassified subsequently to profit or loss:
Net losses/(gains) on cash flow hedges recycled during the year 26,422 (3,247)
Related income tax effect 11 (7,927) 974
Net unrealised gains/(losses) on cash flow hedges 39,521 (11,771)
Related income tax effect 11 (11,856) 3,531
Net effect of cash flow hedges 46,160 (10,513)
Fair value (losses)/gains on available-for-sale financial assets 14 (14,636) 22,833
Related income tax effect 11 4,391 (6,850)
Impairment losses on available-for-sale financial assets taken to income during the year 2,896 982
Related income tax effect 11 (869) (295)
Net effect of available-for-sale financial assets (8,218) 16,670
Foreign currency translation (134) (234)
Net other comprehensive income that may be reclassified subsequently to profit or loss: 37,808 5,923
Items that will not be reclassified to profit or loss:
Losses on cash flow hedges reclassified to the value of other assets - (220)
Related income tax effect 11 - 66
Remeasurement losses on defined benefit plans 23 (2,273) (1,851)
Related income tax effect 11 361 296
Net other comprehensive expense that will not be reclassified to profit or loss (1,912) (1,709)
Other comprehensive income, net of tax 35,896 4,214
Total comprehensive income for the year, net of tax 105,286 121,308
Attributable to:
Equity shareholders of the Company 106,419 112,663
Non-controlling interests (1,133) 8,645
105,286 121,308
Consolidated Balance Sheet
Year ended 31 December
ASSETS
Non-current assets
Property, plant and equipment 13 2,138,588 1,969,418
Available-for-sale financial assets 14 71,442 86,078
Silverstream contract 15 358,164 358,965
Deferred tax asset 11 30,814 57,705
Inventories 16 76,375 84,412
Other receivables 17 2,289 3,853
Other assets 3,372 3,872
2,681,044 2,564,303
Current assets
Inventories 16 224,200 221,200
Trade and other receivables 17 237,992 287,595
Income tax recoverable 67,690 168,498
Prepayments 2,966 3,356
Derivative financial instruments 31 117,075 14,551
Silverstream contract 15 26,607 33,311
Short-term investments 18 118,718 295,000
Cash and cash equivalents 18 381,420 154,340
1,176,668 1,177,851
Total assets 3,857,712 3,742,154
EQUITY AND LIABILITIES
Capital and reserves attributable to shareholders of the Company
Share capital 19 368,546 368,546
Share premium 19 1,153,817 1,153,817
Capital reserve 19 (526,910) (526,910)
Net unrealised gains/(losses) on cash flow hedges 19 36,214 (9,946)
Net unrealised gains on available-for-sale financial assets 19 16,297 24,515
Foreign currency translation reserve 19 (731) (597)
Retained earnings 19 1,296,906 1,265,877
2,344,139 2,275,302
Non-controlling interests 30,202 26,539
Total equity 2,374,341 2,301,841
Non-current liabilities
Interest-bearing loans 21 797,032 796,160
Provision for mine closure cost 22 195,476 153,802
Provision for pensions and other post-employment benefit plans 23 14,534 13,838
Deferred tax liability 11 373,009 336,751
1,380,051 1,300,551
336,751
1,380,051
1,300,551
Current liabilities
Trade and other payables 24 89,630 100,351
Derivative financial instruments 31 1,427 27,033
Income tax 11 - 814
Employee profit sharing 12,263 11,564
103,320 139,762
Total liabilities 1,483,371 1,440,313
Total equity and liabilities 3,857,712 3,742,154
Total equity and liabilities
3,857,712
3,742,154
These financial statements were approved by the Board of Directors on 29 February 2016 and signed on its behalf by:
Mr Arturo Fernandez
Non-executive Director
29 February 2016
Consolidated Statement of Cash Flows
Year ended 31 December
Year ended 31 December
Notes 2015 2014
US$ thousands US$ thousands
Net cash from operating activities 30 542,894 121,634
Cash flows from investing activities
Purchase of property, plant and equipment (474,692) (425,574)
Proceeds from the sale of property, plant and equipment and other assets 6,077 14,206
Repayments of loans granted to contractors 1,567 3,479
Short-term investments 18 176,475 (295,133)
Silverstream contract 15 39,430 58,777
Interest received 4,614 5,993
Net cash used in investing activities (246,529) (638,252)
Cash flows from financing activities
Dividends paid to shareholders of the Company 20 (37,529) (86,952)
Acquisition of non-controlling interest 4(b) - (450,540)
Capital contribution 4,796 4,378
Interest paid1 21 (35,144) (43,581)
Net cash used in financing activities (67,877) (576,695)
Net increase/(decrease) in cash and cash equivalents during the year 228,488 (1,093,313)
Effect of exchange rate on cash and cash equivalents (1,408) (4,041)
Cash and cash equivalents at 1 January 154,340 1,251,694
Cash and cash equivalents at 31 December 18 381,420 154,340
1Total interest paid during the year ended 31 December 2015 less amounts capitalised as part of fixed assets projects
totalling US$11.1 million (31 December 2014: US$2.7 million).
Consolidated Statement of Changes in Equity
Year ended 31 December
Attributable to the equity holders of the Company
Notes Share Share premium Capital reserve Net unrealised gains/(losses) on revaluation Net unrealised gains/(losses) on available- Foreign currency translation reserve Retained earnings Total Non-controlling interests Total
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