REG - Fresnillo Plc - Financial Results for the Year Ended 31 Dec 2015 <Origin Href="QuoteRef">FRES.L</Origin> - Part 5
01/03/2016 07:12
- Part 5: For the preceding part double click ID:nRSA5523Qd
(17,551) 1,933
Derivative financial instruments including Silverstream contract (137,396) (95,080) 44,468 23,102
Property, plant and equipment arising from corporate income tax (330,939) (285,281) 38,313 49,981
Operating liabilities 19,871 42,171 35,674 (37,241)
Other payables and provisions 58,643 46,141 (12,502) (8,039)
Losses carried forward 88,593 50,736 (37,857) (2,967)
Post-employment benefits 2,049 1,951 (98) 169
Deductible profit sharing 3,740 4,682 (312) 1,386
Special mining right deductible for corporate income tax 21,065 23,862 (1,965) (13,014)
Available-for-sale financial assets (756) (5,147) (4,391) (295)
Other (4,192) (4,569) (365) 223
Net deferred tax liability related to corporate income tax (283,672) (228,097)
Deferred tax credit related to corporate income tax - - 39,378 (16,629)
Related party receivables arising from special mining right (15,207) (16,778) (1,571) 16,778
Inventories arising from special mining right 9,616 11,896 2,280 (11,896)
Property plant and equipment arising from special mining right (52,932) (46,067) 6,865 9,907
Net deferred tax liability (342,195) (279,046)
Deferred tax charge/(credit) 46,952 (1,840)
Reflected in the statement of financial position as follows:
Deferred tax assets 30,814 57,705
Deferred tax liabilities-continuing operations (373,009) (336,751)
Net deferred tax liability (342,195) (279,046)
Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax
assets against current tax liabilities and when the deferred income tax assets and liabilities relate to the same fiscal
authority.
On the basis of management's internal forecast, a deferred tax asset has been recognised in respect of tax losses amounting
to US$295.3 million (2014: US$169.1 million). To the extent unutilised, US$12.0 million will expire within five years and
US$283.3 million will expire between six and ten years.
The Group has further tax losses and other similar attributes carried forward of US$23.0 million (2014: US$15.0 million) on
which no
deferred tax is recognised due to insufficient certainty regarding the availability of appropriate future taxable profits.
(d) Unrecognised deferred tax on investments in subsidiaries
The Group has not recognised all of the deferred tax liability in respect of distributable reserves of its subsidiaries
because it controls them and only part of the temporary differences are expected to reverse in the foreseeable future. The
temporary differences for which a deferred tax liability has not been recognised aggregate to US$1,449 million (2014:
US$1,528 million).
(e) Corporate Income Tax ('Impuesto Sobre la Renta' or 'ISR') and Special Mining Right ("SMR")
The Group's principal operating subsidiaries are Mexican residents for taxation purposes. The rate of current corporate
income tax is 30%.
As part of the income tax reform in Mexico enacted at the end of 2013 and effective 1 January 2014, the tax law changed in
respect of the treatment of certain mining related expenditure for tax purposes. As at 31 December 2014, there was
uncertainty in relation to the tax treatment of certain expenditure incurred in the year. As a result, in calculating the
tax provision as at 31 December 2014, the Group deducted only a portion of the total related expenditure incurred in the
year. A deferred tax asset in respect of the remaining future tax benefit was also recognised. Subsequent to the approval
of the Annual Report 2014, management performed further analysis of this expenditure ahead of submitting tax computations
and concluded that this expenditure incurred in 2014 is deductible in full for tax purposes. The Group has submitted tax
computations for 2014 on this basis. As a result, the Group has reflected a reduction of US$29.1 million in current tax in
respect of previous periods. There is a corresponding increase in the deferred tax expense and, therefore, no impact on the
total effective tax rate.
The SMR is considered as income tax under IFRS, and states that the owners of mining titles and concessions are subject to
pay an annual mining right of 7.5% of the profit derived from the extractive activities. The SMR allows as a credit the
payment of mining concessions rights up to the amount of SMR payable The 7.5% tax apply to a base of income before
interest, annual inflation adjustment, taxes paid on the regular activity, depreciation and amortization, as defined by the
new ISR. This SMR can be credited against the corporate income tax of the same fiscal year and its payment must be remitted
no later than the last business day of March of the following year.
12. Earnings per share
Earnings per share ('EPS') is calculated by dividing profit for the year attributable to equity shareholders of the Company
by the weighted average number of Ordinary Shares in issue during the period.
The Company has no dilutive potential Ordinary Shares.
As of 31 December 2015 and 2014, earnings per share have been calculated as follows:
Year ended 31 December
2015 2014
US$ thousands US$ thousands
Earnings:
Profit from continuing operations attributable to equity holders of the Company 70,523 108,449
Adjusted profit from continuing operations attributable to equity holders of the Company 51,119 54,511
Adjusted profit is profit as disclosed in the Consolidated Income Statement adjusted to exclude revaluation effects of the
Silverstream contract of US$27.7 million gain (US$19.4 million net of tax) (2014: US$77.1 million loss (US$53.9 million net
of tax)).
Adjusted earnings per share have been provided in order to provide a measure of the underlying performance of the Group,
prior to the revaluation effects of the Silverstream contract, a derivative financial instrument.
2015 2014
thousands thousands
Number of shares:
Weighted average number of Ordinary Shares in issue 736,894 736,894
2015 2014
US$ US$
Earnings per share:
Basic and diluted earnings per share 0.096 0.147
Adjusted basic and diluted earnings per Ordinary Share from continuing operations 0.069 0.074
13. Property, plant and equipment
Year ended 31 December 2014
Land and Plant and Equipment Mining properties and development costs Other assets Construction in Progress Total
buildings
US$ thousands
Cost
At 1 January 2014 139,628 1,213,781 940,051 163,269 335,109 2,791,838
Additions 3,344 40,796 66,080 22,176 333,394 465,790
Disposals (6,633) (11,484) - (6,555) (559) (25,231)
Write-off of property, plant and equipment2 - (28,505) - (2,010) - (30,515)
Transfers and other movements 17,007 128,474 87,993 2,151 (235,625) -
At 31 December 2014 153,346 1,343,062 1,094,124 179,031 432,319 3,201,882
Accumulated depreciation
At 1 January 2014 (51,952) (395,869) (449,452) (56,441) - (953,714)
Depreciation for the year1 (11,785) (179,280) (109,431) (13,012) - (313,508)
Disposals 2,749 11,380 - 7,026 - 21,155
Write-off of property, plant and equipment2 - 12,062 - 1,541 - 13,603
At 31 December 2014 (60,988) (551,707) (558,883) (60,886) - (1,232,464)
Net Book amount at 31 December 2014 92,358 791,355 535,241 118,145 432,319 1,969,418
Year ended 31 December 2015
Land and Plant and Equipment Mining properties and development costs Other assets Construction in Progress Total
buildings
US$ thousands
Cost
At 1 January 2015 153,346 1,343,062 1,094,124 179,031 432,319 3,201,882
Additions 2,432 10,518 33,236 36,290 442,384 524,860
Disposals (518) (23,028) (11,493) (1,555) - (36,594)
Transfers and other movements 17,941 117,387 173,539 4,213 (313,080) -
At 31 December 2015 173,201 1,447,939 1,289,406 217,979 561,623 3,690,148
Accumulated depreciation
At 1 January 2015 (60,988) (551,707) (558,883) (60,886) - (1,232,464)
Depreciation for the year1 (13,347) (188,647) (129,586) (13,693) - (345,273)
Disposals 165 14,592 10,052 1,368 - 26,177
At 31 December 2015 (74,170) (725,762) (678,417) (73,211) - (1,551,560)
Net Book amount at 31 December 2015 99,031 722,177 610,989 144,768 561,623 2,138,588
1 Depreciation for the year includes US$331.2 million (2014: 295.5 million) recognised as an expense in the cost of
sales in the income statement and US$14 million (2014: 18 million), capitalised as part of construction in progress.
2 The Company re-assessed its plans for the Soledad and Dipolos operations and decided to write-off the carrying value
of certain property, plant and equipment that could not be utilised or reassigned, or remains at the site and is no longer
considered to have a future economic benefit to the Group. The net charge for the year ended 31 December 2015 was US$ nil
(2014: US$ 16.9 million) and is reflected in other operating expenses.
The table below details construction in progress by segment
Year ended 31 December
2015 2014
US$ thousands US$ thousands
Saucito 2,312 22,382
Herradura 36,868 24,339
Soledad-Dipolos - 101
Noche Buena 3,354 4,183
Cienega 13,280 19,839
Fresnillo 438,973 299,590
Other 66,836 61,885
561,623 432,319
During the year ended 31 December 2015, the Group capitalised US$11.1 million borrowing costs within construction in
progress (2014: US$ 2.7). Borrowing costs were capitalised at the rate of 5.78% (2014: 5.78%).
Sensitivity analysis
As at 31 December 2015 and 2014, the carrying amount of mining assets was fully supported by the higher of value in use and
fair value less cost of disposal (FVLCD) computation of their recoverable amount. Value in use and FVLCD was determined
based on the net present value of the future estimated cash flows expected to be generated from the continued use of the
CGUs. For both models Management used price assumptions of US$1,200/ounce and US$18/ounce (2014: US$1,250/ounce and
US$18/ounce) for gold and silver, respectively. Management consider that the models supporting the carrying amounts are
most sensitive to commodity price assumptions and have therefore performed a sensitivity analysis for those CGUs, where a
reasonable possible change in prices could lead to impairment. As at 31 December 2015 the carrying amount of Herradura
mine is US$ 654.2 million and Noche Buena mine is US$118.8 million (2014: Cienega mine US$240.5 million and Noche Buena
mine US$141 million)
The following table sets out the approximate expected impairment which would be recognised in 2015 and 2014 at hypothetical
decreases in commodity prices:
Decrease in commodity prices Herradura Cienega Noche Buena
US$ thousands US$ thousands US$ thousands
Gold Silver
Year ended 31 December
2015 Low sensitivity 5% 10% - - -
High sensitivity 10% 20% 131,625 - 4,738
2014 Low sensitivity 5% 10% - 18,033 -
High sensitivity 10% 20% - 127,124 37,986
14. Available-for-sale financial assets
Year ended 31 December
2015 2014
US$ thousands US$ thousands
Beginning balance 86,078 63,245
Fair value change (14,636) 22,833
Ending balance 71,442 86,078
At 31 December 2015, several investments in quoted shares decreased below the cost paid by the Group. This decrease has
been consistent during the past 12-month period, which is considered to be prolonged, therefore an impairment of US$2.9
million was recognized as other expenses in the income statement. (2014: US$1.0 million).
The fair value of the available-for-sale financial assets is determined by reference to published price quotations in an
active market.
15. Silverstream contract
On 31 December 2007, the Group entered into an agreement with Peñoles through which it is entitled to receive the proceeds
received by the Peñoles Group in respect of the refined silver sold from the Sabinas Mine ('Sabinas'), a base metals mine
owned and operated by the Peñoles Group, for an upfront payment of US$350 million. In addition, a per ounce cash payment of
$2.00 in years one to five and $5.00 thereafter (subject to an inflationary adjustment commencing on 31 December 2013) is
payable to Peñoles. The cash payment per ounce for the year ended 31 December 2015 was $5.10 per ounce (2014: $5.05 per
ounce). Under the contract, the Group has the option to receive a net cash settlement from Peñoles attributable to the
silver produced and sold from Sabinas, to take delivery of an equivalent amount of refined silver or to receive settlement
in the form of both cash and silver. If, by 31 December 2032, the amount of silver produced by Sabinas is less than 60
million ounces, a further payment is due from Peñoles of US$1 per ounce of shortfall.
The Silverstream contract represents a derivative financial instrument which has been recorded at fair value and classified
within non-current and current assets as appropriate. Changes in the contract's fair value, other than those represented by
the realisation of the asset through the receipt of either cash or refined silver, are charged or credited to the income
statement. In the year ended 31 December 2015 total proceeds received in cash were US$39.4 million (2014: US$58.7 million)
of which, US$6.9 million was in respect of proceeds receivable as at 31 December 2014 (2014: US$8.1 million). Cash received
in respect of the year of US$32.5 million (2014: US$50.6 million) corresponds to 3.6 million ounces of payable silver
(2014: 4.1 million ounces). As at 31 December 2015, a further US$2.8 million (2014: US$6.9 million) of cash corresponding
to 317,521 ounces of silver is due (2014: 638,681 ounces).
The US$27.7 million unrealised gain recorded in the income statement (2014: US$77.1 million gain) resulted from the
updating of assumptions used to value the Silverstream contract. The most significant of these were an increase of the
Sabinas mine silver reserves, the decrease of the reference discount rate (LIBOR) and the difference between the payments
already received in 2015 and payments estimated in the valuation model as of 31 December 2014. These were partially offset
by an increase of the spread used to calculate the discount rate and a decrease in the forward price of silver which was
lower than the previous year.
A reconciliation of the beginning balance to the ending balance is shown below:
2015 2014
US$ thousands US$ thousands
Balance at 1 January: 392,276 372,846
Cash received in respect of the year (32,456) (50,650)
Cash receivable (2,769) (6,974)
Remeasurement gains recognised in profit and loss 27,720 77,054
Balance at 31 December 384,771 392,276
Less - Current portion 26,607 33,311
Non-current portion 358,164 358,965
See note 31 for further information on the inputs that have a significant effect on the fair value of this derivative, see
note 32 for further information relating to market and credit risks associated with the Silverstream asset, and note 2(c)
for the estimates and assumptions
16. Inventories
As at 31 December
2015 2014
US$ thousands US$ thousands
Finished goods1 1,711 2,094
Work in progress2 251,900 252,826
Operating materials and spare parts 73,104 70,904
326,715 325,824
Accumulated write-down of work in progress inventory3 (22,578) (17,565)
Allowance for obsolete and slow-moving inventories (3,562) (2,647)
Balance as 31 December at lower of cost and net realisable value 300,575 305,612
Less - Current portion 224,200 221,200
Non-current portion4 76,375 84,412
1 Finished goods include metals contained in concentrates and doré bars, and concentrates on hand or in transit to a
smelter or refinery.
2 Work in progress includes metals contained in ores on leaching pads.
3 Corresponds to ore inventory of Noche Buena and Soledad-Dipolos mines resulting from net realizable value
calculations.
4 The non-current inventories are expected to be processed more than 12 months from the reporting date.
Concentrates are a product containing sulphides with variable content of precious and base metals and are sold to smelters
and/or refineries. Doré is an alloy containing a variable mixture of gold and silver that is delivered in bar form to
refineries. This content once processed by the smelter and refinery is sold to customers in the form of refined products.
The amount of inventories recognised as an expense in the year was US$1,001.0 million (2014: US$846.4 million). The amount
of write down of inventories and allowance for obsolete and slow-moving inventory recognised as an expense was US$5.9
million (2014: US$18.2 million).
17. Trade and other receivables
Year ended 31 December
2015 2014
US$ thousands US$ thousands
Trade receivables from related parties (note 28)1 115,805 139,620
Value Added Tax receivable 99,948 106,903
Advances and other receivable from contractors 13,641 22,589
Other receivables from related parties (note 28) 2,769 7,015
Loans granted to contractors 2,595 2,866
Other receivables arising on the sale of fixed assets 759 6,009
Other receivables 2,775 2,911
238,292 287,913
Provision for impairment of 'other receivables' (300) (318)
Trade and other receivables classified as current assets 237,992 287,595
Other receivables classified as non-current assets:
Loans granted to contractors 2,289 3,853
2,289 3,853
240,281 291,448
1 Trade receivables from related parties' includes the fair value of embedded derivatives arising due to provisional
pricing in sales contracts of US$(0.5) million as at 31 December 2015 (2014: US$(2.9) million).
Trade receivables are shown net of any corresponding advances, are non-interest bearing and generally have payment terms of
46 to 60 days.
Loans granted to contractors bear interest of between LIBOR plus 1.5% to LIBOR plus 3% and mature over two years.
The total receivables denominated in US$ were US$127 million (2014: US$167 million), and in pesos US$113.3 million (2014:
US$124.4 million).
As of 31 December for each year presented, with the exception of 'other receivables' in the table above, all trade and
other receivables were neither past due nor impaired. The amount past due and considered as impaired as of 31 December 2015
is US$0.3 million (2014: US$0.3 million).
In determining the recoverability of receivables, the Group performs a risk analysis considering the type and age of the
outstanding receivable and the credit worthiness of the counterparty, see note 32(b).
18. Cash and cash equivalents and short term investments
The Group considers cash and cash equivalents and short term investments when planning its operations and in order to
achieve its treasury objectives.
As at 31 December
2015 2014
US$ thousands US$ thousands
Cash at bank and on hand 4,104 3,979
Short-term deposits 377,316 150,361
Cash and cash equivalents 381,420 154,340
Cash at bank earns interest at floating rates based on daily bank deposits. Short-term deposits are made for varying
periods of between one day and four months, depending on the immediate cash requirements of the Group, and earn interest at
the respective short-term deposit rates. Short-term deposits can be withdrawn at short notice without any penalty or loss
in value.
As at 31 December
2015 2014
US$ thousands US$ thousands
Short-term investments 118,718 295,000
Short-term investments are made for fixed periods no longer than four months and earn interest at fixed rates without an
option for early withdrawal. As at 31 December 2015 short-term investments are held in fixed-term bank deposits of
US$118,718 (31 December 2014: US$295,000).
19. Equity
Share capital and share premium
Authorised share capital of the Company is as follows:
As at 31 December
2015 2014
Class of share Number Amount Number Amount
Ordinary Shares each of US$0.50 1,000,000,000 $500,000,000 1,000,000,000 $500,000,000
Sterling Deferred Ordinary Shares each of £1.00 50,000 £50,000 50,000 £50,000
Issued share capital of the Company is as follows:
Ordinary Shares Sterling Deferred Ordinary Shares
Number US$ Number £
At 1 January 2014 736,893,589 $368,545,586 50,000 £50,000
At 31 December 2014 736,893,589 $368, 545,586 50,000 £50,000
At 31 December 2015 736,893,589 $368, 545,586 50,000 £50,000
As at 31 December 2015 and 2014, all issued shares with a par value of US$0.50 each are fully paid. The rights and
obligations attached to these shares are governed by law and the Company's Articles of Association. Ordinary shareholders
are entitled to receive notice and to attend and speak at any general meeting of the Company. There are no restrictions on
the transfer of the Ordinary shares.
The Sterling Deferred Ordinary Shares only entitle the shareholder on winding up or on a return of capital to payment of
the amount paid up after repayment to Ordinary Shareholders. The Sterling Deferred Ordinary Shares do not entitle the
holder to payment of any dividend, or to receive notice or to attend and speak at any general meeting of the Company. The
Company may also at its option redeem the Sterling Deferred Ordinary Shares at a price of £1.00 or, as custodian, purchase
or cancel the Sterling Deferred Ordinary Shares or require the holder to transfer the Sterling Deferred Ordinary Shares.
Except at the option of the Company, the Sterling Deferred Ordinary Shares are not transferrable.
Reserves
Share premium
This reserve records the consideration premium for shares issued at a value that exceeds their nominal value.
Capital reserve
The capital reserve arose as a consequence of the Pre-IPO Reorganisation as a result of using the pooling of interest
method.
Net unrealised gains/(losses) on revaluation of cash flow hedges
This reserve records the portion of the gain or loss on a hedging instrument in a cash flow hedge that is determined to be
an effective hedge, net of tax. When the hedged transaction occurs, the gain or the loss is transferred out of equity to
the income statement or the value of other assets.
Unrealised gains/(losses) on available-for-sale financial assets
This reserve records fair value changes on available-for-sale investments, net of tax. On disposal or on impairment, the
cumulative changes in fair value are recycled to the income statement.
Foreign currency translation reserve
The foreign currency translation reserve is used to record exchange differences arising from the translation of the
financial information of entities with a functional currency different to that of the presentational currency of the
Group.
Retained earnings/accumulated losses
This reserve records the accumulated results of the Group, less any distributions and dividends paid.
20. Dividends declared and paid
The dividends declared and paid during the years ended 31 December 2015 and 2014 are as follows:
US cents per Amount
Ordinary Share US$ thousands
Year ended 31 December 2015
Final dividend for 2014 declared and paid during the year1 3.0 22,107
Interim dividend for 2015 declared and paid during the year2 2.1 15,475
5.1 37,582
Year ended 31 December 2014
Final dividend for 2013 declared and paid during the year3 6.8 50,109
Interim dividend for 2014 declared and paid during the year4 5.0 36,845
11.8 86,954
1 This dividend was approved by the Board of Directors on 18 May 2015 and paid on 22 May 2015.
2 This dividend was approved by the Board of Directors on 3 August 2015 and paid on 10 September 2015.
3 This dividend was approved by the Board of Directors on 16 May 2014 and paid on 22 May 2014.
4 This dividend was approved by the Board of Directors on 4 August 2014 and paid on 11 September 2014.
21. Interest-bearing loans
Senior Notes
On 13 November 2013, the Group completed its offering of US$800 million aggregate principal amount of 5.500% Senior Notes
due 2023 (the "notes").
Movements in the year in the debt recognised in the balance sheet are as follows:
As at 31 December
2015 US$ thousands 2014 US$ thousands
Opening balance 796,160 795,306
Accrued interest 46,267 46,267
Interest paid1 (46,267) (46,267)
Amortisation of discount and transaction costs 872 854
Closing balance 797,032 796,160
1 Accrued interest is payable semi-annually on 13 May and 13 November.
22. Provision for mine closure cost
The provision represents the discounted values of the estimated cost to decommission and rehabilitate the mines at the
estimated date of depletion of mine deposits. The discount rate used in the calculation of the provision as at 31 December
2015 is in a range of 4.65% to 7.13% (2014: range of 3.22% to 7.51%). Uncertainties in estimating these costs include
potential changes in regulatory requirements, decommissioning, dismantling, reclamation alternatives, timing, and the
discount, foreign exchange and inflation rates applied.
Mexican regulations regarding the decommissioning and rehabilitation of mines are limited and less developed in comparison
to regulations in many other jurisdictions. It is the Group's intention to rehabilitate the mines beyond the requirements
of Mexican law, and estimated costs reflect this level of expense. The Group intends to fully rehabilitate the affected
areas at the end of the life of the mines.
The provision is expected to become payable at the end of the production life of each mine, based on the reserves and
resources, which ranges from 4 to 21 years from 31 December 2015 (3 to 19 years from 31 December 2014).
As at 31 December
2015 2014
US$ thousands US$ thousands
Opening balance 153,802 127,008
Increase to existing provision 48,680 30,922
Effect of changes in discount rate 7,341 3,051
Unwinding of discount 8,586 8,725
Payments - (452)
Foreign exchange (22,933) (15,452)
Closing balance 195,476 153,802
23. Pensions and other post-employment benefit plans
The Group has a defined contribution plan and a defined benefit plan.
The defined contribution plan was established as from1 July 2007 and consists of periodic contributions made by each
non-unionised worker and contributions made by the Group to the fund matching workers' contributions, capped at 8% of the
employee's annual salary.
The defined benefit plan provides pension benefits based on each worker's earnings and years of services provided by
personnel hired through 30 June 2007 as well as statutory seniority premiums for both unionised and non-unionised workers.
The overall investment policy and strategy for the Group's defined benefit plan is guided by the objective of achieving an
investment return which, together with contributions, ensures that there will be sufficient assets to pay pension benefits
and statutory seniority premiums for non-unionised workers as they fall due while also mitigating the various risks of the
plan. However, the portion of the plan related to statutory seniority premiums for unionised workers is not funded. The
investment strategies for the plan are generally managed under local laws and regulations. The actual asset allocation is
determined by current and expected economic and market conditions and in consideration of specific asset class risk in the
risk profile. Within this framework, the Group ensures that the trustees consider how the asset investment strategy
correlates with the maturity profile of the plan liabilities and the respective potential impact on the funded status of
the plan, including potential short term liquidity requirements.
Death and disability benefits are covered through insurance policies.
The following tables provide information relating to changes in the defined benefit obligation and the fair value of plan
assets:
Pension cost charge to income statement Remeasurement gains/(losses) in OCI
Balance at 1 January 2015 PastService cost Service cost Net Interest Foreign Exchange Sub-total recognised in the year Benefits paid Return on plan assets (excluding amounts included Actuarial changes arising from changes in Actuarial changes arising from changes in financial Experience adjustments Foreign exchange Sub-total included in OCI Contributions by employer Defined benefit increase due to personnel transfer Balance at 31 December 2015
in net interest demographic assumptions assumptions
US$ thousands
Defined benefit obligation (33,664) - (1,024) (1,981) 5,085 2,080 1,031 - (577) (1,160) 170 - (1,567) - (45) (32,165)
Fair value on plan assets 19,826 - - 1,121 (2,954) (1,833) (758) (706) - - - - (706) 1,065 37 17,631
Net benefit liability (13,838) - (1,024) (860) 2,131 247 273 (706) (577) (1,160) 170 - (2,273) 1,065 (8) (14,534)
Pension cost charge to income statement Remeasurement gains/(losses) in OCI
Balance at 1 January 2014 PastService cost Service cost Net Interest Foreign Exchange Sub-total recognised in the year Benefits paid Return on plan assets (excluding amounts included Actuarial changes arising from changes in Actuarial changes arising from changes in financial Experience adjustments Foreign exchange Sub-total included in OCI Contributions by employer Defined benefit increase due to personnel transfer Balance at 31 December 2014
in net interest demographic assumptions assumptions
US$ thousands
Defined benefit obligation (34,001) (1,028) (886) (2,121) 3,935 (100) 1,643 - (324) - (898) - (1,222) - 16 (33,664)
Fair value on plan assets 22,526 - - 1,381 (2,493) (1,112) (1,643) (629) - - - - (629) 645 (16) 19,826
Net benefit liability (11,475) (1,028) (886) (740) 1,442 (1,212) - (629) (324) - (898) - (1,851) 645 - (13,838)
Of the total defined benefit obligation, US$8.6 million (2014: US$8.9 million) relates to statutory seniority premiums for
unionised workers which are not funded. The expected contributions to the plan for the next annual reporting period are
nil.
The principal assumptions used in determining pension and other post-employment benefit obligations for the Group's plans
are shown below:
As at 31 December
2015 2014
% %
Discount rate 6.79 7.0
Future salary increases (NCPI) 5.0 5.0
The mortality assumptions are that for current and future pensioners, men and women aged 65 will live on average for a
further 20.2 and 23.4 years respectively (2014 18.9 years for men and 22.4 for women). The weighted average duration of the
defined benefit obligation is 11.71 years (2014: 12.35 years).
The fair values of the plan assets were as follows:
As at 31 December
2015 2014
US$ thousands US$ thousands
Government debt 1,084 1,657
State owned companies 3,017 2,191
Mutual funds (fixed rates) 13,530 15,978
17,631 19,826
The pension plan has not invested in any of the Group's own financial instruments nor in properties or assets used by the
Group.
A quantitative sensitivity analysis for significant assumptions as at 31 December 2015 is as shown below:
Assumptions Discount rate Future salary increases(NCPI) Life expectancy of pensioners
Sensitivity Level 0.5% Increase 0.5% Decrease 0.5% increase 0.5% decrease + 1 Increase
(Decrease)/increase to the net defined benefit obligation (US$ thousands) (1,699) 2,197 464 (111) 468
The sensitivity analysis above has been determined based on a method that extrapolates the impact on net defined benefit
obligation as a result of reasonable changes in key assumptions occurring at the end of the reporting period. The pension
plan is not sensitive to future changes in salaries other than in respect of inflation.
24. Trade and other payables
As at 31 December
2015 2014
US$ thousands US$ thousands
Trade payables 53,303 68,638
Other payables to related parties (note 28) 4,137 1,702
Accrued expenses 15,988 20,193
Other taxes and contributions 16,202 9,818
89,630 100,351
Trade payables are mainly for the acquisition of materials, supplies and contractor services. These payables do not accrue
interest and no guarantees have been granted. The fair value of trade and other payables approximate their book values.
The Group's exposure to currency and liquidity risk related to trade and other payables is disclosed in note 32.
25. Commitments
A summary of capital expenditure commitments by operating segment is as follows:
As at 31 December
2015 2014
US$ thousands US$ thousands
Saucito 29,131 44,312
Herradura 13,897 9,236
Noche Buena 285 691
Cienega 7,685 2,290
Fresnillo 92,482 172,774
Other 2,029 4,927
145,509 234,230
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26. Operating leases
(a) Operating leases as lessor
Future minimum rentals receivable under non-cancellable operating leases are as follows:
As at 31 December
2015 2014
US$ thousands US$ thousands
Within one year 1,984 4,434
After one year but not more than five years 487 3,710
2,471 8,144
(b) Operating leases as lessee
The Group has financial commitments in respect of non-cancellable operating leases for land, offices and equipment. These
leases have renewal terms at the option of the lessee with future lease payments based on market prices at the time of
renewal. There are no restrictions placed upon the Group by entering into these leases.
The Group has put in place several arrangements to finance mine equipment through loans and the sale of mine equipment to
contractors. In both cases, contractors are obligated to use these assets in rendering services to the Group as part of the
mining work contract, during the term of financing or credit, which ranges from two to six years. The Group considers that
the related mining work contracts contain embedded operating leases.
The future minimum rental commitments under these leases are as follows:
As at 31 December
2015 2014
US$ thousands US$ thousands
Within one year 2.720 7,143
After one year but not more than five years 3,115 2,724
5,835 9,867
As at 31 December
2015 2014
US$ thousands US$ thousands
Minimum lease payments expensed in the year 8,008 12,217
27. Contingencies
As of 31 December 2015, the Group has the following contingencies:
The Group is subject to various laws and regulations which, if not observed, could give rise to penalties.
Tax periods remain open to review by the Mexican tax authorities in respect of income taxes for five years following the
date of the filing of corporate income tax returns, during which time the authorities have the right to raise additional
tax assessments including penalties and interest. Under certain circumstances, the reviews may cover longer periods.
In addition, because a number of tax periods remain open to review by the tax authorities, there is a risk that
transactions, and in particular related party transactions, that have not been challenged in the past by the authorities,
may be challenged by them in the future, and this may result in the raising of additional tax assessments plus penalties
and interest. It is not practical to determine the amount of any such potential claims or the likelihood of any
unfavourable outcome. However, management believes that its interpretation of the relevant legislation is appropriate and
that the Group has complied with all regulations and paid or accrued all taxes and withholdings that are applicable.
On 8 May 2008, the Company and Peñoles entered into the Separation Agreement (the 'Separation Agreement'). This agreement
relates to the separation of the Group and the Peñoles Group and governs certain aspects of the relationship between the
Fresnillo Group and the Peñoles Group following the initial public offering in May 2008 ('Admission'). The Separation
Agreement provides for cross-indemnities between the Company and Peñoles so that, in the case of Peñoles, it is held
harmless against losses, claims and liabilities (including tax liabilities) properly attributable to the precious metals
business of the Group and, in the case of the Company, it is held harmless by Peñoles against losses, claims and
liabilities which are not properly attributable to the precious metals business. Save for any liability arising in
connection with tax, the aggregate liability of either party under the indemnities shall not exceed US$250 million in
aggregate.
Peñoles has agreed to indemnify the Fresnillo Group in relation to (i) any tax charge, subject to certain exceptions, the
Company may incur as a result of the Pre-IPO Reorganisation (including as a result of a transaction following Admission of
a member of the Fresnillo Group, provided that Peñoles has confirmed that the proposed transaction will not give rise to a
tax charge, or as a result of a transaction of a member of the Peñoles Group
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