REG - Fresnillo Plc - Financial Results for the Year Ended 31 Dec 2015 <Origin Href="QuoteRef">FRES.L</Origin> - Part 6
01/03/2016 07:12
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on or after Admission), the Global Offer or
Admission and (ii) certain tax aspects of certain other pre-Admission transactions. Peñoles' liability under these
indemnities and in respect of general tax liabilities arising pre-Admission which are not properly attributable to the
precious metals business of the Fresnillo Group shall not exceed US$500 million. If a member of the Fresnillo Group forming
part of Peñoles' tax consolidation pays an intra-group dividend in excess of its net income tax account ('Cuenta de
Utilidad Fiscal Neta' o 'CUFIN') account after Admission and is relieved of tax as a result of the consolidation, it is
required to pay Peñoles an amount in respect of that tax.
On 30 November 2012, the Mexican government enacted a new federal labour law. During 2014 management implemented certain
actions as a part of an ongoing process in order to manage the exposure resulting from the issuance of the new labour law
including any potential impacts on the operations and financial position of the Group, however management does not expect
any potential contingency or significant effect on the Group's financial statements as at 31 December 2015 and going
forward.
In regard to the ejido El Bajio matter previously reported by the Company:
In 2009, five members of the El Bajio agrarian community in the state of Sonora, who claimed rights over certain surface
land in the proximity of the operations of Minera Penmont ("Penmont"), submitted a legal claim before the Unitarian
Agrarian Court (Tribunal Unitario Agrario) of Hermosillo Sonora, to have Penmont vacate an area of this surface land. The
land in dispute encompassed a portion of surface area where part of the operations of Soledad-Dipolos is located. The
litigation resulted in a definitive court order, pursuant to which Penmont was ordered to vacate 1,824 hectares of land.
The disputed land was returned in July 2013, resulting in the suspension of operations at Soledad-Dipolos.
The Agrarian Magistrate noted that certain remediation activities were necessary to comply with the relevant regulatory
requirements and requested the guidance of the Federal Environmental Agency (SEMARNAT) in this respect. The Agrarian
Magistrate further issued a procedural order in execution of his ruling determining, amongst other aspects, that Penmont
must remediate the lands to the state they were in before Penmont's occupation.
In the opinion of the Company, this procedural order is excessive since this level of remediation was not part of the
original agrarian ruling and also because the procedural order appears not to consider the fact that Penmont conducted its
activities pursuant to valid mining concessions and environmental impact permits. Penmont has challenged the procedural
order before Federal courts, who have indicated that the correct procedural time for filing such complaint should be when
legal execution over lands comprising the Soledad-Dipolos pit is initiated (currently the lands are in a judicial deposit
pending final execution for delivery to claimants). Penmont conducted mining activities on approximately 300 hectares of
such lands and remediation activities in this respect are still pending.
In connection with the foregoing matters, members of the El Bajio agrarian community presented additional claims, including
a separate claim before the Unitarian Agrarian Court, claiming US$65 million in damages, alleging that the Group improperly
used the land affected by the court ruling, as well as requesting the cancellation of Penmont's mining concessions and
environmental permits within the El Bajio lands. Such concessions and permits are held by way of separate title to that
relating to the surface land. The claimants have not yet presented substantial evidence to support their claim and the
Group believes that these claims are without merit. Any initial ruling in this case would be subject to the appeals process
in Mexico before judicial authorities other than the Unitarian Agrarian Court of Hermosillo, Sonora. Given the lack of
evidence in support of the damages claim, the Company believes that an adverse and definitive ruling is not probable.
In addition, claimants have presented other claims against occupation agreements they entered into with Penmont, covering
land parcels separate from the land described above. Penmont has no significant mining operations or specific geological
interest in the affected parcels and these lands are therefore not considered strategic for Penmont. The Unitarian Agrarian
Court has issued rulings declaring (i) such occupation agreements over those land parcels to be null and void; (ii) and
that Penmont must remediate such lands to the state that they were in before Penmont's occupation as well as returning any
minerals extracted from this area; and (iii) that Penmont must pay rent for occupying the land parcels whilst the claimants
must reimburse Penmont the monies it originally paid for occupying such lands. The rulings also make reference in this same
context (including remediation and return of minerals) to the separate court case involving Soledad-Dipolos mentioned
above. Penmont has appealed these rulings since it is the owner of the mining concessions and all mining activities were
conducted in accordance with Mexican law. The ultimate result of the appeals process remains pending. In regards the
reference to Soledad-Dipolos within the scope of these land parcels cases, certain of these appeals have been decided for
the Company, some against, whilst others remain pending. However, any adverse court order involving minerals over lands
where the Soledad-Dipolos pit is located would be subject to a further appeals process, as that was a separate legal file
as described above.
Various claims and counterclaims have been made between the relevant parties in the El Bajio matter including appeals that
are pending as well as criminal complaints between the parties. There remains significant uncertainty as to the
finalisation and ultimate outcome of these legal proceedings.
28. Related party balances and transactions
The Group had the following related party transactions during the years ended 31 December 2015 and 2014 and balances as at
31 December 2015 and 2014.
Related parties are those entities owned or controlled by the ultimate controlling party, as well as those who have a
minority participation in Group companies and key management personnel of the Group.
(a) Related party balances
Accounts receivable Accounts payable
As at 31 December As at 31 December
2015 2014 2015 2014
US$ thousands US$ thousands US$ thousands US$ thousands
Trade:
Metalúrgica Met-Mex Peñoles, S.A. de C.V. 115,786 139,620 130 619
Other:
Industrias Peñoles, S.A.B. de C.V. 2,769 6,974
Servicios Administrativos Peñoles, S.A. de C.V. 366 866
Servicios Especializados Peñoles, S.A. de C.V. 1,804 -
Fuerza Eólica del Istmo S.A. de C.V. 916 -
Other 19 41 921 217
Sub-total 118,574 146,635 4,137 1,702
Less-current portion 118,574 146,635 4,137 1,702
Non-current portion - - - -
Related party accounts receivable and payable will be settled in cash.
Other balances with related parties:
Year ended 31 December
2015 2014
US$ thousands US$ thousands
Silverstream contract:
Industrias Peñoles, S.A.B. de C.V. 384,771 392,276
The Silverstream contract can be settled in either silver or cash. Details of the Silverstream contract are provided in
note 15.
(b) Principal transactions with affiliates, including Industrias Peñoles S.A.B de C.V., the Company's parent, are as
follows:
Year ended 31 December
2015 2014
US$ thousands US$ thousands
Income:
Sales:1
Metalúrgica Met-Mex Peñoles, S.A. de C.V. 1,458,413 1,413,600
Other income 982 1,047
Total income 1,459,395 1,414,647
1 Figures do not include hedging gains as the derivative transactions are not undertaken with related parties. Figures are
net of the adjustment for treatment and refining charges of US$142.8 million (2014: US$131.4 million) and includes sales
credited to development project of US$17.9 million (2014: nil).
Year ended 31 December
2015 2014
US$ thousands US$ thousands
Expenses:
Administrative services2:
Servicios Administrativos Peñoles, S.A. de C.V.3 23,655 22,080
Servicios Especializados Peñoles, S.A. de C.V. 17,701 18,545
41,356 40,625
Energy:
Termoelectrica Peñoles, S. de R.L. de C.V. 20,332 30,917
Fuerza Eólica del Istmo S.A. de C.V. 6,713 -
27,045 30,917
Operating materials and spare parts:
Wideco Inc 6,368 4,667
Metalúrgica Met-Mex Peñoles, S.A. de C.V. 3,320 4,345
9,688 9,012
Equipment repair and administrative services:
Serviminas, S.A. de C.V. 3,860 3,437
Property, plant and equipment
Equipos Industriales Naica, S.A. de C.V. 1,065 -
Insurance premiums:
Grupo Nacional Provincial, S.A. B. de C.V. 8,382 7,262
Other expenses: 2,693 7,821
Total expenses 94,089 99,074
2 Includes US$4.1 million (2014: US$4.7 million) corresponding to expenses reimbursed.
3 Includes US$8.2 million (2014: US$7.7 million) relating to engineering costs that were capitalised.
(c) Compensation of key management personnel of the Group
Key management personnel include the members of the Board of Directors and the Executive Committee who receive
remuneration.
Year ended 31 December
2015 2014
US$ thousands US$ thousands
Salaries and bonuses 3,311 3,262
Post-employment benefits 257 148
Other benefits 379 600
Total compensation paid in respect of key management personnel 3,947 4,010
Year ended 31 December
2015 2014
US$ thousands US$ thousands
Accumulated accrued defined pension entitlement 4,859 4,902
This compensation includes amounts paid to directors disclosed in the Directors' Remuneration Report.
The accumulated accrued defined pension entitlement represents benefits accrued at the time the benefits were frozen. There
are no further benefits accruing under the defined benefit scheme in respect of current services.
29. Auditor's remuneration
Fees due by the Group to its auditor during the year ended 31 December 2015 and 2014 are as follows:
Year ended 31 December
Class of services 2015 2014
US$ thousands US$ thousands
Fees payable to the Group's auditor for the audit of the Group's annual accounts 1,274 1,278
Fees payable to the Group's auditor and its associates for other services as follows:
The audit of the Company's subsidiaries pursuant to legislation 338 405
Audit-related assurance services 328 344
Tax compliance services 24 24
Tax advisory services 16 12
Other assurance services - 25
Total 1,980 2,088
30. Notes to the consolidated statement of cash flows
Notes 2015 2014
US$ thousands US$ thousands
Reconciliation of profit for the year to net cash generated from operating activities
Profit for the year 69,390 117,094
Adjustments to reconcile profit for the period to net cash inflows from operating activities:
Depreciation and amortisation 6 331,209 295,452
Employee profit sharing 8 13,170 12,885
Deferred income tax 11 47,263 (1,840)
Current income tax expense 11 95,701 135,811
Loss on the sale of property, plant and equipment and other assets 9 3,757 1,791
Write-off of property, plant and equipment 9 - 16,912
Other losses/(gains) 3,353 (973)
Impairment of available for sale financial assets 9 2,896 982
Net finance costs 41,913 48,721
Foreign exchange loss 18,991 19,103
Difference between pension contributions paid and amounts recognised in the income statement (314) 1,211
Non cash movement on derivatives (62,288) (1,565)
Changes in fair value of Silverstream 15 (27,720) (77,054)
Working capital adjustments
Decrease/(increase) in trade and other receivables 58,219 (105,242)
Decrease in prepayments and other assets 891 2,068
Decrease/(increase) in inventories 5,037 (97,472)
(Decrease)/increase in trade and other payables (12,820) 17,214
Cash generated from operations 588,648 385,098
Income tax paid (34,517) (243,085)
Employee profit sharing paid (11,237) (20,379)
Net cash from operating activities 542,894 121,634
31. Financial instruments
(a) Fair value category
As at 31 December 2015
US$ thousands
Financial assets: At fair value through profit or loss Available-for-sale investments at fair value through OCI Loans and receivables At fair value through OCI (cash flow hedges)
Trade and other receivables1 - - 127,224
Available-for-sale financial assets - 71,442 -
Silverstream contract (note 15) 384,771 - - -
Derivative financial instruments 1 - 117,074-
Financial liabilities: At fair value through profit or loss At amortised Cost At fair value through OCI (cash flow hedges)
Interest-bearing loans - 797,032 -
Trade and other payables - 97,440 -
Embedded derivatives within sales contracts1 532 - -
Derivative financial instruments - - 1,427
1 Trade and other receivables and embedded derivative within sales contracts are presented net in Trade and other
receivables in the balance sheet.
As at 31 December 2014
US$ thousands
Financial assets: At fair value through profit or loss Available-for-sale investments at fair value through OCI Loans and receivables At fair value through OCI (cash flow hedges)
Trade and other receivables1 - - 173,722 -
Available-for-sale financial assets - 86,078 -
Silverstream contract (note 15) 392,276 - - -
Derivative financial instruments 480 - - 14,551
Financial liabilities: At fair value through profit or loss At amortised Cost At fair value through OCI (cash flow hedges)
Interest-bearing loans - 796,160 -
Trade and other payables - 70,340 -
Embedded derivatives within sales contracts1 2,911 - -
Derivative financial instruments - - 27,033
1 Trade and other receivables and embedded derivative within sales contracts are presented net in Trade and other
receivables in the balance sheet.
(b) Fair value measurement
The fair value of financial assets and liabilities, together with the carrying amounts shown in the balance sheet, other
than those with carrying amounts that are a reasonable approximation of their fair values, are as follows:
As at 31 December
Carrying amount Fair value
2015 2014 2015 2014
US$ thousands US$ thousands US$ thousands US$ thousands
Financial assets:
Available-for-sale financial assets 71,442 86,078 71,441 86,078
Silverstream contract (note 15) 384,771 392,276 384,771 392,276
Derivative financial instruments 117,075 14,551 117,075 14,551
Financial liabilities:
Interest-bearing loans1 (note 21) 797,032 796,160 805,352 795,128
Embedded derivatives within sales contracts 532 2,911 532 2,911
Derivative financial instruments 1,427 27,033 1,427 27,033
1 Interest-bearing loans are categorised in Level 1 of the fair value hierarchy.
The financial assets and liabilities measured at fair value are categorised into the fair value hierarchy as at 31 December
as follows:
As of 31 December 2015
Fair value measure using
Quoted prices in active markets Level 1 Significant observable Level 2 Significant unobservable Level 3 Total
US$ thousands US$ thousands US$ thousands US$ thousands
Financial assets:
Derivative financial instruments:
Options commodity contracts 116,995 116,995
Options and forward foreign exchange contracts 80 80
Silverstream contract 384,771 384,771
117,075 384,771 501,846
Financial investments available-for-sale:
Quoted investments 71,442 71,442
71,442 117,075 384,771 573,288
Financial liabilities:
Derivative financial instruments:
Embedded derivatives within sales contracts 532 532
Options commodity contracts
Options and forward foreign exchange contracts 1,427 1,427
1,427 532 1,959
As of 31 December 2014
Fair value measure using
Quoted prices in active markets Level 1 Significant observable Level 2 Significant unobservable Level 3 Total
US$ thousands US$ thousands US$ thousands US$ thousands
Financial assets:
Derivative financial instruments:
Options commodity contracts - 14,229 - 14,229
Option and forward foreign exchange contracts - 322 - 322
Silverstream contract - - 392,276 392,276
- 14,551 392,276 406,827
Financial investments available-for-sale:
Quoted investments 86,078 - - 86,078
86,078 14,551 392,276 492,905
Financial liabilities:
Derivative financial instruments:
Embedded derivatives within sales contracts - - 2,911 2,911
Options commodity contracts - 8,704 - 8,704
Options and forward foreign exchange contracts - 18,329 - 18,329
- 27,033 2,911 29,944
There have been no significant transfers between Level 1 and Level 2 of the fair value hierarchy, and no transfers into and
out of Level 3 fair value measurements.
A reconciliation of the opening balance to the closing balance for Level 3 financial instruments other than Silverstream
(which is disclosed in note 15) is shown below:
2015 2014
US$ thousands US$ thousands
Balance at 1 January: (2,911) (1,154)
Changes in fair value (11,511) (15,489)
Realised embedded derivatives during the year 13,890 13,732
Balance at 31 December (532) (2,911)
The fair value of the financial assets and liabilities is included at the amount at which the instrument could be exchanged
in a current transaction between willing parties, other than in a forced or liquidation sale.
The following valuation techniques were used to estimate the fair values:
Option and forward foreign exchange contracts
The Group enters into derivative financial instruments with various counterparties, principally financial institutions with
investment grade credit ratings. The foreign currency forward (Level 2) contracts are measured based on observable spot
exchange rates, the yield curves of the respective currencies as well as the currency basis spreads between the respective
currencies. The foreign currency option contracts are valued using the Black Scholes model, the significant inputs to which
include observable spot exchange rates, interest rates and the volatility of the currency.
Option commodity contracts
The Group enters into derivative financial instruments with various counterparties, principally financial institutions with
investment grade credit ratings. The option commodity (Level 2) contracts are measured based on observable spot commodity
prices, the yield curves of the respective commodity as well as the commodity basis spreads between the respective
commodities. The option contracts are valued using the Black Scholes model, the significant inputs to which include
observable spot commodities price, interest rates and the volatility of the commodity.
Silverstream contract
The fair value of the Silverstream contract is determined using a valuation model (for further information relating to the
Silverstream contract see note 15). This derivative has a term of over 20 years and the valuation model utilises a number
of inputs that are not based on observable market data due to the nature of these inputs and/or the duration of the
contract. Inputs that have a significant effect on the recorded fair value are the volume of silver that will be produced
and sold from the Sabinas mine over the contract life, the future price of silver, future foreign exchange rates between
the Mexican peso and US dollar, future inflation and the discount rate used to discount future cash flows.
The estimate of the volume of silver that will be produced and sold from the Sabinas mine requires estimates of the
recoverable silver reserves and resources, the related production profile based on the Sabinas mine plan and the expected
recovery of silver from ore mined. The estimation of these inputs is subject to a range of operating assumptions and may
change over time. Estimates of reserves and resources are updated annually by Peñoles, the operator and sole interest
holder in the Sabinas mine and provided to the Company. The production profile and estimated payable silver that will be
recovered from ore mined is based on the latest plan and estimates, also provided to the Company by Peñoles. The inputs
assume no interruption in production over the life of the Silverstream contract and production levels which are consistent
with those achieved in recent years
Management regularly assesses a range of reasonably possible alternatives for those significant unobservable inputs
described above, and determines their impact on the total fair value. The significant unobservable inputs are not
interrelated. The fair value of the Silverstream is not significantly sensitive to a reasonable change in future exchange
rates, however, it is to a reasonable change in future silver price, future inflation and the discount rate used to
discount future cash flows.
The sensitivity of the valuation to the inputs relating to market risks, being the price of silver, foreign exchange rates,
inflation and the discount rate is disclosed in note 32.
Quoted investments:
Fair value of available-for-sale financial assets is derived from quoted market prices in active markets.
Interest-bearing loans
Fair value of the Group's interest-bearing loan, is derived from quoted market prices in active markets.
Embedded derivatives within sales contracts:
Sales of concentrates, precipitates and doré bars are 'provisionally priced' and revenue is initially recognised using this
provisional price and the Group's best estimate of the contained metal. Revenue is subject to final price and metal content
adjustments subsequent to the date of delivery (see note 2 (p)). This price exposure is considered to be an embedded
derivative and is separated from the sales contract.
At each reporting date, the provisionally priced metal content is revalued based on the forward selling price for the
quotational period stipulated in the relevant sales contract. The selling price of metals can be reliably measured as these
metals are actively traded on international exchanges but the estimated metal content is a non-observable input to this
valuation.
At 31 December 2015 the fair value of embedded derivatives within sales contracts was US$(0.5) million (2014: US$(2.9)
million). The revaluation effects of embedded derivatives arising from these sales contracts are recorded as an adjustment
to revenues.
(c) Derivative financial instruments
The Group enters into certain forward and option contracts in order to manage its exposure to foreign exchange risk
associated with costs incurred in Mexican pesos and other currencies. The Group also enters into option contracts to manage
its exposure to commodity price risk as described in note 2 (s).
Foreign exchange hedging
The Group has entered into a number of forward derivative contracts to hedge its exposure to fluctuations in foreign
exchange rates. The outstanding forward derivative contracts as at 31 December 2015 are as follows:
As at 31 December 2015
Term Currency Contract value Contract 2015 Fair value
(thousands) exchange rate (US$ thousands)
Euro denominated forward contracts 2016 EUR 69 EUR1:US$1.09 to EUR1:US$1.10 0.3
Swedish Krona denominated forward contracts 2016 SEK 14,463 SEK$8.41:US$1 0.6
The Group's euro-denominated forward derivative instruments mature on 11 March 2016. The Group also entered into a number
of SEK-US dollar forward contracts to hedge its exposure to fluctuations in foreign exchange rates. These derivative
instruments mature on 11 March 2016.
The Group also entered into Mexican peso-US dollar collars to hedge its exposure to fluctuations in foreign exchange rates.
Collar derivative instruments mature over the period from 11 January 2016 to 8 August 2016. The collar instruments hedge
costs denominated in Mexican peso amounting to US$198 million with a range of floor prices from MX$14.00 to MX$16.82:US$1
and weighted average rate of US$14.92 and a range of capped prices from MX$17.25 to MX$19.50:US$1 and weighted average rate
of US$18.26. The fair value of the put options at 31 December 2015 was an asset of US$0.5 million, and the fair value of
the call options at 31 December 2015 was a liability of US$1.8 million.
Forward derivative contracts that were outstanding as at 31 December 2014 were as follows:
As at 31 December 2014
Term Currency Contract value Contract 2014 Fair value
(thousands) exchange rate (US$ thousands)
Euro denominated forward contracts 2015 EUR 869 EUR1:US$1.25 to EUR1:US$1.35 (121)
Swedish Krona denominated forward contracts 2015 SEK 41,597 SEK$7.19:US$1 to SEK$7.62:US$1 (359)
The Group's euro-denominated forward derivative instruments matured on 13 March 2015 at a weighted average rate of US$1.35:
E1. The Group also entered into a number of SEK-US dollar forward contracts to hedge its exposure to fluctuations in
foreign exchange rates. These derivative instruments matured over a period from 13 March 2015 to 12 June 2015 with a
weighted average rate of SKD$7.27:US$1.
The Group also entered into Mexican peso-US dollar collars to hedge its exposure to fluctuations in foreign exchange rates.
Collar derivative instruments matured over the period from 12 January 2015 to 14 December 2015. The collar instruments
hedge costs denominated in Mexican peso amounting to US$259.5 million with a range of floor prices from MX$13.09 to
MX$14.00:US$1 and weighted average rate of US$13.45 and a range of capped prices from MX$13.50 to MX$18.13:US$1 and
weighted average rate of US$14.19. The fair value of the put options at 31 December 2014 was an asset of US$1.2 million,
and the fair value of the call options at 31 December 2014 was a liability of US$18.7 million.
Commodity price hedging
During 2014, the Group entered into gold ounce-US dollar collars to hedge its exposure to fluctuations in commodity price
as described in note 2(s) for a total amount of 1,559,689 ounces. As at 31 December 2015 the outstanding collar derivative
instruments mature over the period from 29 January 2016 to 30 December 2019 and hedge cash proceeds for the sales of gold
production amounting 1,257,516 ounces (2014: 1,524,276 ounces) with a floor price of US$1,100:1 ounce and a range of capped
prices from US$1,375 to US$1,495:1 ounce (these being the same for 2014) and weighted average price of US$1,426:1 ounce.
(2014: 1,427:1 ounce). The fair value of the put options as at 31 December 2015 was an asset of US$147.3 million (2014:
US$111.8 million), and the fair value of the call options at 31 December 2015 was a liability of US$35.1 million
(2014:US$107.4 million). In 2015 the changes in the fair value of the option contracts corresponding to the time value
amounted to US$59.7 million (2014: US$4.4) and were recorded in the income statement.
The Group also entered into lead tonnes-US dollar and zinc tonnes-US dollar collars to hedge its exposure to fluctuations
in commodity price. Lead collar derivative instruments mature over the period from 29 January 2016 to 30 December 2016 and
hedge lead production amounting 4,272 tonnes (2014: 2,261 tonnes) with a floor price of US$1,985:1 tonne (2014:US$2,100:1
tonne) and a range of capped prices from US$2,220 to US$2,310:1 tonne (2014: US$2,450 to US$2,550:1 tonne) and weighted
average price of US$2,259:1 tonne (2014: US$2,496:1 tonne). The fair value of the put options at 31 December 2015 was an
asset of US$1.0 million (2014: US$0.6million), and the fair value of the call options at 31 December 2015 was a liability
of US$0.085 million (2014: US$0.001 million). Zinc collar derivate instruments mature over the period 29 January 2016 to 30
December 2016 and hedge zinc production amounting 4,536 tonnes (2014: 8,911 tonnes) with a with a floor price of US$2,205:1
tonne (2014: range of floor prices of US$1,900 to US$2,200:1 tonne and weighted average price of US$2,100:1 tonne) and a
range of capped prices from US$2,535 to US$2,550:1 tonne (2014: US$2,400 to US$2,650: 1 tonne) and weighted average price
of US$2,542:1 tonne (2014: US$2,534:1 tonne). The fair value of the put options at 31 December 2015 was an asset of US$2.7
million (2014: US$0.5 million), and the fair value of the call options at 31 December 2015 was a liability of US$0.02
million (2014: US$0.1 million).
The following table summarises the movements in deferred gains or losses on foreign exchange and price commodity derivative
instruments qualifying for hedge accounting, net of tax effects, recorded in other comprehensive income for the year:
As at 31 December
2015 2014
US$ thousands US$ thousands
Beginning balance (9,946) 721
(Gains) recycled to revenue during the year (2,167) (3,027)
Losses/(gains) recycled to cost of sales during the year 28,589 (220)
Gains recycled to the value of other assets - (220)
Unrealised gains/(losses) before tax arising during the year 39,521 (11,771)
Deferred tax effect recorded in other comprehensive income during the year (19,783) 4,571
Ending balance 36,214 (9,946)
32. Financial risk management
Overview
The Group's principal financial assets and liabilities, other than derivatives, comprise trade receivables, cash,
available-for-sale assets, interest-bearing loans and trade payables.
The Group has exposure to the following risks from its use of financial instruments:
Market risk, including foreign currency, commodity price, interest rate, inflation rate and equity price risks
Credit risk
Liquidity risk
This note presents information about the Group's exposure to each of the above risks and the Group's objectives, policies
and processes for assessing and managing risk. Further quantitative disclosures are included throughout the financial
statements.
The Board of Directors has overall responsibility for the establishment and oversight of the Group's risk management
framework.
The Group's risk management policies are established to identify and analyse the risks faced by the Group, to set
appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems
are reviewed regularly to reflect changes in market conditions and the Group's activities. The Group, through its training
and management standards and procedures, aims to develop a disciplined and constructive control environment in which all
employees understand their roles and obligations.
The Fresnillo Audit Committee has responsibility for overseeing how management monitors compliance with the Group's risk
management policies and procedures and reviews the adequacy of the risk management framework in relation to the risks faced
by the Group. The Audit Committee is assisted in its oversight role by Internal Audit, which undertakes both regular and ad
hoc reviews of risk management controls and procedures, the results of which are reported to the Audit Committee.
(a) Market risk
Market risk is the risk that changes in market factors, such as foreign exchange rates, commodity prices or interest rates
will affect the Group's income or the value of its financial instruments.
The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while
optimising the return on risk.
Foreign currency risk
The Group has financial instruments that are denominated in Mexican peso, euro and Swedish krona which are exposed to
foreign currency risk. Transactions in currencies other than the US dollar include the purchase of services, fixed assets,
spare parts and the payment of dividends. As a result, the Group has financial assets and liabilities denominated in
currencies other than functional currency, and holds cash and cash equivalents in Mexican Peso.
In order to manage the Group's exposure to foreign currency risk on expenditure denominated in currencies other than the US
dollar, the Group has entered into certain forward and option derivative contracts with maturity dates from 2015 (see note
31 for additional detail).
The following table demonstrates the sensitivity of financial assets and financial liabilities (excluding Silverstream) to
a reasonably possible change in the US dollar exchange rate compared to the Mexican peso, reflecting the impact on the
Group's profit before tax and equity, with all other variables held constant. It is assumed that the same percentage change
in exchange rates is applied to all applicable periods for the purposes of calculating the sensitivity with relation to
derivative financial instruments.
Year ended 31 December Strengthening/ Effect on Effect on equity:
(weakening) profit before tax: increase/ increase/
of US dollar (decrease) (decrease)
US$ thousands US$ thousands
2015 10% (4,235) 7,809
(10%) 5,192 (2,213)
2014 15% (3,350) (28,970)
(5%) 616 11,513
The following table demonstrates the sensitivity of financial assets and financial liabilities to a reasonably possible
change in the US dollar exchange rate compared to the Swedish krona on the Group's profit before tax and equity, with all
other variables held constant. It is assumed that the same percentage change in exchange rates is applied to all applicable
periods. There is no impact on the Group's equity, other than the equivalent change in retained earnings.
Year ended 31 December Strengthening/ Effect on profit before tax: increase/
(weakening) of (decrease)
US dollar US$ thousands
2015 5% 213
(10%) (78)
2014 15% (515)
(10%) 572
The following table demonstrates the sensitivity of financial assets and financial liabilities (excluding Silverstream) to
a reasonably possible change in the US dollar exchange rate compared to the euro on the Group's profit before tax and
equity, with all other variables held constant. It is assumed that the same percentage change in exchange rates is applied
to all applicable periods.
Year ended 31 December Strengthening/ Effect on Effect on equity:
(weakening) profit before tax: increase/ increase/
of US dollar (decrease) (decrease)
US$ thousands US$ thousands
2015 10% - -
(10%) - -
2014 5% 52 -
(10%) 105 -
Foreign currency risk - Silverstream
Future foreign exchange rates are one of the inputs to the Silverstream valuation model. The following table demonstrates
the sensitivity of the Silverstream contract valuation to a reasonably possible change in the Mexican peso as compared to
the US dollar, with all other inputs to the Silverstream valuation model held constant. It is assumed that the same
percentage change in exchange rates is applied to all applicable periods in the valuation model. There is no impact on the
Group's equity, other than the equivalent change in retained earnings.
Year ended 31 December Strengthening/ Effect on profit before tax:
(weakening) of increase/
US dollar (decrease)
US$ thousands
2015 10% (1,622)
(10%) 1,982
2014 5% (2,427)
(10%) 2,966
Commodity risk
The Group has exposure to changes in metals prices (specifically silver, gold, lead and zinc) which have a significant
effect on the Group's results. These prices are subject to global economic conditions and industry-related cycles.
The Group uses derivative instruments to hedge against an element of gold price, see mentioned in note 2 (s).
The table below reflects the aggregate sensitivity of financial assets and liabilities (excluding Silverstream) to a
reasonably possible change in gold and silver prices, reflecting the impact on the Group's profit before tax with all other
variables held constant.
The sensitivity shown in the table below relates to
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