- Part 2: For the preceding part double click ID:nRSD4641Ga
metal (US$ millions)
2014 2013 VolumeVariance PriceVariance TotalUS$ %
US$ million % US$ million %
Silver 714.9 46 842.9 48 30.7 (158.7) (128.0) (15.2)
Gold 720.5 47 831.7 47 (27.3) (83.8) (111.1) (13.4)
Lead 51.5 3 47.6 3 5.7 (1.9) 3.9 8.2
Zinc 58.1 4 39.7 2 11.9 6.4 18.3 46.3
Total adjusted revenues 1,545.0 100 1,761.9 100 21.1 (238.0) (216.9) (12.3)
1 Adjusted revenue is revenue as disclosed in the income statement adjusted to exclude treatment and refining charges.
In 2014, silver and gold contributed in nearly equal parts to adjusted revenues. In terms of adjusted revenues by mine,
Fresnillo remained the main contributor to adjusted revenues, albeit with a lower contribution. Saucito and Noche Buena
increased their contributions as a result of their respective expansions that increased sales volumes. In contrast, the
lower gold and silver ore grades at Ciénega combined with the lower precious metal prices resulted in a decrease in its
contribution to adjusted revenues. At Herradura, the lower gold price was the main driver reducing its contribution to
consolidated adjusted revenues.
Adjusted revenues by metal
2014 2013
Gold 47% 47%
Silver 46% 48%
Zinc 4% 2%
Lead 3% 3%
TOTAL 100% 100%
Adjusted revenues by mine
2014 2013
Fresnillo 460.3 588.3
Saucito 372.5 326.3
Herradura 342.7 379.4
Ciénega 206.0 250.7
Noche Buena 163.5 148.4
Soledad-Dipolos 0.0 68.8
TOTAL 1,545.0 1,761.9
Volumes of metal sold
2014 2013 % Change
Silver (koz)
Fresnillo 19,513 21,709 (10.1)
Saucito 14,684 11,073 32.6
Ciénega 3,427 3,760 (8.9)
Herradura 673 295 128.0
Noche Buena 100 47 111.9
Soledad-Dipolos 0 30 (100.0)
TOTAL SILVER (koz) 38,398 36,914 4.0
Gold (koz)
Fresnillo 32 29 8.6
Saucito 53 42 26.4
Ciénega 97 107 (9.3)
Herradura 264 262 0.5
Noche Buena 128 107 19.7
Soledad-Dipolos 0 47 (100.0)
TOTAL GOLD (koz) 573 594 (3.5)
Lead (mt)
Fresnillo 12,754 13,821 (7.7)
Saucito 8,959 4,835 85.3
Ciénega 3,655 3,934 (7.1)
TOTAL LEAD (mt) 25,369 22,591 12.3
Zinc (mt)
Fresnillo 12,657 12,385 2.2
Saucito 8,643 3,772 129.2
Ciénega 5,399 4,694 15.0
TOTAL ZINC (mt) 26,699 20,851 28.1
Cost of sales
2014US$ million 2013US$ million AmountUS$ Change%
Adjusted production costs4 678.0 567.7 110.3 19.4
Depreciation and amortisation 296.2 239.3 56.8 23.7
Change in work in progress and inventory write down (104.7) (1.3) (103.4) >100
Profit sharing 12.6 20.2 (7.6) (37.4)
Hedging 1.1 (4.3) 5.4 N/A
Unproductive costs and others 9.5 26.1 (16.7) (63.8)
Cost of sales 892.6 847.7 44.9 5.3
4Adjusted production costs is calculated as total production costs less depreciation, profit sharing and the effects of
exchange rate hedging
Cost of sales totalled US$892.6 million, an increase of 5.3% over 2013. The US$44.9 million increase is explained by a
combination of factors:
· Adjusted production costs (+US$110.3 million): The increase was mainly driven by: i) the increased ore throughput at
Noche Buena, Saucito and Ciénega (+US$60.5 million); ii) the temporarily higher stripping ratios at Herradura and Noche
Buena in accordance with current mine plans (+US$47.6 million); iii) the increased variable costs recorded as a result of
the resumed operations at Herradura compared to 2013 when costs were more distorted as a result of the halted operations
following the suspension of the explosives permits (+US$43.1 million); and iv) the additional production costs as a result
of the start-up of the dynamic leaching plant (+US$20.5 million). These adverse effects were partially mitigated by the
costs not incurred at Soledad-Dipolos (-US$63.4 million); the favourable effect of the devaluation of the Mexican peso/US
dollar exchange rate when converting peso-denominated costs to US dollars (-US$9.2 million) and the lower volumes of ore
processed at Fresnillo (-US$3.6 million). In addition, each production cost component had the following cost inflation and
underlying operational pressures:
− Contractor costs increased US$9.0 million as a result of: i) 2.4% weighted increase in the unit fees charged by
contractors; and ii) a greater number of contractors to carry out development, mainly in the Fresnillo District.
− The cost of diesel rose US$5.3 million mainly due to higher unit prices of diesel (+6.3%).
− Personnel costs, excluding profit sharing, increased US$3.8 million mainly due to: i) a 5.5% increase in wages in
Mexican pesos as a result of the annual review; and iii) increase in training to improve safety indices at the mines.
− Other costs had a favourable effect of an estimated US$3.2 million.
· Depreciation and amortisation (+US$56.8 million): The increase was explained by the higher depreciation recorded at
Herradura due to the start-up of the dynamic leaching plant; an increase in the depreciation of capitalised mining works
and equipment at Saucito, Fresnillo and Herradura and increased depletion factors at most of our mines.
· Hedging (+US$5.4): The Group enters into certain exchange rate derivative instruments as part of a programme to
manage its exposure to foreign exchange risk associated with costs incurred in Mexican pesos. In 2014, forward dollar sales
for US$ 8.0 million at an average rate of $12.60 matured, resulting in a narrow loss of US$239,474 recognised in the income
statement. As of 31 December, there were no outstanding forward instruments related to the Mexican peso/US dollar exchange
rate.
Additionally, the Group entered into a combination of put and call options structured at zero cost (collars). In 2014,
these derivatives were used to hedge US$244.5 million of costs denominated in Mexican pesos with average floor and cap
exchange rates of $13.00 and $13.81 per US dollar respectively, resulting in a (US$0.87) million loss recorded in the
income statement. The total outstanding position using collar structures as of 31 December 2014 was US$259.5 million with
maturity dates throughout 2015 with average floor and cap exchange rates of $13.44 and $14.19 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.
The above adverse effects were partially mitigated by decreases in:
· Variation in change in work in progress and inventory write down (-US$103.4 million). This was mainly explained by
the increase in ore inventories on the leaching pads 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. The
increased volumes of ore deposited on the leaching pads at Noche Buena as part of its ramp-up to expanded capacity further
contributed to the increase in the variation in work in progress. This was partially offset by the write-down of US$17.6
million, which resulted from the increased inventory carrying cost at Noche Buena and Soledad-Dipolos, together with the
sharp drop in gold prices.
· Reduction in unproductive costs of (-US$11.5 million): US$14.6 million were recorded at Minera Penmont mainly due to
the labour costs of workers we maintained on payroll whilst operations were still halted in the first three months of 2014;
whereas in 2013 this item accounted for US$26.1 million corresponding to six months of operation on hold.
· Profit sharing (-US$7.6 million): Lower profit sharing due to the decrease in precious metal prices and lower profits
at all the mines, except for Saucito which exclusively employs contractors who are not entitled to profit sharing.
· Others (-US$5.2 million)
Cost per tonne, cash cost per ounce and all-in sustaining cost
Cost per tonne, calculated as total production costs less depreciation, profit sharing and exchange rate hedging effects,
divided by total tonnage milled or deposited, is a key indicator to measure the effects of mining inflation and cost
control performance at each mine and the Group as a whole. Given the temporary increases in stripping ratios at our open
pit mines in 2014, we have included cost per tonne hauled/moved as we believe it is a useful indicator to thoroughly
analyse cost performance at these mines.
Cost per tonne
2014 2013 Change %
Fresnillo US$/tonne milled 47.29 45.60 3.7
Saucito US$/tonne milled 59.14 61.00 (3.1)
Ciénega US$/tonne milled 70.84 70.81 0.0
Herradura US$/tonne deposited 9.29 8.38 10.8
Herradura US$/tonne hauled 2.37 2.67 (11.3)
Noche Buena US$/tonne deposited 9.98 7.84 27.2
Noche Buena US$/tonne hauled 1.68 1.60 5.4
Soledad-Dipolos US$/tonne deposited - - N/A
Cash cost per ounce7
2014 2013 Change %
Fresnillo US$ per silver ounce 5.29 5.87 (9.9)
Saucito US$ per silver ounce 2.48 3.61 (31.3)
Ciénega US$ per gold ounce 288.0 37.68 >100
Herradura US$ per gold ounce 465.4 651.23 (28.5)
Noche Buena US$ per gold ounce 945.6 928.03 1.9
Soledad-Dipolos US$ per gold ounce - 820.28 N/A
7 Cash cost per ounce is 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.
The particular variations in cash cost for each mine are explained as follows:
Fresnillo: US$5.29/oz (2014) vs US$5.87/oz (2013), (-US$0.58/oz; -9.9%)
The decrease in cash cost per ounce is mainly explained by the lower silver refining charges (-US$0.58/oz); higher
by-product credits per silver ounce due to the combined effect of higher zinc price and the increase in gold and zinc
volumes (-US$0.54/oz); and lower profit sharing resulting from the decrease in precious metal prices (-US$0.15/oz). This
was partially offset by the lower volumes of silver sold, reflecting the decline in ore grade (+US$0.47/oz); and the
increase in cost per tonne (+US$0.22/oz).
Saucito: US$2.48/oz (2014) vs US$3.61/oz (2013), (-US$1.13/oz; -31.3%)
The decrease was driven by the lower silver refining charges (-US$0.41/oz); the higher by-product credits per ounce of
silver resulting from the increased gold, lead and zinc volumes sold (-US$0.30/oz); the lower cost per tonne (-US$0.29/oz);
and the favourable effect of the higher silver grade (-US$0.13/oz).
Ciénega: US$288.00/oz (2014) vs US$37.68/oz (2013), (+US$250.32/oz; >100%)
The increase in cash cost was primarily explained by the expected decrease in gold grade (+US$157.02/oz); the lower
by-product credits per ounce of gold due to the reduced volumes of silver and lead sold at lower prices (+US$107.68/oz);
and to a lesser extent, the increase in cost per tonne (+US$8.82/oz). These adverse factors were mitigated by the lower
silver refining charges (-US$12.50/oz) and lower profit sharing (-US$10.71/oz).
Herradura: US$465.42/oz (2014) vs US$651.23/oz (2013), (-US$185.81/oz; -28.5%)
The decrease in cash cost resulted from: i) the 18.0% increase in gold grades (-US$120.55/oz); ii) the contribution of
additional gold ounces following the start-up of the dynamic leaching plant (-US$58.80/oz); iii) additional gold ounces
recovered at the leaching process once the inventories on the pads were depleted (-US$22.20/oz); iv) the increased
by-product credits (-US$20.72/oz); v) the lower unproductive costs recorded in relation to the stoppage versus those in the
prior year (-US$11.25/oz); vi) efficiencies obtained by higher recovery rate and increased speed of recovery (-US$7.72/oz);
and vii) lower profit sharing (-US$6.43/oz). These positive effects were partially offset by the higher cost per tonne
(+US$61.73/oz).
Noche Buena: US$945.63/oz (2014) vs US$928.03/oz (2013), (+US$17.60/oz; +1.9%)
The increase in cash cost per ounce was mainly explained by the higher cost per tonne (+US$220.48/oz) and, to a lesser
extent, the lower gold grade (+US$24.97/oz) and higher profit sharing (+US$5.84/oz). These adverse effects were partially
mitigated by: i) lower carrying costs from previous layers, which benefit the average cost at which the gold ounces are
being sold in the current year (-US$163.50/oz; and ii) not incurring unproductive costs this year compared to the previous
year (-US$63.71/oz); higher by-product silver credits (-US$4.95/oz) and lower refining charges per ounce (-US$1.54/oz).
Soledad-Dipolos: There were no comparable figures in 2014 due to the suspended operations.
In addition to the traditional cash cost described above, the Group is reporting all-in sustaining costs (AISC), in
accordance with the guidelines issued by the World Gold Council.
This cost metric is calculated as traditional cash cost plus on-site general, corporate and administrative costs, community
costs related to current operations, capitalised stripping and underground mine development, sustaining capital
expenditures and remediation expenses.
Management considers all-in sustaining costs a reasonable measure to monitor current production costs and sustaining costs
as it includes mine development costs incurred to prepare the mine for future production, as well as sustaining capex.
All-in sustaining cost
2014 2013 Change %
Fresnillo US$ per silver ounce 9.84 9.06 8.6
Saucito US$ per silver ounce 5.43 6.66 (18.5)
Ciénega US$ per gold ounce 786.40 547.95 43.5
Herradura US$ per gold ounce 862.19 1,029.25 (16.2)
Noche Buena US$ per gold ounce 1,051.00 1,362.73 (22.9)
Soledad-Dipolos US$ per gold ounce - 922.06 N/A
Fresnillo: All-in sustaining cost rose mainly due to the increase in capitalised development and mining works; which were
partially mitigated by the lower cash cost.
Saucito: All-in sustaining cost declined as a result of the lower cash cost and lower sustaining capex in the year. This
was partially oby the increase in capitalised mining works related to the development of Saucito II.
Ciénega: The increase in all-in sustaining cost was primarily explained by the increase in cash cost, which was partially
mitigated by lower sustaining capex.
Herradura: The decrease in cash cost was the main driver for the decrease in all-in sustaining cost and to a lesser extent,
the lower sustaining capex. These factors were partially offset by the increased capitalised stripping costs.
Noche Buena: The decrease in capitalised stripping costs was the main reason for the decline in all-in sustaining cost.
Soledad-Dipolos: There were no comparable figures in 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
2014 2013 Change
US$ million % US$ million % Amount %
Fresnillo 206.7 36.4 316.6 42.3 (109.9) (34.7)
Saucito 188.9 33.3 181.3 24.2 7.5 4.2
Herradura 136.2 24.0 126.9 17.0 9.3 7.3
Ciénega 40.8 7.2 94.7 12.7 (53.9) (56.9)
Noche Buena 11.5 2.0 18.7 2.5 (7.2) (38.5)
Soledad-Dipolos (16.5) (2.9) 10.1 1.4 (26.6) N/A
Total for operating mines 567.6 100.0 748.3 100.0 (180.7) (24.1)
MXP/USD exchange rate hedging (losses) and gains (1.1) 4.3 (5.4) N/A
Other subsidiaries (45.4) 14.8 (60.2) N/A
Total Fresnillo plc 521.1 767.4 (246.4) (32.1)
Total gross