REG - Fresnillo Plc - Full Year 2016 Preliminary Results <Origin Href="QuoteRef">FRES.L</Origin> - Part 2
28/02/2017 07:08
- Part 2: For the preceding part double click ID:nRSb0000Ya
2016, thus there are no comparable year-on-year figures.
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 not only current production costs, but also 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
2016 2015 Change %
Fresnillo US$ per silver ounce 7.82 11.48 (31.9)
Saucito US$ per silver ounce 4.77 7.11 (32.9)
Ciénega US$ per gold ounce 428.00 710.37 (39.7)
Herradura US$ per gold ounce 731.69 888.04 (17.6)
Noche Buena US$ per gold ounce 823.04 1,015.40 (18.9)
Fresnillo: Lower, mainly due to the lower administrative expenses and a decrease in capitalised development and mining
works reflecting the temporary decrease in development rates; and the lower cash cost detailed above.
Saucito: Lower, as a result of the decrease in capex in 2016 compared to capex invested in expansion and efficiency
projects in 2015; and the lower cash cost detailed above.
Ciénega: Lower, primarily explained by the lower cash cost detailed above.
Herradura: Lower, mainly due to the decrease in capitalised stripping costs; and to a lesser extent, the lower cash cost
detailed above.
Noche Buena: Lower, driven by the lower cash cost detailed above.
San Julián (phase I): commenced operations in August 2016, thus there are no comparable year-on-year figures.
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
2016 2015 Change US$ million % US$ million % Amount % Herradura 309.3 35.7 163.3 35.4 146 89.4 Saucito 269.4 31.1 198.7 43.1 70.7 35.6 Fresnillo 158.6 18.3 83.1 18.0 75.5 90.9 Noche Buena 54.1 6.2 -1.2 -0.3 55.3 N/A Ciénega 48.2 5.6 17.1 3.7 31.1 181.9 San Julián 26.3 3.0 0 0.0 26.3 N/A Total for operating mines 865.9 100 461 100 405 87.9 MXN/USD exchange rate hedging (losses) and gains -2.8 -28.6 25.8 (90.2) Metal hedging and other subsidiaries 19.0 13.6 5.4 39.7 Total Fresnillo plc 882.1 433.1 449.0
103.7
2016
2015
Change
US$ million
%
US$ million
%
Amount
%
Herradura
309.3
35.7
163.3
35.4
146
89.4
Saucito
269.4
31.1
198.7
43.1
70.7
35.6
Fresnillo
158.6
18.3
83.1
18.0
75.5
90.9
Noche Buena
54.1
6.2
-1.2
-0.3
55.3
N/A
Ciénega
48.2
5.6
17.1
3.7
31.1
181.9
San Julián
26.3
3.0
0
0.0
26.3
N/A
Total for operating mines
865.9
100
461
100
405
87.9
MXN/USD exchange rate hedging (losses) and gains
-2.8
-28.6
25.8
(90.2)
Metal hedging and other subsidiaries
19.0
13.6
5.4
39.7
Total Fresnillo plc
882.1
433.1
449.0
103.7
Total gross profit, net of hedging gains and losses, totalled US$882.1 million in 2016.
The US$449.0 million increase in gross profit was mainly explained by: i) the favourable effect of higher metal prices
(+US$167.5 million); ii) the positive impact of increased gold production at Herradura (+US$128.9 million); iii) the
start-up of San Julián phase I (+US$45.8 million); iv) the 17.7% devaluation of the Mexican peso/US dollar (+US$45.2
million); v) higher ore grade at the Fresnillo mine (+US$29.0 million); vi) higher production at Noche Buena (+US$23.4
million); vii) the reversal of the write down of inventories at Soledad-Dipolos (+US$10.7 million); viii) the positive
effect of lower hedging losses and other effects (+US$24.1 million); and ix) efficiencies achieved at some of our mines
through optimisation projects and cost reduction initiatives (+US$8.6 million).
The above factors were partially offset by the lower ore grades at Herradura (-US$18.9 million) and the higher depreciation
(-US$15.3 million).
Herradura became the largest contributor to the Group´s consolidated gross profit. Gross profit at Saucito increased by
35.6% to US$269.4 million, although its share of the Group's consolidated gross profit declined to 31.1% in 2016. Gross
profit at the Fresnillo mine rose to US$158.6 million in 2016, while the mine's contribution to the Group's total gross
profit slightly increased to 18.3%. Noche Buena generated a gross profit of US$54.1 million, and contributed 6.2% to the
Group's consolidated gross profit. Ciénega's share of the Group's total gross profit increased to 5.6%, whilst San Julián
contributed for the first time with 3.0%.
Administrative expenses
Administrative expenses decreased 10.7% from US$62.8 million to US$56.1 million due mainly to a decrease in non-recurring
engineering and construction services provided by Servicios Industriales Peñoles, S.A.B. de C.V., lower cost of services
provided by third parties, and the positive effect of the devaluation of the Mexican peso against the US dollar in
administrative expenses denominated in pesos.
Exploration expenses
Business unit / project (US$ millions) Exploration expenses 2016 Exploration expenses 2015 Capitalised expenses 2016 Capitalised expenses 2015
Ciénega 14.0 20.5
Fresnillo 8.0 10.1
Herradura 13.6 11.9
Soledad-Dipolos - -
Saucito 9.6 8.6
Noche Buena 1.3 3.7
San Ramón 4.3 4.5
San Julián 4.4 3.3
Orisyvo 2.2 13.3 0.2 0.4
Centauro Deep 3.2 10.0 1.0 0.4
Guanajuato 3.9 3.9 0.6
Juanicipio 0.0 0.0 14.6 9.9
Others 56.7 50.4 0.3 0.4
TOTAL 121.2 140.2 16.7 11.1
Exploration expenses decreased by 13.6% to US$121.2 million in 2016, reflecting management's decision to reduce the
expenditure in volatile market conditions. Nonetheless, the resource base was expanded. An additional US$16.7 million was
capitalised in association with mining works at Juanicipio and minor equipment acquired at the Centauro Deep, Orisyvo and
Guanajuato projects. As a result, total investment in exploration was US$137.9 million in 2016, a decrease of 8.9% over
2015. In 2017, total invested in exploration is expected to be approximately US$160 million, of which US$8 million is
estimated to be capitalised.
EBITDA
2016US$ million 2015US$ million Amount Change%
Gross Profit 882.1 433.1 451.3 104.2
+ Depreciation 346.5 331.2 15.3 4.6
- Administrative expenses (59.1) (62.8) (3.7) (5.8)
- Exploration expenses (121.2) (140.2) (19.1) (13.6)
- Selling expenses (16.3) (13.7) (0.1) 0.7
EBITDA 1,032.0 547.5 484.5 88.5
EBITDA margin 54.2 37.9
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 2016, EBITDA increased 88.5%
mainly due to the higher gross profit, the higher depreciation which is added back and the lower exploration and
administrative expenses. EBITDA margin expressed as a percentage of revenues increased accordingly, from 37.9% in 2015 to
54.2% in 2016.
Other income and expenses
Other expenses decreased by 43.4% to US$9.0 million in 2016. This included disposals of fixed assets, remediation works and
costs incurred in the maintenance of closed mines. This positively compares to the US$15.9 million recorded in the 2015
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$85.8 million non-cash gain mainly as a result of the increase in resources at
Sabinas and the higher forward price of silver, which were partly mitigated by the higher discount rate used. In addition,
a US$47.7 million non-cash gain was generated by: i) the unwinding of the discounted values; and ii) the difference between
payments (volume and price) actually received and accrued in 2016 and payments estimated in the valuation model as at 31
December 2015. The total effect recorded in the 2016 income statement was US$133.5 million, which favourably compares to
the US$27.7 million registered in 2015.
Since the IPO, cumulative cash received has been US$559.6 million, while total non-cash revaluation gains of US$683.8
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 silver price cyclicality 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 31 to the Consolidated Financial Statements.
Finance costs and income
Finance costs in 2016 decreased mainly due to the decline in accrued interest payable on the US$800 million principal
amount of 5.500% Senior Notes, from US$36.0 million to US$29.0 million.
In 2014 we entered into gold derivative contracts to protect the value of the Penmont acquisition. As at 31 December 2016,
outstanding collar derivative instruments mature over the period of January 2017 to December 2019 and hedge gold production
of 1.04 million ounces with a floor price of US$1,100 per ounce and capped weighted average price of US$1,423.76 per ounce.
In 2016, we recognised changes in the time value of the outstanding hedge position, resulting in a US$41.1 million non-cash
loss recorded in the income statement.
Foreign exchange
A foreign exchange loss of US$18.4 million was recorded in 2016 as a result of the 20.1% devaluation of the spot MXN/USD
exchange rate at 31 December. This loss positively compares to the US$36.2 million loss recognised in 2015.
The Group also enters into certain exchange rate derivative instruments as part of a programme to manage its exposure to
foreign exchange risk associated with the purchase of equipment denominated in Euro (EUR), Swedish krona (SEK) and Canadian
dollar (CAD). At the end of the year, the total EUR, SEK and CAD outstanding net forward position was EUR 9.35 million, CAD
0.0 and SEK 7.09 million with maturity dates from March through September 2017. Volumes that expired during 2016 were EUR
2.31 million with a weighted average strike of 1.1250 USD/EUR, CAD 3.86 million with a weighted average strike of 1.2629
CAD/USD and SEK 14.46 million with a weighted average strike of 8.41 SEK/USD, which has generated a result of US$46,627,
-US$206,810 and -USS18,970 recorded in the income statement respectively.
Taxation
Corporate income tax expense of US$259.9 million increased 101.5% over 2015 which resulted mainly from the increase in
profit generated in 2016. The effective tax rate, excluding the special mining rights, was 36.2% which was above the
statutory corporate tax rate of 30%. 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). Furthermore, US$33.4
million related to the special mining rights was registered in the income statement in 2016. Including the effect of mining
rights, the effective tax rate was 40.8%.
Profit for the year
Profit for the year increased from US$69.4 million to US$425.0 million, whilst profit attributable to equity shareholders
of the Group increased to US$427.0 million, up from US$70.5 million in 2015.
Excluding the effects of the Silverstream Contract, profit for the year increased from US$50.0 million to US$331.5 million.
Similarly, profit attributable to equity shareholders of the Group, excluding the Silverstream effects, increased to
US$333.5 million, up from US$51.1 million.
Cash Flow
A summary of the key items from the cash flow statement is set out below:
2016US$ million 2015US$ million AmountUS$ Change%
Cash generated by operations before changes in working capital 1,023.3 537.3 486.0 90.5
(Increase)/decrease in working capital (10.6) 51.3 (61.9) (120.6)
Taxes and employee profit sharing paid (114.8) (45.8) (69.1) 150.9
Net cash from operating activities 898.0 542.9 355.1 65.4
Silverstream Contract 47.6 39.4 8.1 20.6
Purchase of property, plant & equipment (434.1) (474.7) 40.6 (8.6)
Dividends paid to shareholders of the Company (88.2) (37.5) (50.7) 135.1
Net interest (paid) (21.1) (30.5) 9.5 (31.0)
Net increase in cash during the period before foreign exchange differences 412.5 52.2 360.3 690.2
Cash, cash equivalents and short-term investments at 31 December* 912.0 500.1 411.8 82.3
* As disclosed in the Consolidated Cash Flow Statement, cash and cash equivalents at 31 December 2016 totalled US$712.0
million and short-term investment held in fixed-term bank deposits amounted US$200.0 million. In 2015, cash and cash
equivalents at 31 December 2015 accounted for US$381.4 million and short-term investments amounted to US$118.7 million.
Cash generated by operations before changes in working capital increased by 90.5% to US$1,023.3 million, mainly as a result
of the higher profits generated in the year. Working capital increased US$10.6 million mainly due to an increase in trade
and other receivables resulting from the higher volumes sold at higher metal prices (US$39.5 million). This increase in
working capital was partly offset by: i) a decrease in inventories (US$23.7 million); ii) a decrease in prepayments and
other assets (US$0.1 million); and iii) an increase in trade and other payables (US$5.1 million).
Taxes and employee profit sharing paid increased 150.9% over 2015 to US$114.8 million.
As a result of the above factors, net cash from operating activities increased significantly, from US$542.9 million in 2015
to US$898.0 million in 2016.
Other sources of cash were the proceeds of the Silverstream Contract of US$47.6 million and capital contributions from
minority shareholders in subsidiaries of US$7.4 million.
The above funds were mainly used to purchase property, plant and equipment for a total of US$434.1 million, an 8.6%
decrease over 2015. This was below the guidance of US$600 million mainly as a result of the delay in commissioning San
Julián phase II. Capital expenditures for 2016 are further described below:
Purchase of property, plant and equipment
2016US$ million
Fresnillo mine 52.8 Mine development and purchase of in-mine equipment which includes a hoist for the deepening of the shaft, raiseboring machines, pumps and other components
Saucito mine 102.4 Development, replacement of in-mine equipment and optimisation projects at the beneficiation plant
Herradura mine 78.8 Stripping activities, construction of leaching pad, and sustaining capex
San Julián 134.1 Completion of San Julián phase I, mine development and in-mine equipment
Ciénega mine 32.7 Development, replacement of in-mine equipment, purchase of components and expansion of tailings dam
Noche Buena 8.6 Construction of leaching pads and mine equipment
Juanicipio project 14.6 Exploration expenditure
Other 10.1
Total purchase of property, plant and equip. 434.1
Dividends paid to shareholders of the Group in 2016 totalled US$88.2 million, a 135.1% increase from 2015, in line with our
dividend policy that includes a consideration of profits generated in the period. The 2016 payment included: i) the final
2015 dividend of US$24.8 million; and ii) the 2016 interim dividend paid in September of US$63.4 million.
Net interest of US$21.1 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 an increase in net cash of US$412.5 million (net increase in cash
and cash equivalents), which combined with the US$500.1 million balance at the beginning of the year and the US$0.6 million
unfavourable effect of the exchange rate resulted in cash, cash equivalents and short-term investments of US$912.0 million
at the end of 2016.
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$912.0 million as explained above.
Inventories decreased 7.9% to US$276.9 million mainly as a result of the decreased inventories of gold deposited on the
leaching pads at Herradura.
Trade and other receivables of US$286.7 million decreased 6.2% as a result of the decrease in income tax recoverable,
partly offset by higher metal volumes sold at higher prices which increased receivables.
The change in the value of the Silverstream derivative from US$384.8 million at the beginning of the year to US$467.5
million as of 31 December 2016 reflects proceeds of US$50.7 million corresponding to 2016, (US$44.8 million in cash and
US$5.9 million in receivables) and the Silverstream revaluation effect in the income statement of US$133.5 million.
The net book value of property, plant and equipment was US$2,180.2 million at year end, representing a 1.9% increase over
2015. The US$41.6 million increase was mainly explained by the capitalised development works; construction of San Julián;
purchase of additional in-mine equipment; and construction of leaching pads at Herradura.
The Group's total equity was US$2,716.4 million as of 31 December 2016, a 14.4% increase over 2015. This was mainly
explained by the increase in retained earnings, reflecting the 2015 profit, less dividends paid during the year, and the
net unrealised gains on cash flow hedges.
Dividends
Based on the Group's 2016 performance, the Directors have recommended a final dividend of 21.5 US cents per Ordinary Share,
which will be paid on 26 May 2017 to shareholders on the register on 28 April 2017. 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 8.6 US cents
per share totalling U$63.4 million.
RISK MANAGEMENT FRAMEWORK
The Company's approach to managing the risk inherent in our business activities is to ensure that our framework is able to
identify, assess, prioritise and manage the most likely risks to have the greatest impact on the value creation objectives
defined in our business model.
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 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 our established risk management activities, our priority for 2016 was to promote a "monitoring environment"
which consists of validating the effectiveness of our current controls in order to support the Board in their
responsibilities of monitoring and reviewing risk management and the internal control systems. For this task, over the
course of 2016, operations managers, the controllership group, HSECR managers and exploration managers have all been
engaged in strengthening their understanding of internal controls monitoring requirements.
2016 risk assessment
Our 2016 risk assessment exercise took place across all our operations, advanced projects, exploration offices, and support
and corporate areas, which identified and evaluated 107 risks, including three new risks added over the course of the year
that reflect specific circumstances related to certain projects (2015: 104 risks). This universe was narrowed down into
major risks monitored by Executive Management and the Audit Committee, and then further consolidated into 11 principal
risks closely monitored by the Board of Directors.
For the bottom-up process, business unit heads determined the perceived level of risk for their individual unit. Executive
Management then reviewed and challenged each perceived risk level, and compared it to Fresnillo plc's risk universe as a
whole. The results of this exercise were used as an additional input for the identification of the Group's principal risks.
The same risk analysis was conducted on advanced projects, detailing the specific risks faced by each project according to
their unique characteristics and conditions.
A number of developments have adversely impacted the entire Mexican mining industry in recent years as reflected in the
Investment Attractiveness Index4 that assesses how mineral endowments and public policy factors, such as taxation and
regulatory uncertainty, affect exploration and mining investment. Specific examples that have impacted the industry in
Mexico include: weak rule of law in disbanding illegal blockades to mining assets; legal uncertainty regarding certain land
tenure issues; instances of community opposition to mining resulting in the cancellation of major projects; aggressive and
unfavourable tax requirements that disadvantage Mexico relative to other mining countries; and the adverse security
environment still facing a number of regions in the country.
Based on the aforementioned circumstances, we assessed that the risk rating levels for potential actions by the government
(e.g. taxes), security, and public perception against mining have increased for 2017. In addition, while the Board has
always given the highest priority to safety issues, three fatal accidents occurred in 2016; thus we also elevated the risk
rating level for safety to reflect this troubling reversal of our safety record. As with all our key risks, the Board and
the Executive Committee continue to closely monitor them.
____________
4 Fraser Institute Annual Survey of Mining Companies: 2015, published in June 8, 2016. www.fraserinstitute.org
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 Union, 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 (encompassed within the 'Overview', 'Strategic report', 'Performance' and 'Governance' sections)
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
Charles Jacobs
Senior Independent Director
27 February 2017
Consolidated Income Statement
Year ended 31 December
Year ended 31 December 2016 Year ended 31 December 2015
Notes US$ thousands US$ thousands
Pre-Silverstream Silverstream Total Pre-Silverstream Silverstream Total
revaluation revaluation revaluation revaluation
effect effect effect effect
Continuing operations:
Revenues 4 1,905,503 1,905,503 1,444,386 1,444,386
Cost of sales 5 (1,023,388) (1,023,388) (1,011,316) (1,011,316)
Gross profit 882,115 882,115 433,070 433,070
Administrative expenses (59,157) (59,157) (62,820) (62,820)
Exploration expenses 6 (121,182) (121,182) (140,246) (140,246)
Selling expenses (16,277) (16,277) (13,693) (13,693)
Other operating income 8 1,398 1,398 778 778
Other operating expenses 8 (10,442) (10,442) (16,650) (16,650)
Profit from continuing operations before net finance costs and income tax 676,455 676,455 200,439 200,439
Finance income 9 6,958 6,958 65,838 65,838
Finance costs 9 (80,323) (80,323) (45,463) (45,463)
Revaluation effects of Silverstream contract 14 - 133,528 133,528 - 27,720 27,720
Foreign exchange loss (18,378) (18,378) (36,180) (36,180)
Profit from continuing operations before income tax 584,712 133,528 718,240 184,634 27,720 212,354
Corporate income tax 10 (219,808) (40,058) (259,866) (120,690) (8,316) (129,006)
Special mining right 10 (33,412) (33,412) (13,958) (13,958)
Income tax expense 10 (253,220) (40,058) (293,278) (134,648) (8,316) (142,964)
Profit for the year from continuing operations 331,492 93,470 424,962 49,986 19,404 69,390
Attributable to:
Equity shareholders of the Company 333,516 93,470 426,986 51,119 19,404 70,523
Non-controlling interest (2,024) (2,024) (1,133) (1,133)
331,492 93,470 424,962 49,986 19,404 69,390
Earnings per share: (US$)
Basic and diluted earnings per Ordinary Share from continuing operations 11 0.579 - 0.096
Adjusted earnings per share: (US$)
Adjusted basic and diluted earnings per Ordinary Share from continuing operations 11 0.453 0.069 -
Consolidated Statement of Comprehensive Income
Year ended 31 December
Year ended 31 December
Notes 2016 2015
US$ thousands US$ thousands
Profit for the year 424,962 69,390
Other comprehensive income/(expense)
Items that may be reclassified subsequently to profit or loss:
Losses on cash flow hedges recycled to income statement 1,184 26,422
Income tax effect 10 (355) (7,927)
Changes in the fair value of cash flow hedges (52,918) 39,521
Income tax effect 10 15,875 (11,856)
Net effect of cash flow hedges (36,214) 46,160
Changes in the fair value of available-for-sale financial assets 13 44,729 (14,636)
Income tax effect 13 (13,418) 4,391
Impairment of available-for-sale financial assets taken to income during the year - 2,896
Income tax effect 10 - (869)
Net effect of available-for-sale financial assets 31,311 (8,218)
Foreign currency translation 3 (134)
Net other comprehensive (expense)/income that may be reclassified subsequently to profit or loss: (4,900) 37,808
Items that will not be reclassified to profit or loss:
Remeasurement gains/(losses) on defined benefit plans 22 2,443 (2,273)
Income tax effect 10 (388) 361
Net other comprehensive income/(expense) that will not be reclassified to profit or loss 2,055 (1,912)
Other comprehensive (expense)/income, net of tax (2,845) 35,896
Total comprehensive income for the year, net of tax 422,117 105,286
Attributable to:
Equity shareholders of the Company 424,141 106,419
Non-controlling interests (2,024) (1,133)
422,117 105,286
Consolidated Balance Sheet
Year ended 31 December
ASSETS
Non-current assets
Property, plant and equipment 12 2,180,217 2,138,588
Available-for-sale financial assets 13 116,171 71,442
Silverstream contract 14 438,811 358,164
Derivative financial instruments 30 16,532 97,473
Deferred tax asset 10 20,023 30,814
Inventories 15 89,351 76,375
Other receivables 16 990 2,289
Other assets 3,385 3,372
2,865,480 2,778,517
Current assets
Inventories 15 187,499 224,200
Trade and other receivables 16 286,678 237,992
Income tax recoverable - 67,690
Prepayments 2,839 2,966
Derivative financial instruments 30 6,618 19,602
Silverstream contract 14 28,718 26,607
Short-term investments 17 200,000 118,718
Cash and cash equivalents 17 711,954 381,420
1,424,306 1,079,195
Total assets 4,289,786 3,857,712
EQUITY AND LIABILITIES
Capital and reserves attributable to shareholders of the Company
Share capital 18 368,546 368,546
Share premium 18 1,153,817 1,153,817
Capital reserve 18 (526,910) (526,910)
Hedging reserve 18 - 36,214
Available-for-sale financial assets reserve 18 47,608 16,297
Foreign currency translation reserve 18 (728) (731)
Retained earnings 18 1,637,888 1,296,906
2,680,221 2,344,139
Non-controlling interests 36,147 30,202
Total equity 2,716,368 2,374,341
Non-current liabilities
Interest-bearing loans 20 798,027 797,032
Derivative financial instruments 30 16 -
Provision for mine closure cost 21 149,109 195,476
Provision for pensions and other post-employment benefit plans 22 9,095 14,534
Deferred tax liability 10 463,050 373,009
1,419,297 1,380,051
10
463,050
373,009
1,419,297
1,380,051
Current liabilities
Trade and other payables 23 121,633 89,630
Income tax payable 18,842 -
Derivative financial instruments 30 630 1,427
Employee profit sharing 13,016 12,263
154,121 103,320
Total liabilities 1,573,418 1,483,371
Total equity and liabilities 4,289,786 3,857,712
1,573,418
1,483,371
Total equity and liabilities
4,289,786
3,857,712
These financial statements were approved by the Board of Directors on 27 February 2017 and signed on its behalf by:
Mr Arturo Fernandez
Non-executive Director
27 February 2017
Consolidated Statement of Cash Flows
Year ended 31 December
Year ended 31 December
Notes 2016 2015
US$ thousands US$ thousands
Net cash from operating activities 29 897,958 542,894
Cash flows from investing activities
Purchase of property, plant and equipment (434,050) (474,692)
Proceeds from the sale of property, plant and equipment and other assets 277 6,077
Repayments of loans granted to contractors 2,626 1,567
Short-term investments 17 (81,282) 176,475
Silverstream contract 14 47,565 39,430
Interest received 6,958 4,614
Net cash used in investing activities (457,906) (246,529)
Cash flows from financing activities
Dividends paid to shareholders of the Company 19 (88,219) (37,529)
Capital contribution 7,361 4,796
Interest paid1 20 (28,028) (35,144)
Net cash used in financing activities (108,886) (67,877)
Net increase in cash and cash equivalents during the year 331,166 228,488
Effect of exchange rate on cash and cash equivalents (632) (1,408)
Cash and cash equivalents at 1 January 381,420 154,340
Cash and cash equivalents at 31 December 17 711,954 381,420
1 Total interest paid during the year ended 31 December 2016 less amounts capitalised totalling US$18.2 million (31
December 2015: US$11.1 million) which were included within the caption Purchase of property, plant and equipment.
Consolidated Statement of Changes in Equity
Year ended 31 December
Attributable to the equity holders of the Company
Notes Share Share premium Capital reserve Hedging reserve Available-for-sale financial assets reserve Foreign currency translation reserve Retained earnings Total Non-controlling interests Total
capital equity
US$ thousands
Balance at 1 January 2015 368,546 1,153,817 (526,910) (9,946) 24,515 (597) 1,265,877 2,275,302 26,539 2,301,841
Profit/(loss) for the year - - - - - - 70,523 70,523 (1,133) 69,390
Other comprehensive income, net of tax - - - 46,160 (8,218) (134) (1,912) 35,896 - 35,896
Total comprehensive income for the year - - - 46,160 (8,218) (134) 68,611 106,419 (1,133) 105,286
Capital contribution - - - - - - - - 4,796 4,796
Dividends declared and paid 19 - - - - - - (37,582) (37,582) - (37,582)
Balance at 31 December 2015 368,546 1,153,817 (526,910) 36,214 16,297 (731) 1,296,906 2,344,139 30,202 2,374,341
Profit/(loss) for the year - - - - - - 426,986 426,986 (2,024) 424,962
Other comprehensive income, net of tax - - - (36,214) 31,311 3 2,055 (2,845) - (2,845)
Total comprehensive income for the year - - - (36,214) 31,311 3 429,041 424,141 (2,024) 422,117
Capital contribution - - - - - - - - 7,969 7,969
Dividends declared and paid 19 - - - - - - (88,059) (88,059) - (88,059)
Balance at 31 December 2016 368,546 1,153,817 (526,910) - 47,608 (728) 1,637,888 2,680,221 36,147 2,716,368
1. Corporate information
Fresnillo plc. ("the Company") is a public limited company and registered in England and Wales with registered number
6344120 and is the holding company for the Fresnillo subsidiaries detailed in note 6 of the Parent Company accounts ('the
Group').
Industrias Peñoles S.A.B. de C.V. ('Peñoles') currently owns 75 percent of the shares of the Company and the ultimate
controlling party of the Company is the Baillères family, whose beneficial interest is held through Peñoles. The registered
address of Peñoles is Calzada Legaria 549, Mexico City 11250. Copies of Peñoles' accounts can be obtained from
www.penoles.com.mx. Further information on related party balances and transactions with Peñoles' group companies is
disclosed in note 27.
The Group's principal business is the mining and beneficiation of non-ferrous minerals, and the sale of related production.
The primary contents of this production are silver, gold, lead and zinc. Further information about the Group operating
mines and its principal activities is disclosed in note 3.
The consolidated financial statements of the Group for the year ended 31 December 2016 were authorised for issue by the
Board of Directors of Fresnillo plc on 27 February 2017.
The auditor's report on those financial statements was unqualified and did not contain a statement under section 498 of the
Companies Act 2006.
The audited financial statements will be delivered to the Registrar of Companies in due course. The financial information
contained in this document does not constitute statutory accounts as defined in section 435 of the Companies Act 2006.
2. Significant accounting policies
(a) Basis of preparation and consolidation, and statement of compliance
Basis of preparation and statement of compliance
The Group's consolidated financial statements have been prepared in accordance with International Financial Reporting
Standards (IFRS) as adopted by the European Union as they apply to the financial statements of the Group for the years
ended 31 December 2016 and 2015, and in accordance with the provisions of the Companies Act 2006.
The consolidated financial statements have been prepared on a historical cost basis, except for derivative financial
instruments, available-for-sale financial assets and defined benefit pension scheme assets which have been measured at fair
value.
The consolidated financial statements are presented in dollars of the United States of America (US dollars or US$) and all
values are rounded to the nearest thousand ($000) except when otherwise indicated.
Basis of consolidation
The consolidated financial statements set out the Group's financial position as of 31 December 2016 and 2015, and the
results of operations and cash flows for the years then ended.
Entities that constitute the Group are those enterprises controlled by the Group regardless of the number of shares owned
by the Group. The Group controls an entity when the Group is exposed to, or has the right to, variable returns from its
involvement with the entity and has the ability to affect those returns through its power over the entity. Entities are
consolidated from the date on which control is transferred to the Group and cease to be consolidated from the date on which
control is transferred out of the Group. The Group applies the acquisition method to account for business combinations in
accordance with IFRS 3.
All intra-group balances, transactions, income and expenses and profits and losses, including unrealised profits arising
from intra-group transactions, have been eliminated on consolidation. Unrealised losses are eliminated in the same way as
unrealised gains except that they are only eliminated to the extent that there is no evidence of impairment.
Non-controlling interests in the net assets of consolidated subsidiaries are identified separately from the Group's equity
therein. The interest of non-controlling shareholders may be initially measured either at fair value or at the
non-controlling interest's proportionate share of the acquiree's identifiable net assets. The choice of measurement basis
is made on an acquisition by-acquisition basis. Subsequent to acquisition, non-controlling interests consist of the amount
attributed to such interests at initial recognition and the non-controlling interest's share of changes in equity since the
date of the combination. Any losses of a subsidiary are attributed to the non-controlling interests even if that results in
a deficit balance.
Transactions with non-controlling interests that do not result in loss of control are accounted for as equity transactions
- that is, a transaction with the owners in their capacity as owners. The difference between fair value of any
consideration paid and the relevant share acquired of the carrying value of net assets of the subsidiary is recorded in
equity. Gains or losses on disposals to non-controlling interest are also recorded in equity.
(b) Changes in accounting policies and disclosures
The accounting policies applied are consistent with those applied in the preparation of the consolidated financial
statements for the year ended 31 December 2015. During 2016, there were no amendments to existing accounting policies.
As at 31 December 2015, derivatives relating to the gold hedging programme initiated in 2014 that mature after one year had
been presented as current assets. During 2016, the Group restated the prior year comparatives and reclassified these
derivatives to non-current assets. The reclassification resulted in an increase in non-current assets and a corresponding
reduction in current assets by US$97.5 million as at 31 December 2015, with no impact on previously reported profit, other
comprehensive income, liabilities, equity, cash flow or earnings per share. In addition, there is no tax effect and no
impact on segmental disclosures.
New standards, interpretations and amendments (new standards) adopted by the Group
The Group has adopted "IAS 1 Disclosure Initiative - Amendments to IAS 1". The amendments clarify existing requirements on
materiality, aggregation and disaggregation in the preparation of financial statements and presentation of the notes. This
amendment had no impact in the financial information of the Group.
Other than the above mentioned amendment there were no significant new standards that the Group was required to adopt
effective from 1 January 2016.
Standards, interpretations and amendments issued but not yet effective
The standards and interpretations that are issued, but not yet effective, up to the date of issuance of the Group's
financial statements are disclosed below. The Group intends to adopt these standards, as applicable to the Group's
financial statements, when they become effective, except where indicated.
IFRS 9 Financial Instruments: In July 2014, the IASB issued the final version of IFRS 9 Financial Instruments which
concludes all phases of the financial instruments project and replaces IAS 39 Financial Instruments: Recognition and
Measurement and all previous versions of IFRS 9. IFRS 9 is effective for annual periods beginning on or after 1 January
2018, with early application permitted. The Group plans to adopt IFRS 9 Financial instruments from the mandatory effective
date. The Group has completed a preliminary assessment of the expected major impacts of this
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