REG - Fresnillo Plc - Full Year 2017 Preliminary Results <Origin Href="QuoteRef">FRES.L</Origin> - Part 4
27/02/2018 07:05
- Part 4: For the preceding part double click ID:nRSa9902Fc
documentation includes identification of the hedging instrument,
the hedged item or transaction, the nature of the risk being hedged and how
the entity will assess the hedging instrument's effectiveness in offsetting
the exposure to changes in the hedged item's fair value or cash flows
attributable to the hedged risk. Such hedges are expected to be highly
effective in achieving offsetting changes in fair value or cash flows and are
assessed on an ongoing basis to determine that they actually have been highly
effective throughout the financial reporting periods for which they were
designated.
Hedges which meet the strict criteria for hedge accounting are accounted for
as follows:
Cash flow hedges
For derivatives that are designated and qualify as cash flow hedges, the
effective portion of changes in the fair value of derivative instruments are
recorded as in other comprehensive income and are transferred to the income
statement when the hedged transaction affects profit or loss, such as when a
forecast sale or purchase occurs. For gains or losses related to the hedging
of foreign exchange risk these are included, in the line item in which the
hedged costs are reflected. Where the hedged item is the cost of
a non-financial asset or liability, the amounts recognised in other
comprehensive income are transferred to the initial carrying amount of the
non-financial asset or liability. The ineffective portion of changes in the
fair value of cash flow hedges is recognised directly as finance costs, in the
income statement of the related period.
If the hedging instrument expires or is sold, terminated or exercised without
replacement or rollover, or if its designation as a hedge is revoked, any
cumulative gain or loss recognised directly in other comprehensive income from
the period that the hedge was effective remains separately in other
comprehensive income until the forecast transaction occurs, when it is
recognised in the income statement. When a forecast transaction is no longer
expected to occur, the cumulative gain or loss that was reported in other
comprehensive income is immediately transferred to the income statement.
When hedging with options, the Group designates only the intrinsic value
movement of the hedging option within the hedge relationship. The time value
of the option contracts is therefore excluded from the hedge designation.
Changes in fair value of time value is recognised in the income statement in
finance costs.
Embedded derivatives
Contracts are assessed for the existence of embedded derivatives at the date
that the Group first becomes party to the contract, with reassessment only if
there is a change to the contract that significantly modifies the cash flows.
Embedded derivatives which are not clearly and closely related to the
underlying asset, liability or transaction are separated and accounted for as
stand-alone derivatives.
(t) Borrowing costs
Borrowing costs directly attributable to the acquisition, construction or
production of an asset that necessarily takes 12 or more months to get ready
for its intended use or sale (a qualifying asset) are capitalised as part of
the cost of the respective asset. Borrowing costs consist of interest and
other costs that an entity incurs in connection with the borrowing of funds.
Where funds are borrowed specifically to finance a project, the amount
capitalised represents the actual borrowing costs incurred. Where surplus
funds are available for a short term from funds borrowed specifically to
finance a project, the income generated from the temporary investment of such
amounts is also capitalised and deducted from the total capitalised borrowing
cost. Where the funds used to finance a project form part of general
borrowings, the amount capitalised is calculated using a weighted average of
rates applicable to relevant general borrowings of the Group during the
period.
All other borrowing costs are recognised in the income statement in the period
in which they are incurred.
(u) Fair value measurement
The Group measures financial instruments at fair value at each balance sheet
date. Fair values of financial instruments measured at amortised cost are
disclosed in notes 30 and 31.
Fair value is the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants at
the measurement date. The fair value measurement is based on the presumption
that the transaction to sell the asset or transfer the liability takes place
either:
In the principal market for the asset or liability, or
In the absence of a principal market, in the most advantageous market for the
asset or liability
The principal or the most advantageous market must be accessible to the Group.
The fair value of an asset or a liability is measured using the assumptions
that market participants would use when pricing the asset or liability,
assuming that market participants act in their economic best interest.
A fair value measurement of a non-financial asset takes into account a market
participant's ability to generate economic benefits by using the asset in its
highest and best use or by selling it to another market participant that would
use the asset in its highest and best use.
The Group uses valuation techniques that are appropriate in the circumstances
and for which sufficient data are available to measure fair value, maximising
the use of relevant observable inputs and minimising the use of unobservable
inputs.
All assets and liabilities for which fair value is measured or disclosed in
the financial statements are categorised within the fair value hierarchy,
described as follows, based on the lowest level input that is significant to
the fair value measurement as a whole:
Level 1 - Quoted (unadjusted) market prices in active markets for identical
assets or liabilities
Level 2 - Valuation techniques for which the lowest level input that is
significant to the fair value measurement is directly or indirectly observable
Level 3 - Valuation techniques for which the lowest level input that is
significant to the fair value measurement is unobservable
For assets and liabilities that are recognised in the financial statements on
a recurring basis, the Group determines whether transfers have occurred
between levels in the hierarchy by re-assessing categorisation (based on the
lowest level input that is significant to the fair value measurement as a
whole) at the end of each reporting period.
For the purpose of fair value disclosures, the Group has determined classes of
assets and liabilities on the basis of the nature, characteristics and risks
of the asset or liability and the level of the fair value hierarchy as
explained above. Further information on fair values is described in note 30.
(v) Dividend distribution
Dividends payable to the Company's shareholders are recognised as a liability
when these are approved by the Company's shareholders or Board
as appropriate. Dividends payable to minority shareholders are recognised as
a liability when these are approved by the Company's subsidiaries.
3. Segment reporting
For management purposes, the Group is organised into operating segments based
on producing mines.
At 31 December 2017, the Group has seven reportable operating segments as
follows:
The Fresnillo mine, located in the state of Zacatecas, an underground silver
mine;
The Saucito mine, located in the state of Zacatecas, an underground silver
mine;
The Ciénega mine, located in the state of Durango, an underground gold mine;
including the San Ramon satellite mine;
The Herradura mine, located in the state of Sonora, a surface gold mine;
The Soledad-Dipolos mine, located in the state of Sonora, a surface gold mine;
and
The Noche Buena mine, located in state of Sonora, a surface gold mine.
The San Julian mine, located on the border of Chihuahua / Durango states, an
underground silver-gold mine. Phase one of San Julian mine commenced
commercial production in the third quarter of 2016 and phase two in the third
quarter of 2017.
The operating performance and financial results for each of these mines are
reviewed by management. As the Group´s chief operating decision maker does
not review segment assets and liabilities, the Group has not disclosed this
information.
Management monitors the results of its operating segments separately for the
purpose of performance assessment and making decisions about resource
allocation. Segment performance is evaluated without taking into account
certain adjustments included in Revenue as reported in the consolidated income
statement, and certain costs included within Cost of sales and Gross profit
which are considered to be outside of the control of the operating management
of the mines. The table below provides a reconciliation from segment profit to
Gross profit as per the consolidated income statement. Other income and
expenses included in the consolidated income statement are not allocated to
operating segments. Transactions between reportable segments are accounted for
on an arm's length basis similar to transactions with third parties.
In 2017 and 2016, substantially all revenue was derived from customers based
in Mexico.
Operating segments
The following tables present revenue and profit information regarding the
Group's operating segments for the year ended 31 December 2017 and 2016,
respectively:
Year ended 31 December 2017
US$ thousands Fresnillo Herradura Cienega Soledad- Dipolos(4) Saucito Noche San Julian Other(5) Adjustments and eliminations Total
Buena
Revenues:
Third party(1) 368,286 605,823 183,689 - 446,008 214,998 274,504 - - 2,093,308
Inter-Segment 79,907 (79,907) -
Segment revenues 368,286 605,823 183,689 - 446,008 214,998 274,504 79,907 (79,907) 2,093,308
Segment Profit(2) 252,249 355,570 97,098 2,269 315,196 75,496 174,712 59,878 (22,966) 1,309,502
Depreciation and amortisation (367,609)
Employee profit sharing (16,488)
Gross profit as per the income statement 925,405
Capital expenditure(3) 111,724 153,200 46,461 - 133,679 18,748 79,069 61,870 - 604,751
(1 Total third party revenues include treatment and refining charges amounting
US$139.9 million.)
(2 Segment profit excluding depreciation and amortisation and employee profit
sharing. During 2017 there were no foreign exchange hedging losses included in
Gross profit.)
(3 Capital expenditure represents the cash outflow in respect of additions to
property, plant and equipment, including mine development, construction of
leaching pads, purchase of mine equipment and capitalised stripping activity,
excluding additions relating to changes in the mine closure provision.
Significant additions the construction of) (facilities at San Julian phase II,
the) (second) (dynamic leaching) (plant at Herradura and the construction of
the pyrites plant at Saucito.)
(4 During) (2017)(, this segment did not operate due to the Bajio conflict
(note 26). Segment profit is derived from the changes in the net realisable
value allowance against inventory (note 15).)
(5 Other inter-segment) (revenue corresponds to) (leasing services provided by
Minera Bermejal, S.A. de C.V)(; capital expenditure corresponds to Minera
Juanicipio S.A de C.V)(.)
Year ended 31 December 2016
US$ thousands Fresnillo Herradura Cienega Soledad-Dipolos(4) Saucito Noche Buena San Julian(5) Other(6) Adjustments and eliminations Total
Revenues:
Third party(1) 327,957 655,025 169,530 - 459,590 225,374 66,441 - 1,586 1,905,503
Inter-Segment 77,385 (77,385) -
Segment revenues 327,957 655,025 169,530 - 459,590 225,374 66,441 77,385 (75,799) 1,905,503
Segment Profit(2) 224,163 369,896 100,105 12,977 363,780 83,852 45,833 63,379 (17,854) 1,246,131
Foreign exchange hedging losses (2,770)
Depreciation and amortisation (346,502)
Employee profit sharing (14,744)
Gross profit as per the income statement 882,115
Capital expenditure(3) 52,794 78,825 32,745 - 102,398 8,620 144,468 14,200 - 434,050
(1 Total third party revenues include treatment and refining charges amounting
US$141.1 million.)
(2 Segment profit excluding foreign exchange hedging losses, depreciation and
amortisation and employee profit sharing.)
(3 Capital expenditure represents the cash outflow in respect of additions to
property, plant and equipment, including mine development, construction of
leaching pads, purchase of mine equipment and capitalised stripping activity,
excluding additions relating to changes in the mine closure provision.
Significant additions include the construction of second beneficiation plant
(Merrill Crowe) at Herradura and the expansion of the flotation plant and the
construction of the pyrites plant at Saucito.)
(4 During 2016, this segment did not operate due to the Bajio conflict (note
26). Segment profit is derived from the changes in the net realisable value
allowance against inventory (note 15).)
(5 Due to its size this segment was presented within Other in the financial
statements for the year ended as at 31 December 2016.)
(6 Other includes inter-segment revenue corresponds to leasing services
provided by Minera Bermejal, S.A. de C.V.; capital expenditure corresponds to
Minera Juanicipio S.A de C.V. The presentation of capital expenditure has been
changed by presenting San Julian separately to be consistent with the
presentation in the 2017 table above.)
( )
4. Revenues
Revenues reflect the sale of goods, being concentrates, doré, slag and
precipitates of which the primary contents are silver, gold, lead and zinc.
(a) Revenues by product sold
Year ended 31 December
2017 US$ thousands 2016 US$ thousands
Lead concentrates (containing silver, gold, lead and by-products) 832,039 792,770
Doré and slag (containing gold, silver and by-products) 820,821 880,447
Zinc concentrates (containing zinc, silver and by-products) 195,837 120,889
Precipitates (containing gold and silver) 244,611 111,397
2,093,308 1,905,503
Substantially all lead concentrates, precipitates, doré and slag, were sold
to Peñoles' metallurgical complex, Met-Mex, for smelting and refining.
(b) Value of metal content in products sold
For products other than refined silver and gold, invoiced revenues are derived
from the value of metal content adjusted by treatment and refining charges
incurred by the metallurgical complex of the customer. The value of the metal
content of the products sold, before treatment and refining charges is as
follows:
Year ended 31 December
2017 US$ thousands 2016 US$ thousands
Silver 844,815 724,024
Gold 1,125,290 1,133,067
Zinc 161,305 106,461
Lead 101,826 83,070
Value of metal content in products sold 2,233,236 2,046,622
Adjustment for treatment and refining charges (139,928) (141,119)
Total revenues(1)(,) 2,093,308 1,905,503
(1 Includes provisional price adjustments which represent changes in the fair
value of embedded derivatives resulting in a gain of US$9.2 million (2016:
loss of US$(2.2) million). During 2017 there were no hedging transactions
impacting revenues (2016: gain of US$ 1.6 million). For further detail, refer
to note 2(p).)
The average realised prices for the gold and silver content of products sold,
prior to the deduction of treatment and refining charges, were:
Year ended 31 December
2017 US$ per ounce 2016 US$ per ounce
Gold(2) 1,267.4 1,246.5
Silver(2) 16.9 17.2
(2 Realised prices do not include the results of hedging.)
5. Cost of sales
Year ended 31 December
2017 US$ thousands 2016 US$ thousands
Depreciation and amortisation (notes 2 (e) and 12) 367,609 346,502
Personnel expenses (note 7) 89,629 80,360
Maintenance and repairs 115,670 90,650
Operating materials 153,221 131,786
Energy 144,298 117,995
Contractors 233,909 174,167
Freight 10,545 7,921
Insurance 4,786 4,990
Mining concession rights and contributions 11,589 10,347
Other 22,043 14,721
Cost of production 1,153,299 979,439
Losses on foreign currency hedges - 2,770
Change in work in progress and finished goods (ore inventories) 16,873 61,488
Change in net realisable value allowance against inventory (note 15) (2,269) (20,309)
1,167,903 1,023,388
6. Exploration expenses
Year ended 31 December
2017 US$ thousands 2016 US$ thousands
Contractors 105,778 88,822
Administrative services 6,818 6,243
Mining concession rights and contributions 13,872 14,027
Personnel expenses (note 7) 6,749 5,521
Assays 2,850 2,982
Rentals 2,329 1,524
Other 2,712 2,063
141,108 121,182
These exploration expenses were mainly incurred in areas of the Fresnillo,
Herradura, La Ciénega, Saucito and San Julian mines, the San Ramon satellite
mine and Orysivo, Guanajuato, Centauro Deep and Valles projects. In addition,
exploration expenses of US$8.3 million (2016: US$7.9 million) were incurred in
the year on projects located in Peru.
The following table sets forth liabilities (generally trade payables)
corresponding to exploration activities of the Group companies engaged only in
exploration, principally Exploraciones Mineras Parreña, S.A. de C.V.
Year ended 31 December
2017 US$ thousands 2016 US$ thousands
Liabilities related to exploration activities 1,947 1,643
The liabilities related to exploration activities recognised by the Group
operating companies are not included since it is not possible to separate the
liabilities related to exploration activities of these companies from their
operating liabilities.
Cash flows relating to exploration activities are as follows:
Year ended 31 December
2017 US$ thousands 2016 US$ thousands
Operating cash out flows related to exploration activities 140,804 120,457
7. Personnel expenses
Year ended 31 December
2017 US$ thousands 2016 US$ thousands
Employees' profit sharing 17,150 15,145
Salaries and wages 39,448 36,296
Bonuses 12,112 10,233
Statutory healthcare and housing contributions 14,258 12,979
Other benefits 8,704 8,035
Vacations and vacations bonus 2,636 1,634
Social security 7,112 4,459
Post-employment benefits(1) 4,224 3,567
Other 10,843 8,686
116,487 101,034
(1 Post- employment benefits include) (US$0.4) (million associated to benefits
corresponding to the defined contribution plan (2016: US$1.5 million).)
(a) Personnel expenses are reflected in the following line items:
Year ended 31 December
2017 US$ thousands 2016 US$ thousands
Cost of sales (note 5) 89,629 80,360
Administrative expenses 20,109 15,153
Exploration expenses (note 6) 6,749 5,521
116,487 101,034
(b) The monthly average number of employees during the year was as follows:
Year ended 31 December
2017 No. 2016 No.
Mining 1,994 1,881
Plant concentration 602 550
Exploration 501 454
Maintenance 865 894
Administration and other 936 791
Total 4,898 4,570
8. Other operating income and expenses
Year ended 31 December
2017 US$ thousands 2016 US$ thousands
Other income:
Gain on sale of property, plant and equipment(1) 25,333 -
Rentals - 3
Selling of scrap 1,444 610
Other 1,426 785
28,203 1,398
Year ended 31 December
2017 US$ thousands 2016 US$ thousands
Other expenses:
Rentals 229 -
Maintenance(2) 1,858 926
Donations 2,540 317
Environmental activities 1,790 1,005
Loss on sale of property, plant and equipment - 1,103
Consumption tax expensed 1,031 940
Write-off of property, plant and equipment - 3,005
Impairment available-for-sale financial assets 36 -
Other 3,887 3,146
11,371 10,442
(1 Mainly corresponds to the sale of certain mining concession from the
Fresnillo district to a third party for a consideration of US$26.0 million,
resulting in a gain of US$24.8 million.)
(2 Costs relating to the rehabilitation of the facilities of Compañía Minera
las Torres, S.A. de C.V. (closed mine).)
9. Finance income and finance costs
Year ended 31 December
2017 US$ thousands 2016 US$ thousands
Finance income:
Interest on short-term deposits and investments 11,368 4,542
Other 3,208 2,416
14,576 6,958
Year ended 31 December
2017 US$ thousands 2016 US$ thousands
Finance costs:
Interest on interest-bearing loans 35,808 29,006
Fair value movement on derivatives(1) 41,389 40,294
Unwinding of discount on provisions 11,703 10,476
Other 753 547
89,653 80,323
(1 Principally relates to the time value associated with gold commodity
options (see note 30 for further detail).)
10. Income tax expense
a) Major components of income tax expense:
Year ended 31 December
2017 US$ thousands 2016 US$ thousands
Consolidated income statement:
Corporate income tax
Current:
Income tax charge 155,692 167,873
Amounts under/(over) provided in previous years 8,676 (1,646)
164,368 166,227
Deferred:
Origination and reversal of temporary differences (45,003) 53,581
Revaluation effects of Silverstream contract 34,097 40,058
(10,906) 93,639
Corporate income tax 153,462 259,866
Special mining right
Current:
Special mining right charge(1) 19,415 24,502
19,415 24,502
Deferred:
Origination and reversal of temporary differences 7,805 8,910
Special mining right 27,220 33,412
Income tax expense reported in the income statement 180,682 293,278
(1. The special mining right "SMR" allows the deduction of payments of mining
concessions rights up to the amount of SMR payable within the same legal
entity. During the fiscal year ended 31 December 2017, the Group credited
US$15.7 million (2016: US$12.4 million) of mining concession rights against
the SMR. Total mining concessions rights paid during the year were US$16.3
million (2016: US$15.4 million) and have been recognised in the income
statement within cost of sales and exploration expenses. Mining concessions
rights paid in excess of the SMR cannot be credited to SMR in future fiscal
periods, and therefore no deferred tax asset has been recognised in relation
to the excess. Without regards to credits permitted under the SMR regime, the
current special mining right charge would have been US$35.1 million (2016:
US$36.9 million).)
Year ended 31 December
2017 US$ thousands 2016 US$ thousands
Consolidated statement of comprehensive income:
Deferred income tax credit/(charge) related to items recognised directly in
other comprehensive income:
Losses on cash flow hedges recycled to income statement - (355)
Changes in fair value of cash flow hedges - 15,875
Changes in fair value of available-for-sale financial assets (2,653) (13,418)
Remeasurement losses on defined benefit plans (148) (388)
Income tax effect reported in other comprehensive income (2,801) 1,714
(b) Reconciliation of the income tax expense at the Group's statutory income
rate to income tax expense at the Group's effective income tax rate:
Year ended 31 December
2017 US$ thousands 2016 US$ thousands
Accounting profit before income tax 741,489 718,240
Tax at the Group's statutory corporate income tax rate 30.0% 222,446 215,472
Expenses not deductible for tax purposes 2,562 2,016
Inflationary uplift of the tax base of assets and liabilities (20,011) (8,933)
Current income tax (over)/underprovided in previous years 472 (1,303)
Exchange rate effect on tax value of assets and liabilities(1) (9,934) 90,035
Non-taxable/non-deductible foreign exchange losses (4,242) (2,157)
Inflationary uplift of tax losses (5,084) (2,891)
IEPS tax credit (note 10 (e)) (26,181) (24,020)
Deferred tax asset not recognised 4,461 3,360
Special mining right deductible for corporate income tax (8,165) (10,024)
Other (2,862) (1,689)
Corporate income tax at the effective tax rate of 20.7% (2016: 36.2%) 153,462 259,866
Special mining right 27,220 33,412
Tax at the effective income tax rate of 24.4% (2016: 40.8%) 180,682 293,278
(1 Mainly derived from the tax value of property, plant and equipment.)
(c) Movements in deferred income tax liabilities and assets:
Year ended 31 December
2017 US$ thousands 2016 US$ thousands
Opening net liability (443,027) (342,195)
Income statement credit/(charge) arising on corporate income tax 10,906 (93,639)
Income statement charge arising on special mining right (7,805) (8,910)
Exchange difference - 3
Net (charge)/ credit related to items directly charged to other comprehensive (2,801) 1,714
income
Closing net liability (442,727) (443,027)
The amounts of deferred income tax assets and liabilities as at 31 December
2017 and 2016, considering the nature of the related temporary differences,
are as follows:
Consolidated balance sheet Consolidated income statement
2017 US$ thousands 2016 2017 US$ thousands 2016 US$ thousands
US$ thousands
Related party receivables (221,451) (199,181) 22,270 72,799
Other receivables (2,171) (3,725) (1,554) 3,256
Inventories 162,842 163,113 271 (43,868)
Prepayments (898) (1,803) (923) (10,727)
Derivative financial instruments including Silverstream contract (147,535) (134,984) 12,551 4,469
Property, plant and equipment arising from corporate income tax (341,774) (351,325) (9,551) 36,358
Exploration expenses and operating liabilities 44,121 24,303 (19,818) 4,083
Other payables and provisions 55,379 44,733 (10,646) 13,910
Losses carried forward 68,213 66,343 (1,870) 22,250
Post-employment benefits 1,465 1,685 220 364
Deductible profit sharing 4,249 3,905 (344) (226)
Special mining right deductible for corporate income tax 30,661 29,100 (1,561) (8,034)
Available-for-sale financial assets (16,818) (14,175) 2,643 13,419
Other (3,772) (3,581) (2,594) (14,414)
Net deferred tax liability related to corporate income tax (367,489) (375,592)
Deferred tax credit related to corporate income tax - - (10,906) 93,639
Related party receivables arising from special mining right (21,379) (18,764) 2,616 3,557
Inventories arising from special mining right 11,107 8,274 (2,831) 1,341
Property plant and equipment arising from special mining right (64,966) (56,945) 8,020 4,012
Net deferred tax liability (442,727) (443,027)
Deferred tax (credit)/charge (3,101) 102,549
Reflected in the statement of financial position as follows:
Deferred tax assets 48,950 20,023
Deferred tax liabilities-continuing operations (491,677) (463,050)
Net deferred tax liability (442,727) (443,027)
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$227.4 million (2016:
US$221.1 million). If not utilised, US$13.7 million (2016: US$10.7 million)
will expire within five years and US$213.6 million (2016: US$210.4 million)
will expire between six and ten years.
The Group has further tax losses and other similar attributes carried forward
of US$37.4 million (2016: US$29.1 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$1,723 million (2016: US$1,949 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%.
During 2016 the Mexican Internal Revenue Law granted to taxpayers a credit in
respect of an excise tax (Special Tax on Production and Services, or IEPS for
its acronym in Spanish) paid when purchasing diesel used for general machinery
and certain mining vehicles. The credit can be applied against either the
Group's own corporate income tax or the income tax withheld from third
parties. The credit is calculated on an entity-by-entity basis and expires one
year after the purchase of the diesel. In the year ended 31 December 2017, the
Group applied a credit of US$23.2 million (2016: US$19.1 million) in respect
of the year and recognised a deferred tax asset of US$2.9 million (2016:
US$4.8 million) in respect of the IEPS incurred in 2017 and expected to be
applied during 2018. As the IEPS deduction is itself taxable, the deferred tax
asset is recognised at 70% of the IEPS carried forward. The net amount applied
by the Group is presented in the reconciliation of the effective tax rate in
note 10(b).
The SMR states that the owners of mining titles and concessions are subject to
pay an annual mining right of 7.5% of the profit derived from the extractive
activities and is considered as income tax under IFRS. The SMR allows as a
credit the payment of mining concessions rights up to the amount of SMR
payable The 7.5% tax apply to a base of income before interest, annual
inflation adjustment, taxes paid on the regular activity, depreciation and
amortization, as defined by the new ISR. This SMR can be credited against the
corporate income tax of the same fiscal year and its payment must be remitted
no later than the last business day of March of the following year.
11. Earnings per share
Earnings per share ('EPS') is calculated by dividing profit for the year
attributable to equity shareholders of the Company by the weighted average
number of Ordinary Shares in issue during the period.
The Company has no dilutive potential Ordinary Shares.
As of 31 December 2017 and 2016, earnings per share have been calculated as
follows:
Year ended 31 December
2017 US$ thousands 2016 US$ thousands
Earnings:
Profit from continuing operations attributable to equity holders of the 560,578 426,986
Company
Adjusted profit from continuing operations attributable to equity holders of 481,019 333,516
the Company
Adjusted profit is profit as disclosed in the Consolidated Income Statement
adjusted to exclude revaluation effects of the Silverstream contract of
US$113.6 million gain (US$79.5 million net of tax) (2016: US$133.5 million
gain (US$93.5 million net of tax)).
Adjusted earnings per share have been provided in order to provide a measure
of the underlying performance of the Group, prior to the revaluation effects
of the Silverstream contract, a derivative financial instrument.
2017 thousands 2016 thousands
Number of shares:
Weighted average number of Ordinary Shares in issue 736,894 736,894
2017 US$ 2016 US$
Earnings per share:
Basic and diluted earnings per share 0.761 0.579
Adjusted basic and diluted earnings per Ordinary Share from continuing 0.653 0.453
operations
12. Property, plant and equipment
Year ended 31 December 2016
Land and buildings Plant and Equipment Mining properties and development costs Other assets Construction in Progress Total
US$ thousands
Cost
At 1 January 2016 173,201 1,447,939 1,289,406 217,979 561,623 3,690,148
Additions 459 11,423 4,168 (50,304)(2) 441,649 407,395
Disposals - (12,409) (4,206) (161) - (16,776)
Transfers and other movements 70,315 188,633 218,648 26,391 (503,987) -
At 31 December 2016 243,975 1,635,586 1,508,016 193,905 499,285 4,080,767
Accumulated depreciation
At 1 January 2016 (74,170) (725,762) (678,417) (73,211) - (1,551,560)
Depreciation for the year(1) (16,412) (177,744) (148,223) (18,961) - (361,340)
Write-off of property, plant and equipment (4) (2,909) - (92) - (3,005)
Disposals - 11,048 4,206 101 - 15,355
At 31 December 2016 (90,586) (895,367) (822,434) (92,163) - (1,900,550)
Net Book amount at 31 December 2016 153,389 740,219 685,582 101,742 499,285 2,180,217
Year ended 31 December 2017
Land and buildings Plant and Equipment Mining properties and development costs Other assets Construction in Progress Total
US$ thousands
Cost
At 1 January 2017 243,975 1,635,586 1,508,016 193,905 499,285 4,080,767
Additions 3,079 5,464 46,558 27,187(2) 567,856 650,144
Disposals (9,584) (4,415) (1,611) - (15,610)
Transfers and other movements 14,751 186,125 359,226 35,984 (596,086) -
At 31 December 2017 261,805 1,817,591 1,909,385 255,465 471,055 4,715,301
Accumulated depreciation
At 1 January 2017 (90,586) (895,367) (822,434) (92,163) - (1,900,550)
Depreciation for the year(1) (21,462) (165,502) (179,891) (14,061) (380,916)
Disposals 9,410 4,412 939 14,761
At 31 December 2017 (112,048) (1,051,459) (997,913) (105,285) - 2,266,705
Net Book amount at 31 December 2017 149,757 766,132 911,472 150,180 471,055 2,448,596
(1 Depreciation for the year includes US$367.7 million (2016: US$346.5
million) recognised as an expense in the cost of sales in the income statement
and US$13.3 million (2016: US$14.8 million), capitalised as part of
construction in progress.)
(2 From the additions in "other assets category US$24.1 million (2016:
US$(54.9) million) corresponds to the reassessment of mine closure
rehabilitations costs, see note 21.)
( )
The table below details construction in progress by operating mine
Year ended 31 December
2017 US$ thousands 2016 US$ thousands
Saucito 101,885 45,197
Herradura 98,401 37,740
Noche Buena 12,028 15,985
Ciénega 29,039 17,348
Fresnillo 30,641 32,703
San Julián 53,383 270,154
Other(1) 145,678 80,158
471,055 499,285
(1 Manly corresponds to Juanicipio development project and Minera Bermejal,
S.A. de C.V. (2016: Juanicipio development project).)
During the year ended 31 December 2017, the Group capitalised US$11.4 million
of borrowing costs within construction in progress (2016: US$18.2). Borrowing
costs were capitalised at the rate of 5.78% (2016: 5.78%).
Sensitivity analysis
As at 31 December 2017 and 2016, 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 valuation approaches management used price assumptions of US$1,300/ounce
and US$19/ounce (2016: US$1,250/ounce and US$18/ounce) for gold and silver,
respectively. Management considers 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. Management has considered a low
sensitivity by decreasing gold and silver prices by 5% (2016: gold and silver
10%) and a high sensitivity by decreasing gold and silver prices by 10% (2016:
gold 15% and silver 20%). As at 31 December 2017 no impairment resulted in
those CGU tested (2016: San Julian US$84.3 million under high sensitivity; US$
nil under low sensitivity and Herradura US$109.6 million under high
sensitivity; US$ nil under low sensitivity).
13. Available-for-sale financial assets
Year ended 31 December
2017 US$ thousands 2016 US$ thousands
Beginning balance 116,171 71,442
Purchase of available-for-sale financial assets(1) 19,877 -
Fair value change 8,808 44,729
Ending balance 144,856 116,171
Of which relates to investments in funds 19,877 -
(1 Corresponds to the Company's investment in an investment fund held to
obtain a financial return.)
At 31 December 2017, several investments in quoted shares were valued below
the cost paid by the Group. This decrease has continued throughout the past
12-month period, which is considered to be prolonged, therefore an impairment
of US$0.04 million was recognised as other expenses in the income statement.
During 2016 no impairment arose on the investment in quoted shares.
The fair value of the available-for-sale financial assets is determined by
reference to published price quotations in an active market.
14. 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 that
commenced from 31 December 2013) is payable to Peñoles. The cash payment per
ounce for the year ended 31 December 2017 was $5.20 per ounce (2016: $5.15 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. The term of the derivative is based on Sabinas life of
mine which is currently 38 years. 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 2017 total proceeds received in cash
were US$43.3 million (2016: US$47.5 million) of which, US$5.9 million was in
respect of proceeds receivable as at 31 December 2016 (2015: US$2.8 million).
Cash received in respect of the year of US$37.3 million (2016: US$44.8
million) corresponds to 3.6 million ounces of payable silver (2016: 3.8
million ounces). As at 31 December 2017, a further US$4.9 million (2016:
US$5.9 million) of cash receivable corresponding to 422,375 ounces of silver
is due (2016: 538,756 ounces).
The US$113.6 million unrealised gain recorded in the income statement (2016:
US$133.5 million gain) resulted from the updating of assumptions used to value
the Silverstream contract. The most significant of these were the increase in
the Sabinas mine silver reserves and resources, the unwinding of the discount,
an increase in the forward price of silver, and the difference between the
payments already received during the year ended 31 December 2017 and payments
estimated in the valuation model as of 31 December 2016.
A reconciliation of the beginning balance to the ending balance is shown
below:
2017 US$ thousands 2016 US$ thousands
Balance at 1 January: 467,529 384,771
Cash received in respect of the year (37,373) (44,796)
Cash receivable (4,925) (5,974)
Remeasurement gains recognised in profit and loss 113,656 133,528
Balance at 31 December 538,887 467,529
Less - Current portion 32,318 28,718
Non-current portion 506,569 438,811
See note 30 for further information on the inputs that have a significant
effect on the fair value of this derivative, see note 31 for further
information relating to market and credit risks associated with the
Silverstream asset.
15. Inventories
As at 31 December
2017 US$ thousands 2016 US$ thousands
Finished goods(1) 10,957 5,736
Work in progress(2) 175,016 189,047
Ore stockpile(3) 15,115 18,253
Operating materials and spare parts 75,331 70,348
276,419 283,384
Accumulated write-down of work in progress inventory(4) - (2,269)
Allowance for obsolete and slow-moving inventories (5,314) (4,265)
Balance as 31 December at lower of cost and net realisable value 271,105 276,850
Less - Current portion 179,485 187,499
Non-current portion(5) 91,620 89,351
(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 Ore stockpile includes ore mineral obtained during the development phase at
San Julián.)
(4 Corresponds to ore inventory of the Soledad-Dipolos mine resulting from net
realisable value calculations.)
(5 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$1,170.1
million (2016: US$1,042.4 million) before changes to the net realisable value
of inventory. The adjustment to the net realisable value allowance against
work-in-progress inventory decreased US$2.2 million during the year (2016:
US$20.3 million decrease). The adjustment to the allowance for obsolete and
slow-moving inventory recognised as an expense was US$1.04 million (2016:
US$0.7 million).
16. Trade and other receivables
Year ended 31 December
2017 US$ thousands 2016 US$ thousands
Trade and other receivables from related parties (note 27)(1) 226,134 189,619
Value Added Tax receivable 85,979 70,426
Advances and other receivables from contractors 19,832 14,651
Other receivables from related parties (note 27) 4,925 5,973
Loans granted to contractors 1,403 1,401
Other receivables arising on the sale of fixed assets 57 386
Other receivables 4,612 4,693
342,942 287,149
Provision for impairment of 'other receivables' (436) (471)
Trade and other receivables classified as current assets 342,506 286,678
Other receivables classified as non-current assets:
Loans granted to contractors 129 990
129 990
342,635 287,668
(1 Trade receivables from related parties includes the fair value of embedded
derivatives arising due to provisional pricing in sales contracts of US$6.5
million as at 31 December 2017 (2016: US$(2.8) 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$242.3 million (2016: US$206.8
million), and in pesos US$100.3 million (2016: US$80.9 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 2017 is US$0.4 million (2016: US$0.5 million).
In determining the recoverability of receivables, the Group performs a risk
analysis considering the type and age of the outstanding receivable and
the credit worthiness of the counterparty, see note 31(b).
17. Cash and cash equivalents and short term investments
The Group considers cash and cash equivalents and short term investments when
planning its operations and in order to achieve its treasury objectives.
As at 31 December
2017 US$ thousands 2016 US$ thousands
Cash at bank and on hand 4,265 2,592
Short-term deposits 871,769 709,362
Cash and cash equivalents 876,034 711,954
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
2017 US$ thousands 2016 US$ thousands
Short-term investments - 200,000
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 2017 there were no short-term investments (31 December 2016:
US$200,000 held in fixed-term bank deposits).
18. Equity
Share capital and share premium
Authorised share capital of the
- More to follow, for following part double click ID:nRSa9902Fe
Hedges which meet the strict criteria for hedge accounting are accounted for as follows:
Cash flow hedges
For derivatives that are designated and qualify as cash flow hedges, the effective portion of changes in the fair value of
derivative instruments are recorded as in other comprehensive income and are transferred to the income statement when the
hedged transaction affects profit or loss, such as when a forecast sale or purchase occurs. For gains or losses related to
the hedging of foreign exchange risk these are included, in the line item in which the hedged costs are reflected. Where
the hedged item is the cost of a non-financial asset or liability, the amounts recognised in other comprehensive income are
transferred to the initial carrying amount of the non-financial asset or liability. The ineffective portion of changes in
the fair value of cash flow hedges is recognised directly as finance costs, in the income statement of the related period.
If the hedging instrument expires or is sold, terminated or exercised without replacement or rollover, or if its
designation as a hedge is revoked, any cumulative gain or loss recognised directly in other comprehensive income from the
period that the hedge was effective remains separately in other comprehensive income until the forecast transaction occurs,
when it is recognised in the income statement. When a forecast transaction is no longer expected to occur, the cumulative
gain or loss that was reported in other comprehensive income is immediately transferred to the income statement.
When hedging with options, the Group designates only the intrinsic value movement of the hedging option within the hedge
relationship. The time value of the option contracts is therefore excluded from the hedge designation. Changes in fair
value of time value is recognised in the income statement in finance costs.
Embedded derivatives
Contracts are assessed for the existence of embedded derivatives at the date that the Group first becomes party to the
contract, with reassessment only if there is a change to the contract that significantly modifies the cash flows. Embedded
derivatives which are not clearly and closely related to the underlying asset, liability or transaction are separated and
accounted for as stand-alone derivatives.
(t) Borrowing costs
Borrowing costs directly attributable to the acquisition, construction or production of an asset that necessarily takes 12
or more months to get ready for its intended use or sale (a qualifying asset) are capitalised as part of the cost of the
respective asset. Borrowing costs consist of interest and other costs that an entity incurs in connection with the
borrowing of funds.
Where funds are borrowed specifically to finance a project, the amount capitalised represents the actual borrowing costs
incurred. Where surplus funds are available for a short term from funds borrowed specifically to finance a project, the
income generated from the temporary investment of such amounts is also capitalised and deducted from the total capitalised
borrowing cost. Where the funds used to finance a project form part of general borrowings, the amount capitalised is
calculated using a weighted average of rates applicable to relevant general borrowings of the Group during the period.
All other borrowing costs are recognised in the income statement in the period in which they are incurred.
(u) Fair value measurement
The Group measures financial instruments at fair value at each balance sheet date. Fair values of financial instruments
measured at amortised cost are disclosed in notes 30 and 31.
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. The fair value measurement is based on the presumption that the
transaction to sell the asset or transfer the liability takes place either:
In the principal market for the asset or liability, or
In the absence of a principal market, in the most advantageous market for the asset or liability
The principal or the most advantageous market must be accessible to the Group.
The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing
the asset or liability, assuming that market participants act in their economic best interest.
A fair value measurement of a non-financial asset takes into account a market participant's ability to generate economic
benefits by using the asset in its highest and best use or by selling it to another market participant that would use the
asset in its highest and best use.
The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available
to measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs.
All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorised within
the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value
measurement as a whole:
Level 1 - Quoted (unadjusted) market prices in active markets for identical assets or liabilities
Level 2 - Valuation techniques for which the lowest level input that is significant to the fair value measurement is
directly or indirectly observable
Level 3 - Valuation techniques for which the lowest level input that is significant to the fair value measurement is
unobservable
For assets and liabilities that are recognised in the financial statements on a recurring basis, the Group determines
whether transfers have occurred between levels in the hierarchy by re-assessing categorisation (based on the lowest level
input that is significant to the fair value measurement as a whole) at the end of each reporting period.
For the purpose of fair value disclosures, the Group has determined classes of assets and liabilities on the basis of the
nature, characteristics and risks of the asset or liability and the level of the fair value hierarchy as explained above.
Further information on fair values is described in note 30.
(v) Dividend distribution
Dividends payable to the Company's shareholders are recognised as a liability when these are approved by the Company's
shareholders or Board as appropriate. Dividends payable to minority shareholders are recognised as a liability when these
are approved by the Company's subsidiaries.
3. Segment reporting
For management purposes, the Group is organised into operating segments based on producing mines.
At 31 December 2017, the Group has seven reportable operating segments as follows:
The Fresnillo mine, located in the state of Zacatecas, an underground silver mine;
The Saucito mine, located in the state of Zacatecas, an underground silver mine;
The Ciénega mine, located in the state of Durango, an underground gold mine; including the San Ramon satellite mine;
The Herradura mine, located in the state of Sonora, a surface gold mine;
The Soledad-Dipolos mine, located in the state of Sonora, a surface gold mine; and
The Noche Buena mine, located in state of Sonora, a surface gold mine.
The San Julian mine, located on the border of Chihuahua / Durango states, an underground silver-gold mine. Phase one of
San Julian mine commenced commercial production in the third quarter of 2016 and phase two in the third quarter of 2017.
The operating performance and financial results for each of these mines are reviewed by management. As the Group´s chief
operating decision maker does not review segment assets and liabilities, the Group has not disclosed this information.
Management monitors the results of its operating segments separately for the purpose of performance assessment and making
decisions about resource allocation. Segment performance is evaluated without taking into account certain adjustments
included in Revenue as reported in the consolidated income statement, and certain costs included within Cost of sales and
Gross profit which are considered to be outside of the control of the operating management of the mines. The table below
provides a reconciliation from segment profit to Gross profit as per the consolidated income statement. Other income and
expenses included in the consolidated income statement are not allocated to operating segments. Transactions between
reportable segments are accounted for on an arm's length basis similar to transactions with third parties.
In 2017 and 2016, substantially all revenue was derived from customers based in Mexico.
Operating segments
The following tables present revenue and profit information regarding the Group's operating segments for the year ended 31
December 2017 and 2016, respectively:
Year ended 31 December 2017
US$ thousands Fresnillo Herradura Cienega Soledad- Saucito Noche Buena San Julian Other5 Adjustments and eliminations Total
Dipolos4
Revenues:
Third party1 368,286 605,823 183,689 - 446,008 214,998 274,504 - - 2,093,308
Inter-Segment 79,907 (79,907) -
Segment revenues 368,286 605,823 183,689 - 446,008 214,998 274,504 79,907 (79,907) 2,093,308
Segment Profit2 252,249 355,570 97,098 2,269 315,196 75,496 174,712 59,878 (22,966) 1,309,502
Depreciation and amortisation (367,609)
Employee profit sharing (16,488)
Gross profit as per the income statement 925,405
Capital expenditure3 111,724 153,200 46,461 - 133,679 18,748 79,069 61,870 - 604,751
1 Total third party revenues include treatment and refining charges amounting US$139.9 million.
2 Segment profit excluding depreciation and amortisation and employee profit sharing. During 2017 there were no foreign
exchange hedging losses included in Gross profit.
3 Capital expenditure represents the cash outflow in respect of additions to property, plant and equipment, including mine
development, construction of leaching pads, purchase of mine equipment and capitalised stripping activity, excluding
additions relating to changes in the mine closure provision. Significant additions the construction of facilities at San
Julian phase II, the second dynamic leaching plant at Herradura and the construction of the pyrites plant at Saucito.
4 During 2017, this segment did not operate due to the Bajio conflict (note 26). Segment profit is derived from the changes
in the net realisable value allowance against inventory (note 15).
5 Other inter-segment revenue corresponds to leasing services provided by Minera Bermejal, S.A. de C.V; capital expenditure
corresponds to Minera Juanicipio S.A de C.V.
Year ended 31 December 2016
US$ thousands Fresnillo Herradura Cienega Soledad-Dipolos4 Saucito Noche San Julian5 Other6 Adjustments and eliminations Total
Buena
Revenues:
Third party1 327,957 655,025 169,530 - 459,590 225,374 66,441 - 1,586 1,905,503
Inter-Segment 77,385 (77,385) -
Segment revenues 327,957 655,025 169,530 - 459,590 225,374 66,441 77,385 (75,799) 1,905,503
Segment Profit2 224,163 369,896 100,105 12,977 363,780 83,852 45,833 63,379 (17,854) 1,246,131
Foreign exchange hedging losses (2,770)
Depreciation and amortisation (346,502)
Employee profit sharing (14,744)
Gross profit as per the income statement 882,115
Capital expenditure3 52,794 78,825 32,745 - 102,398 8,620 144,468 14,200 - 434,050
1 Total third party revenues include treatment and refining charges amounting US$141.1 million.
2 Segment profit excluding foreign exchange hedging losses, depreciation and amortisation and employee profit sharing.
3 Capital expenditure represents the cash outflow in respect of additions to property, plant and equipment, including mine
development, construction of leaching pads, purchase of mine equipment and capitalised stripping activity, excluding
additions relating to changes in the mine closure provision. Significant additions include the construction of second
beneficiation plant (Merrill Crowe) at Herradura and the expansion of the flotation plant and the construction of the
pyrites plant at Saucito.
4 During 2016, this segment did not operate due to the Bajio conflict (note 26). Segment profit is derived from the changes
in the net realisable value allowance against inventory (note 15).
5 Due to its size this segment was presented within Other in the financial statements for the year ended as at 31 December
2016.
6 Other includes inter-segment revenue corresponds to leasing services provided by Minera Bermejal, S.A. de C.V.; capital
expenditure corresponds to Minera Juanicipio S.A de C.V. The presentation of capital expenditure has been changed by
presenting San Julian separately to be consistent with the presentation in the 2017 table above.
4. Revenues
Revenues reflect the sale of goods, being concentrates, doré, slag and precipitates of which the primary contents are
silver, gold, lead and zinc.
(a) Revenues by product sold
Year ended 31 December
2017 2016
US$ thousands US$ thousands
Lead concentrates (containing silver, gold, lead and by-products) 832,039 792,770
Doré and slag (containing gold, silver and by-products) 820,821 880,447
Zinc concentrates (containing zinc, silver and by-products) 195,837 120,889
Precipitates (containing gold and silver) 244,611 111,397
2,093,308 1,905,503
Substantially all lead concentrates, precipitates, doré and slag, were sold to Peñoles' metallurgical complex, Met-Mex, for
smelting and refining.
(b) Value of metal content in products sold
For products other than refined silver and gold, invoiced revenues are derived from the value of metal content adjusted by
treatment and refining charges incurred by the metallurgical complex of the customer. The value of the metal content of the
products sold, before treatment and refining charges is as follows:
Year ended 31 December
2017 2016
US$ thousands US$ thousands
Silver 844,815 724,024
Gold 1,125,290 1,133,067
Zinc 161,305 106,461
Lead 101,826 83,070
Value of metal content in products sold 2,233,236 2,046,622
Adjustment for treatment and refining charges (139,928) (141,119)
Total revenues1, 2,093,308 1,905,503
1 Includes provisional price adjustments which represent changes in the fair value of embedded derivatives resulting in a
gain of US$9.2 million (2016: loss of US$(2.2) million). During 2017 there were no hedging transactions impacting revenues
(2016: gain of US$ 1.6 million). For further detail, refer to note 2(p).
The average realised prices for the gold and silver content of products sold, prior to the deduction of treatment and
refining charges, were:
Year ended 31 December
2017 2016
US$ per ounce US$ per ounce
Gold2 1,267.4 1,246.5
Silver2 16.9 17.2
2 Realised prices do not include the results of hedging.
5. Cost of sales
Year ended 31 December
2017 2016
US$ thousands US$ thousands
Depreciation and amortisation (notes 2 (e) and 12) 367,609 346,502
Personnel expenses (note 7) 89,629 80,360
Maintenance and repairs 115,670 90,650
Operating materials 153,221 131,786
Energy 144,298 117,995
Contractors 233,909 174,167
Freight 10,545 7,921
Insurance 4,786 4,990
Mining concession rights and contributions 11,589 10,347
Other 22,043 14,721
Cost of production 1,153,299 979,439
Losses on foreign currency hedges - 2,770
Change in work in progress and finished goods (ore inventories) 16,873 61,488
Change in net realisable value allowance against inventory (note 15) (2,269) (20,309)
1,167,903 1,023,388
6. Exploration expenses
Year ended 31 December
2017 2016
US$ thousands US$ thousands
Contractors 105,778 88,822
Administrative services 6,818 6,243
Mining concession rights and contributions 13,872 14,027
Personnel expenses (note 7) 6,749 5,521
Assays 2,850 2,982
Rentals 2,329 1,524
Other 2,712 2,063
141,108 121,182
These exploration expenses were mainly incurred in areas of the Fresnillo, Herradura, La Ciénega, Saucito and San Julian
mines, the San Ramon satellite mine and Orysivo, Guanajuato, Centauro Deep and Valles projects. In addition, exploration
expenses of US$8.3 million (2016: US$7.9 million) were incurred in the year on projects located in Peru.
The following table sets forth liabilities (generally trade payables) corresponding to exploration activities of the Group
companies engaged only in exploration, principally Exploraciones Mineras Parreña, S.A. de C.V.
Year ended 31 December
2017 2016
US$ thousands US$ thousands
Liabilities related to exploration activities 1,947 1,643
The liabilities related to exploration activities recognised by the Group operating companies are not included since it is
not possible to separate the liabilities related to exploration activities of these companies from their operating
liabilities.
Cash flows relating to exploration activities are as follows:
Year ended 31 December
2017 2016
US$ thousands US$ thousands
Operating cash out flows related to exploration activities 140,804 120,457
7. Personnel expenses
Year ended 31 December
2017 2016
US$ thousands US$ thousands
Employees' profit sharing 17,150 15,145
Salaries and wages 39,448 36,296
Bonuses 12,112 10,233
Statutory healthcare and housing contributions 14,258 12,979
Other benefits 8,704 8,035
Vacations and vacations bonus 2,636 1,634
Social security 7,112 4,459
Post-employment benefits1 4,224 3,567
Other 10,843 8,686
116,487 101,034
1 Post- employment benefits include US$0.4 million associated to benefits corresponding to the defined contribution plan
(2016: US$1.5 million).
(a) Personnel expenses are reflected in the following line items:
Year ended 31 December
2017 2016
US$ thousands US$ thousands
Cost of sales (note 5) 89,629 80,360
Administrative expenses 20,109 15,153
Exploration expenses (note 6) 6,749 5,521
116,487 101,034
(b) The monthly average number of employees during the year was as follows:
Year ended 31 December
2017 2016
No. No.
Mining 1,994 1,881
Plant concentration 602 550
Exploration 501 454
Maintenance 865 894
Administration and other 936 791
Total 4,898 4,570
8. Other operating income and expenses
Year ended 31 December
2017 2016
US$ thousands US$ thousands
Other income:
Gain on sale of property, plant and equipment1 25,333 -
Rentals - 3
Selling of scrap 1,444 610
Other 1,426 785
28,203 1,398
Year ended 31 December
2017 2016
US$ thousands US$ thousands
Other expenses:
Rentals 229 -
Maintenance2 1,858 926
Donations 2,540 317
Environmental activities 1,790 1,005
Loss on sale of property, plant and equipment - 1,103
Consumption tax expensed 1,031 940
Write-off of property, plant and equipment - 3,005
Impairment available-for-sale financial assets 36 -
Other 3,887 3,146
11,371 10,442
1 Mainly corresponds to the sale of certain mining concession from the Fresnillo district to a third party for a
consideration of US$26.0 million, resulting in a gain of US$24.8 million.
2 Costs relating to the rehabilitation of the facilities of Compañía Minera las Torres, S.A. de C.V. (closed mine).
9. Finance income and finance costs
Year ended 31 December
2017 2016
US$ thousands US$ thousands
Finance income:
Interest on short-term deposits and investments 11,368 4,542
Other 3,208 2,416
14,576 6,958
Year ended 31 December
2017 2016
US$ thousands US$ thousands
Finance costs:
Interest on interest-bearing loans 35,808 29,006
Fair value movement on derivatives1 41,389 40,294
Unwinding of discount on provisions 11,703 10,476
Other 753 547
89,653 80,323
1 Principally relates to the time value associated with gold commodity options (see note 30 for further detail).
10. Income tax expense
a) Major components of income tax expense:
Year ended 31 December
2017 2016
US$ thousands US$ thousands
Consolidated income statement:
Corporate income tax
Current:
Income tax charge 155,692 167,873
Amounts under/(over) provided in previous years 8,676 (1,646)
164,368 166,227
Deferred:
Origination and reversal of temporary differences (45,003) 53,581
Revaluation effects of Silverstream contract 34,097 40,058
(10,906) 93,639
Corporate income tax 153,462 259,866
Special mining right
Current:
Special mining right charge1 19,415 24,502
19,415 24,502
Deferred:
Origination and reversal of temporary differences 7,805 8,910
Special mining right 27,220 33,412
Income tax expense reported in the income statement 180,682 293,278
1. The special mining right "SMR" allows the deduction of payments of mining concessions rights up to the amount of SMR
payable within the same legal entity. During the fiscal year ended 31 December 2017, the Group credited US$15.7 million
(2016: US$12.4 million) of mining concession rights against the SMR. Total mining concessions rights paid during the year
were US$16.3 million (2016: US$15.4 million) and have been recognised in the income statement within cost of sales and
exploration expenses. Mining concessions rights paid in excess of the SMR cannot be credited to SMR in future fiscal
periods, and therefore no deferred tax asset has been recognised in relation to the excess. Without regards to credits
permitted under the SMR regime, the current special mining right charge would have been US$35.1 million (2016: US$36.9
million).
Year ended 31 December
2017 2016
US$ thousands US$ thousands
Consolidated statement of comprehensive income:
Deferred income tax credit/(charge) related to items recognised directly in other comprehensive income:
Losses on cash flow hedges recycled to income statement - (355)
Changes in fair value of cash flow hedges - 15,875
Changes in fair value of available-for-sale financial assets (2,653) (13,418)
Remeasurement losses on defined benefit plans (148) (388)
Income tax effect reported in other comprehensive income (2,801) 1,714
(b) Reconciliation of the income tax expense at the Group's statutory income rate to income tax expense at the Group's
effective income tax rate:
Year ended 31 December
2017 2016
US$ thousands US$ thousands
Accounting profit before income tax 741,489 718,240
Tax at the Group's statutory corporate income tax rate 30.0% 222,446 215,472
Expenses not deductible for tax purposes 2,562 2,016
Inflationary uplift of the tax base of assets and liabilities (20,011) (8,933)
Current income tax (over)/underprovided in previous years 472 (1,303)
Exchange rate effect on tax value of assets and liabilities1 (9,934) 90,035
Non-taxable/non-deductible foreign exchange losses (4,242) (2,157)
Inflationary uplift of tax losses (5,084) (2,891)
IEPS tax credit (note 10 (e)) (26,181) (24,020)
Deferred tax asset not recognised 4,461 3,360
Special mining right deductible for corporate income tax (8,165) (10,024)
Other (2,862) (1,689)
Corporate income tax at the effective tax rate of 20.7% (2016: 36.2%) 153,462 259,866
Special mining right 27,220 33,412
Tax at the effective income tax rate of 24.4% (2016: 40.8%) 180,682 293,278
1 Mainly derived from the tax value of property, plant and equipment.
(c) Movements in deferred income tax liabilities and assets:
Year ended 31 December
2017 2016
US$ thousands US$ thousands
Opening net liability (443,027) (342,195)
Income statement credit/(charge) arising on corporate income tax 10,906 (93,639)
Income statement charge arising on special mining right (7,805) (8,910)
Exchange difference - 3
Net (charge)/ credit related to items directly charged to other comprehensive income (2,801) 1,714
Closing net liability (442,727) (443,027)
The amounts of deferred income tax assets and liabilities as at 31 December 2017 and 2016, considering the nature of the
related temporary differences, are as follows:
Consolidated balance sheet Consolidated income statement
2017 2016US$ thousands 2017 2016
US$ thousands US$ thousands US$ thousands
Related party receivables (221,451) (199,181) 22,270 72,799
Other receivables (2,171) (3,725) (1,554) 3,256
Inventories 162,842 163,113 271 (43,868)
Prepayments (898) (1,803) (923) (10,727)
Derivative financial instruments including Silverstream contract (147,535) (134,984) 12,551 4,469
Property, plant and equipment arising from corporate income tax (341,774) (351,325) (9,551) 36,358
Exploration expenses and operating liabilities 44,121 24,303 (19,818) 4,083
Other payables and provisions 55,379 44,733 (10,646) 13,910
Losses carried forward 68,213 66,343 (1,870) 22,250
Post-employment benefits 1,465 1,685 220 364
Deductible profit sharing 4,249 3,905 (344) (226)
Special mining right deductible for corporate income tax 30,661 29,100 (1,561) (8,034)
Available-for-sale financial assets (16,818) (14,175) 2,643 13,419
Other (3,772) (3,581) (2,594) (14,414)
Net deferred tax liability related to corporate income tax (367,489) (375,592)
Deferred tax credit related to corporate income tax - - (10,906) 93,639
Related party receivables arising from special mining right (21,379) (18,764) 2,616 3,557
Inventories arising from special mining right 11,107 8,274 (2,831) 1,341
Property plant and equipment arising from special mining right (64,966) (56,945) 8,020 4,012
Net deferred tax liability (442,727) (443,027)
Deferred tax (credit)/charge (3,101) 102,549
Reflected in the statement of financial position as follows:
Deferred tax assets 48,950 20,023
Deferred tax liabilities-continuing operations (491,677) (463,050)
Net deferred tax liability (442,727) (443,027)
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$227.4 million (2016: US$221.1 million). If not utilised, US$13.7 million (2016: US$10.7 million) will expire within
five years and US$213.6 million (2016: US$210.4 million) will expire between six and ten years.
The Group has further tax losses and other similar attributes carried forward of US$37.4 million (2016: US$29.1 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$1,723 million (2016:
US$1,949 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%.
During 2016 the Mexican Internal Revenue Law granted to taxpayers a credit in respect of an excise tax (Special Tax on
Production and Services, or IEPS for its acronym in Spanish) paid when purchasing diesel used for general machinery and
certain mining vehicles. The credit can be applied against either the Group's own corporate income tax or the income tax
withheld from third parties. The credit is calculated on an entity-by-entity basis and expires one year after the purchase
of the diesel. In the year ended 31 December 2017, the Group applied a credit of US$23.2 million (2016: US$19.1 million) in
respect of the year and recognised a deferred tax asset of US$2.9 million (2016: US$4.8 million) in respect of the IEPS
incurred in 2017 and expected to be applied during 2018. As the IEPS deduction is itself taxable, the deferred tax asset is
recognised at 70% of the IEPS carried forward. The net amount applied by the Group is presented in the reconciliation of
the effective tax rate in note 10(b).
The SMR states that the owners of mining titles and concessions are subject to pay an annual mining right of 7.5% of the
profit derived from the extractive activities and is considered as income tax under IFRS. The SMR allows as a credit the
payment of mining concessions rights up to the amount of SMR payable The 7.5% tax apply to a base of income before
interest, annual inflation adjustment, taxes paid on the regular activity, depreciation and amortization, as defined by the
new ISR. This SMR can be credited against the corporate income tax of the same fiscal year and its payment must be remitted
no later than the last business day of March of the following year.
11. Earnings per share
Earnings per share ('EPS') is calculated by dividing profit for the year attributable to equity shareholders of the Company
by the weighted average number of Ordinary Shares in issue during the period.
The Company has no dilutive potential Ordinary Shares.
As of 31 December 2017 and 2016, earnings per share have been calculated as follows:
Year ended 31 December
2017 2016
US$ thousands US$ thousands
Earnings:
Profit from continuing operations attributable to equity holders of the Company 560,578 426,986
Adjusted profit from continuing operations attributable to equity holders of the Company 481,019 333,516
Adjusted profit is profit as disclosed in the Consolidated Income Statement adjusted to exclude revaluation effects of the
Silverstream contract of US$113.6 million gain (US$79.5 million net of tax) (2016: US$133.5 million gain (US$93.5 million
net of tax)).
Adjusted earnings per share have been provided in order to provide a measure of the underlying performance of the Group,
prior to the revaluation effects of the Silverstream contract, a derivative financial instrument.
2017 2016
thousands thousands
Number of shares:
Weighted average number of Ordinary Shares in issue 736,894 736,894
2017 2016
US$ US$
Earnings per share:
Basic and diluted earnings per share 0.761 0.579
Adjusted basic and diluted earnings per Ordinary Share from continuing operations 0.653 0.453
12. Property, plant and equipment
Year ended 31 December 2016
Land and Plant and Equipment Mining properties and development costs Other assets Construction in Progress Total
buildings
US$ thousands
Cost
At 1 January 2016 173,201 1,447,939 1,289,406 217,979 561,623 3,690,148
Additions 459 11,423 4,168 (50,304)2 441,649 407,395
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