REG - Fresnillo Plc - Interim results for the six months to 30 June 2014 <Origin Href="QuoteRef">FRES.L</Origin> - Part 2
29/10/2014 10:08
- Part 2: For the preceding part double click ID:nRSE2367Oa
GOLD (kOz)
Fresnillo 14 12 16.7
Ciénega 49 58 -15.5
Herradura 104 161 -35.4
Soledad-Dipolos - 39 -100.0
Saucito 24 20 20.0
Noche Buena 64 47 36.2
Total Gold (kOz) 255 337 -24.3
LEAD (MT)
Fresnillo 5,958 6,283 -5.2
Ciénega 1,879 2,275 -17.4
Saucito 2,721 2,194 24.0
Total Lead (MT) 10,558 10,752 -1.8
ZINC (MT)
Fresnillo 6,046 5,753 5.1
Ciénega 2,667 2,444 9.2
Saucito 2,750 1,803 52.5
Total Zinc (MT) 11,463 10,000 14.6
Cost of sales
Change
H1 14 H1 13 Amount %
Adjusted production costs4 291.33 338.99 -47.66 -14.1
Depreciation and amortisation 133.33 114.26 19.07 16.7
Change in work in progress -60.78 -50.99 -9.79 19.2
Unproductive Cost 9.24 - 9.24 N/A
Profit Sharing 8.63 8.81 -0.18 -2.0
Hedging 0.24 -4.05 4.29 N/A
Cost of Sales 381.99 407.02 -25.03 -6.1
4 Adjusted production cost is calculated as total production costs less depreciation, profit sharing and the effects of
exchange rate hedging.
Cost of sales of US$382.0 million decreased by 6.1% over the first half 2013. The main factors that led to the US$25.0
million decrease are described below:
· Adjusted production costs of US$291.3 million decreased 14.1% over the same period in 2013. The US$47.7 million decrease
was largely explained by the non-incurred costs at Soledad-Dipolos as operations continued to be suspended in the first
half of 2014, which were estimated at US$59.5 million; the variable production costs of US$12.7 million not incurred at
Herradura as a result of the disrupted operations in the first two months of the year; and unproductive costs of US$9.2
million reclassified to a separate line within cost of sales. To a lesser extent, the positive effects of the 4.4%
devaluation of the average Mexican peso/US dollar spot exchange rate and the efficiencies achieved at some of our operating
mines, which were estimated at US$6.1 million and US$0.6 million respectively, further contributed to the decline in
adjusted production costs. The aforementioned favourable effects were mitigated by new adjusted production costs related to
the start-up of the new Dynamic Leaching Plant in March 2014 with an estimated impact of US$8.6 million and the increased
costs associated with higher volumes of ore processed at Noche Buena and Saucito, Ciénega and Fresnillo for an estimated
total of US$19.6 million. In addition, each production cost component had the following cost inflation:
− The cost of energy increased by US$3.4 million due to higher unit prices of diesel (+6.2%) and electricity (+1.6%).
− Contractor costs rose by US$2.5 million as a result of the contract adjustments recorded during the first half at
Ciénega, Fresnillo and Penmont mines; up 2.6%-12.0% in Mexican pesos.
− Personnel costs, excluding profit sharing, increased by US$1.7 million as a result of increased wages up 5.5% in
Mexican pesos.
− Cost of maintenance up slightly by US$0.4 million.
− Cost of operating materials down 2.2% by US$0.7 million, mainly due to lower explosives and sodium cyanide prices.
· Profit sharing decreased by US$0.2 million due to the lower profits at all our operating mines except for Noche Buena,
which increased profit levels as a result of the increased gold production.
· Change in work in progress rose by US$9.8 million as a result of increased ore inventories at Herradura and Noche Buena.
· Depreciation increased by US$19.1 million as a result of: i) the increased asset base at Penmont mines and Ciénega; and
ii) higher depletion factor at Fresnillo, Saucito and Noche Buena resulting from the higher production volumes.
· Unproductive costs of US$9.2 million generated at Minera Penmont from fixed costs to maintain equipment and pay workers
despite the disruption of operations.
· The Group enters into certain exchange rate derivative instruments as part of a programme to manage its exposure to
foreign exchange risk associated with costs incurred in Mexican pesos. In the first half of 2014 US$8.0 million short
forward position expired, as well as US$109.0 million MXN/USD put and call options structured at zero cost (collars) with
average floor and cap exchange rates of $12.6980 and $13.5583 per US dollar respectively. The total hedging result of these
instruments was a US$0.24 million loss recorded in the income statement. The total outstanding position using collar
structures as of 30 June 2014 was US$235.5 million with maturity dates throughout the second half of this year and into
2015. These instruments guarantee a minimum exchange rate should the market fall below the floor exchange rate. Between the
floor and cap exchange rates the Group sells US dollars at the market rate, and when the Mexican peso per US dollar
exchange rate goes above the cap rate, Fresnillo plc is obliged to sell US dollars at the contract rate.
The Group also enters into certain exchange rate derivative instruments as part of a programme to manage its exposure to
foreign exchange risk associated with the purchase of equipment denominated in Euro (EUR) and Swedish Krona (SEK). The
total EUR and SEK outstanding net forward position at 31 December 2013 was EUR 3.25 million and no outstanding SEK
position. By the end of the first half of 2014, the EUR position decreased to EUR 352 thousand, with maturity dates
throughout September 2014.
Cost per tonne and cash cost per ounce
Cost per tonne, calculated as total production costs, plus mining rights less depreciation, profit sharing and exchange
rate hedging effects, divided by total tonnage processed, is a key indicator to measure the effects of mining inflation and
cost control performance at each mine.
COST PER TONNE
%
H1 14 H1 13 Change
Fresnillo US$/TONNE MILLED 45.02 46.60 -3.4
Ciénega US$/TONNE MILLED 67.61 73.59 -8.1
Herradura US$/TONNE DEPOSITED 8.03 7.13 12.6
Soledad-Dipolos US$/TONNE DEPOSITED - 9.96 N/A
Saucito US$/TONNE MILLED 62.09 59.17 4.9
Noche Buena US$/TONNE DEPOSITED 8.89 8.20 8.4
The common factors impacting cost per tonne across the Group were: i) the 5.5% increase in wages in Mexican pesos for
unionised workers; and ii) the higher unit prices of diesel (+6.2%) and electricity (+1.6%). These adverse effects were
mitigated by the 4.4% devaluation of the Mexican peso against the US dollar. Additional factors affecting cost per tonne at
each particular mine are described below:
Fresnillo
Cost per tonne milled decreased by 3.4% when compared to the same period last year. This was mainly due to the favourable
effects of the higher volumes of ore processed and the cost reduction initiatives such as: i) the better control of the
rock bolting process in some areas; ii) the use of wire mesh to optimise shotcreting activities; iii) lower consumption per
tonne of diesel and some reagents; and iv) lower insurance fees paid at this mine due to the low accident rate. However,
these benefits were mitigated by: i) higher contractor costs due to additional scaling and paving carried out in critical
areas, maintenance provided to the San Carlos shaft and increased development in the Candelaria ramp; ii) higher
consumption per tonne of electricity; and iii) increased consumption of tyres and hoses for rock bolting and drilling
equipment and replacement of the steel cable at the general shaft.
Saucito
Cost per tonne increased by 4.9% over the first half of 2014, to US$62.1 The main factors affecting this indicator were: i)
the higher insurance fees paidas a result of higher premia in exchange of lower deductible charges and increased risk of
flooding due to presence of additional water in the mine; and ii) higher consumption per tonne of explosives related to the
increased development and of copper sulphate due to the higher zinc ore grades. Offsetting these adverse effects was the
benefit obtained from the economies of scale, which included lower consumption per tonne of electricity, steel balls for
mill and some reagents such as zinc sulphate.
Ciénega
Cost per tonne milled at Ciénega decreased 8.1% to US$67.6 reflecting the positive impact of the 8.5% increase in ore
milled and lower information technology costs. This was partially mitigated by higher contractor fees negotiated as part of
the regular annual review which resulted in an estimated increase of 8.2% expressed in USD. The higher personnel cost due
to overtime and productivity bonuses paid, together with higher consumption per tonne of some reagents such as sodium
cyanide and copper sulphate also negatively impacted cost per tonne.
Herradura
Cost per tonne of US$8.03 continued to be distorted as a result of the halted operations in the first two months of the
year. The 12.6% increase over the first half of 2013 reflected the lower volumes deposited on the leaching pads (-23.8%)
and the additional costs due to the start-up of the Dynamic Leaching Plant.
Noche Buena
Similarly, cost per tonne at this mine increased by 8.4% to US$8.9 as a result of: i) the replacement of contractors by
unionized workers relocated to Noche Buena from the suspended Soledad-Dipolos mine; ii) the higher consumption per tonne of
electricity related to the expansion of the processing plant to 1,600 m3/hour, which is expected to reach full capacity in
the second half of the year; and iii) higher consumption of reagents such as sodium cyanide as a result of the increased
areas under irrigation. These adverse effects were partially mitigated by the 13.6% increase in volume deposited.
Soledad-Dipolos
There was no comparable indicator for the first half of 2014 as a result of the suspended operations at this mine following
the court ruling to vacate the area as part of the legal proceedings surrounding the Ejido "El Bajío" litigation process.
CASH COST PER OUNCE5
%
H1 14 H1 13 Change
Fresnillo US$ per silver ounce 6.13 5.46 12.3
Ciénega US$ per gold ounce 180.64 -86.29 -309.3
Herradura US$ per gold ounce 403.74 492.95 -18.1
Soledad-Dipolos US$ per gold ounce - 672.71 N/A
Saucito US$ per silver ounce 3.36 2.19 53.4
Noche Buena US$ per gold ounce 737.27 896.10 -17.7
5 Cash cost per ounce is calculated as total cash cost (cost of sales plus treatment and refining charges and mining rights
less depreciation) less revenues from by-products divided by the silver or gold ounces sold.
The detailed changes in cash cost for each mine are explained below:
Fresnillo: US$6.13/oz (1H14) vs US$5.46/oz (1H13), (+US$0.67/oz; + 12.3%)
The increase in cash cost per ounce is mainly a result of the higher treatment and refining charges applied in the first
half of the year whereas in the same period of 2013, we assumed that silver refining charges would decrease and adjusted
the accounts accordingly, when in fact they increased once negotiations with Met-Mex were finalised in the second half of
2013. Other factor affecting cash cost was the lower volumes of silver sold, reflecting the decline in ore grade during the
period. This was partially mitigated by: i) lower cost per tonne; ii) higher by-product credits per silver ounce as a
result of the combined effect of lower silver ounces sold and the increase in gold production; and iii) lower profit
sharing resulting from the decrease in silver price.
Saucito: US$3.36/oz (1H14) vs US$2.19/oz (1H13), (+US$1.17/oz; +53.4%)
Cash cost per silver ounce increased mainly due to the higher treatment and refining charges described above; the lower
silver ore grades, which were in accordance to the Group's expectations for the first half of 2014 but lower compared to
the same period of 2013; and the slight increase in cost per tonne. These adverse effects were partially mitigated by the
higher by-product credits per ounce of silver, which resulted from the increased gold, lead and zinc volumes sold. Despite
the significant increase, Saucito continues to be one of the lowest cash cost silver mines in the world.
Ciénega: US$180.64/oz (1H14) vs -US$86.29/oz (1H13), (+US$266.93/oz; +309.3%)
The difference in cash cost reflected the following adverse effects: i) the expected lower gold ore grade resulting from
the depletion of higher grade stopes which resulted in a decrease in gold ounces sold, ii) a decrease in by-product credits
per ounce of gold due to reduced volumes of silver and lead sold at lower prices and; iii) the higher treatment and silver
refining charges. These increases were mitigated by the decrease in cost per tonne.
Herradura: US$403.74/oz (1H14) vs US$492.95/oz (1H13), (-US$89.21/oz; -18.1%)
The lower cash cost per ounce resulted mainly from: i) the higher ore grades; ii) the favourable effect of a higher
increase in gold inventories than in the same period of 2013; and iii) the increase in by-product credits resulting from
the higher silver ounces sold. Offsetting the aforementioned effects was the impact of the disruption of operations causing
unproductive costs and a higher cost per tonne.
Noche Buena: US$737.27/oz (1H14) vs US$896.10/oz (1H13), (-US$158.83/oz; -17.7%)
The main reason for the decrease in cash cost was: i) a higher increase in gold inventories on the leaching pads than in
1H2013; ii) the higher ore grade; and iii) the increased by-product credits due to higher silver ounces sold. These
positive factors were mitigated by the higher cost per tonne.
Soledad-Dipolos:
There was no comparable cash cost for the first half of 2014 as a result of the suspended operations at this mine.
All in sustaining cost
H1 14 H1 13 Change % Life of mine Weighted average
Fresnillo US$ per silver ounce 9.93 9.45 5.1 9.24(2025)
Saucito US$ per silver ounce 7.66 6.83 12.2 6.9(2022)
Ciénega US$ per gold ounce 594.58 463.50 28.3 725(2025)
Herradura US$ per gold ounce 839.51 735.83 14.1 687(2019)
Noche Buena US$ per gold ounce 969.02 1,334.66 -27.4 1,056(2019)
Soledad-Dipolos US$ per gold ounce - 756.62 N/A 850(2018)
Gross profit
Total gross profit for the first half 2014 of operating mines, excluding hedging gains and losses, decreased by 37.8% to
US$312.7 million. The main factors contributing to the US$190.2 million decrease resulted from: i) the significant decrease
in silver, gold and lead prices estimated at US$122.6 million; ii) US$78.7 million estimated impact at Herradura due to the
disrupted operations until February 2014 resulting from the temporary suspension of the explosives permits; iii) lower ore
grades at Ciénega and Fresnillo, which had an adverse effect of US$39.0 million and US$25.5 million respectively; iv)
estimated impact at Soledad-Dipolos of US$22.1 million due to the temporary shutdown; v) a US$17.2 million due to higher
treatment and refining charges and; vi) the adverse effect of cost inflation estimated at US$7.3 million.
The above factors were partially offset by: i) higher ore grades at Herradura (US$30.9 million); ii) higher production,
recovery rates and ore grades at Noche Buena (US$24.4 million); iii) higher volumes of ore processed at Saucito (US$21.8
million), Fresnillo (US$18.9 million) and Ciénega (US$17.4 million); vi) the successful start-up of operations at the
dynamic leaching plant (US$7.0 million); and vii) the 4.4% devaluation of the Mexican peso/US dollar exchange rate (US$6.1
million).
The contribution by mine to the Group's gross profit, excluding hedging effects, changed during the period mainly as a
result of ramped-up production at the Saucito and Noche Buena mines, disruption at Herradura and the stoppage at
Soledad-Dipolos. Despite the lower ore grades, the Fresnillo mine remained as the largest contributor to gross profit.
Saucito's contribution increased in the first six months of the year as a result of higher volumes of ore processed; whilst
the increased gold production at Noche Buena further increased its participation in gross profit over the first half of
2014.
In contrast, the temporary suspension of explosives permits at Herradura resulted in a decrease in its contribution to the
total gross profit from 24.9% in the first half 2013 to 19.1% in the same period 2014. Similarly, Cienega's share decreased
to 9.1% from 12.9% as a result of the lower ore grades.
(US$ millions) Change
H114 H113 Amount %
Fresnillo 117.4 173.8 -56.4 -32.5
Saucito 85.0 105.0 -20.1 -19.0
Herradura 59.9 125.1 -65.2 -52.1
Ciénega 28.6 64.8 -36.2 -55.9
Noche Buena 26.9 16.2 10.7 66.0
Soledad-Dipolos -5.0 18.1 -23.0 -127.6
Total for operating mines 312.7 502.9 -190.2 -37.8
MXP/USD exchange rate hedging (losses) and gains -0.2 4.1 -4.3 -104.9
Other subsidiaries -17.4 11.9 -29.3 -246.2
Total Fresnillo plc 295.1 518.9 -223.8 -43.1
Administrative expenses
Administrative expenses of US$29.8 million increased by 4.2% over the first half of 2013 driven mainly by services provided
by third parties, the 5.5% increase in salaries granted to employees and the additional administrative personnel hired at
Ciénega and Fresnillo. Additionally, increased non-recurring engineering and construction services provided by Servicios
Industriales Peñoles, S.A.B de C.V. also contributed to the increase in administrative expenses during the first half
2014.
Exploration expenses
BUSINESS UNIT / PROJECT (US$ millions) Exploration expenses Capitalised expenses
Ciénega 4.6
Fresnillo 3.9
Herradura 8.5
Guazaparez 2.1
Saucito 4.3
Noche Buena 2.4
San Ramón 5.2
San Julián 0.4
Orisyvo 6.5 2.9
Nuevo Corredor Herradura 0.9
Centauro Deep 9.4 1.3
San Juan 0.8
Lucerito 0.2
Candameña 0.3
Guachichil 0.3
Guanajuato 1.9
Perú 1.6
Manzanillas 0.3
Juanicipio 0.0 3.6
Others 15.4
TOTAL 69.0 7.8
Exploration expenses for the first half of 2014 totalled US$69.0 million, a 39.9% decrease when compared to the first half
2013. This reduction was in line with the Group's decision to reduce exploration expenses in light of more challenging
precious metals market conditions. In addition, this favourable effect was also the result of the lower pace at which we
explored this year at Centauro Deep, Corredor Herradura and Nuevo Corredor Herradura. An additional US$7.8 million was
capitalised related to the Juanicipio, Centauro Deep and Orisyvo projects. The risk capital invested in exploration for
2014 is expected to be slightly lower than theUS$225.0 million budget.
EBITDA
EBITDA and EBITDA Margin
Six months ended 30 June
(in millions of US$)
H1 2014 H1 2013 % change
Gross Profit 295.1 518.9 -43.1
+ Depreciation and amortisation 133.3 114.3 16.7
- Administrative Expenses -29.8 -28.6 4.2
- Exploration Expenses -69.0 -114.7 -39.9
- Selling Expenses -5.1 -3.5 45.7
EBITDA 324.5 486.3 -33.3
EBITDA Margin 47.9% 52.5%
A key indicator of the Group's financial performance is EBITDA, which is calculated as gross profit plus depreciation, less
administrative, selling and exploration expenses. In the first half of 2014, this indicator decreased by 33.3% to US$324.5
million as a result of the adverse effect of the lower gross profit which was partially mitigated by lower exploration
expenses. Likewise, EBITDA margin declined from 52.5% in the first half 2013 to 47.9% in the same period of 2014.
Silverstream revaluation effects
The Silverstream contract is accounted for as a derivative financial instrument carried at fair value. In the first half of
2014, the revaluation of the Silverstream contract generated a US$47.3 million non-cash gain as a result of higher forward
silver prices, lower interest rates (LIBOR) and higher silver ounces sold over the period. This increased the accumulated
non-cash revaluation gains that have been recognised in the income statement since 2008 to US$482.1 million; whilst
cumulative cash received and receivable from the Silverstream contract totalled US$442.7 million.
It is expected that the Group would record further unrealised gains or losses in the income statement in accordance with
the cyclical behaviour of the silver price or changes in the assumptions used when valuing this contract. Further
information related to the Silverstream contract is provided in the Balance Sheet section below and in notes 10 and 20 to
the Consolidated Financial Statements.
Net finance costs
In the first half 2014, net finance costs totalled US$24.5 million, compared with the US$3.7 million expense recorded in
the same period 2013. The increase was explained by the interest accrued as a result of the debt issuance of US$800 million
of 5.500% Senior Notes.
Foreign exchange
In the first half of 2014, a foreign exchange gain of US$2.0 million was recorded in the income statement, which resulted
from the slight revaluation of the Mexican peso against the US dollar at the end of the period and benefitted the value of
peso-denominated net assets when converted to US dollars. This gain contrasted against the foreign exchange loss of US$5.3
million recognised in the first half 2013.
Taxation
Income tax expense declined by 20.4% to US$58.1 million as a result of lower profits generated in the first half 2014. The
effective tax rate, excluding mining rights, was 27.9% which was slightly below the 30% statutory tax rate. The factors
that have reduced this rate from the statutory 30% include principally the effects of foreign exchange and inflationary
adjustments.
Including the effect of new mining rights, the effective tax rate was 34.2%.
Profit for the period
Profit for the period accounted for US$137.1 million, a 22.5% decrease when compared to the same period of 2013 as a result
of the factors discussed above. Profits due to non-controlling interests decreased by 78.3% to US$7.0 million in the first
half 2014 mainly as a result of the lower profits generated at Herradura, partially offset by Noche Buena. Profit
attributable to equity shareholders of the Group decreased by 10.1% to US$130.1 million in the first half of 2014.
Excluding the effects of the Silverstream valuation, profit for the period decreased by 59.6% to US$104.0 million in the
first six months of 2014, whilst profit attributable to equity shareholders of the Group, declined by 57.0% to US$97.0
million.
Cash Flow
A summary of the key items from the cash flow is set out below:
Cash Flow Key Items
Six months ended 30 June
(in millions of US$)
H1 14 H1 13 (US $) (%)
Cash generated by operations before changes in working capital 336.7 496.4 -159.7 -32.2
Decrease in working capital -71.5 -53.0 -18.5 34.9
Taxes and Employee Profit Sharing paid -110.5 -254.5 144.0 -56.6
Net cash from operating activities 154.7 188.9 -34.2 -18.1
Silverstream contract 31.4 37.3 -5.9 -15.8
Purchase of property, plant & equipment -212.0 -324.1 112.1 -34.6
Dividends paid -50.1 -304.1 254.0 -83.5
Interest paid on interest-bearing loans -23.1 - -23.1 -100.0
Issue of share capital - 346.4 -346.4 N/A
Decrease in cash during the period before foreign exchange differences -85.9 -43.8 -42.1 96.1
Cash, cash equivalents and short term investments1 at 30 June 1,164.3 570.8 593.5 104.0
1 As disclosed in the Interim Consolidated Cash Flow Statement, cash and cash equivalents at 30 June totalled US$414.3
million. Short-term investments amounted to US$750.0 million.
During the first half 2014, cash generated by operations before changes in working capital decreased by 32.2% to US$336.7
million mainly as a result of lower profits generated at our mines, except for Noche Buena. In addition, working capital
increased by US$71.5 million. The main components affecting working capital were:
· A US$55.4 million increase in trade and other receivables which resulted mainly from an increase in the volume of
dore sold to Met-Mex in the last three months of the period.
· An increase of US$56.9 million in ore inventories at the Herradura and Noche Buena mines.
· Trade and other payables to suppliers rose by US$36.9 million.
Taxes and employee profit sharing paid of US$110.5 million, decreased by 56.6% over the first half 2013 due to lower
profits generated.
As a result of the aforementioned factors, net cash from operating activities for the first six months of 2014 decreased by
18.1% to US$154.7 million.
In addition to cash generated by operations, the Group received proceeds totalling US$40.9 million mainly as a result of:
i) the US$31.4 million proceeds from the Silverstream Contract; ii) US$5.3 million from the sale of property, plant and
equipment; and others US$4.2 million.
In the first half of 2014, the Group invested US$750.0 million in instruments entered into for fixed periods no longer than
four months that do not have an option for an early withdrawal. These instruments earn interest at fixed rates.
The Group purchased property plant and equipment for a total of US$212.0 million, a 34.6% decrease compared to the first
half 2013. Capital expenditure for the first six months of 2014 are further described below:
Purchase of property, plant and equipment
(US$ millions)
H114
Herradura mine 30.9 Construction of dynamic leaching plant and purchase of components for mobile equipment
Saucito mine 67.6 Development works and purchase of in-mine equipment. Expansion of Saucito (Saucito II).
Ciénega mine 18.5 Development works and construction of facilities for employees.
Fresnillo mine 28.4 Purchase of components for mobile equipment and automatisation of the sampling and smelting area.
Noche Buena 13.6 Construction of leaching pads and stripping activities.
San Julián 47.6 Construction of ramps and purchase of equipment.
Juanicipio project 3.6 Exploration expenses.
Bermejal 0.3 Acquisition of trucks and loaders to lease to Herradura and Noche Buena.
Other 1.5 Exploraciones Mineras Parreña and SAFSA.
Total Purchase of property, plant and equip. 212.0
Dividends paid to shareholders in the first half 2014 totalled US$50.1 million as a result of the special and one-off
dividend of 6.8 US cents per share paid in May 2014. Other use of funds was the US$19.4 million net interest paid in the
first half of 2014.
The sources and uses of funds described above resulted in a net decrease of US$85.9 million in short term funds, which
combined with the US$1,251.7 million balance at the beginning of the year and the adverse effect of the exchange rate
(US$1.5 million), resulted in short term funds of US$1,164.3 million as at 30 June 2014.
Going concern
After making enquiries, the Directors have a reasonable expectation that the Company has adequate resources to continue in
operational existence for the foreseeable future. In making this assessment they have considered the Company and Group
budget, the cashflow forecasts for the period to December 2015 including exploration and capital expenditure plans and
sensitivities around those plans. They have also considered the sensitivities of the cashflow forecasts to movements in
metal prices. The Company has considerable financial resources, negligible liquidity risk and is operating within a sector
that is experiencing ongoing demand for its products. The Directors therefore have a reasonable expectation that the
Company has adequate resources to continue in operational existence for the foreseeable future. Thus they continue to adopt
the going concern basis of accounting in preparing the annual financial statements.
Balance Sheet
Fresnillo plc maintained its solid financial position. Short term funds as of 30 June 2014 totalled US$1,164.3 million,
which decreased by 7.0% when compared to the year-end 2013 cash and cash equivalents position of US$1,251.7 million, but
increased by 104% when compared to the cash and cash equivalents position as of 30 June 2013, due mainly to the US$800
million bond issue.
Trade and other receivables increased to US$327.9 million mainly as a result of higher recoverable taxes and increased
volumes of gold sold to Met-Mex in the last months of the first half 2014.
In the first six months of 2014, inventories accounted for US$265.0 million, a 27.3% increase over the 2013 year-end
figure, reflecting mainly the higher gold inventories deposited on the leaching pads of Herradura and Noche Buena.
The change in the value of the Silverstream derivative from US$372.8 million at the beginning of the year to US$389.4
million as of 30 June 2014 reflects proceeds of US$30.8 million, (US$23.3 million in cash received in respect of the period
and US$7.5 million receivable)and the revaluation effects of US$47.3 million in the Group's income statement.
The net book value of property, plant and equipment was US$1,903.4 million at 30 June 2014, an increase of 3.6% over the
US$1,838.1 at 31 December 2013. The US$65.3 million increase is explained by the addition of the Dynamic Leaching Plant to
the asset base, development works at the underground mines, purchase of in-mine equipment, additional pads constructed at
Noche Buena and San Julián project.
Fresnillo plc's total equity for the first half of 2014 was US$2,795.5 million, an increase of 4.6% when compared to the
figure at the beginning of the year, which reflected retained earnings from the previous year.
Dividends
The Board of Directors has declared an interim dividend of 5.0 US cents per share totalling US$36.8 million which will be
paid on 11 September 2014 to shareholders on the register on 15 August 2014. This decision was made after a comprehensive
review of the Company's and Group's financial situation, assuring that the group is well placed to meet its current and
future financial requirements, including its development and exploration projects. Additionally, when making its
recommendation, management took into consideration that both gold and silver prices have sustained good levels and that
cost inflation has been contained, enabling the company to continue to generate healthy profit margins and good levels of
cash flow.
Fresnillo's existing dividend policy remains in place, which takes into account the profitability of the business and
underlying growth in earnings of the group, as well as its capital requirements and cash flows whilst maintaining an
appropriate level of dividend cover. To reiterate the policy, a total dividend of between 33 and 50 percent of profit after
tax is paid out each year in the approximate proportion of one-third to be paid as an interim dividend, two-thirds to be
paid as a final dividend.
The interim dividend will be paid in UK pounds sterling to shareholders, unless a shareholder elects to receive dividends
in US dollars. The interim dividend will be paid in UK pounds sterling with the dividend being converted into UK pounds
sterling on or around 18 August 2014.
Risks and uncertainties
In the first half of 2014, the Board and the Executive Committee continued to monitor Fresnillo plc's principal risks as
part of the operation of the risk management framework and execution towards achieving the long-term objectives. During
this period, we have continued to formally gather and report on Key Risk Indicators (KRIs) for our principal risks in order
to detect and analyse trends. The KRIs monitored, are now presented quarterly to the Executive Committee and Audit
Committee. The Board and Executive Committee have incorporated the appraisal of the risk management performance in the 2013
annual employee performance reviews.
Fresnillo plc currently monitors ten principal risks and have not changed from those set out in the Strategy section of the
Strategic Report of the Annual Report for the year ended 31 December 2013. A copy of the Fresnillo plc's 2013 Annual Report
is available at the Company's website at www.fresnilloplc.com.
The principal risks are shown below:
• Impact of global macroeconomic developments
• Access to land
• Security
• Potential actions by the Government (e.g. taxes, more stringent regulations)
• Public perception against mining
• Projects (performance risk)
• Safety
• Exploration
• Human Resources
• Environmental incidents
Directors
The names and functions of the current directors and senior management team of Fresnillo plc are shown on the Group's
website: www.fresnilloplc.com
Statement of directors' responsibilities
The Directors of the Company hereby confirm that to the best of their knowledge:
(a) the condensed set of financial statements has been prepared in accordance with IAS 34 as adopted by the European Union
and gives a true and fair view of the assets, liabilities, financial position and profit and loss account of the Fresnillo
Group as required by DTR 4.2.4; and
(b) the interim management report includes a fair review of the information required by DTR 4.2.7 (being an indication of
important events that have occurred during the first six months of the financial year and their impact on the condensed set
of financial statements; and a description of the principle risks and uncertainties for the remaining six months of the
year) and DTR 4.2.8 (being related party transactions that have taken place in the first six months of the current
financial year and that have materially affected the financial position or performance of the entity during that period and
changes since the last annual report).
On behalf of the board of directors of Fresnillo plc.
Octavio Alvídrez
Chief Executive Officer
INDEPENDENT REVIEW REPORT TO FRESNILLO PLC
Introduction
We have been engaged by the Company to review the condensed set of financial statements in the half-yearly financial report
for the six months ended 30 June 2014 which comprises the interim consolidated income statement, the interim consolidated
statement of comprehensive income, the interim consolidated balance sheet, the interim consolidated cash flow statement,
the interim consolidated statement of changes in equity and the related notes 1 to 20. We have read the other information
contained in the half yearly financial report and considered whether it contains any apparent misstatements or material
inconsistencies with the information in the condensed set of financial statements.
This report is made solely to the Company in accordance with guidance contained in International Standard on Review
Engagements (UK and Ireland) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the
Entity" issued by the Auditing Practices Board. To the fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the company, for our work, for this report, or for the conclusions we have formed.
Directors' Responsibilities
The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are
responsible for preparing the half-yearly financial report in accordance with the Disclosure and Transparency Rules of the
United Kingdom's Financial Conduct Authority.
As disclosed in note 2a, the annual financial statements of the Group are prepared in accordance with IFRSs as adopted by
the European Union. The condensed set of financial statements included in this half-yearly financial report has been
prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting", as adopted by the European
Union.
Our Responsibility
Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the
half-yearly financial report based on our review.
Scope of Review
We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, "Review of
Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board
for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons
responsible for financial and accounting matters, and applying analytical and other review procedures. A review is
substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland)
and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be
identified in an audit. Accordingly, we do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial
statements in the half-yearly financial report for the six months ended 30 June 2014 is not prepared, in all material
respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and
Transparency Rules of the United Kingdom's Financial Conduct Authority.
Ernst & Young LLP
London
4 August 2014
Interim Consolidated Income Statement
Notes For the six months ended 30 June
2014 (Unaudited) 2013 (Unaudited)
(in thousands of US dollars)
| Pre-Silverstream revaluation effect Silverstream revaluation effect Total Pre- Silverstream revaluation effect Silverstream revaluation effect Total
Continuing operations:
Revenues 4 677,075 677,075 925,896 925,896
Cost of sales 5 (381,986) (381,986) (407,017) (407,017)
Gross profit 295,089 295,089 518,879 518,879
Administrative expenses (29,840) (29,840) (28,596) (28,596)
Exploration expenses (68,971) (68,971) (114,675) (114,675)
Selling expenses (5,070) (5,070) (3,543) (3,543)
Other operating income 663 663 3,300 3,300
Other operating expenses (8,449) (8,449) (4,084) (4,084)
Profit from continuing operations before net finance costs and income tax 183,422 183,422 371,281 371,281
Finance income 6 3,767 3,767 2,836 2,836
Finance costs 6 (28,253) (28,253) (6,519) (6,519)
Revaluation effects of Silverstream contract 10 - 47,298 47,298 - (112,496) (112,496)
Foreign exchange gain/(loss) 2,008 2,008 (5,311) (5,311)
Profit from continuing operations before income tax 160,944 47,298 208,242 362,287 (112,496) 249,791
Corporate income tax 7 (43,888) (14,189) (58,077) (104,684) 31,690 (72,994)
Special mining right 7 (13,082) (13,082) - -
Income tax expense 7 (56,970) (14,189) (71,159) (104,684) 31,690 (72,994)
Profit for the period from continuing operations 103,974 33,109 137,083 257,603 (80,806) 176,797
Attributable to:
Equity shareholders of the Company 97,022 33,109 130,131 225,556 (80,806) 144,750
Non-controlling interests 6,952 6,952 32,047 32,047
103,974 33,109 137,083 257,603 (80,806) 176,797
Earnings per share: (US$)
Basic and diluted earnings per ordinary share from continuing operations 8 - 0.177 - 0.200
Adjusted earnings per share: (US$)
Adjusted basic and diluted earnings per ordinary share from continuing operations 8 0.132 - 0.311 -
Interim Consolidated Statement of Comprehensive Income
Profit for the period 137,083 176,797
Other comprehensive income/(expense)
Items to be reclassified to profit or loss in subsequent periods:
Net loss on cash flow hedges recycled to income statement (397) (3,770)
Income tax effect 119 1,131
Net unrealised gain on cash flow hedges 4,154 2,674
Income tax effect (1,246) (802)
Net effect of cash flow hedges 2,630 (767)
Fair value gain / (loss) on available-for-sale financial assets 46,139 (57,604)
Income tax effect (13,842) 16,129
Net effect of available- for- sale financial assets 32,297 (41,475)
Foreign currency translation 12 136
Net other comprehensive gain / (loss) to be reclassified to profit or loss in subsequent periods 34,939 (42,106)
Items not to be reclassified to profit or loss in subsequent periods:
Gain on cash flow hedges reclassified to the value of other assets - 218
Income tax effect - (65)
Net other comprehensive income not being reclassified to profit or loss in subsequent periods - 153
Other comprehensive gain / (loss), net of tax 34,939 (41,953)
Total comprehensive income, net of tax 172,022 134,844
Attributable to:
Equity shareholders of the Company 165,070 102,797
Non-controlling interests 6,952 32,047
172,022 134,844
172,022
134,844
Interim Consolidated Balance Sheet
ASSETS
Non-current assets
Property, plant and equipment 9 1,903,402 1,838,124
Available-for-sale financial assets 109,384 63,245
Silverstream contract 10 347,208 334,083
Deferred tax asset 70,807 56,209
Other receivables 11 6,867 14,910
Other assets 2,412 4,031
2,440,080 2,310,602
Current assets
Inventories 265,013 208,141
Trade and other receivables 11 244,102 188,057
Income tax recoverable 83,811 79,410
Prepayments 3,026 5,330
Derivative financial instruments 4,378 2,057
Silverstream contract 10 42,168 38,763
Short-term investments 12 750,000 -
Cash and cash equivalents 13 414,276 1,251,694
1,806,774 1,773,452
Total assets 4,246,854 4,084,054
EQUITY AND LIABILITIES
Capital and reserves attributable to shareholders of the Company
Share capital 368,546 368,546
Share premium 1,153,817 1,153,817
Capital reserve (526,910) (526,910)
Net unrealised gains on cash flow hedges 3,351 721
Net unrealised gains on available-for-sale financial assets 40,142 7,845
Foreign currency translation reserve (351) (363)
Retained earnings 1,349,803 1,269,781
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