REG - Fresnillo Plc - Interim Results for the six months to 30 June 2015 <Origin Href="QuoteRef">FRES.L</Origin> - Part 2
04/08/2015 07:01
- Part 2: For the preceding part double click ID:nRSD9577Ua
back treatment and refining costs and lead
and zinc hedging. The Company considers this is a useful additional measure to help understand underlying factors driving
revenue in terms of volumes sold and realised prices.
Adjusted revenues of US$822.4 million increased 9.6% over the first half of 2014 as a result of a higher volume of gold,
silver, lead and zinc sold. This favourable effect estimated at US$173.8 million was partially offset by the lower gold,
silver and lead prices, which had an estimated negative impact of US$101.7 million on adjusted revenues.
Adjusted revenue1 by metal
(US$millions)
H12015 H1 2014 VolumeVariance PriceVariance Total %
Silver 332.7 40% 373.3 50% 29.5 -70.2 -40.7 -10.9
Gold 421.8 51% 331.5 44% 119.3 -29.0 90.3 27.2
Lead 31.8 4% 21.8 3% 13.2 -3.2 10.0 45.9
Zinc 36.1 5% 23.7 3% 11.8 0.6 12.4 52.3
Total revenue 822.4 100% 750.4 100% 173.8 -101.7 72.1 9.6
1 Adjusted revenue is the revenue shown in the income statement adjusted to add back treatment and refining costs and lead
and zinc hedging. The Company considers this is a useful additional measure to help understand underlying factors driving
revenue in terms of volumes sold and realised prices
Gold contribution to adjusted revenues increased from 44% to 51% in the first half of 2015, reflecting the increased
volumes produced at the Herradura District; whilst silver contribution decreased from 50% in the first half 2014 to 40% in
the same period of 2015 as a result of the decrease in silver price. By-product lead and zinc sales represented the
remaining 9% of the Group's adjusted revenues.
The successful ramp-up of the Saucito II plant to full capacity has resulted in the Saucito mine becoming the main
contributor to silver adjusted revenues with a 52.8% share in the first half of 2015. Fresnillo's contribution to silver
adjusted revenues decreased from 55.4% to 37.1% in the first half of 2015 due to the limited access to higher ore grade
areas which resulted in reduced volumes of silver produced. Similarly, Ciénega's contribution decreased to 8.9% from 9.6%
in the first half of 2014.
In terms of gold adjusted revenues, Herradura's contribution increased to 53.4% reflecting full operations at the mine and
its DLP throughout the first half. This in turn affected Noche Buena and Ciénega's contribution to gold adjusted revenues
which decreased to 20.0% and 11.4% respectively in the first six months of 2015. Saucito's contribution to gold adjusted
revenues slightly increased from 9.7% to 11.3%.
The contribution by metal and by mine to the adjusted revenues is expected to change further over future periods as new
projects are incorporated to the Group's operations and precious metal prices fluctuate.
Gold Adjusted revenues by mine
H1 15 H1 14
Herradura 53.4% 40.6%
Noche Buena 20.0% 25.0%
Ciénega (and San Ramón) 11.4% 19.2%
Saucito 11.3% 9.7%
Fresnillo 3.9% 5.5%
Soledad-Dipolos 0.0% 0.0%
TOTAL 100% 100%
Silver Adjusted revenues by mine
H1 15 H1 14
Saucito 52.8% 33.2%
Fresnillo 37.1% 55.4%
Ciénega (and San Ramón) 8.9% 9.6%
Herradura 1.1% 1.6%
Noche Buena 0.1% 0.2%
Soledad-Dipolos 0.0% 0.0%
TOTAL 100% 100%
Adjusted revenues by mine
H1 15 H1 14
Saucito 31.1% 22.3%
Herradura 27.8% 18.7%
Fresnillo 20.2% 33.3%
Ciénega 10.5% 14.5%
Noche Buena 10.4% 11.2%
Soledad-Dipolos N/A N/A
TOTAL 100% 100%
Volumes of metal in products sold
Six months ended 30 June
H1 15 H1 14 % change
SILVER (kOz)
Fresnillo 7,412 10,214 -27.4
Ciénega 1,784 1,760 1.4
Herradura 218 302 -27.9
Soledad-Dipolos - - -
Saucito 10,575 6,103 73.3
Noche Buena 41 48 -14.6
Total Silver (kOz) 20,030 18,427 8.7
GOLD (kOz)
Fresnillo 14 14 0
Ciénega 40 49 -18.3
Herradura 188 104 80.8
Soledad-Dipolos - - -
Saucito 40 24 66.7
Noche Buena 68 64 6.3
Total Gold (kOz) 350 255 37.4
LEAD (MT)
Fresnillo 6,629 5,958 11.3
Ciénega 1,980 1,879 5.4
Saucito 8,688 2,721 219.3
Total Lead (MT) 17,297 10,558 63.8
ZINC (MT)
Fresnillo 6,765 6,046 11.9
Ciénega 2,490 2,667 -6.7
Saucito 7,826 2,750 184.6
Total Zinc (MT) 17,081 11,463 49.0
Cost of sales
Change
H1 15 H1 14 Amount %
Adjusted production costs4 316.16 291.33 24.83 8.5
Depreciation and amortisation 159.73 133.33 26.40 19.8
Change in work in progress -13.14 -60.78 47.64 -78.4
Unproductive Cost -0.23 9.24 -9.47 N/A
Profit Sharing 5.95 8.63 -2.68 -31.1
Hedging 10.19 0.24 9.95 N/A
Cost of Sales 478.67 381.99 96.68 25.3
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$478.7 million increased by 25.3% over the first half 2014. The main factors that resulted in this
US$96.7 million increase are described below:
· Adjusted production costs of US$316.2 million increased 8.5% over the same period of 2014. The US$24.8 million increase
was largely driven by i) the additional production costs from the Saucito II start-up estimated at US$28.1 million; ii) the
costs associated with increased production at Noche Buena estimated at US$10.9 million; iii) the increased variable costs
at Herradura as a result of the mine being fully operational in the period, estimated at US$9.4 million, whereas production
was disrupted in 1Q14; and iv) additional production costs at the DLP as a result of the first six months being fully
operational compared to the first half of 2014 when it started operations in March of approximately US$7.4 million. This
was partly offset by the positive effect of the 15.2% devaluation of the average Mexican peso/US dollar spot exchange rate
estimated at US$15.9 million; the decrease in costs as a result of lower production at Fresnillo and Ciénega estimated at
US$8.6 million and the efficiencies achieved at some of our mines estimated at US$3.2 million. In addition, each
production cost component was affected by the below cost inflation:
− Contractor costs rose by US$2.6 million as a result of the contract adjustments recorded during the first half; up
1.9%-14.5% in Mexican pesos
− Personnel costs, excluding profit sharing, increased by US$1.8 million as a result of the 5.5% increase in wages in
Mexican pesos
− Cost of operating materials slightly increased by US$0.1 million
− Cost of energy decreased by US$4.6 million due to lower unit prices of electricity (-31.3%) and diesel (-5.9%)
− Other costs decreased by US$1.9 million mainly due to a reduction in insurance premium per unit
− Cost of maintenance decreased by US$1.1 million
· Depreciation increased by US$26.4 million mainly as a result of: i) the increased asset base due to
start-up of the Saucito II and DLP projects; and ii) a higher depletion factor at Saucito, Noche Buena and Herradura
resulting from the higher production volumes.
· The variation in change in work in progress was US$47.6 million. Change in work in progress increased
US$13.1 million in the first half of 2015, compared to US$60.8 million in the same period of 2014. Both movements are
explained by the increase in inventories on the leaching pads at Herradura as part of the process to normalise production
at this mine following the suspension of explosives permits, albeit at a lower rate in 2015 as Herradura approaches steady
state and the balance between the efficiency of the leaching process and production costs is optimised.
· Profit sharing decreased by US$2.7 million due to the lower profits generated.
· Unproductive costs decreased US$9.5 million due to the fixed costs incurred at Minera Penmont to maintain
equipment and personnel during the disrupted operations in 1Q14.
· Mexican peso/US dollar hedging in production costs: 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. The Group entered into a combination of put and call options structured at zero cost (collars)
to hedge US$115.0 million of costs and expenses denominated in Mexican pesos with average floor and cap exchange rates of
$13.29 and $15.30 per US dollar respectively, resulting in a US$10.2 million loss recorded in the income statement. The
total outstanding position using collar structures as of 30 June 2015 was US$327.5 million with maturity dates throughout
July 2015 to July 2016 (monthly settled) with average floor and cap exchange rates of $14.10 and $16.48 per US dollar
respectively. These instruments guarantee a minimum exchange rate should the market fall below the floor exchange rate.
Between the floor and cap exchange rates the Group sells US dollars at the market rate, and when the Mexican peso per US
dollar exchange rate goes above the cap rate, the Company is obliged to sell US dollars at the contract rate.
Cost per tonne and cash cost per ounce
Cost per tonne is a key indicator to measure the effects of mining inflation and cost control performance at each mine.
This indicator is calculated as total production costs, plus ordinary mining rights less depreciation, profit sharing and
exchange rate hedging effects, divided by total tonnage processed.
COST PER TONNE
%
H1 15 H1 14 Change
Fresnillo US$/TONNE MILLED 48.53 45.02 7.8
Saucito US$/TONNE MILLED 42.65 62.09 -31.3
Ciénega US$/TONNE MILLED 66.66 67.61 -1.4
Herradura US$/TONNE DEPOSITED 8.71 8.03 8.5
Noche Buena US$/TONNE DEPOSITED 8.16 8.89 -8.2
Soledad-Dipolos US$/TONNE DEPOSITED - - -
The 15.2% devaluation of the average Mexican peso against the US dollar and the lower unit prices of electricity (31.3%)
and diesel (5.9%) benefitted cost per tonne across the Group. These positive effects were mitigated by the 5.5% increase in
wages in Mexican pesos for unionised workers. Additional factors affecting cost per tonne at each mine are described
below:
Fresnillo
Cost per tonne milled increased by 7.8% over the first half of 2014 mainly due to the diseconomies of scale associated with
lower volume of ore processed (-12.7%).
Saucito
Cost per tonne decreased by 31.3% to US$42.7 as a result of the additional economies of scale achieved from the increased
ore throughput following the start of operations at Saucito II in the first half of 2015 and milling efficiencies at the
Saucito I beneficiation plant.
Ciénega
Cost per tonne milled at Ciénega slightly decreased 1.4% to US$66.7 as the negative effect of the lower volume of ore
processed was offset by lower contractor costs due to reduced haulage distances.
Herradura
Cost per tonne increased by 8.5% to US$8.7, reflecting the move towards more typical cost levels at the mine, whereas in
the first half of 2014 certain costs were reclassified as unproductive costs due to the temporary disruption in operations.
Had these costs been included within the adjusted production costs in the first half of 2014, cost per tonne would have
decreased by 3.9%.
Noche Buena
Cost per tonne decreased by 8.2% to US$8.2 mainly due to the economies of scale achieved as a result of the higher ore
volumes deposited and our cost reduction initiatives which included mining higher benches to reduce haulage distances,
together with the favourable effect of the average Mexican peso devaluation.
Soledad-Dipolos
There was no indicator due to the suspended operations at this mine following the court ruling to vacate the area as part
of the legal proceedings surrounding the Ejido "El Bajío" litigation process.
CASH COST PER OUNCE5
%
H1 15 H1 14 Change
Fresnillo US$ per silver ounce 5.75 6.13 -6.2
Saucito US$ per silver ounce 0.64 3.36 -81.1
Ciénega US$ per gold ounce 296.99 180.64 64.4
Herradura US$ per gold ounce 490.18 403.74 21.4
Noche Buena US$ per gold ounce 897.91 737.27 21.8
Soledad-Dipolos US$ per gold ounce - - N/A
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.
Fresnillo: US$5.75/oz (1H15) vs US$6.13/oz (1H14), (-US$0.38/oz; -6.2%)
The decrease in cash cost per ounce, despite the increase in cost per tonne, was primarily driven by higher by-product
credits (zinc, lead and gold) and lower treatment and refining charges. This was partly offset by the lower ore grade and
higher cost per tonne.
Saucito: US$0.64/oz (1H15) vs US$3.36/oz (1H14), (-US$2.73/oz; -81.1%)
Cash cost per silver ounce decreased due to lower cost per tonne, higher by-product credits and lower treatment and
refining charges.
Ciénega: US$296.99/oz (1H14) vs US$180.64/oz (1H14), (+US$116.35/oz; +64.4%)
Cash cost increased mainly as a result of the expected lower ore grade. This was partly mitigated by higher by-product
credits per gold ounce, lower cost per tonne and a decrease in profit sharing.
Herradura: US$490.18/oz (1H15) vs US$403.74/oz (1H14), (+US$86.43/oz; +21.4%)
The increase in cash cost per ounce was explained by the higher cost per tonne, increased consumption of gold inventory on
the leaching pads at a higher cost and lower silver by-product credits. These adverse effects were partly offset by the
elimination of unproductive costs (reflecting the resumption of operations at Herradura), lower profit sharing, a higher
ore grade and lower treatment and refining charges.
Noche Buena: US$897.91/oz (1H15) vs US$737.27/oz (1H14), (+US$160.64/oz; +21.8%)
The increase in cash cost was driven by the consumption of inventory at a higher cost, the expected lower ore grade, and to
a lesser extent, lower by-product credits. This was partly mitigated by the lower cost per tonne, profit sharing and
treatment and refining charges.
Soledad-Dipolos:
There was no comparable cash cost for these periods as a result of the suspended operations at this mine.
All in sustaining cost
H1 15 H1 14 Change % Estimated Life of mine Weighted average
Fresnillo US$ per silver ounce 11.05 9.93 11.3 6.20(2023)
Saucito US$ per silver ounce 5.95 7.66 -22.3 6.00(2021)
Ciénega US$ per gold ounce 649.97 594.58 9.3 803.12(2026)
Herradura US$ per gold ounce 873.23 839.51 4.0 716.95(2019)
Noche Buena US$ per gold ounce 940.87 969.02 -2.9 1,124.49(2019)
Soledad-Dipolos US$ per gold ounce - - N/A N/A
All-in sustaining costs is calculated as traditional cash cost plus on-site general, corporate and administrative costs,
community costs related to current operations, capitalised stripping and underground mine development, sustaining capital
expenditures and remediation expenses.
In addition to the variations in cash cost, the changes in all-in sustaining costs at each mine are explained as follows:
Fresnillo: All-in sustaining cost rose due to an increase in capitalised mine development works and higher general and
administrative costs.
Saucito: All-in sustaining cost declined due to lower cash cost and lowergeneral and administrative costs.
Ciénega: The increase in all-in sustaining cost was primarily explained by the increase in cash cost.
Herradura: All-in sustaining cost increased due to the increase in capitalised stripping.
Noche Buena: A decrease in capital expenditure caused the decline in all-in sustaining cost.
Soledad-Dipolos: There were no comparable figures in these periods due to the suspended operations.
All-in sustaining costs are affected by ad hoc expenses recorded in each particular year, but might significantly vary year
on year. To give a more accurate idea of the expected average all-in sustaining costs throughout the life of the mine, the
Group estimates the life of mine weighted average all-in sustaining cost.
Gross profit
Total gross profit, excluding hedging gains and losses, decreased by 7.3% to US$273.6 million in the first half of 2015.
The US$21.5 million decrease resulted from: i) the significant decrease in silver, gold and lead prices estimated at
US$102.1 million; ii) an increase in depreciation of US$26.4 million; iii) the lower ore grades and decrease in volumes
processed at Fresnillo, which had an estimated adverse impact of US$41.2 million; iv) the US$12.7 million negative effect
of the lower gold grades at Noche Buena; v) the lower ore grades and volumes processed at Ciénega estimated at US$9.2
million; vi) the adverse effect of cost inflation estimated at US$1.3 million; and others of US$2.9 million.
The above factors were partially mitigated by: i) the positive effect of the increased volumes processed at Saucito with
the start of operations at Saucito II, estimated at US$95.7 million; ii) the US$53.4 million estimated positive effect of
the resumed operations at Herradura; iii) the US$15.9 million benefit of the Mexican peso/US dollar exchange rate
devaluation; and iv) the favourable impact of the successful ramp-up at the dynamic leaching plant estimated at US$ 9.3
million.
On a per mine basis, Saucito's contribution to the Group's gross profit, excluding hedging effects, increased significantly
from 27.2% to 45.6% in the first half of 2015, reflecting the successful start and ramp-up of operations at Saucito II and
resulting in Saucito being the main contributor to the Group's consolidated gross profit. In contrast, the lower metal
prices, combined with the challenges faced at the Fresnillo mine decreased gross profit by 57.2%, significantly reducing
its share to the Group's consolidated gross profit from 37.5% to 18.0% in the first half of 2015. The resumed operations at
Herradura resulted in a 56.3% increase in gross profit to US$93.6 million, which represented 33.6% of the Group's
consolidated gross profit. Cienega's share decreased from 9.1% to 3.7% as a result of the lower gold ore grades and
decrease in precious metals prices. Similarly, Noche Buena's contribution to the Group's consolidated gross profit
decreased from 8.6% to 0.4% in the first half of 2015 due to the lower ore grades.
(US$ millions) Change
H1 15 H1 14 Amount %
Fresnillo 50.2 117.4 -67.2 -57.2
Saucito 127.2 85.0 42.2 49.6
Herradura 93.6 59.9 33.7 56.3
Ciénega 10.3 28.6 -18.3 -64.0
Noche Buena 1.1 26.9 -25.8 -95.9
Soledad-Dipolos (3.6) -5.0 1.4 N/A
Total for operating mines 278.8 312.7 -33.9 -10.8
MXP/USD exchange rate hedging (losses) and gains -10.2 -0.2 -9.9 N/A
Other subsidiaries 5.0 -17.4 22.4 N/A
Total Fresnillo plc 273.6 295.1 -21.5 -7.3
Administrative expenses
Administrative expenses of US$33.4 million increased by 12.1% over the first half of 2014 as a result of an increase in the
cost of services provided by third parties and the additional administrative personnel hired. Furthermore, increased
non-recurring engineering and construction services provided by Servicios Industriales Peñoles, S.A.B de C.V. also
contributed to the increase in administrative expenses.
Exploration expenses
BUSINESS UNIT / PROJECT (US$ millions) Exploration expenses Capitalised expenses
Ciénega 8.5
Fresnillo 5.0
Herradura 6.9
Guazaparez 0.7
Saucito 3.4
Noche Buena 2.7
San Ramón 2.5
San Julián 1.1
Orisyvo 5.4 0.1
Nuevo Corredor Herradura 0.4
Centauro Deep 15.3 0.6
Pilarica 1.9
Rodeo 2.7
Candameña 0.4
Guachichil 1.0
Guanajuato 1.1
Perú 1.2
Tajitos 0.6
Juanicipio 0.0 4.8
Others 14.6 0.3
TOTAL 75.4 5.8
Exploration expenses for the first half of 2015 totalled US$75.4 million, a 9.3% increase over the first half of 2014. This
resulted from a faster pace of drilling in the first six months of this year, albeit with the Group having reduced the
exploration budget for this year in light of more challenging precious metals market conditions. An additional US$5.8
million was capitalised related to the Juanicipio, Centauro Deep and Orisyvo projects.
EBITDA
EBITDA and EBITDA Margin
Six months ended 30 June
(in millions of US$)
H1 2015 H1 2014 % change
Gross Profit 273.6 295.1 -7.3
+ Depreciation and amortisation 159.7 133.3 19.8
- Administrative Expenses -33.4 -29.8 12.1
- Exploration Expenses -75.4 -69.0 9.3
- Selling Expenses -6.7 -5.1 31.9
EBITDA 317.9 324.5 -2.0
EBITDA Margin 42.3% 47.9%
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. This indicator decreased by 2.0% to US$317.9 million in the first half of
2015 as a result of the lower gross profit and increased administrative, exploration and selling expenses; partly offset by
higher depreciation (which is added back). Likewise, the EBITDA margin declined to 42.3% from 47.9% in the first half 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
2015 there was a US$1.8 million revaluation of the Silverstream as a result of updating the assumptions used to value the
Silverstream contract, most significantly the unwinding of the discount and the difference between payments received during
the six months ended 30 June 2015 and estimated payments in the valuation model at 31 December 2014. This was mostly offset
by the increase in the US dollar exchange rate against the Mexican peso, the increase of the reference discount rate
(LIBOR) and the forward silver price which was lower than expected given the cyclical nature of prices. However, the
revaluation in the first half of 2015 compared negatively to the US$47.3 million revaluation recorded in the first half of
2014.
The non-cash revaluation gains that have been recognised in the income statement since 2008 increased to US$513.8 million;
whilst cumulative cash received or receivable at the end of the first half 2015 from the Silverstream contract totalled
US$485.3 million.
It is expected that the Group will 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 18 to the
Consolidated Financial Statements.
Net finance costs
In the first half 2015, net finance costs totalled US$2.9 million, compared with the US$24.5 million expense recorded in
the same period of 2014. The decrease was explained by the non-cash finance gain generated by the mark-to-market time value
of the outstanding gold hedging programme put in place to protect the investment made in the acquisition of the 44% stake
of Newmont in Penmont, which mostly offset the interest recognised in the income statement as a result of the debt issuance
of US$800 million of 5.500% Senior Notes and the unwinding of discount on provisions.
Foreign exchange
In the first half of 2015, a foreign exchange loss of US$15.6 million was recorded in the income statement as a result of
the adverse effect of the 5.8% spot devaluation of the Mexican peso against the US dollar in the six months ended 30 June
2015 on the value of peso-denominated net monetary assets. This compared negatively to the US$2.0 million gain recorded in
the first half of 2014.
Taxation
Income tax expense declined by 16.3% to US$48.6 million as a result of a decrease in profit generated in the first half
2015. The effective tax rate, excluding the special mining rights, was 35.7% which was above the 30% statutory tax rate.
This was explained by the devaluation of the Mexican peso against the US dollar that increased the deferred income taxes
generated due to the higher differences arising between the carrying amount of assets and liabilities (denominated in US
dollars) and their tax bases (denominated in Mexican pesos). Including the effect of new mining rights, the effective tax
rate was 43.9%.
Profit for the period
Profit for the period was US$76.4 million, a 44.3% decrease when compared to the same period of 2014 as a result of the
factors discussed above.
Excluding the effects of the Silverstream valuation, profit for the period decreased by 27.7% to US$75.1 million in the
first six months of 2015, whilst profit attributable to equity shareholders of the Group, declined by 22.4% to US$75.3
million.
Cash Flow
A summary of the key items from the cash flow is set out below:
Cash Flow Key Items
Six months ended 30 June
(in millions of US$)
H1 14 H1 14 (US $) (%)
Cash generated by operations before changes in working capital 314.9 336.7 -21.8 -6.5
Increase in working capital -18.0 -71.5 -53.5 -74.8
Taxes and Employee Profit Sharing paid -33.5 -110.5 77.0 -69.7
Net cash from operating activities 263.4 154.7 108.7 70.3
Silverstream contract 22.7 31.4 -8.7 -27.6
Purchase of property, plant & equipment -229.1 -212.0 17.1 8.1
Dividends paid -22.1 -50.1 28.1 -56.0
Net increase/(decrease) in cash during the period before foreign exchange differences 26.0 -85.9 111.9 -130.2
Cash, cash equivalents and short term investments at 30 June 475.7 1,164.3 -688.5 -59.1
In the first half of 2015, cash generated by operations before changes in working capital decreased by 6.5% to US$314.9
million mainly as a result of the decrease in profit generated. In addition, working capital increased by US$18.0 million
as a result of the following factors:
· A US$16.1 million increase in ore inventories mainly as a result of increased volumes of ore deposited on the
leaching pads at Herradura as part of the ramp up to steady state, and to a lesser extent at Noche Buena
· A US$2.2 million increase in trade and other receivables which resulted mainly from an increase in the volume of lead
and zinc concentrates sold to Met-Mex
· A US$2.6 million decrease in prepayments and other assets
· An increase in trade and other payables of US$2.4 million
Taxes and employee profit sharing paid of US$33.5 million decreased by 69.7% over the first half 2014 due to lower profits
generated but most importantly due to cash recovered from provisional taxes paid in excess of actual income tax in 2014.
As a result of the above factors, net cash from operating activities for the first six months of 2015 increased by 70.3% to
US$263.4 million.
The Group also received proceeds of US$22.7 million from the Silverstream Contract.
The Group purchased property plant and equipment for a total of US$229.1 million, which represented an 8.1% increase over
the first half of 2014, and was in line with our strategy of continuing to invest through the cycle. Capital expenditures
for the first six months of 2015 are further described below:
Purchase of property, plant and equipment*
(US$ millions)
H1 15
Herradura mine 57.9 Construction of leaching pads, purchase of equipment for the expansion of the Merrill Crowe plant and of major components for trucks and shovels
Saucito mine 58.1 Development works
Ciénega mine 11.8 Development works and purchase of in-mine equipment and components
Fresnillo mine 23.2 Mine development, civil works and purchase of in-mine equipment.
Noche Buena 0.8 Construction of leaching pads
San Julián 72.2 Construction of dynamic leaching plant, mining works and engineering works
Juanicipio project 4.8 Exploration expenses
Other 0.3 Exploraciones Mineras Parreña and SAFSA.
Total Purchase of property, plant and equip. 229.1
*In addition to purchases of property, plant and equipment above, additions to property, plant and equipment on the balance
sheet include the re-assessment of the mine closure provision (US$8.0 million) and capitalised depreciation (US$5.2
million).
Dividends paid to shareholders in the first half 2015 totalled US$22.1 million as a result of the final dividend of 3.0 US
cents per share paid in May 2015. Other uses of funds included the US$18.7 million interest paid in the first half of
2015.
The sources and uses of funds described above resulted in a net increase of US$26.0 million in short term funds, which
combined with the US$449.3 million balance at the beginning of the year and the favourable effect of the exchange rate
(US$0.4 million), resulted in short term funds of US$475.7 million as at 30 June 2015.
As disclosed in the Interim Consolidated Cash Flow Statement, cash and cash equivalents at 30 June 2015 totalled US$255.7
million and short-term investment held in fixed-term bank deposits amounted US$220 million. In the first half of 2014, cash
and cash equivalents at 30 June 2014 accounted for US$414.3 million and short-term investments amounted to US$750.0
million.
Balance Sheet
Fresnillo plc maintained its solid financial position with short term funds increasing to US$475.7 million as of 30 June
2015 from US$449.3 million at the beginning of the year. However, this is lower compared to the short term funds of
US$1,164.3 million as of 30 June 2014, reflecting the acquisition of the 44% stake of Newmont in Penmont in the second half
of 2014 and other uses of funds, mainly the purchase of property, plant and equipment and dividends paid.
Trade and other receivables decreased from US$456.1 million as of 31 December 2014 to US$430.7 million mainly as a result
of a decrease in recoverable taxes in the first half of 2015.
In the first six months of 2015, inventories totalled US$321.7 million, a 5.3% increase over the 2014 year-end figure due
to 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$392.3 million at the beginning of the year to US$373.6
million as of 30 June 2015 reflects proceeds of US$20.5 million, (US$15.8 million in cash received in respect of the period
and US$4.7 million receivable) and the revaluation effects of US$1.8 million in the Group's income statement.
The net book value of property, plant and equipment was US$2,047.8 million at 30 June 2015, an increase of 4.0% over the
US$1,969.4 million recorded at 31 December 2014. The US$78.4 million increase is explained by the addition of Saucito II to
the asset base, development works at the underground mines, purchase of in-mine equipment, additional pads constructed in
the Herradura District and the San Julián project. The mine closure provision also contributed to the increase in property,
plant and equipment.
Fresnillo plc's total equity for the first half of 2015 was US$2,358.9 million, an increase of 2.5% when compared to the
figure at the beginning of the year, which reflected retained earnings from the previous year.
Going concern
The Group's business activities, together with the factors likely to affect its future development, performance and
position are set out above in the Operational Review, with further detail in the Annual Report 2014. The financial position
of the Group, its cash flows and liquidity position are described in the Financial Review. In addition, the Group's
objectives, policies and processes for managing its capital; its financial risk management objectives; and its exposures to
credit risk and liquidity risk were set out in the Annual Report 2014. Details of its financial instruments and hedging
activities as at 30 June 2015 are set out in note 18 to the interim report.
In making their assessment of the Group's ability to manage its future cash requirements, the Directors have considered the
Company and Group budgets and the cash flow forecasts for the period to 31 December 2016 as at July 2015. In addition, they
reviewed a more conservative cash flow scenario with silver and gold prices reduced below current expectations, whilst
maintaining current budgeted expenditure, which resulted in our current cash balances reducing over time to a small but
adequate margin of liquidity towards the end of 2016.
The Directors have reviewed management's evaluation of three particular mitigating actions that they could implement, if
required. First, management have identified specific elements of exploration and capital expenditure which could be
deferred without adversely affecting production profiles. Second, the Directors could delay the implementation of two new
projects, which may moderately affect the production profiles, but are not expected to affect Fresnillo's ability to reach
its 2018 production goals. Finally, management could amend the mining plans to concentrate on production with a higher
margin to accelerate cash generation without affecting the integrity of the mine plans.
After reviewing all of the above considerations, the Directors have a reasonable expectation that management has sufficient
flexibility in potential adverse circumstances to maintain adequate resources to continue in operational existence for the
foreseeable future. The Directors, therefore, continue to adopt the going concern basis of accounting in preparing these
interim financial statements.
Dividends
The Board of Directors has declared an interim dividend of 2.1 US cents per share totalling US$15.5 million which will be
paid on 10 September 2015 to shareholders on the register on 14 August 2015. 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.
Fresnillo's existing dividend policy remains in place, which takes into account the profitability of the business and
underlying 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 17 August 2015.
Risks and uncertainties
In the first half of 2015, 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 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.
Fresnillo plc currently monitors eleven principal risks and these 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 2014 (published in April 2015). A copy
of the Fresnillo plc's 2014 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
• Union relations
• 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 interim condensed set of financial statements in the half-yearly
financial report for the six months ended 30 June 2015 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 18. 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 interim condensed consolidated 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 interim condensed consolidated 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 interim condensed consolidated 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 interim condensed consolidated
set of financial statements in the half-yearly financial report for the six months ended 30 June 2015 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 2015
Interim Consolidated Income Statement
Notes For the six months ended 30 June
2015 (Unaudited) 2014 (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 4 752,308 752,308 677,075 677,075
Cost of sales 5 (478,670) (478,670) (381,986) (381,986)
Gross profit 273,638 273,638 295,089 295,089
Administrative expenses (33,436) (33,436) (29,840) (29,840)
Exploration expenses (75,379) (75,379) (68,971) (68,971)
Selling expenses (6,689) (6,689) (5,070) (5,070)
Other operating income 38 38 663 663
Other operating expenses (5,321) (5,321) (8,449) (8,449)
Profit from continuing operations before net finance costs and income tax 152,851 152,851 183,422 183,422
Finance income 6 21,177 21,177 3,767 3,767
Finance costs 6 (24,077) (24,077) (28,253) (28,253)
Revaluation effects of Silverstream contract 10 1,761 1,761 - 47,298 47,298
Foreign exchange (loss)/gain (15,572) (15,572) 2,008 2,008
Profit from continuing operations before income tax 134,379 1,761 136,140 160,944 47,298 208,242
Corporate income tax 7 (48,064) (529) (48,593) (43,888) (14,189) (58,077)
Special mining right 7 (11,179) (11,179) (13,082) (13,082)
Income tax expense 7 (59,243) (529) (59,772) (56,970) (14,189) (71,159)
Profit for the period from continuing operations 75,136 1,232 76,368 103,974 33,109 137,083
Attributable to:
Equity shareholders of the Company 75,267 1,232 76,499 97,022 33,109 130,131
Non-controlling interests (131) (131) 6,952 6,952
75,136 1,232 76,368 103,974 33,109 137,083
Earnings per share: (US$)
Basic and diluted earnings per ordinary share from continuing operations 8 - 0.104 - 0.177
Adjusted earnings per share: (US$)
Adjusted basic and diluted earnings per ordinary share from continuing operations 8 0.102 - 0.132 -
Interim Consolidated Statement of Comprehensive Income
Profit for the period 76,368 137,083
Other comprehensive income/(expense)
Items to be reclassified to profit or loss in subsequent periods:
Net gain/(losses) on cash flow hedges recycled to income statement 9,361 (397)
Income tax effect (2,809) 119
Net unrealised (losses)/gains on cash flow hedges (5,675) 4,154
Income tax effect 1,703 (1,246)
Net effect of cash flow hedges 2,580 2,630
Fair value (loss)/gain on available-for-sale financial assets (4,846) 46,139
Income tax effect 1,454 (13,842)
Impairment of available-for-sale financial assets 761 -
Income tax effect (228) -
Net effect of available- for- sale financial assets (2,859) 32,297
Foreign currency translation (26) 12
Other comprehensive (loss)/gain, net of tax (305) 34,939
Total comprehensive income, net of tax 76,063 172,022
Attributable to:
Equity shareholders of the Company 76,194 165,070
Non-controlling interests (131) 6,952
76,063 172,022
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