REG - Fresnillo Plc - Production Report for the 3 months ended 30/06/14 <Origin Href="QuoteRef">FRES.L</Origin>

FresnilloAnnouncement

06/09/2014 16:39

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RNS Number : 4165M
Fresnillo PLC
16 July 2014 
 
Fresnillo plc 
 
28 Grosvenor Street 
 
London W1K 4QR 
 
United Kingdom 
 
www.fresnilloplc.com 
 
16 July 2014 
 
Production Report 
 
for the three months ended 30 June 2014 
 
Overview 
 
·      Quarterly attributable silver production of 10.9 Moz (including the
Silverstream) up 5% over 1Q14 as silver ore grades at Fresnillo and Ciénega
were higher and as ore throughput at Saucito increased. 
 
·      Quarterly and year to date attributable silver production (including
the Silverstream) remained at similar levels over the same periods of 2013
mainly as a result of higher ore processed at Saucito and increased production
from the Silverstream, which compensated for the lower ore grade at the
Fresnillo mine. 
 
·      Attributable gold production up 32% over 1Q14 as Herradura gradually
increased production toward normal production levels and as the Dynamic
Leaching Plant continued to ramp-up to full capacity. 
 
·      Quarterly and year to date attributable gold production down 8% and 19%
when compared to the same periods of 2013 due to temporary disruptions at
Herradura which ended in March 2014 and suspension at Soledad-Dipolos. 
 
·      Construction of Saucito II remains on track to be completed in 4Q14.
Construction of the leaching plant at San Julián commenced and is on track to
start production in 2H15. 
 
·      Interesting exploration results were obtained at San Ramón (Ciénega),
Cardones (Guanajuato) and Pilarica (Peru) and we expect to report an increase
in resources at year end. 
 
·      On track to achieve 2014 guidance of 43 million silver ounces,
including the Silverstream, and 450,000 attributable gold ounces. 
 
Octavio Alvídrez, Chief Executive Officer, said: 
 
"I am very pleased to report a strong second quarter of silver and gold
production. We are successfully bringing production back to normal levels at
Herradura after having received the new explosives permit, we successfully
ramped-up the Dynamic Leaching Plant, and Saucito continues to perform
extremely well as does Noche Buena. We also received an increased contribution
from the Silverstream over the quarter. 
 
"Our medium and long term future also remains secure. Our new projects under
construction, Saucito II and San Julián, are on track to begin production in
2014 and 2015 respectively and our exploration team continues to deliver
interesting results which we expect to announce later at the full year. 
 
"Our portfolio of high quality assets and our operational expertise enables us
to manage production over the quarters while focusing on addressing the lower
grades at the Fresnillo mine and therefore we remain confident of achieving
our full year production target of 43 million ounces of silver and 450,000
ounces of gold." 
 
Total Production - Attributable 
 
                                2Q 14    2Q 13    % change  1Q 14   YTD 14   YTD 13   % change  
 Silver prod'n (kOz)            9,839    9,967    -1.3      9,293   19,132   19,144   -0.1      
 Silverstream prod'n (kOz)      1,088    961      13.2      1,115   2,202    1,836    19.9      
 Total Silver production (kOz)  10,926   10,928   -0.0      10,408  21,334   20,980   1.7       
 Gold prod'n (Oz)               108,664  118,315  -8.2      82,653  191,317  235,827  -18.9     
 Lead prod'n (t)                5,780    6,657    -13.2     6,363   12,143   12,421   -2.2      
 Zinc prod'n (t)                6,690    6,485    3.2       7,105   13,795   11,957   15.4      
 
 
Quarterly and year to date silver production (excluding Silverstream) remained
at similar levels when compared to the same periods of 2013 mainly due to an
optimised process and maintenance programme that allowed us to increase ore
throughput at Saucito above its nominal capacity of 3,000tpd, and additional
ore processed from the development of the Jarillas vein. These favourable
effects compensated the lower silver ore grades at Fresnillo, which resulted
from: i) the expected natural decline in silver ore grades; ii) the previously
announced delay in development activities (due to mechanical failures of
contractors' equipment) at the San Carlos and San Alberto areas, which limited
access to some stopes in the first quarter of 2014; iii) dilution of ore as a
result of rock instability in the deeper stopes, which we have now controlled
though adjustments to the mining method; and iv) a lower real ore grade than
indicated in the geological model. 
 
Silver production at our mines for the second quarter of 2014 increased by
5.9% over the previous quarter as a result of: i) higher silver ore grades
mined from the East areas of the Fresnillo mine; ii) higher volumes of ore
processed at Saucito; and iii) increased ore processed from San Ramón
(Cienega's satellite mine) with higher silver mineralization. 
 
Quarterly and first half silver production related to the Silverstream
Contract increased by 13.2% and 19.9% respectively compared to the same
periods of 2013 as a result of higher ore grades and improved recovery rates
at Sabinas. 
 
Quarterly and year to date attributable gold production decreased 8.2% and
18.9% respectively when compared to the same periods of 2013 as a result of:
i) the stoppage of operations at Soledad-Dipolos due to the court order
regarding the Ejido "El Bajío" litigation process; ii) the operating
disruptions at Herradura following the temporary suspension of the explosives
permit which adversely impacted the second half of 2013 and the first two
months of 2014; and iii) the expected lower ore grades at Ciénega due to the
natural depletion of stopes with higher ore grades. However, the
aforementioned effects were partially compensated by increased volumes of ore
processed at Noche Buena. 
 
Quarterly attributable gold production increased 31.5% over the previous
quarter of 2014 following the resumption of operations at Herradura and the
gradual increase in production to more normal levels. Also, the first complete
quarter of commercial production at the dynamic leaching plant contributed to
the increased volumes of gold produced. These positive factors were slightly
mitigated by lower recovery rates at Noche Buena. 
 
Quarterly by-product lead production decreased 13.2% and 9.2% when compared to
the same period of 2013 and the first quarter of 2014 respectively mainly due
to lower ore grades at Ciénega and Fresnillo. However year to date by product
lead production remained basically unchanged as the increase in production at
Saucito was offset by the reduction at Ciénega and Fresnillo. 
 
Quarterly by-product zinc production increased 3.2% when compared to the same
period of 2013 as a result of higher recovery rates, volumes of ore processed
and ore grades at Saucito. This effect was partially offset by the lower ore
grades at Ciénega and Fresnillo. Year to date by-product zinc production
increased 15.4% as a result of higher production at Saucito and higher ore
processed and ore grades at Fresnillo. 
 
However, by-product zinc production for the second quarter of 2014 decreased
-5.8% when compared to the previous quarter mainly as a result of lower ore
grades at Fresnillo, which were partially mitigated by the increased ore
throughput at Saucito. 
 
Fresnillo mine production 
 
                       2Q 14  2Q 13  % change  1Q 14  YTD 14  YTD 13  % change  
 Silver prod'n  (kOz)  5,401  5,853  -7.7      5,145  10,547  11,197  -5.8      
 Gold prod'n (Oz)      7,796  6,821  14.3      8,082  15,879  13,640  16.4      
 Lead prod'n (t)       3,146  3,724  -15.5     3,526  6,672   7,165   -6.9      
 Zinc prod'n (t)       3,444  3,817  -9.8      3,965  7,409   6,886   7.6       
 
 
Quarterly and year to date silver production decreased 7.7% and 5.8%
respectively, when compared to the same periods of 2013 mainly due to lower
silver ore grades (263.61 g/t in 2Q14 vs 303.13 g/t in 2Q13 and 258.17 g/t in
1H14 vs. 287.20 g/t in 1H13). This resulted from: i) the expected natural
decline in silver ore grades; ii) the previously announced delay in
development activities (due to mechanical failures of the contractors'
equipment) at the San Carlos and San Alberto areas, which limited access to
some stopes in the first quarter of 2014; iii) dilution of ore as a result of
rock instability in the deeper stopes, which we have now controlled though
adjustments to the mining method; and iv) a lower real ore grade than
indicated in the geological model. This negative effect of the decline in ore
grade was partially mitigated by higher volumes of ore processed from the
Candelaria area (+6.7% and +4.1%, respectively). 
 
Given the lower silver ore grade over the quarter, we have revised our full
year silver ore grade estimate to 255 g/t. We remain confident that the lower
ore grade at the Fresnillo mine will not impact the Group's 2014 production
and remain on track to meet our guidance of 43 million ounces. 
 
Over the quarter, we have been working with our contractors and have fixed the
mechanical problems they were having with their equipment and we have
gradually increased development rates. Furthermore, we have engaged an
additional contractor, who will start working at the mine within the next
month, to increase development rates and ensure the continuity of development
activities. 
 
To control the dilution caused when blasting in deeper stopes with
poor-quality rock, we are working with a consultant to establish the optimal
mining method. 
 
Quarterly silver production increased 5.0% over the previous quarter as a
result of higher ore grades (+4.3%) mined from the richer veins at the East
areas and increased volumes of ore processed (+1.9%). 
 
Year to date and quarterly by-product gold production increased 16.4% and
14.3%, respectively when compared to 2013 as a result of higher recovery rates
and ore processed. However, quarterly gold production decreased -3.5% when
compared to the previous quarter due to lower ore grades and recovery rates. 
 
Quarterly and year to date by-product lead production decreased -15.5% and
-6.9%, respectively when compared to the same periods of 2013 due to lower ore
grades and recovery rates. Similarly, quarterly lead production decreased
-10.8% when compared to the previous quarter as a result of the lower ore
grade. 
 
Quarterly by-product zinc production decreased -9.8% and 13.2% when compared
to the second quarter of 2013 and the first quarter of 2014 respectively as a
result of lower ore grades and recovery rates. However, year to date zinc
production increased 7.6% over the first half of 2013 as a result of higher
volumes of ore processed and zinc grades. 
 
Saucito mine production 
 
                       2Q 14   2Q 13   % change  1Q 14   YTD 14  YTD 13  % change  
 Silver prod'n  (kOz)  3,213   2,953   8.8       3,103   6,315   5,628   12.2      
 Gold prod'n (Oz)      15,912  10,828  47.0      10,911  26,823  22,041  21.7      
 Lead prod'n (t)       1,592   1,329   19.8      1,491   3,084   2,581   19.5      
 Zinc prod'n (t)       1,793   1,095   63.7      1,634   3,427   2,151   59.3      
 
 
Quarterly and year to date silver production increased 8.8% and 12.2%
respectively, when compared to the same periods of 2013 due to higher ore
throughput (+22.2% and +18.0%, respectively) which resulted from: i)
processing additional material from the development activities at Saucito II;
and ii) the lower than expected time to carry out the maintenance programme at
the beneficiation plant, thus increasing the availability of the equipment to
process higher volumes of ore.  While the throughput increased, the silver ore
grade was lower (312.87 g/t in 2Q14 vs 350.85 g/t in 2Q13 and 320.68 g/t 1 in
1H14 vs 336.65 g/t in 1H13) as a result of the unusual higher ore grades mined
at the Jarillas vein in 2013. Notwithstanding, year to date silver ore grades
at Saucito are well within the guided range and are expected to remain at
those levels in the second half of the year. 
 
Similarly, quarterly silver production increased 3.5% compared to the previous
quarter mainly as a result of the increase in ore throughput. 
 
Quarterly and year to date gold production rose when compared to the same
periods of 2013 and to the previous quarter due to increased ore throughput
and higher ore grades extracted from the Jarillas vein. 
 
Similarly, the higher volumes of ore processed benefitted year to date and
quarterly by-product lead production when compared to the same periods of 2013
and the first quarter of 2014. 
 
Year to date and quarterly by-product zinc production significantly increased
by 59.3% and 63.7% respectively when compared to the same periods of 2013 as a
result of higher recovery rates, ore processed and ore grades. Quarterly
by-product zinc production increased 9.7% when compared to the previous
quarter due to higher ore processed. 
 
Ciénega mine production 
 
                      2Q 14   2Q 13   % change  1Q 14   YTD 14  YTD 13  % change  
 Gold prod'n (Oz)     24,897  31,631  -21.3     29,087  53,984  59,644  -9.5      
 Silver prod'n (kOz)  1,075   1,083   -0.7      996     2,072   2,188   -5.3      
 Lead prod'n (t)      1,042   1,604   -35.0     1,345   2,387   2,675   -10.8     
 Zinc prod'n (t)      1,454   1,573   -7.6      1,505   2,959   2,919   1.4       
 
 
Quarterly and year to date gold production decreased by 21.3% and 9.5%
respectively when compared to the same periods 2013 as ore grades declined
from the depletion of higher grade stopes, as per our expectations  (2.39 g/t
in 2Q14 vs. 3.22 g/t in 2Q13 and 2.62 g/t in 1H14 vs 3.13 g/t in 1H13)
However, this was partially compensated by the increased ore processed which
resulted from the optimisation of the milling process and the efficiency
achieved in the maintenance programme. 
 
Similarly, quarterly gold production decreased 14.4% when compared to the
previous quarter due to lower ore grades (2.39 g/t in 2Q14 vs 2.85 g/t in
1Q14), which was partially mitigated by higher ore processed. We expect to
remain in line with our original estimated ore grade of 2.0g/t to 2.5 g/t for
the full year. 
 
Quarterly silver production remained steady when compared to the same period
of 2013 as a result of higher ore processed (+6.3%) which compensated for the
lower silver ore grade (-6.2%). 
 
Year to date silver production decreased 5.3% when compared to the same period
of 2013 mainly due to lower ore grades (111.53 g/t in 1H14 vs 127.17 g/t  in
1H13) as a result of: i) increased dilution due to narrower veins at San
Ramón; and ii) increased volumes processed from the main Ciénega mine. The
lower silver ore grade was partially compensated by higher ore throughput
(+8.5%). 
 
Quarterly silver production increased 7.9% when compared to the previous
quarter as a result of higher ore grade (114.50 g/t in 2Q14 vs 108.49 g/t in
1Q14) and a slight increase in ore processed (+2.1%). 
 
Quarterly and year to date by-product lead production decreased 35.0% and
10.8% respectively, when compared to the same period 2013 due to lower ore
grades and recovery rates. Similarly, quarterly lead production decreased
22.6% when compared to the previous quarter as a result of lower ore grade. 
 
Quarterly by-product zinc production decreased 7.6% when compared to the same
period of 2013 mainly as a result of lower ore grades, which were compensated
by higher recovery rates and ore processed. Similarly, quarterly by-product
zinc production decreased 3.4% when compared to the previous quarter due to
lower ore grades. 
 
Herradura mine production - Attributable 
 
                      2Q 14   2Q 13   % change  1Q 14   YTD 14  YTD 13  % change  
 Gold prod'n (Oz)     42,679  45,587  -6.4      15,853  58,532  91,233  -35.8     
 Silver prod'n (kOz)  134     68      97.1      37      170     112     51.8      
 
 
Quarterly and year to date attributable gold production, including the output
from the new Dynamic Leaching Plant (DLP), decreased 6.4% and 35.8%
respectively, when compared to the same periods of 2013. As stated in previous
reports, attributable gold production in the first half of 2014 reflects the
impact of the temporary suspension of the explosives permits in 2013 which
affected the volumes of ore deposited at the leaching pads. Over the quarter,
ore deposited on the leaching pads was normalised and the recovery cycle is
expected to reach regular levels in the second half of 2014. 
 
The above mentioned adverse effect was mitigated by the increased ore
processed at the dynamic leaching plant following its successful start-up in
March 2014 and the higher gold ore grades (0.72 g/t in 2Q14 vs 0.62 in 2Q13). 
 
Quarterly attributable gold production increased +169.2% when compared to the
previous quarter as a result of the normalised depositing activities at the
leaching pads and the additional material processed at the Dynamic Leaching
Plant (7,071.3 tonnes in 2Q14 vs 2,004.7 tonnes in 1Q14). The gradual
normalization of the recovery rates also benefitted quarterly attributable
gold production. 
 
Soledad-Dipolos mine production - Attributable 
 
                      2Q 14  2Q 13   % change  1Q 14  YTD 14  YTD 13  % change  
 Gold prod'n (Oz)     -      10,474  -100.0    -      -       22,226  -100.0    
 Silver prod'n (kOz)  -      8       -100.0    -      -       14      -100.0    
 
 
As announced at year end 2013, operations at this mine continued to be
suspended as a result of the court ruling to vacate the area at the site of
the Soledad-Dipolos mine as part of the legal proceedings surrounding the
Ejido "El Bajío" litigation process. It is expected that throughout the rest
of 2014 the suspension will remain. The company continues to analyze different
options related to the future of Soledad-Dipolos and expects to have a final
decision within the next twelve months. 
 
Noche Buena mine production - Attributable 
 
                      2Q 14   2Q 13   % change  1Q 14   YTD 14  YTD 13  % change  
 Gold prod'n (Oz)     17,379  12,973  34.0      18,719  36,099  27,044  33.5      
 Silver prod'n (kOz)  16      2       700       12      28      5       460.0     
 
 
Quarterly attributable gold production increased +34.0% when compared to the
same period of 2013 due to: i) higher ore deposited (3,882.8 tonnes in 2Q14 vs
3,230.6 tonnes in 2Q13) as a result of the ramp-up to expanded capacity and;
ii) higher recovery rates (45.77% in 2Q14 vs 40.10% in 2Q13) due to increased
areas under irrigation. 
 
Similarly, attributable gold production for the first half of 2014 increased
+33.5% when compared to the same period of 2013 as a result of higher recovery
rates (49.48% in 2014 vs 43.21% in 2013) and increased volumes of ore
deposited on the leaching pads (+13.6%). 
 
However, quarterly attributable gold production decreased -7.2% when compared
to the previous quarter as a result of the temporary lower recovery rates
(45.77% in 2Q14 vs 53.51% in 1Q14), which was partially compensated by higher
volumes of ore processed (+8.5%). We expect to have recovery rates of between
50% to 54% during the second half of the year. 
 
Update on development projects 
 
·     Saucito II 
 
The construction of Saucito II significantly advanced over the quarter. 
Detailed engineering works were concluded at the beneficiation plant and
further progress was achieved in the milling and flotation areas with the
construction of the foundation structures for the assembly of mills and
flotation cells. 
 
This US$235 million project is anticipated to produce 8.4 million ounces of
silver and 35,ooo ounces of gold per year once at full capacity and the
construction is expected to be concluded within budget in the fourth quarter
of 2014. 
 
·     San Julián 
 
In the second quarter of 2014, construction of the leaching plant commenced
and detailed engineering works continued for the flotation plant. Additional
orders for equipment were placed, civil works continued and geophysical works
commenced for the construction of the water reservoir. 
 
This US$515.0 million silver-gold project remains on track to start production
in the second half of 2015 with an expected average production of 10.3 million
ounces of silver and 44,000 ounces of gold per year once at full capacity. 
 
Update on Exploration 
 
Exploration drilling continued at all three operating districts (Fresnillo,
Ciénega and Herradura), as well as at San Julián and Rodeo, Orisyvo,
Guanajuato, and Pilarica (in Peru). Interesting drill intersections were
obtained particularly at San Ramón in the Ciénega district, South Veins at
Fresnillo, Cardones at Guanajuato and Pilarica, where increases in resources
are anticipated in the year end estimates. 
 
Metallurgical testwork and preliminary economic assessments are in progress at
the Orisyvo and Lucerito projects. 
 
Safety Performance 
 
We are saddened to report that during the second quarter of 2014 one of our
contractors suffered a fatal accident at the Juanicipio project due to a lack
of adherence to safety procedures. We continue to reinforce our safety
measures and encourage training to avoid accidents. We are committed to a zero
fatalities target and will continue strengthening our safety culture
throughout the Company. 
 
There will be a conference call for analysts and investors on Wednesday 16
July at 8:30am (London time). The dial in details are as follows: 
 
Participants' dial in number: +44 (0) 1452 555566 
 
Conference ID: 71369138# 
 
For further information, please visit our website 
 
www.fresnilloplc.comor contact: 
 
 Fresnillo plc            London Office           Gabriela Mayor, Head of Investor Relations  Tel: +44 (0)20 7399 2470  
 Mexico City Office Ana Belem Zárate                                                          Tel: +52 55 52 79 3206    
                                                                                                                        
 Brunswick Group Carole CableDavid Litterick                                                  Tel: +44 (0)20 7404 5959  
 
 
About Fresnillo plc 
 
Fresnillo plc is the world's largest primary silver producer and Mexico's
second largest gold producer, listed on the London and Mexican Stock Exchanges
under the symbol FRES. 
 
Fresnillo plc has six operating mines, all of them in Mexico - Fresnillo,
Saucito, Ciénega (including the San Ramón satellite mine), Herradura, Soledad
and Noche Buena; two development projects - Saucito II and San Julián; and
four advanced exploration prospects - Centauro Deep, Juanicipio, Orisyvo and
Las Casas Rosario as well as a number of other long term exploration
prospects. In total, Fresnillo plc has mining concessions covering
approximately 2.1 million hectares in Mexico. 
 
Fresnillo has a strong and long tradition of mining, a proven track record of
mine development, reserve replacement, and production costs in the lowest
quartile of the cost curve for both silver and gold. 
 
Fresnillo's goal is to maintain the Group's position as the world's largest
primary silver company, producing 65 million ounces of silver and 500,000
ounces of gold by 2018. 
 
Forward Looking Statements 
 
Information contained in this announcement may include 'forward-looking
statements'. All statements other than statements of historical facts included
herein, including, without limitation, those regarding the Fresnillo Group's
intentions, beliefs or current expectations concerning, amongst other things,
the Fresnillo Group's results of operations, financial position, liquidity,
prospects, growth, strategies and the silver and gold industries are
forward-looking statements. Such forward-looking statements involve risk and
uncertainty because they relate to future events and circumstances.
Forward-looking statements are not guarantees of future performance and the
actual results of the Fresnillo Group's operations, financial position and
liquidity, and the development of the markets and the industry in which the
Fresnillo Group operates, may differ materially from those described in, or
suggested by, the forward-looking statements contained in this document. In
addition, even if the results of operations, financial position and liquidity,
and the development of the markets and the industry in which the Fresnillo
Group operates are consistent with the forward-looking statements contained in
this document, those results or developments may not be indicative of results
or developments in subsequent periods. A number of factors could cause results
and developments to differ materially from those expressed or implied by the
forward-looking statements including, without limitation, general economic and
business conditions, industry trends, competition, commodity prices, changes
in regulation, currency fluctuations (including the US dollar and Mexican Peso
exchanges rates), the Fresnillo Group's ability to recover its reserves or
develop new reserves, including its ability to convert its resources into
reserves and its mineral potential into resources or reserves, changes in its
business strategy and political and economic uncertainty. 
 
This information is provided by RNS
The company news service from the London Stock Exchange