Shine taken off Fresnillo as silver production set to fall this year

Shares in Fresnillo sunk today as the miner warned that it was looking towards a year where prices could fall, inflation could rise and exchange rates could hit its bottom line.

The figures

Fresnillo grew its silver production by 5.3 per cent to 62m ounces in 2018, while gold increased 1.3 per cent to 923,000 ounces.

Revenue edged up 0.5 per cent to $2.2bn (£1.7bn), while the company’s profit before income tax fell by over a third to $484m. Debt remained at $800m.

The miner, which runs seven Mexican mines, said it expects silver production will decrease to between 58m and 61m ounces this year. Meanwhile gold will reach 910,000 to 930,000 ounces.

Why it’s interesting

Fresnillo’s shares were trading down 8.7 per cent to 891p in the early afternoon, after reaching lows of 868p.

It came as the company’s pre-tax profit missed expectations, hit by higher costs and low silver output.

However, the 2019 silver forecasts will not surprise investors, after the company slashed its outlook for the year last month, citing a lower grade of ore.

“We anticipate that 2019 will be a more challenging year than 2018,” it said.

What Fresnillo said

Chief executive Octavio Alvidrez said the company has in the past managed to deliver shareholder returns despite a “volatile time for the wider mining sector,” but added that 2018 was “more challenging”.

He said the company would intensify drilling, control dilution and invest more in equipment and infrastructure after a year where it smashed records, but fell short of production expectations.

“Looking ahead, I expect 2019 to be another challenging year. We face a number of headwinds, including lower prices for precious metals and higher inflation,” Alvidrez said.

“I also expect to see higher depreciation costs as a result of the investments we have made in recent years into the operations, while we continue to expect to work through operational issues and lower grades at certain mines during the year. All this has resulted in us slightly lowering our silver production guidance for 2019.”

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