TIDMFRES
RNS Number : 8750H
Fresnillo PLC
01 August 2023
Fresnillo plc
21 Upper Brook Street
London W1K 7PY
United Kingdom
www.fresnilloplc.com
1 August 2023
Fresnillo plc interim results
for the six months to 30 June 2023
Octavio Alvídrez, Chief Executive Officer, commented:
"We achieved a solid operating performance in the first half.
Higher silver and gold production combined with stronger precious
metals prices, also saw a rise in revenue in the period.
"I am pleased to report we are fully staffed across the business
and have now overcome the challenges presented by the labour
reforms in Mexico as well as the tight labour market. Further, in
the period we have delivered on the ramp up of our new Juancipio
mine and begun operations at the new pyrites plant following the
successful tie-in to the national electricity grid earlier this
year.
"These are considerable development milestones and testament to
the skill of our teams on the ground. It is with both huge sadness
and regret however that we confirm two fatal contractor incidents
in the period, a stark reminder of the critical need to ensure
safety remains at the heart of everything we do, for both employees
and contractors.
"Though we have made good operational progress, we are facing
higher costs across the business driven by inflation as well as the
material impact of the revaluation of the peso against the US
dollar, which have resulted in an impact on profitability in the
period.
"Our priorities in the second half are clear. We will continue
to focus on the safety of our people and instilling a true culture
of safety across the business. We are committed to managing costs
and further improving productivity, while delivering on the promise
of Juanicipio as we complete the ramp up. We are well placed to
meet our operating targets for the year."
First half highlights
Financial highlights (1H23/1H22 comparisons)
-- Adjusted Revenues [1] of US$1,430.8m, up 6.1%; mainly due to
higher gold and silver volumes sold at higher prices, partly offset
by a lower zinc price.
-- Revenues of US$1,343.3m, up 6.7%.
-- Adjusted production costs [2] of US$773.9m, up 17.4% over
1H22 primarily due to the revaluation of the Mexican peso vs. US
dollar, cost inflation, additional costs from the start up of the
beneficiation plant at Juanicipio and an increase in stripping
recognised as costs rather than capitalised.
-- Cost of sales of US$1,060.6m, up 18.7% mainly as a result of
the higher adjusted production costs and the effect of the
consumption of inventories at Juanicipio and Noche Buena net of the
reassessment of gold inventories at Herradura.
-- Gross profit and EBITDA [3] of US$282.7m and US$351.0m, down 22.7% and 23.5%, respectively.
-- Exploration expenses of US$96.9m, up 24.7% as exploration spend was front loaded.
-- Profit from continuing operations before net finance costs
and income tax and profit before income tax of US$81.2m and
US$47.9m, down 62.8% and 69.2%, respectively.
-- Profit for the period of US$89.7m, down 36.4%.
-- Basic and diluted EPS from continuing operations of US$8.8 cents per share, down 44.7%.
-- Adjusted EPS [4] of US$10.4 cents per share, down 46.4%.
-- Cash generated from operations, before changes in working capital, of US$322.9m, down 29.7%.
-- Free cash flow [5] of US$18.7m in 1H23 (US$93.5m in 1H22).
-- Strong balance sheet with cash and other liquid funds as at
30 June 2023 of US$889.7m (31 December 2022: $969.1m); net
debt/EBITDA of 0.42x(6) (31 December 2022: 0.26x).
-- Interim dividend of 1.40 US cents per share, totaling US$10.3m (1H22: 25.0m).
Operational highlights (1H23/1H22 comparisons)
As disclosed in the 2Q23 production report on 26 July 2023:
-- First half attributable silver production of 28.0 moz
(including Silverstream), up 1.4% vs. 1H22.
-- First half attributable gold production of 325.4 koz, up 5.4% vs. 1H22.
-- Ramp up at new Juanicipio mine is progressing as planned,
with full nameplate capacity expected in 3Q23.
-- Tie-in of the new Pyrites Plant to the national power grid completed in 2Q23, followed by its commissioning and the start up of operations.
-- Ongoing focus on safety, cost control and productivity.
Highlights for 1H23
US$ million unless H1 23 H1 22 % change
stated
Silver production
(koz) * 28,018 27,632 1.4
-------- -------- ---------
Gold production (oz) 325,415 308,752 5.4
-------- -------- ---------
Total revenues 1,343.3 1,259.1 6.7
-------- -------- ---------
Adjusted revenues(1) 1,430.8 1,349.0 6.1
-------- -------- ---------
Cost of Sales 1,060.6 893.2 18.7
-------- -------- ---------
Adjusted production
costs(2) 773.9 659.3 17.4
-------- -------- ---------
Exploration expenses 96.9 77.7 24.7
-------- -------- ---------
EBITDA(3) 351.0 459.1 (23.5)
-------- -------- ---------
Profit for the period 89.7 141.0 (36.4)
-------- -------- ---------
Cash generated by
operations before
changes in working
capital 322.9 459.5 (29.7)
-------- -------- ---------
Basic and Diluted
EPS (US$)(4) 0.088 0.159 (44.7)
-------- -------- ---------
Basic and Diluted
EPS, excluding post-tax
Silverstream revaluation
effects (US$) 0.104 0.194 (46.4)
-------- -------- ---------
Dividend per ordinary
share (US$) 0.014 0.034 (58.8)
-------- -------- ---------
* Silver production includes volumes realised under the
Silverstream contract
(1) Adjusted revenues are the revenues shown in the income
statement adjusted to add back treatment and refining charges and
the effects of metals prices 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
(2) Adjusted production costs are calculated as cost of sales
less depreciation, profit sharing, hedging, change in inventories
and unproductive costs. The Company considers this a useful
additional measure to help understand underlying factors driving
production costs in terms of the different stages involved in the
mining and plant processes, including efficiencies and
inefficiencies as the case may be and other factors outside the
Company's control such as cost inflation or changes in accounting
criteria.
(3) Earnings before interest, taxes, depreciation and
amortisation (EBITDA) is calculated as profit for the year from
continuing operations before income tax, less finance income, plus
finance costs, less foreign exchange gain/(loss), less revaluation
effects of the Silverstream contract and other operating income
plus other operating expenses and depreciation.
(4) The weighted average number of shares for H1 2023 and H1
2022 was 736.9m. See Note 8 in the Interim Consolidated Financial
Statements.
Commentary on the Group's results
Operating results
First half attributable silver production of 28.0 moz (including
Silverstream) increased 1.4% vs. 1H22, primarily due to the ramp-up
of Juanicipio, partially offset by the lower ore grade at San
Julián (DOB).
First half attributable gold production of 325.4 koz increased
5.4% vs. 1H22 mainly due to the increased volume of ore processed
and higher ore grade at Herradura and Saucito, partially
compensated for by the decrease in gold production at Noche
Buena.
First half by-product lead production increased 2.2% vs. 1H22
due to the increased contribution from Juanicipio and higher ore
processed at Fresnillo, partly offset by the lower ore grade at
Saucito.
First half by-product zinc production decreased 1.5% vs. 1H22
due to the lower ore grades at Saucito and San Julián (DOB),
mitigated by the increased production at Juanicipio and the higher
ore processed at Fresnillo.
With profound sadness we informed the tragic loss of two of our
colleagues. The safety and wellbeing of our people remains our
absolute priority and our aim is to promote a safety culture that
is upheld by our robust safety management system and a preventive
culture. The 'I Care, We Care' philosophy continued to be rolled
out across the business, focusing on critical risk and control
management, leadership practices, preventive management, learning
from high-potential incidents and contractor engagement.
Financial results
Total revenues increased 6.7% to US$1,343.3 million in 1H23,
mainly due to the increased volumes of gold and silver sold at
higher prices, partly offset by the lower zinc price.
The average realised silver price increased 2.4% from US$22.8
per ounce in 1H22 to US$23.3 per ounce in 1H23, while the average
realised gold price rose 4.1%, from US$1,871.1 per ounce in 1H22 to
US$1,948.9 per ounce in 1H23. However, the average realised zinc
and lead by-product prices decreased 29.5% and 4.7% against their
corresponding periods, to US$122.4 cents and US$93.7 cents per
pound, respectively.
Adjusted production costs [6] increased by 17.4% to US$773.9
million in 1H23. The US$114.5 million increase resulted mainly
from: i) the adverse effect of the 10.2% average revaluation of
Mexican peso vs. the US dollar (US$45.0 million); ii) underlying
cost inflation excluding the revaluation of the Mexican peso vs. US
dollar (US$41.6 million) - these two factors combined resulted in a
cost inflation in US dollars of 13.4%, which increased adjusted
production cost by US$86.6 million; iii) costs from the start-up of
the beneficiation plant and mine ramp up at Juanicipio (US$19.6
million); iv) higher stripping to cost at Herradura (US$19.5
million); v) increased maintenance, contractors, operating
materials and diesel consumption due to longer haulage distances,
deeper mines and increased development works (US$16.7 million); and
vi) higher volume of ore processed (US$5.4 million). These adverse
effects were mitigated by: i) a decrease in mining costs as
depositing activities stopped at Noche Buena as part of the mine
closure process which started in May (-US$19.8 million); and ii)
the reclassification of fixed costs incurred at Herradura and Noche
Buena during the 14 days illegal stoppage to unproductive costs
(-US$13.5 million) (see 1H23 Operational Review -Herradura).
Additionally, the variation in the change in inventories had a
negative effect of US$32.3 million vs. 1H22. The change in
inventories in 1H23 of US$26.3 million was explained by the
decrease in inventories at Juanicipio as a result of the start up
of the beneficiation plant in 2Q23, and at Noche Buena as it
approached the end of its mine life. This was partly mitigated by
the gold inventory uplift at Herradura.
Depreciation remained broadly stable at US$236.3 million, 1.1%
up. This is mainly due to the depreciation of the additional asset
base at Juanicipio, and to a lesser extent, increased amortisation
of capitalised mining works at Fresnillo and Saucito, partly
mitigated by the lower depreciation at Noche Buena.
The factors mentioned above resulted in an 18.7% increase in
cost of sales compared with 1H22.
The increase in revenues was more than offset by the rise in
cost of sales, resulting in a 22.7% decrease in gross profit to
US$282.7 million in 1H23.
Exploration expenses increased by 24.7% from US$77.7 million in
1H22 to US$96.9 million in 1H23 as the exploration programme was
accelerated at both brownfield and greenfield projects in 1H23.
Other expenses of US$33.5 million in 1H23 increased by US$26.3
million, primarily explained by the write off of 20 thousand gold
ounces, following illegal extraction of ore from the leaching pads
at Soledad-Dipolos.
Driven by a decrease in gross profit, EBITDA decreased by 23.5%,
with EBITDA margin decreasing from 36.5% in 1H22 to 26.1% in 1H23.
Similarly, profit from continuing operations before net finance
costs and income tax decreased from US$218.2 million in 1H22 to
US$81.2 million in 1H23, a decrease of 62.8%.
The net Silverstream effect recorded in the 1H23 income
statement was a loss of US$17.0 million (US$23.3 million
amortisation profit and -US$40.3 million revaluation loss), which
compared favourably to the net loss of US$36.3 million registered
in 1H22. The negative revaluation was mainly driven by the decrease
in the forward silver price curve and an updated mine plan, which
considers a decrease in silver reserves.
Net finance costs of US$19.5 million decreased 30.1% compared to
the US$27.9 million recorded in 1H22, primarily due to the higher
interest gained on short term deposits and investments. Financial
expenses in 1H23 included mainly: i) interest paid on the
outstanding US$317.9 million from the US$800 million Senior Notes
due 2023, and ii) interest paid on the 4.250% Senior Notes due
2050.
The decrease in profit from continuing operations, together with
the net Silverstream loss, resulted in a 69.2% decrease in profit
from continuing operations before income tax from US$155.2 million
in 1H22 to US$47.9 million in 1H23.
Tax income for the period was US$19.5 million, which compared
favourably to the US$6.8 million tax expense in 1H22. The effective
tax rate, excluding the special mining rights, was -40.7% (1H22:
4.4%), which was substantially below the 30% statutory tax rate.
The reasons for the unusual positive effective tax rate was the
significant permanent differences between the tax and the
accounting treatment related mainly to: i) the effect of the 11.8%
revaluation of the Mexican peso/US dollar spot exchange rate in
1H23 on the tax value of assets and liabilities; and ii) the
inflation rate (Mexican Consumer Price Index), which impacted the
inflationary uplift of the tax base for assets and liabilities.
Mining rights income for the first half of the period were
US$22.3 million compared to the mining rights charges of US$7.4
million registered in 1H22.
Profit for the period decreased from US$141.0 million in 1H22 to
US$89.7 in 1H23, a 36.4% decrease period-on-period as a result of
the factors described above. Profit due to non-controlling
interests was US$25.0 million reflecting the profit generated at
Juanicipio, where MAG Silver owns 44% of the outstanding shares.
Accordingly, profit attributable to equity shareholders of the
Group was US$64.7 million, a 44.9% decrease half-on-half.
Excluding the effects of the Silverstream contract, profit for
the year decreased from US$166.3 million to US$101.6 million, a
38.9% decrease.
Cash generated by operations before changes in working capital
decreased by 29.7% to US$322.9 million, mainly as a result of the
lower profits generated in the year.
Capital expenditure in 1H23 totalled US$227.8 million, a 23.8%
decrease over 1H22. Investments during the period included mine
development and stripping, purchase of in-mine equipment,
construction of a leaching pad at Herradura, the deepening of the
San Carlos and Jarillas shafts and investments in tailings
dams.
Other uses of funds during the period were income tax, special
mining rights and profit sharing paid of US$192.8 million (US$141.2
million in 1H22) and dividends paid of US$98.0 million (US$176.9
million in 1H22).
Fresnillo plc continued to maintain a solid financial position
during the period with cash and other liquid funds of US$889.7
million as of 30 June 2023, decreased -8.2% and -22.8% versus 31
December 2022 and 30 June 2022 respectively. Taking into account
the cash and other liquid funds of US$889.7 million and the
US$1,158.9 million outstanding Senior Notes, Fresnillo plc's net
debt is US$269.2 million as at 30 June 2022. This compares to the
net debt position of US$15.9 million as at 31 December 2022.
Considering these variations, the balance sheet at 30 June 2023
remains strong, with a net debt / EBITDA ratio of 0.42x [7] .
Interim Dividend
The Board of Directors has declared an interim dividend of 1.40
US cents per Ordinary Share totalling US$10.3 million, which will
be paid on 14 September 2023 to shareholders on the register on 11
August 2023. The dividend will be paid in UK pounds sterling unless
shareholders elect to be paid in US dollars. This interim dividend
is lower than the previous period due to the decrease in profit in
1H23, and remains in line with the Group's dividend policy. This
decision was made after a comprehensive review of the 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.
As previously disclosed, the corporate income tax reform
introduced in Mexico in 2014 created a withholding tax obligation
of 10% (including to foreign nationals). The 2023 interim dividend
will be subject to this withholding obligation.
Outlook
2023 guidance remains unchanged. Attributable silver production
is expected to be in the range of 57.0 to 64.0 moz (including
Silverstream) while attributable gold production is expected to be
in the range of 590 to 640 koz. Expressed in silver equivalent
ounces [8] , production is expected to be 104 -115 million
ounces.
Exploration expenses for 2023 are expected to remain around
US$175 million.
Capex for 2023 has been revised from US$630 million to US$555
million following a project review and timetable optimisation.
Analyst Presentation
Management will host a webcast for analysts and investors today
at 9am UK. Registration and access will be provided on the homepage
of Fresnillo's website and directly via this link:
https://kvgo.com/IJLO/Fresnillo_1H23_Interim_Results
Conference call:
Participants will be able to join the call with the usual
dialling numbers, but they will also be able to pre-register
through a link, and they will receive a pin code, confirmation
email and a calendar invite directly to their inbox. When they dial
into the call, they can just input the code and gain access and
bypassing the operator.
Conference Call Registration Link:
https://www.netroadshow.com/events/login?show=37639fc5&confId=53607
Avoid wait time - Bypass speaking with an operator to join the
call
Receive a calendar invite with call access details including
unique PIN.
Only if participants require operator assistance:
Operator Assisted Dial-In:
All Other Locations: +44 20 3936 2999
United Kingdom (Local): +44 20 4587 0498
United Kingdom (Toll-Free): +44 800 358 1035
USA (Local): 1 646 664 1960
USA (Toll-Free): 1 855 9796 654
Global Dial-In Numbers:
https://www.netroadshow.com/conferencing/global-numbers?confId=53607
Access Code: 334950
For further information, please visit our website:
www.fresnilloplc.com or contact:
Fresnillo plc
London Office Tel: +44(0)20 7339 2470
Gabriela Mayor, Head of Investor
Relations
Mark Mochalski
Mexico City Office Tel: +52 55 52 79 3206
Ana Belém Zárate
Powerscourt Tel: +44(0)20 7250 1446
Peter Ogden
ABOUT FRESNILLO PLC
Fresnillo plc is the world's largest primary silver producer and
Mexico's largest gold producer, listed on the London and Mexican
Stock Exchanges under the symbol FRES.
Fresnillo plc has eight operating mines, all of them in Mexico -
Fresnillo, Saucito, Juanicipio, Ciénega, Herradura,
Soledad-Dipolos(1) , Noche Buena and San Julián (Veins and
Disseminated Ore Body) and four advanced exploration projects -
Orisyvo, Rodeo, Guanajuato and Tajitos as well as a number of other
long term exploration prospects.
Fresnillo plc has mining concessions and exploration projects in
Mexico, Peru and Chile. Fresnillo plc has a strong and long
tradition of exploring, mining, a proven track record of mine
development, reserve replacement, and production costs in the
lowest quartile of the cost curve for silver. Fresnillo plc's goal
is to maintain the Group's position as the world's largest primary
silver company and Mexico's largest gold producer.
(1) Operations at Soledad-Dipolos are currently suspended.
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.
1H23 Operational Review
Production
Production H1 2023 H1 2022 % change
Silver (koz) 26,472 26,192 1.1
-------- -------- ---------
Silverstream prod'n
(koz) 1,546 1,440 7.4
-------- -------- ---------
Total Silver prod'n
(koz) 28,018 27,632 1.4
-------- -------- ---------
Gold (oz) 325,415 308,752 5.4
-------- -------- ---------
Lead (t) 27,363 26,779 2.2
-------- -------- ---------
Zinc (t) 49,788 50,533 (1.5)
-------- -------- ---------
First half attributable silver production of 28.0 moz (including
Silverstream) increased 1.4% vs. 1H22, primarily due to the ramp-up
of Juanicipio, partially offset by the lower ore grade at San
Julián (DOB).
First half attributable gold production of 325.4 koz increased
5.4% vs. 1H22 mainly due to the increased volume of ore processed
and higher ore grade at Herradura and Saucito, partially
compensated for by the decrease in gold production at Noche
Buena.
First half by-product lead production increased 2.2% vs. 1H22
due to the increased contribution from Juanicipio and higher ore
processed at Fresnillo, partly offset by the lower ore grade at
Saucito.
First half by-product zinc production decreased 1.5% vs. 1H22
due to the lower ore grades at Saucito and San Julián (DOB),
mitigated by the increased production at Juanicipio and the higher
ore processed at Fresnillo.
Fresnillo mine production
H1 2023 H1 2022 % change
Ore Processed (t) 1,336,142 1,194,359 11.9
---------- ---------- ---------
Production
---------- ---------- ---------
Silver (koz) 6,789 6,609 2.7
---------- ---------- ---------
Gold (oz) 19,747 18,148 8.8
---------- ---------- ---------
Lead (t) 10,972 10,432 5.2
---------- ---------- ---------
Zinc (t) 22,790 20,139 13.2
---------- ---------- ---------
Ore Grades
---------- ---------- ---------
Silver (g/t) 177 189 (6.3)
---------- ---------- ---------
Gold (g/t) 0.64 0.67 (4.5)
---------- ---------- ---------
Lead (%) 0.96 1.04 (7.7)
---------- ---------- ---------
Zinc (%) 2.27 2.35 (3.4)
---------- ---------- ---------
First half silver production increased 2.7% vs. 1H22 mainly as a
result of the increase in volume of ore processed, partly offset by
the lower ore grade and recovery rate.
Mine development rates increased half on half to an average of
3,197m per month in 1H23 (1H22: 2,883m per month), primarily due to
the higher productivity of the unionised personnel.
First half by-product gold production increased 8.8% vs. 1H22
primarily as a result of the higher volume of ore processed, partly
offset by the lower ore grade.
The silver ore grade in 2023 is expected to remain in the range
of 185-205 g/t, while the gold ore grade is expected to remain in
the range of 0.50-0.70 g/t.
Progress at the San Carlos shaft has been slower than
anticipated due to service infrastructure redesign. The
commissioning of the San Carlos shaft has been delayed to year end,
which will provide further time to optimise haulage of ore through
ramps whilst the two sections of the shaft are connected. This
project is expected to support a reduction in haulage costs.
Pyrites Plant at Fresnillo
The tie in of the Pyrites Plant to the national grid at
Fresnillo was completed in 2Q23 and commissioning began immediately
with ramp up of production expected in 2H23.
This facility and the Pyrites plant (phase I) at Saucito are
together expected to produce an average of 3.5 moz silver and 13
koz gold per year, once both are operating at full capacity.
Saucito mine production
H1 2023 H1 2022 % change
Ore Processed (t) 1,034,921 1,008,158 2.7
---------- ---------- ---------
Production
---------- ---------- ---------
Silver (koz) 5,811 5,781 0.5
---------- ---------- ---------
Gold (oz) 40,080 33,172 20.8
---------- ---------- ---------
Lead (t) 8,251 9,444 (12.6)
---------- ---------- ---------
Zinc (t) 12,993 15,665 (17.1)
---------- ---------- ---------
Ore Grades
---------- ---------- ---------
Silver (g/t) 197 199 (1.0)
---------- ---------- ---------
Gold (g/t) 1.52 1.30 16.9
---------- ---------- ---------
Lead (%) 0.95 1.09 (12.8)
---------- ---------- ---------
Zinc (%) 1.65 1.97 (16.2)
---------- ---------- ---------
First half silver production remained at similar levels vs.
1H22, as higher volumes of ore processed were offset by the lower
ore grade resulting from the delays in preparation, thus limiting
operational flexibility.
We continued working on increasing the availability of equipment
and improving the productivity of our personnel and expect to
further increase volumes of ore processed in 2H23 to reach the
optimal run rate of c. 7,000 tpd.
First half by-product gold production increased 20.8% vs. 1H22
as a result of the higher ore grade and increase in volume of ore
processed.
Full year 2023 silver ore grade is estimated to remain between
190-210 g/t, while the gold ore grade is estimated to continue to
be around 1.20-1.40 g/t.
PYRITES PLANT (PHASE I)
H1 2023 H1 2022 % change
Pyrite Concentrates Processed (t) 55,844 65,690 (15.0)
-------- -------- ---------
Production
-------- -------- ---------
Silver (koz) 238 277 (14.1)
-------- -------- ---------
Gold (oz) 601 932 (35.5)
-------- -------- ---------
Ore Grades
-------- -------- ---------
Silver (g/t) 192 176 9.1
-------- -------- ---------
Gold (g/t) 1.44 1.40 2.9
-------- -------- ---------
First half silver production decreased 14.1% vs. 1H22 due to the
decreased volume of pyrite concentrates processed and lower
recovery rates, partly mitigated by the higher ore grade.
First half gold production decreased 35.5% vs. 1H22 as a result
of the lower recovery rate and the decrease in volume of pyrite
concentrates processed, partly offset by a higher ore grade.
Juanicipio - Attributable
H1 2023* H1 2022** % change
Ore Processed (t) 335,855 167,751 100.2
--------- ---------- ---------
Production
--------- ---------- ---------
Silver (koz) 4,214 2,672 57.7
--------- ---------- ---------
Gold (oz) 9,351 6,412 45.8
--------- ---------- ---------
Lead (t) 2,718 1,286 111.4
--------- ---------- ---------
Zinc (t) 4,309 2,041 111.1
--------- ---------- ---------
Ore Grades
--------- ---------- ---------
Silver (g/t) 448 582 (23.0)
--------- ---------- ---------
Gold (g/t) 1.18 1.53 (22.9)
--------- ---------- ---------
Lead (%) 0.94 0.92 2.2
--------- ---------- ---------
Zinc (%) 1.74 1.73 0.6
--------- ---------- ---------
* Includes ore processed as part of the initial tests during the
commissioning of the Juanicipio plant and ore processed at the
Fresnillo and Saucito beneficiation plants.
** Ore processed at the Fresnillo and Saucito beneficiation
plants.
Attributable first half silver and gold production reached 4.2
moz and 9.4 koz respectively as the ramp-up progressed as planned
following the commissioning completed in 1Q23. Full nameplate
capacity is expected to be reached by 3Q23. As previously reported,
ore will continue to be processed at the nearby Saucito and
Fresnillo plants as required.
Ciénega mine production
H1 2023 H1 2022 % change
Ore Processed (t) 501,401 563,094 (11.0)
-------- -------- ---------
Productio n
-------- -------- ---------
Gold (oz) 17,434 18,907 (7.8)
-------- -------- ---------
Silver (koz) 1,991 2,485 (19.9)
-------- -------- ---------
Lead (t) 1,504 1,684 (10.7)
-------- -------- ---------
Zinc (t) 1,921 2,596 (26.0)
-------- -------- ---------
Ore Grades
-------- -------- ---------
Gold (g/t) 1.18 1.14 3.5
-------- -------- ---------
Silver (g/t) 144 159 (9.4)
-------- -------- ---------
Lead (%) 0.47 0.47 0.0
-------- -------- ---------
Zinc (%) 0.72 0.82 (12.2)
-------- -------- ---------
First half gold production decreased 7.8% vs. 1H22 mainly due to
the lower volume of ore processed, partly mitigated by the higher
ore grade.
First half silver production decreased 19.9% vs. 1H22 due to the
decrease in volume of ore processed and lower ore grade as a result
of the increased dilution.
The gold and silver ore grades for 2023 are estimated to remain
in the ranges of 1.0-1.1 g/t and 150-160 g/t respectively.
San Julián mine production
H1 2023 H1 2022 % change
Ore Processed Veins (t) 558,257 583,966 (4.4)
---------- ---------- ---------
Ore Processed DOB (t) 1,050,158 1,076,326 (2.4)
---------- ---------- ---------
Total production at San Julián
---------- ---------- ---------
Gold (oz) 22,292 23,433 (4.9)
---------- ---------- ---------
Silver (koz) 7,008 7,968 (12.0)
---------- ---------- ---------
Production Veins
---------- ---------- ---------
Gold (oz) 20,464 21,710 (5.7)
---------- ---------- ---------
Silver (koz) 2,480 2,235 11.0
---------- ---------- ---------
Production DOB
---------- ---------- ---------
Gold (oz) 1,828 1,723 6.1
---------- ---------- ---------
Silver (koz) 4,528 5,733 (21.0)
---------- ---------- ---------
Lead (t) 3,917 3,933 (0.4)
---------- ---------- ---------
Zinc (t) 7,775 10,093 (23.0)
---------- ---------- ---------
Ore Grades Veins
---------- ---------- ---------
Gold (g/t) 1.20 1.22 (1.6)
---------- ---------- ---------
Silver (g/t) 152 131 16.0
---------- ---------- ---------
Ore Grades DOB
---------- ---------- ---------
Gold (g/t) 0.09 0.08 12.5
---------- ---------- ---------
Silver (g/t) 156 193 (19.2)
---------- ---------- ---------
Lead (%) 0.48 0.45 6.7
---------- ---------- ---------
Zinc (%) 0.99 1.20 (17.5)
---------- ---------- ---------
San Julián Veins
First half gold production decreased 5.7% vs. 1H22 mainly due to
the decrease in volume of ore processed and the lower ore grade as
a result of lower equipment availability, which limited access to
the San Atanasio vein with higher ore grades.
First half silver production increased 11.0% vs. 1H22 mainly due
to the higher ore grade at San Antonio, Ultima Tierra and Elisa
stopes, partly offset by the lower volume of ore processed.
Additional anchoring equipment is expected to arrive in 3Q23,
which will contribute to the normalisation of mining cycles.
We continue to expect the 2023 silver and gold ore grades to
average 130-140 g/t and 1.20-1.30 g/t, respectively.
San Julián Disseminated Ore Body
First half silver production decreased 21.0% vs. 1H22
respectively, mainly due to the lower ore grade in the areas in the
periphery of the ore body and structural geological features which
slowed down the long hole drilling cycles.
We continue to expect the 2023 silver ore grade to be in the
range of 130-140 g/t.
Herradura mine production
H1 2023 H1 2022 % change
Ore Processed (t) 11,705,553 9,518,276 23.0
----------- ----------- ---------
Total Volume Hauled (t) 50,669,525 64,333,382 (21.2)
----------- ----------- ---------
Production
----------- ----------- ---------
Gold (oz) 189,869 160,644 18.2
----------- ----------- ---------
Silver (koz) 344 387 (11.1)
----------- ----------- ---------
Ore Grades
----------- ----------- ---------
Gold (g/t) 0.74 0.68 8.8
----------- ----------- ---------
Silver (g/t) 1.55 1.83 (15.3)
----------- ----------- ---------
First half gold production increased 18.2% vs. 1H22 mainly
driven by the increased volume of ore processed and higher ore
grade in the sulphides in the lower areas of the pit and positive
variations with the geological model. The aforementioned factors
were partly offset by the lower recovery rate driven by the
temporary suspension of operations following an illegal stoppage by
a very small group of unionised employees, as reported in May, and
the slower pace of irrigation.
The adjusted production costs were impacted by the increase in
waste material hauled charged to costs, rather than capitalised,
despite the 28.9% decrease in the total volume of waste material
hauled (capitalised and charged to costs). This is because in 1H22
the stripping ratio for the main component of the Herradura mine of
c. 7.3 was significantly higher than the prevailing stripping ratio
for the life of the mine (LOM) of this component (under IFRIC 20
stripping costs above the average LOM stripping ratio are
capitalised), this higher stripping ratio was due to the need to
prepare and gain access to the mineral benches; whereas in 1H23 the
3.4 stripping ratio was below the prevailing stripping ratio for
LOM of this component, thus recognising all the stripping as cost
in the income statement.
The gold ore grade in 2023 is estimated to be in the range of
0.65-0.75 g/t.
Noche Buena mine production
H1 2023 H1 2022 % change
Ore Processed (t) 2,510,639 4,384,077 (42.7)
---------- ----------- ---------
Total Volume Hauled (t) 8,424,676 13,283,655 (36.6)
---------- ----------- ---------
Production
---------- ----------- ---------
Gold (oz) 25,878 47,103 (45.1)
---------- ----------- ---------
Silver (koz) 8 14 (42.9)
---------- ----------- ---------
Ore Grades
---------- ----------- ---------
Gold (g/t) 0.47 0.57 (17.5)
---------- ----------- ---------
Silver (g/t) 0.17 0.26 (34.6)
---------- ----------- ---------
First half gold production decreased 45.1% vs. 1H22 as a result
of the decrease in the volume of ore processed and lower ore grade
following the mine closure process which started in May.
The 2023 estimated gold ore grade remains in the range of
0.40-0.50 g/t, as the mine approaches the end of its operational
life.
Soledad-Dipolos mine
The Company has recently identified certain suspected illegal
extraction of gold content at its Soledad-Dipolos leaching pads.
The Company estimates a loss of approximately 20,000 ounces of gold
content and consequently has recognised a write off of US$21.9
million regarding the Soledad-Dipolos gold contents in inventory,
which has been presented as other expenses in the Interim
Consolidated Income Statement. The Company is taking relevant
actions so that the illegal leaching activities be ceased a soon as
possible. The Company does not currently expect any further losses
of this inventory to be significant.
Below we provide an update on other projects which are expected
to contribute to our medium and long term growth. These projects
have not yet been approved by the Board and are subject to ongoing
internal review. However, certain minor works and exploration
activities might be in progress in preparation for Board approval
and as such, are included within the 2023 approved capex and
exploration budget.
Advanced exploration projects
Rodeo
Rodeo is an open pit, heap leaching gold project located in
central Durango state. Disseminated gold occurs in volcanic rocks
showing thorough oxidation down to depths exceeding 200 meters,
with good metallurgical recoveries in ores coming from a projected
low strip ratio pit. During 1H 2023 several regional studies
continued, including hydrological, environmental, and social base
lines along with the analysis of power supply and infrastructure
alternatives. A community and local-to-state level government
engagement programme has been implemented, focused on education and
health initiatives that have been well received. Several land
access alternatives continue in negotiation with the local Ejidos
and once agreements are reached, comprehensive pre-feasibility to
feasibility level exploration, engineering, and development
programmes will be performed.
Orisyvo
Orisyvo is a world-class, high-sulphidation epithermal
disseminated gold deposit located in the Sierra Madre mountains of
Chihuahua state. Several activities aimed at delivering an updated
pre-feasibility study progressed as scheduled during 1H 2023.
Simultaneously, a region-wide community and local government
engagement programme fostering the improvement of educational,
health, environmental care and entrepreneurship skills of local
stakeholders has been strengthened and the preparation for the
required indigenous consultation and land acquisition strategies
have advanced as scheduled as well.
Some of the technical works in progress include the analysis of
alternatives for power supply, conceptual mine design and
engineering scenarios, detailed environmental studies for
permitting and options for tailings storage. The detailed
geotechnical studies of the mineralised and barren rocks have been
completed, and initial bio-oxidation and Albion metallurgical
processing technologies delivered promising results for increasing
the gold recovery in sulphide ores and a full-scale investigation
of these methods is underway.
Tajitos
Tajitos is a low strip ratio open-pit, heap-leach, orogenic
type, disseminated gold project located in the Herradura Corridor
of northwestern Sonora state. During 1H 2023, 46,972 meters of core
and reverse circulation drilling were completed in the main
resource area, as part of a programme designed to fully evaluate
the ore bodies to deliver an updated resource estimation by the end
of the year. Additional metallurgical investigations and
geotechnical studies are scheduled for 2H 2023, as we look to
produce a new preliminary economic study in 2024.
After completing over 95% of claim consolidation of the district
and acquiring an important land block, environmental studies for
permitting the exploration drilling of the remaining exploration
targets in the region are underway and additional land purchase for
mine development is under consideration.
Guanajuato
Guanajuato is a historic, world-class gold and silver epithermal
vein field stretching more than 40 kilometers along the central
Mexican state of Guanajuato. Exploration was intensified in 1H
2023, with core drilling amounting to 44,704 meters distributed in
the three main sectors making up the district. Good results have
been obtained from quartz veins and stockwork zones, the latter
amenable to massive, low-cost mining methods in the Veta Madre,
Peregrina, and San Gregorio areas. The application of our
upper-level epithermal model has yielded significant intercepts
below hydrothermally altered, barren zones at the surface.
Investigations of the use of ore-sorting technologies for the
Guanajuato ores and detailed metallurgical test work are in
progress. A preliminary economic study was completed, delivering
possibilities for conceptual mining and processing scenarios for
the district. These types of studies will continue as an updated
resource estimation becomes available in late 2023.
Exploration
Exploration was accelerated during 1H 2023 on both brownfield
and greenfield projects; the 490, 996 meters completed by the end
of June represent a 3% increase from the same period of 2022. 90%
of the drilling was devoted to brownfield targets, including
in-mine zones for resource conversion/expansion and increase of the
certainty of reserves for short to medium-term mine planning, and
also the evaluation of early-stage peripheral targets. In
particular, drilling was intensified at the Fresnillo and San
Julian districts.
Greenfield drill programmes designed to test expansion targets
at the Candameña and San Juan projects in Mexico and Capricornio in
Chile advanced well. In Peru, good results were obtained from the
strengthening of our community and government engagement
initiatives, allowing our teams to resume drilling at the Pilarica
project and the initiation of the programme at Santo Domingo, both
of which remain in progress.
The evaluation of our full portfolio was renewed in 1H 2023,
delivering an updated ranking of our prospect pipeline for budget
allocation to continue our programme of project generation using an
array of geological, geochemical, geophysical, and remote sensing
techniques. The effort to strengthen our portfolio will continue as
a standard practice of our exploration teams.
In the first six months, US$96.9 million of exploration expenses
were recorded in the income statement, an increase of 24.7% over
1H22. Total risk capital invested in exploration for the full year
2023 remains at approximately US$175 million.
Related party transactions
Details of related party transactions that have taken place in
the first six months of the current financial year are detailed in
note 16 of the interim consolidated financial statements.
Health and safety, environment and community relations
We are committed to our Purpose: "Contribute to the wellbeing of
people through the sustainable mining of silver and gold". This
commitment underlines the importance of integrating responsible
business practices deeply into our business model and considering
factors that affect stakeholders at every critical decision-making
level.
Our People
Our workforce is vital to achieve our organisational purpose;
thus, we prioritise their health, safety and wellbeing, and aim to
attract, nurture, and retain top talent, ensuring long-term
engagement. We promote leadership development programmes, wellbeing
initiatives, continuous improvement projects and actively
collaborate with unions to foster trust through ongoing dialogue.
Our goal is to cultivate an inclusive culture where diversity is
valued, and all employees feel respected and empowered to reach
their full potential.
Table 1. Workforce composition
As at June As at December % Change
30, 31, 2022
2023
Unionised employees 5,817 6,360 -8.54
------------ ---------------- ----------
Non-unionised employees 1,562 1,710 -8.65
------------ ---------------- ----------
Total unionised and non-unionised employees 7,379 8,070 -8.56
------------ ---------------- ----------
Unionised and non-unionised women (%) 13.80 14.03 -
------------ ---------------- ----------
Contractors 13,060 13,639 -4.25
------------ ---------------- ----------
Total workforce 20,439 21,709 -5.85
------------ ---------------- ----------
Total women (%) 11.78 12.11 -
------------ ---------------- ----------
Table 2. Turnover
As at June 30, 2023 As at June 30, 2022
Voluntary turnover (%) 5.10 4.14
-------------------- --------------------
Total turnover (%) 12.36 6.45
-------------------- --------------------
We have continued to increase the participation of women in our
workforce throughout recent years. The percentage of unionised and
non-unionised women was 13.80% (14.03% in 2022) while the
percentage of our overall total workforce, including contractors,
was 11.78% (12.11% in 2022). In 2022 we achieved our 2025 target,
well ahead of time, of 12% of women in our workforce and we expect
to maintain it throughout 2023. We also expect to continue making
progress towards our target of 8% women in managerial roles by
2025. The increase in total turnover in 1H23 was explained by: i)
the administrative reorganisation that was undertaken to achieve
efficiencies and cost reductions; and ii) the workforce
consolidation at the Herradura district following the closure of
mine operations at Noche Buena.
During the period we continued our female and reproductive
health programmes such as gestational follow-up and gynaecological
check-ups and finalised the construction of lactation facilities at
Penmont and Juanicipio, adding to those already constructed in
Ciénega and Saucito last year, while at Fresnillo, San Julián and
exploration offices, flexible schedules exist to allow for
lactation at home.
Our 'Women for Women' Mentoring Programme's first generation
graduated, and an open invitation has been distributed among our
female staff for a new generation to begin in the second half of
the year, which will incorporate lessons learnt from the first
generation to enhance the programme's effectiveness. We have also
defined a set of KPIs for the Women Leadership Program that aim to
measure our understanding of aspects of representation, retention,
compensation, development and environment to better assess our
Diversity, Equity and Inclusion (DEI) strategy progress over time.
Finally, we also supported the creation of the first Women in the
Mining Industry Survey in collaboration with the Mexican Mining
Chamber and KPMG.
Our organisation began its cultural evolution journey in 2021
focused on human dignity and respect, equal opportunities and
non-discrimination. Our goal remains to prioritise the wellbeing of
our workforce through results oriented collaborative ecosystems
that strive to improve the company's effectiveness and efficiency.
As part of these endeavours, we have updated and deployed a new
organisational competencies model based on agility, inclusive
collaboration, results-oriented commitment, trust-based
communication, talent development and emotional intelligence.
The Behaviour Commissioners continued to deal with related cases
to the harassment prevention and attention programme. In addition,
three years into the programme, a review and update of the protocol
has been initiated to incorporate learnings and experiences from
its application.
We also updated our Code of Conduct building up on its
predecessor with the purpose of homogenising our applicable
behavioural framework with our parent company, Industrias
Peñoles.
Occupational Health
Our approach aims to pre-emptively identify and manage the
health risks to which our workforce is exposed. Preventive care and
the promotion of healthier lifestyles can limit certain chronic
diseases and enhance overall wellness and fitness for work. While
our focus is on prevention, emergency response is a core competence
of all our health teams. In recent years, the health departments of
each business unit have expanded beyond occupational health
programmes, establishing a more comprehensive perspective and
promoting other aspects of health, defining five lines of action
compatible with the 'I Care, We Care' philosophy: Health
surveillance, Integral wellbeing, Industrial care, Development and
Innovation and Emergency Preparedness.
We persist in implementing measures to reduce psychosocial risk
factors and foster well-being programmes that align with our
desired organisational culture. During the period we concluded the
second phase of the Living in BALance Programme, identifying the
top 3 critical risks: anxiety/ depression, inadequate sleeping
habits and work-related stress. We also began a pilot for a Fatigue
Management System at Herradura and Juanicipio, using technology
that allows us to monitor worker's sleep quality in order to reduce
accidents, increase productivity and promote a healthier
lifestyle.
We continue working towards the 'Safe and Healthy Workplace
Environments' certification of all our business units by the
Mexican Social Security Institute, a voluntary programme to
implement strategies and measures to improve health, safety and
well-being of workers, as well as productivity and quality in the
workplace, achieving the recertification of Penmont during this
period, with an objective to obtain it for the first time in
Ciénega and San Julián later in the year.
Safety
As an organisation, safety stands as one of our core values, and
our unwavering commitment is to meet the objective of zero harm.
Our aim is to foster a safety culture that is upheld by our robust
safety management system, with prevention being a fundamental
pillar of our approach. Our 'I Care, We Care' philosophy promotes
leadership, accountability, risk-based management systems and
cross-functional learning. In 2022 we set a goal to achieve zero
fatalities and a Total Recordable Injury Frequency Rates (TRIFR) in
the International Council on Mining and Metals (ICMM) ranges. To
achieve this vision, during 2023 we have continued to deploy the 'I
Care, We Care' Safety Plan, focusing on critical risk and critical
control management, compliance with leadership practices,
preventive management, learning from high-potential incidents and
contractor engagement.
The 'I Care, We Care' Operational Committee - formalised last
year to ensure the effective implementation of critical risk
management and incident management - holds monthly meetings to
review performance results, progress in the operating plan, as well
as carrying out leadership practices on the field. Sub-optimal
critical risks are emphasised and communicated accordingly across
our operations to capitalise from lessons learnt. As part of the
management of critical risks, awareness sessions were held across
our mining units with the participation of our COO, unit managers
and in partnership with the union, to train the workforce on
accident prevention, and to empower them through the
materialisation of the "Right to Say No" Policy in case of a
missing or failed critical control. We have also launched '3 in
line,' a mentorship programme that accelerates learning for young
safety supervisors by pairing them with experienced peers. It aims
to foster safety awareness and develop sound judgment in safety
practices.
With profound sadness we regret to inform of the tragic loss of
two of our colleagues - a stark reminder of the critical work ahead
in our unwavering pursuit of zero harm. Despite continued
improvement compared to previous periods, our performance of Total
Recordable Injury Frequency Rates (TRIFR) and Lost Time Injury
Frequency Rates (LTIFR) per million hours worked increased to 12.04
(10.26 in 2022) and 6.79 (5.44 in 2022) respectively. It is
important to highlight though that only 15% of the TRIFR indicator
corresponds to high potential accidents, meaning that 85% of the
cumulative injuries of the period were generated in incidents
associated to low potential risks. Furthermore, we remain steadfast
in our diligent reporting of near-miss incidents to identify any
missed or failed critical controls that could lead to harm, with
the purpose of fostering worker engagement in an early warning
system, monitoring the safety of operational areas, and
facilitating timely decision-making.
Table 3. TRIFR and LTIFR performance*
As at June As at December % Change
30, 31, 2022
2023
Total Recordable Injury
Frequency Rates (TRIFR) 12.04 10.26 17.3
------------ ---------------- ----------
Lost Time Injury Frequency
Rates (LTIFR) 6.79 5.44 24.8
------------ ---------------- ----------
* Frequencies for every 1,000,000 hours worked
Tailings Storage Facilities
We implement best governance and engineering practices to manage
our Tailings Storage Facilities (TSF). Our governance framework
considers:
-- The Board and the HSECR Committee establish the mandate and
rely on management for implementation.
-- The Technical Review Committee is accountable for oversight.
-- The CEO (Accountable Executive), Senior Management of
Operations and Mine Managers (Risk Owners) are accountable for
operating in compliance with the policies and governance.
-- Peñoles' Technical Services Co-CEO (Accountable Executive),
Assistant VP Infrastructure and Engineering Corporate Tailings
Specialists and Managers are accountable for the governance.
-- TSF Operators, Regional TSF Superintendents and Managers, and
Engineers of Record (EOR) are responsible for Operation, Control
and assurance.
-- Independent Tailings Review Panel (ITRP) and Independent
Inspectors provide independent verification.
During the first half of the year, relevant activities have been
carried out in tailings management, starting with the authorisation
and issuance of the Responsible Tailings Management Policy by our
Board of Directors, and the guidelines for the Tailings Management
System. These establish the compliance guidelines for the best
international practices adopted by the Company.
At each site, progress has been made in the operational units,
projects, and those under care and maintenance. The Orysivo project
has begun its design phase accompanied by the company that will
serve as the design registrar until this role transitions into the
role of the Engineer of Record (EoR), as outlined in our
guidelines. At Ciénega, a secure TSF has been successfully
developed, adhering to the best practice guides of the Mining
Association of Canada (MAC), the International Commission on Large
Dams (ICOLD) and the Canadian Dam Association (CDA). It has been
designed to provide a safe space for depositing tailings until the
end of the mine's life. Finally, as the Juanicipio unit begins
operations, its TSF has transitioned to an operational status with
full compliance with standards, accompanied by a formal EoR that
supports day-to-day operations.
Environmental Management
We optimise resource use to curb our impacts and are accountable
for our environmental footprint. We're also committed to implement
sound measures to safeguard biodiversity and ensure that it is not
adversely affected by our operations.
To pursue these ambitions, throughout the period, we developed
ICMM high potential methodology (risk management system) for
environmental risks, resulting in a portfolio identification and
prioritisation of top risks, which we will roll-out in phases in
the upcoming months. We also conducted the engineering survey for
the project design that will materialise our ambition to eliminate
freshwater consumption in our mining and mineral processing
activities at the Fresnillo District and are in the process of
updating our conceptual mine closure plan at Noche Buena, including
geological, geochemical and hydrology characterisation studies,
among others.
We've also held biodiversity-oriented awareness training,
activities and reforestation campaigns in our neighbouring
communities in collaboration with volunteers from our workforce,
communities and business partners, capitalising on these
experiences to instil an environmental-prone culture in our
stakeholders. Additionally, we supported San Julián and Ciénega
neighbouring communities in forest firefighting activities.
Climate Change
We continue to mature our capabilities to disclose
climate-related financial information, considering the risks and
opportunities of climate change and setting the road ahead towards
the compliance with the IFRS S1 General Requirements for Disclosure
of Sustainability-related Financial Information and IFRS S2
Climate-related Disclosures issued by the International
Sustainability Standards Board (ISSB) in June 2023. During the
period we carried out an external assurance of our 2022 Greenhouse
Gas (GHG) emissions and are in the process of issuing an internal
reporting procedure, capitalising from lessons learnt across
different voluntary and regulatory assurance exercises.
Additionally, w e enrolled in the third generation of Mexico's UN
Global Compact's Climate Accelerator Programme to build capacities
that will support us moving forward in our climate ambitions.
Finally, we're piloting different mineral processing technologies
that have the potential to improve our performance while minimising
our impact on the environment.
Community Relations
We earn and maintain the trust of our communities through
meaningful engagement and by being accountable for our impacts. Our
community strategy, which embraces all phases of the mining
lifecycle, aims to build mutual understanding between our
operations and local communities, ensuring that we engage, develop
and grow together. We recognise the strategic importance of going
beyond maintaining our social licence to operate - supporting the
issues that matter to our communities and working with them for the
long term.
Sustainable Development Goal 3 "Good Health and Wellbeing"
We organised Community Health Weeks for the communities of
Fresnillo, San Julián and Ciénega in partnership with National
University Foundation (UNAM Foundation) and local authorities,
providing free dental and eye care, general medicine and
physiotherapy, benefiting a little under 4,000 people. Activities
are programmed at Penmont, Guanajuato and Orysivo for the second
half of the year. Also, as part of our sports and physical
reactivation axis at the Fresnillo District, we initiated the
Santos Fresnillo Soccer Academy activities and organised a
championship with Social Cause, inaugurated the Baseball Academy,
and in synergy with 'Fútbol Más', implemented work sessions with
the objective of promoting social cohesion at Penmont.
Sustainable Development Goal 6 "Clean Water and Sanitation"
In Penmont, we carried out a study to determine the conditions
of the wells in 10 communities, including level checks, pumping
equipment conditions, and well desilting. The results were
presented to state and municipal authorities as well as civil
organisations and NGOs in the area, in order to involve them in
possible maintenance and creation of new wells in the zone. In San
Julián, the community committee is working to develop a collective
water system. The project involves the company contributing a
portion of the materials, the community working together with the
NGO FORMAC, and the state of Chihuahua providing the majority of
the resources and manpower.
Sustainable Development Goal 4 "Quality Education"
We sponsored teams from our communities to compete at the Laguna
Regional FIRST Robotics Competition to foster science, technology,
engineering and mathematics (STEM) education. This programme aims
to develop the talent and skills of high school students by
promoting teamwork, leadership, solidarity and project management.
The Volunteer of the Year Award, Gracious Professionalism, Team
Spirit and Rookie All Star Award were won by Fresnillo sponsored
teams. Additionally, graduates of our four teams compete for 100%
scholarships in partnership with La Salle University at the Laguna
and Noroeste campuses. We also continued the 'Picando Letras'
programme at Penmont and Juanicipio carrying out reading activities
at local schools, such as: Literary Creation, 'Reencounter with my
books' workshop and reading circles, among others.
Sustainable Development Goal 8 "Decent Work and Economic
Growth"
We continued with our entrepreneurial programmes to promote
capacity building, micro-enterprises and productive project
development, carrying out workshops in neighbouring rural
communities with the support of the Education for Rural Development
Brigade. We provided training in cleaning and personal hygiene
products, recycling, family gardens and fodder cactus; some of
these projects are already at the marketing stage. On the other
hand, 'Emprende Kids' at San Julián, aims to encourage elementary
students to create a business idea through playful activities,
fostering skills such as leadership, teamwork and communication,
with guidance from Pro Empleo.
FINANCIAL REVIEW
The interim consolidated financial statements of the Group for
the six months ended 30 June 2023 have been prepared in accordance
with IAS 34 Interim Financial Reporting as issued by the IASB and
as adopted by the UK. All comparisons refer to the first halves of
2023 and 2022, unless otherwise noted. The financial information
and half year on half year variations are presented in US dollars,
except where indicated. Management recommends reading this section
in conjunction with the Interim Financial Statements and their
accompanying Notes.
INCOME STATEMENT
1H 2023 US$ million 1H 2022 US$ million Amount Change US$ million Change %
--------------------------------------- ------------------- ------------------- ------------------------- --------
Adjusted revenue [9] 1,430.8 1,349.0 81.8 6.1
--------------------------------------- ------------------- ------------------- ------------------------- --------
Total revenue 1,343.3 1,259.1 84.2 6.7
--------------------------------------- ------------------- ------------------- ------------------------- --------
Cost of sales 1,060.6 893.2 167.4 18.7
--------------------------------------- ------------------- ------------------- ------------------------- --------
Gross profit 282.7 365.9 (83.2) (22.7)
--------------------------------------- ------------------- ------------------- ------------------------- --------
Exploration expenses 96.9 77.7 19.2 24.7
--------------------------------------- ------------------- ------------------- ------------------------- --------
Operating profit 81.2 218.2 (137.0) (62.8)
--------------------------------------- ------------------- ------------------- ------------------------- --------
EBITDA [10] 351.0 459.1 (108.1) (23.6)
--------------------------------------- ------------------- ------------------- ------------------------- --------
Income tax expense including special
mining rights (41.8) 14.2 (56.0) N/A
--------------------------------------- ------------------- ------------------- ------------------------- --------
Profit for the period 89.7 141.0 (51.3) (36.4)
--------------------------------------- ------------------- -------------------
Profit for the period, excluding
post-tax Silverstream effects 101.6 166.3 (64.7) (38.9)
--------------------------------------- ------------------- ------------------- ------------------------- --------
Basic and diluted earnings per share
(US$/share) (5) 0.088 0.159 (0.071) (44.7)
--------------------------------------- ------------------- -------------------
Basic and diluted earnings per share,
excluding post-tax Silverstream
effects (US$/share) 0.104 0.194 (0.09) (46.4)
--------------------------------------- ------------------- ------------------- ------------------------- --------
The Group's financial results are largely determined by the
performance of our operations. However, there are other factors
such as a number of macroeconomic variables, that lie beyond our
control and which affect financial results. These include:
METALS PRICES
The average realised silver price increased 2.4% from US$22.8
per ounce in 1H22 to US$23.3 per ounce in 1H23, while the average
realised gold price rose 4.1%, from US$1,871.1 per ounce in 1H22 to
US$1,948.9 per ounce in 1H23. However, the average realised zinc
and lead by-product prices decreased 29.5% and 4.7% against their
corresponding periods, to US$122.4 cents and US$93.7 cents per
pound, respectively. The decrease in zinc and lead prices had an
adverse effect on cash cost as it lowered by product credits.
MX$/US$ EXCHANGE RATE
The Mexican peso/US dollar spot exchange rate at 30 June 2023
was $17.07 per US dollar, compared to the exchange rate at 31
December 2022 of $19.36 per US dollar. The 11.8% spot revaluation
had a positive effect on deferred taxes and mining rights.
The average spot Mexican peso/US dollar exchange rate decreased
from $20.28 per US dollar in 1H22 to $18.21 per US dollar in 1H23.
As a result, there was an adverse effect of US$45 million on the
Group's costs denominated in Mexican pesos (approximately 45% of
total costs) when converted to US dollars.
COST INFLATION
In 1H23, cost inflation (increase in unit price) considering
Fresnillo plc's basket of goods and services was 13.4 % (including
the adverse effect of the revaluation of the Mexican peso vs. US
dollar). Underlying cost inflation (cost inflation excluding the
revaluation of the Mexican peso vs. US dollar) was 6.2%. The main
components of our cost inflation (including the effect of the
revaluation of the Mexican peso vs. US dollar) basket are listed
below:
Labour
Unionised employees received on average an 8.5% increase in
wages in Mexican pesos, while non-unionised employees received on
average a 7.5% increase in wages in Mexican pesos; when converted
to US dollars, this resulted in a weighted average labour inflation
of 20.3%.
Energy
Electricity
The weighted average cost of electricity in US dollars increased
18.3% from US$8.88 cents per kw in 1H22 to US$10.50 cents per kw in
the same period of 2023, reflecting an increase in the average
generating cost of the Comisión Federal de Electricidad (CFE), the
national utility.
Diesel
The weighted average cost of diesel in US dollars increased
16.2% to 102.97 US cents per litre in 1H23, compared to 88.59 US
cents per litre in 1H22. This resulted primarily from the
revaluation of the Mexican peso vs. US dollar and the gradual
lifting of the Mexican Government's fuel tax relief that subsidised
the cost of diesel and gasoline in Mexico in previous months.
Operating materials
Half on half change in unit price %
-------------------------------------------- -----------------------------------
Lubricants 33.5
-------------------------------------------- -----------------------------------
Other reagents 12.1
-------------------------------------------- -----------------------------------
Sodium cyanide 10.7
-------------------------------------------- -----------------------------------
Steel for drilling 9.6
-------------------------------------------- -----------------------------------
Explosives 8.5
-------------------------------------------- -----------------------------------
Tyres 5.7
-------------------------------------------- -----------------------------------
Steel balls for milling (0.1)
-------------------------------------------- -----------------------------------
Weighted average of all operating materials 9.4
-------------------------------------------- -----------------------------------
Unit prices of the majority of key operating materials
significantly increased in US dollar terms primarily reflecting
global inflationary pressures and supply disruptions. As a result,
the weighted average unit prices of all operating materials over
the half increased by 9.4%.
Contractors
Agreements are signed individually with each contractor company
and include specific terms and conditions that cover not only
labour, but also operating materials, equipment and maintenance,
amongst others. Contractor costs are mainly denominated in Mexican
pesos and are an important component of our total production costs.
In 1H23, increases per unit (i.e. per metre developed/ per tonne
hauled) granted to contractors, resulted in a weighted average
increase of 13.2% in US dollars, after considering the revaluation
of the Mexican peso vs. US dollar.
Maintenance
Unit prices of spare parts for maintenance increased by 10.3% on
average in US dollar terms.
Other costs
Other cost components include freight which increased by an
estimated 23.4% in US dollars, while insurance costs increased by
12.0% in US dollars mainly due to higher market premiums. The
remaining cost inflation components experienced average inflation
of 10.2% in US dollars over 1H22.
The effects of the above external factors, combined with the
Group's internal variables, are further described below through the
main line items of the income statement.
REVENUE
CONSOLIDATED REVENUE (1)
1H 2022 1H 2022 Amount
US$ million US$ million US$ million Change %
------------------------------- ------------ ------------ ------------ --------
Adjusted revenue ([11]) 1,430.8 1,349.0 81.8 6.1
------------------------------- ------------ ------------ ------------ --------
Metals prices hedging 0.0 (3.8) 3.8 N/A
------------------------------- ------------ ------------ ------------ --------
Treatment and refining charges (87.4) (86.2) (1.2) 1.4
------------------------------- ------------ ------------ ------------ --------
Total revenue 1,343.3 1,259.1 84.2 6.7
------------------------------- ------------ ------------ ------------ --------
Adjusted revenue increased by US$81.8 million mainly due to the
increased volumes of gold and silver sold at higher prices, partly
offset by the lower zinc price. Total revenue increased by 6.7% to
US$1,343.3 million in 1H23.
ADJUSTED REVENUE [12] BY METAL
1H 2023 1H 2022
----------------- -----------------
Price Total net
Volume Variance Variance change
US$ million % US$ million % US$ million US$ million US$ million %
----------------------- ----------- ---- ----------- ---- --------------- ------------ ------------ ----
Gold 625.0 43.7 555.9 41.2 45.1 24.1 69.1 12.4
----------------------- ----------- ---- ----------- ---- --------------- ------------ ------------ ----
Silver 632.4 44.2 576.8 42.8 41.2 14.5 55.7 9.6
----------------------- ----------- ---- ----------- ---- --------------- ------------ ------------ ----
Lead 55.1 3.9 54.2 4.0 3.5 (2.6) 0.9 1.7
----------------------- ----------- ---- ----------- ---- --------------- ------------ ------------ ----
Zinc 118.2 8.3 162.2 12.0 4.8 (48.7) (44.0) 27.1
----------------------- ----------- ---- ----------- ---- --------------- ------------ ------------ ----
Total adjusted revenue 1,430.8 100 1,349.0 100 94.5 (12.8) 81.7 6.1
----------------------- ----------- ---- ----------- ---- --------------- ------------ ------------ ----
The higher gold volumes sold were primarily due to the increased
volume of ore processed and higher ore grade at Herradura and
Saucito. The increase in volumes of silver sold was primarily
driven by the ramp up of production at Juanicipio (for further
detail, see 1H23 Operational Review).
Changes in the contribution by metal were the result of the
relative changes in metal prices and volumes produced. Gold
increased its contribution to total adjusted revenues from 41.2% in
1H22 to 43.7% in 1H23, while silver increased its contribution from
42.8% in 1H22 to 44.2% in 1H23. Zinc decreased its contribution
from 12.0% in 1H22 to 8.3% in 1H23, reflecting the adverse effect
of the lower price. Lead's contribution to total adjusted revenues
remained flat period-on-period.
ADJUSTED REVENUE [13] BY Mine
The contribution by metal and by mine to Adjusted revenues is
expected to change further in the future, as new projects are
incorporated into the Group's operations and as precious metals
prices fluctuate.
1H 2023 1H 2022
------------------- -------------------
(US$ million) % (US$ million) %
------------------------ ------------- ---- ------------- ----
Herradura 379.7 26.5 302.9 22.4
------------------------ ------------- ---- ------------- ----
Saucito 252.7 17.7 250.8 18.6
------------------------ ------------- ---- ------------- ----
Fresnillo 243.4 17.0 243.6 18.1
------------------------ ------------- ---- ------------- ----
Juanicipio 215.5 15.1 140.1 10.4
------------------------ ------------- ---- ------------- ----
San Julián (DOB) 114.1 8.0 148.0 11.0
------------------------ ------------- ---- ------------- ----
San Julián (Veins) 96.0 6.7 78.8 5.8
------------------------ ------------- ---- ------------- ----
Ciénega 80.6 5.6 98.6 7.3
------------------------ ------------- ---- ------------- ----
Noche Buena 48.8 3.4 86.4 6.4
------------------------ ------------- ---- ------------- ----
Total 1,430.8 100 1,349.0 100
------------------------ ------------- ---- ------------- ----
VOLUMES OF METAL SOLD
% contribution % contribution
1H 2023 of each mine 1H 2022 of each mine % change
------------------------- ------- -------------- ------- -------------- --------
Silver (koz)
------------------------- ------- -------------- ------- -------------- --------
Juanicipio 6,879 25.4% 4,494 19.1% 53.1
------------------------- ------- -------------- ------- -------------- --------
Fresnillo 6,042 22.3% 5,943 25.4% 1.7
------------------------- ------- -------------- ------- -------------- --------
Saucito 5,099 18.8% 5,138 21.9% (0.8)
------------------------- ------- -------------- ------- -------------- --------
San Julián (DOB) 3,776 14.0% 4,759 20.3% (20.7)
------------------------- ------- -------------- ------- -------------- --------
San Julián (Veins) 2,415 8.9% 1,878 8.0% 28.6
------------------------- ------- -------------- ------- -------------- --------
Ciénega 1,797 6.6% 2,311 9.8% (22.2)
------------------------- ------- -------------- ------- -------------- --------
Pyrites Plant at Saucito 698 2.6% 423 1.8% 65.0
------------------------- ------- -------------- ------- -------------- --------
Herradura 350 1.3% 389 1.7% (10.0)
------------------------- ------- -------------- ------- -------------- --------
Noche Buena 3 0.0% 5 0.0% (40.0)
------------------------- ------- -------------- ------- -------------- --------
Total silver (koz) 27,059 25,340 6.8
------------------------- ------- -------------- ------- -------------- --------
Gold (oz)
------------------------- ------- -------------- ------- -------------- --------
Herradura 191,073 59.4% 162,404 54.7% 17.7
------------------------- ------- -------------- ------- -------------- --------
Saucito 36,083 11.2% 29,360 9.9% 22.9
------------------------- ------- -------------- ------- -------------- --------
Noche Buena 24,742 7.7% 40,671 13.7% (39.2)
------------------------- ------- -------------- ------- -------------- --------
San Julián (Veins) 20,183 6.3% 18,980 6.4% 6.3
------------------------- ------- -------------- ------- -------------- --------
Ciénega 16,187 5.0% 17,875 6.0% (9.4)
------------------------- ------- -------------- ------- -------------- --------
Fresnillo 15,918 5.0% 15,235 5.1% 4.5
------------------------- ------- -------------- ------- -------------- --------
Juanicipio 14,791 4.6% 10,464 3.5% 41.4
------------------------- ------- -------------- ------- -------------- --------
Pyrites Plant at Saucito 1,595 0.5% 1,264 0.4% 26.2
------------------------- ------- -------------- ------- -------------- --------
San Julián (DOB) 893 0.3% 740 0.3% 20.7
------------------------- ------- -------------- ------- -------------- --------
Total gold (oz) 321,465 296,993 8.2
------------------------- ------- -------------- ------- -------------- --------
Lead (t)
------------------------- ------- -------------- ------- -------------- --------
Fresnillo 9,829 36.9% 9,358 37.4% 5.0
------------------------- ------- -------------- ------- -------------- --------
Saucito 7,443 27.9% 8,382 33.5% (11.2)
------------------------- ------- -------------- ------- -------------- --------
Juanicipio 4,379 16.4% 2,082 8.3% 110.3
------------------------- ------- -------------- ------- -------------- --------
San Julián (DOB) 3,626 13.6% 3,642 14.6% (0.4)
------------------------- ------- -------------- ------- -------------- --------
Ciénega 1,392 5.2% 1,556 6.2% (10.5)
------------------------- ------- -------------- ------- -------------- --------
Total lead (t) 26,669 25,020 6.6
------------------------- ------- -------------- ------- -------------- --------
Zinc (t)
------------------------- ------- -------------- ------- -------------- --------
Fresnillo 18,753 42.8% 16,063 38.0% 16.7
------------------------- ------- -------------- ------- -------------- --------
Saucito 10,726 24.5% 12,798 30.2% (16.2)
------------------------- ------- -------------- ------- -------------- --------
San Julián (DOB) 6,371 14.6% 8,241 19.5% (22.7)
------------------------- ------- -------------- ------- -------------- --------
Juanicipio 6,291 14.4% 3,047 7.2% 106.5
------------------------- ------- -------------- ------- -------------- --------
Ciénega 1,636 3.7% 2,170 5.1% (24.6)
------------------------- ------- -------------- ------- -------------- --------
Total zinc (t) 43,777 42,318 3.4
------------------------- ------- -------------- ------- -------------- --------
TREATMENT AND REFINING CHARGES
Similar to previous years, the 2023 treatment and refining
charges ([14]) (TRCs) per tonne and per ounce are currently being
negotiated with Met-Mex (Peñoles' smelter and refinery) in
accordance with international benchmarks and will apply
retrospectively from January 2023. We expect these negotiations to
conclude by October 2023.
The increased volumes of lead and zinc concentrates shipped from
our mines to Met-Mex resulted in a 1.4% increase in treatment and
refining charges set out in the income statement in absolute terms
when compared to 1H22.
COST OF SALES
1H 2023 1H 2022 Amount
US$ million US$ million US$ million Change %
--------------------------------- ------------ ------------ ------------ --------
Adjusted production costs ([15]) 773.9 659.3 114.6 17.4
--------------------------------- ------------ ------------ ------------ --------
Depreciation 236.3 233.7 2.6 1.1
--------------------------------- ------------ ------------ ------------ --------
Profit sharing 2.9 5.6 (2.8) (49.2)
--------------------------------- ------------ ------------ ------------ --------
Hedging (0.1) 0.0 (0.1) 100.0
--------------------------------- ------------ ------------ ------------ --------
Change in inventories 26.3 (6.0) 32.3 N/A
--------------------------------- ------------ ------------ ------------ --------
Unproductive costs ([16]) 21.5 0.5 21.0 >100
--------------------------------- ------------ ------------ ------------ --------
Cost of sales 1,060.6 893.2 167.4 18.7
--------------------------------- ------------ ------------ ------------ --------
Cost of sales increased 18.7% to US$1,060.6 million in 1H23. The
US$167.4 million increase is explained by the following combination
of factors:
-- An increase in Adjusted production costs (US$114.6 million).
This was primarily due to: i) the adverse effect of the 10.2%
average revaluation of Mexican peso vs. the US dollar (US$45.0
million); ii) underlying cost inflation excluding the revaluation
of the Mexican peso vs. US dollar (US$41.6 million) - these two
factors combined resulted in a cost inflation in US dollars of
13.4%, which increased adjusted production cost by US$86.6 million;
iii) costs from the start-up of the beneficiation plant and mine
ramp up at Juanicipio (US$19.6 million); iv) higher stripping to
cost at Herradura (US$19.5 million); v) increased maintenance,
contractors, operating materials and diesel consumption due to
longer haulage distances, deeper mines and increased development
works (US$16.7 million); and vi) higher volume of ore processed
(US$5.4 million). These adverse effects were mitigated by: i) a
decrease in mining costs as depositing activities stopped at Noche
Buena as part of the mine closure process which started in May
(-US$19.8 million); and ii) the reclassification of fixed costs
incurred at Herradura and Noche Buena during the 14 days illegal
stoppage to unproductive costs (-US$13.5 million).
-- The variation in the change in inventories had a negative
effect of US$32.3 million versus 1H22 primarily due to a decrease
in inventories at Juanicipio as a result of the start up of the
beneficiation plant in 2Q23, and at Noche Buena as it approached
the end of its mine life. This was partly mitigated by the gold
inventory uplift at Herradura with an estimated positive effect of
US$21.6 million (see notes 2c and 5 to the financial
statements).
-- Unproductive costs of US$21.5 million (+US$21.0 million vs
1H22) mainly related to fixed costs incurred during the temporary
illegal stoppage at Herradura and Noche Buena.
-- Depreciation (+US$2.6 million). This is mainly due to the
depreciation of the additional asset base at Juanicipio, and to a
lesser extent, increased amortisation of capitalised mining works
at Fresnillo and Saucito, partly mitigated by the lower
depreciation at Noche Buena.
These negative effects were mitigated by the lower profit
sharing (-US$2.8 million).
COST PER TONNE, CASH COST PER OUNCE AND ALL-IN SUSTAINING COST
(AISC)
Cost per tonne is a key indicator to measure the effects of
changes in production costs and cost control performance at each
mine. This indicator is calculated as total production costs, plus
ordinary mining rights, less depreciation, profit sharing and
exchange rate hedging effects, divided by total tonnage processed.
We have included cost per tonne hauled/moved as we believe it is a
useful indicator to thoroughly analyse cost performance for the
open pit mines.
Cost per tonne 1H 2023 1H 2022 % change
---------------------------------------------- ------- ------- --------
Fresnillo US$/tonne milled 91.69 87.23 5.1
------------------------ -------------------- ------- ------- --------
Saucito US$/tonne milled 137.67 116.22 18.5
------------------------ -------------------- ------- ------- --------
San Julián (Veins) US$/tonne milled 107.32 89.12 20.4
------------------------ -------------------- ------- ------- --------
San Julián (DOB) US$/tonne milled 49.50 41.23 20.0
------------------------ -------------------- ------- ------- --------
Ciénega US$/tonne milled 141.45 105.80 33.7
------------------------ -------------------- ------- ------- --------
Herradura US$/tonne deposited 19.41 20.02 (3.0)
------------------------ -------------------- ------- ------- --------
Herradura US$/tonne hauled 4.86 5.04 (3.5)
------------------------ -------------------- ------- ------- --------
Noche Buena US$/tonne deposited 10.19 9.72 4.8
------------------------ -------------------- ------- ------- --------
Noche Buena US$/tonne hauled 3.04 3.21 (5.3)
------------------------ -------------------- ------- ------- --------
Fresnillo: Cost per tonne increased 5.1% to US$91.7 in 1H23,
driven by the underlying cost inflation and the adverse effect of
the revaluation of the Mexican peso vs. the US dollar. This was
mitigated by the decrease in development contractors and the higher
volume of ore milled.
Saucito: Cost per tonne increased 18.5% to US$137.7, mainly
driven by the adverse effect of the revaluation of the Mexican peso
vs. the US dollar underlying cost inflation and increased use of
operating materials and maintenance.
San Julián Veins: C ost per tonne increased 20.4% to US$107.3,
primarily driven by the underlying cost inflation, the adverse
effect of the revaluation of the Mexican peso vs. the US dollar, an
increase in the use of maintenance and personnel.
San Julián (DOB): Cost per tonne increased 20.0% to US$49.5,
mainly driven by the underlying cost inflation, the adverse effect
of the revaluation of the Mexican peso vs. the US dollar, and an
increase in the use of maintenance energy and personnel.
Ciénega: Cost per tonne increased 33.7% to US$141.5 mainly
driven by an increase in development and infrastructure
contractors, underlying cost inflation, the revaluation of the
Mexican peso vs. the US dollar and the lower volume of ore
milled.
Herradura: Cost per tonne of ore deposited decreased by 3.0% to
US$19.4 as the adverse effect of the revaluation of the Mexican
peso vs. the US dollar and underlying cost inflation was more than
offset by the favourable effect of the increase in volumes of ore
deposited at the leaching pads.
Noche Buena: Cost per tonne increased 4.8% to US$10.2 in 1H23,
primarily driven by the underlying cost inflation and the
revaluation of the Mexican peso vs. the US dollar.
Cash cost per ounce, calculated as total cash cost (cost of
sales plus treatment and refining charges, less depreciation) less
revenue from by-products divided by the silver or gold ounces sold,
when compared to the corresponding metal price, is an indicator of
the ability of the mine to generate competitive profit margins.
Cash cost per ounce 1H 2023 1H 2022 % change
----------------------------------------------- -------- -------- --------
Fresnillo US$ per silver ounce 7.41 3.53 110.1
------------------------ --------------------- -------- -------- --------
Saucito US$ per silver ounce 6.84 2.52 171.0
------------------------ --------------------- -------- -------- --------
San Julián (Veins) US$ per silver ounce 7.10 5.41 31.4
------------------------ --------------------- -------- -------- --------
San Julián (DOB) US$ per silver ounce 10.23 4.45 129.9
------------------------ --------------------- -------- -------- --------
Ciénega US$ per gold ounce 1,455.39 84.00 1,632.6
------------------------ --------------------- -------- -------- --------
Herradura US$ per gold ounce 1,214.70 1,248.08 (2.7)
------------------------ --------------------- -------- -------- --------
Noche Buena US$ per gold ounce 1,573.75 1,098.34 43.3
------------------------ --------------------- -------- -------- --------
Fresnillo: Cash cost per silver ounce increased to US$7.4 (1H22:
US$3.5 per silver ounce) mainly due to the lower silver ore grade,
a decrease in zinc by-product credits per silver ounce due to the
lower price of zinc, and a higher cost per tonne.
Saucito: Cash cost per silver ounce increased to US$6.8 per
ounce (1H22: US$2.5 per silver ounce) as a result of a higher cost
per tonne and lower zinc by-product credits per silver ounce (lower
volumes of zinc sold at a lower price).
San Julián Veins: Cash cost per ounce of silver increased to
US$7.1 per ounce mainly due to the higher cost per tonne and lower
gold by-product credits per silver ounce, largely mitigated by a
higher silver ore grade.
San Julián (DOB): Cash cost per silver ounce increased to
US$10.2 per ounce of silver driven by the lower silver ore grade
(-19.2%), a higher cost per tonne and lower zinc by-product credits
per silver ounce (lower volumes of zinc .
Ciénega: The increase in cash cost per gold ounce to US$1,455.4
per ounce in 1H23 was primarily due to a higher cost per tonne and
a decrease in silver, zinc and lead by-product credits per gold
ounce.
Herradura: Cash cost per gold ounce decreased to US$1,214.7
mainly due to the higher gold ore grade, the uplift in gold
inventories at the leaching pads and a decrease in cost per
tonne.
Noche Buena: Cash cost per gold ounce decreased by 43.3% to
US$1,573.8 per ounce primarily driven by the decrease in gold ore
grade and the lower cost per tonne.
In addition to the traditional cash cost, the Group is reporting
All-In Sustaining Cost (AISC) in accordance with the guidelines
issued by the World Gold Council.
This cost metric is calculated as traditional cash cost plus
on-site general, corporate and administrative costs, community
costs related to current operations, capitalised stripping and
underground mine development, sustaining capital expenditures and
remediation expenses.
We consider AISC to be a reasonable indicator of a mine's
ability to generate free cash flow when compared with the
corresponding metal price. We also believe it is a means to monitor
not only current production costs, but also sustaining costs as it
includes mine development costs incurred to prepare the mine for
future production, as well as sustaining capex.
ALL-IN SUSTAINING COST (AISC)
AISC 1H 2023 1H 2022 % change
----------------------------------------------- -------- -------- --------
Fresnillo US$ per silver ounce 15.27 12.52 22.0
------------------------ --------------------- -------- -------- --------
Saucito US$ per silver ounce 18.40 14.20 29.5
------------------------ --------------------- -------- -------- --------
San Julián (Veins) US$ per silver ounce 22.24 16.39 35.7
------------------------ --------------------- -------- -------- --------
San Julián (DOB) US$ per silver ounce 12.53 6.40 95.8
------------------------ --------------------- -------- -------- --------
Ciénega US$ per gold ounce 3,072.87 1,302.58 135.9
------------------------ --------------------- -------- -------- --------
Herradura US$ per gold ounce 1,390.22 1,755.78 (20.8)
------------------------ --------------------- -------- -------- --------
Noche Buena US$ per gold ounce 1,564.17 1,154.23 35.5
------------------------ --------------------- -------- -------- --------
Fresnillo: All-in sustaining cost increased 22.0% over 1H22
primarily due to a higher cash cost, mitigated by lower sustaining
capex and a decrease in capitalised mine development per ounce.
Saucito: All-in sustaining cost increased to US$18.4 per ounce
due to higher cash cost, partially offset by a lower sustaining
capex.
San Julián Veins: All-in sustaining cost increased to US$22.2
per ounce due to a higher cash cost, increased sustaining capex,
and higher capitalised mine development per ounce.
San Julián DOB: All-in sustaining cost increased to US$12.5 per
ounce driven by the increase in cash cost, partly mitigated by the
lower sustaining capex.
Ciénega: The increase in all-in sustaining cost was primarily
driven by the higher cash cost and increased mine development.
Herradura: All-in sustaining cost decreased by 20.8% mainly due
to the lower cash cost and a decrease in capitalised stripping.
Noche Buena: The 35.5% increase in all-in sustaining cost was
the result of the higher cash cost.
GROSS PROFIT
Gross profit, excluding hedging gains and losses, is a key
financial indicator of profitability at each business unit and the
Fresnillo Group as a whole.
Total gross profit, including hedging gains and losses,
decreased by 22.7% from US$365.9 million in 1H22 to US$282.7
million in 1H23.
The US$83.2 million decrease in gross profit was mainly
explained by: i) the variation in change of inventories (-US$54.2
million); ii) the lower zinc and lead prices (-US$51.3 million);
iii) the MXP/USD revaluation effect (-$45.0 million); iv)
underlying cost inflation (-$41.6 million); v) increase in
unproductive costs primarily from the illegal stoppage at Herradura
and Noche Buena (-US$21.0 million); vi) higher stripping to cost at
Herradura (-US$19.5 million); and vii) others (-US$12.8
million).These negative effects were mitigated by: i) the start up
of the beneficiation plant and ramp up of the Juanicipio mine
(US$59.2 million); ii) a higher volume of ore extracted (US$42.6
million); iii) higher gold and silver prices (US$38.5 million); and
iv) the positive effect of the gold inventory uplift at Herradura
(US$21.8 million).
CONTRIBUTION BY MINE TO CONSOLIDATED GROSS PROFIT, EXCLUDING
HEDGING GAINS AND LOSSES
1H 2023 1H 2022 Change
------------------ ------------------ --------------------
US$ million % US$ million % US$ million%
------------------------------------- ----------- ----- ----------- ----- ----------- ------
Herradura 86.8 31.9 65.3 17.7 21.5 32.9
------------------------------------- ----------- ----- ----------- ----- ----------- -------
Juanicipio 79.0 29.0 82.9 22.5 (3.9) (4.7)
------------------------------------- ----------- ----- ----------- ----- ----------- -------
Fresnillo 45.1 16.6 69.3 18.8 (24.2) (34.9)
------------------------------------- ----------- ----- ----------- ----- ----------- -------
Saucito 39.8 14.6 62.8 17.1 (23.0) (36.6)
------------------------------------- ----------- ----- ----------- ----- ----------- -------
San Julián 36.4 13.4 60.2 16.3 (23.8) (39.5)
------------------------------------- ----------- ----- ----------- ----- ----------- -------
Noche Buena 3.0 1.1 20.9 5.7 (17.9) (85.6)
------------------------------------- ----------- ----- ----------- ----- ----------- -------
Ciénega (17.9) (6.6) 6.8 1.9 (24.7) (363.2)
------------------------------------- ----------- ----- ----------- ----- ----------- -------
Total for operating mines 272.2 100.0 368.2 100.0 (96.0) (26.1)
------------------------------------- ----------- ----- ----------- ----- ----------- -------
Metal hedging and other subsidiaries 10.5 (2.3) 12.8 N/A
------------------------------------- ----------- ----- ----------- ----- ----------- -------
Total Fresnillo plc 282.7 365.9 (83.2) (22.7)
------------------------------------- ----------- ----- ----------- ----- ----------- -------
ADMINISTRATIVE AND CORPORATE EXPENSES
Administrative and corporate expenses increased 11.6% from
US$49.1 million in 1H22 to US$54.8 million in 1H23, mainly due to
the negative effect of the revaluation of the Mexican peso against
the US dollar in administrative expenses denominated in pesos, and
an increase in fees paid to advisors (legal, labour, tax and
technical). An increase in non-recurring engineering and
construction services provided by Servicios Industriales Peñoles,
S.A.B de C.V., together with an adjustment to reflect the higher
costs of services provided, also contributed to the increase in
administrative expenses
EXPLORATION EXPENSES
Business unit/project (US$ Exploration expenses 1H Exploration Capitalised expenses 1H Capitalised
million) 2023 expenses 1H 2022 2023 expenses 1H 2022
-------------------------- ------------------------- ----------------- ------------------------- -----------------
Ciénega 4.2 3.4 - -
-------------------------- ------------------------- ----------------- ------------------------- -----------------
Fresnillo 10.1 6.1 - -
-------------------------- ------------------------- ----------------- ------------------------- -----------------
Herradura 2.8 2.4 - -
-------------------------- ------------------------- ----------------- ------------------------- -----------------
Saucito 6.4 6.1 - -
-------------------------- ------------------------- ----------------- ------------------------- -----------------
Noche Buena 0.7 0.4 - -
-------------------------- ------------------------- ----------------- ------------------------- -----------------
San Julián 10.6 11.3 - -
-------------------------- ------------------------- ----------------- ------------------------- -----------------
Orisyvo 2.1 2.2 - 0.6
-------------------------- ------------------------- ----------------- ------------------------- -----------------
Centauro Deep 0.3 0.2 - -
-------------------------- ------------------------- ----------------- ------------------------- -----------------
Guanajuato 9.2 4.0 - 1.3
-------------------------- ------------------------- ----------------- ------------------------- -----------------
Juanicipio 3.9 5.6 - -
-------------------------- ------------------------- ----------------- ------------------------- -----------------
Others 46.6 36.0 0.4 0.4
-------------------------- ------------------------- ----------------- ------------------------- -----------------
Total 96.9 77.7 0.4 2.2
-------------------------- ------------------------- ----------------- ------------------------- -----------------
Exploration expenses increased by 24.7% from US$77.7 million in
1H22 to US$96.9 million in 1H23, in line with our strategy to focus
exploration on specific targets, mainly at our Fresnillo and San
Julián districts and Guanajuato. The increase of US$19.2 million
seen period-on-period was due to our intensified exploration
activities aimed at increasing the resource base, converting
resources into reserves and improving the confidence of the grade
distribution in reserves. In addition, US$0.4 million was
capitalised in 1H23, compared to US$2.2 million in 1H23. As a
result, risk capital invested in exploration increased 19.0%, from
US$79.9 million in 1H22 to US$97.3 million in 1H23. The full year
guidance of US$175 million remains unchanged.
EBITDA
1H 2023 1H 2022 Amount
US$ million US$ million US$ million Change %
---------------------------------------------------- ------------ ------------ ------------ --------
Profit from continuing operations before income tax 47.9 155.2 (107.3) (69.1)
---------------------------------------------------- ------------ ------------ ------------ --------
- Finance income (26.5) (7.0) (19.5) 278.6
---------------------------------------------------- ------------ ------------ ------------ --------
+ Finance costs 46.0 34.9 11.1 31.8
---------------------------------------------------- ------------ ------------ ------------ --------
+ Revaluation effects of Silverstream contract 17.0 36.3 (19.3) (53.2)
---------------------------------------------------- ------------ ------------ ------------ --------
- Foreign exchange gain (loss), net (3.2) (1.2) (2.0) 166.7
---------------------------------------------------- ------------ ------------ ------------ --------
- Other operating income (1.9) (2.2) 0.3 (13.6)
---------------------------------------------------- ------------ ------------ ------------ --------
+ Other operating expense 35.4 9.4 26.0 276.6
---------------------------------------------------- ------------ ------------ ------------ --------
+ Depreciation 236.3 233.7 2.6 1.1
---------------------------------------------------- ------------ ------------ ------------ --------
EBITDA 351.0 459.1 (108.1) (23.5)
---------------------------------------------------- ------------ ------------ ------------ --------
EBITDA margin 26.1% 36.5%
---------------------------------------------------- ------------ ------------ ------------ --------
EBITDA is a gauge of the Group's financial performance and a key
indicator to measure debt capacity. It is calculated as profit for
the year from continuing operations before income tax, less finance
income, plus finance costs, less foreign exchange gain / (loss),
plus the net Silverstream effects and other operating income plus
other operating expenses and depreciation. In 1H23, EBITDA
decreased 23.5% to US$351.0 million primarily driven by the lower
gross profit and, to a lesser extent, a higher exploration expense.
As a result, EBITDA margin expressed as a percentage of revenue
decreased, from 36.5% in 1H22 to 26.1% in 1H23.
OTHER OPERATING INCOME AND EXPENSE
In 1H23, a net loss of US$33.5 million was recognised in the
income statement mainly due to identification of certain suspected
illegal extraction of an estimated 20,000 ounces of gold from the
Soledad-Dipolos leaching pads, which resulted in a write off of
US$21.9 million of gold contents in inventory. Maintenance costs of
closed mines also contributed to the net loss in other expenses.
This compares unfavourably to the net loss of US$7.2 million
recognised in the income statement in 1H22, mainly as a result of
maintenance costs of closed mines.
SILVERSTREAM EFFECTS
The Silverstream contract is accounted for as a derivative
financial instrument carried at fair value. The net Silverstream
effect recorded in the 1H23 income statement was a loss of US$17.0
million (US$23.3 million amortisation profit and -US$40.3 million
revaluation loss), which compared favourably to the net loss of
US$36.3 million registered in 1H22. The negative revaluation was
mainly driven by the decrease in the forward silver price curve and
an updated mine plan, which considers a decrease in silver reserves
at the Sabinas mine.
Since the IPO, cumulative cash received has been US$789.9
million vs. US$350 million initially paid. The Group expects that
further unrealised gains or losses related to the valuation of the
Silverstream will be taken to the income statement in accordance
with silver price cyclicality or changes in the variables
considered in valuing this contract. Further information related to
the Silverstream contract is provided in the balance sheet section
in notes 10 and 18 to the consolidated financial statements.
NET FINANCE COSTS
Net finance costs decreased -30.1% to US$19.5 million in 1H23,
primarily due to the favourable effect of the higher interest
gained on short term deposits and investments. Financial expenses
in 1H23 included mainly: i) interest paid on the outstanding
US$317.9 million Senior Notes due 2023, and ii) interest paid on
the 4.250% Senior Notes due 2050.
FOREIGN EXCHANGE
A foreign exchange gain of US$3.2 million was recorded over the
period. This was higher than the US$1.2 million gain registered in
1H22.
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). As of 30 June
2023, the total EUR outstanding net forward position was EUR 5.04
million with maturity dates through December 2023. Volumes that
expired during the first half of 2023 were EUR 7.22 million with a
weighted average strike of 1.0635 USD/EUR, which have generated a
marginal result in the period of US$0.124 million.
TAXATION
Tax income for the period was US$19.5 million, which compared
favourably to the US$6.8 million tax expense in 1H22. The effective
tax rate, excluding the special mining rights, was -40.7%, which
was substantially below the 30% statutory tax rate. The reasons for
the unusual positive effective tax rate were the significant
permanent differences between the tax and the accounting treatment
related mainly to: i) the effect of the 11.8% revaluation of the
Mexican peso/US dollar spot exchange rate in 1H23 on the tax value
of assets and liabilities; and ii) the inflation rate (Mexican
Consumer Price Index), which impacted the inflationary uplift of
the tax base for assets and liabilities.
The effective tax rate, excluding the special mining rights, was
4.4% in 1H22.
Mining rights income for the first half of the period was
US$22.3 million compared to US$7.4 million charged in 1H22. The
reasons for the positive tax rate in mining rights were the same as
the ones affecting income tax.
PROFIT FOR THE PERIOD
Profit for the period decreased from US$141.0 million in 1H22 to
US$89.7 million in 1H23, a 36.4% decrease period-on-period as a
result of the factors described above. Profit due to
non-controlling interests was US$25.0 million reflecting the profit
generated at Juanicipio, where MAG Silver owns 44% of the
outstanding shares. Accordingly, profit attributable to equity
shareholders of the Group was US$64.7 million, a 44.9% decrease
half-on-half.
Excluding the effects of the Silverstream contract, profit for
the year decreased from US$166.3 million to US$101.6 million, a
38.9% decrease.
CASH FLOW
A summary of the key items from the cash flow statement is set
out below:
1H 2023 1H 2022 Amount
US$ million US$ million US$ million Change %
------------------------------------------------------------------ ------------ ------------ ------------ --------
Cash generated by operations before changes in working capital 322.9 459.5 (136.6) (29.7)
------------------------------------------------------------------ ------------ ------------ ------------ --------
Decrease in working capital 75.4 76.8 (1.4) (1.8)
------------------------------------------------------------------ ------------ ------------ ------------ --------
Taxes and employee profit sharing paid (192.8) (141.2) (51.7) 36.6
------------------------------------------------------------------ ------------ ------------ ------------ --------
Net cash from operating activities 205.5 395.1 (189.6) (48.0)
------------------------------------------------------------------ ------------ ------------ ------------ --------
Silverstream contract 20.2 18.3 1.9 10.4
------------------------------------------------------------------ ------------ ------------ ------------ --------
Capital contributions and loans by minority shareholders 25.0 10.1 14.9 147.4
------------------------------------------------------------------ ------------ ------------ ------------ --------
Purchase of property, plant and equipment (227.8) (299.0) 71.3 (23.8)
------------------------------------------------------------------ ------------ ------------ ------------ --------
Dividends paid to shareholders of the Company (98.0) (176.9) 78.8 (44.6)
------------------------------------------------------------------ ------------ ------------ ------------ --------
Financial expenses and foreign exchange effects 1.5 (29.0) 30.5 N/A
------------------------------------------------------------------ ------------ ------------ ------------ --------
Net (decrease)/increase in cash during the period after foreign
exchange differences (79.4) (83.4) 4.0 (4.8)
------------------------------------------------------------------ ------------ ------------ ------------ --------
Cash and other liquid funds at 30 June 889.7 1,151.9 (262.2) (22.8)
------------------------------------------------------------------ ------------ ------------ ------------ --------
Cash generated by operations before changes in working capital
decreased by 29.7% to US$322.9 million, mainly as a result of the
lower profits generated in the year. Working capital decreased
US$75.4 million, mainly due to: i) a US$43.7 million decrease in
inventories; ii) a decrease in trade and other receivables of
US$22.8 million; iii) a US$9.2 million decrease in prepayments; and
iv) a US$0.3 million increase in accounts payable.
Taxes and employee profit sharing paid increased 36.6% over 1H22
to US$192.8 million mainly due to: i) the provisional tax payments
paid in 1H23; ii) the higher final income tax paid in 1H23, net of
provisional taxes paid (corresponding to the 2022 tax fiscal year);
iii) an increase in mining rights; and iv) profit sharing paid.
As a result of the above factors, net cash from operating
activities decreased 48.0% from US$395.1 million in 1H22 to
US$205.5 million in 1H23.
The Group received other sources of cash including; i) the
proceeds of the Silverstream contract of US$20.2 million and; ii)
notes payable by minority shareholders in subsidiaries and capital
contribution of US$25.0 million.
Main uses of funds were:
i) the purchase of property, plant and equipment for a total of
US$227.8 million, a 23.8% decrease over 1H22. Capital expenditures
for 1H23 are described below:
PURCHASE OF PROPERTY, PLANT AND EQUIPMENT
1H 2023
US$ million
------------------------------------------------ ------------ ----------------------------------------------------
Saucito mine 54.1 Mine development, purchase of in-mine equipment,
deepening of the Jarillas shaft and tailings
dam.
------------------------------------------------ ------------ ----------------------------------------------------
Fresnillo mine 43.5 Mine development and mining works, purchase of
in-mine equipment, deepening of the San Carlos
shaft and tailings dam.
------------------------------------------------ ------------ ----------------------------------------------------
Juanicipio project 41.3 Mine development and equipment
------------------------------------------------ ------------ ----------------------------------------------------
San Julián Veins and DOB 34.3 Mining works, tailings dam and purchase of in-mine
equipment.
------------------------------------------------ ------------ ----------------------------------------------------
Herradura mine 28.7 Stripping, carbon in column project and purchase of
mine equipment.
------------------------------------------------ ------------ ----------------------------------------------------
Ciénega mine 23.9 Mining works, purchase of in-mine equipment and
construction of tailings dam.
------------------------------------------------ ------------ ----------------------------------------------------
Other 2.0 Minera Bermejal.
------------------------------------------------ ------------ ----------------------------------------------------
Total purchase of property, plant and equipment 227.8
------------------------------------------------ ------------ ----------------------------------------------------
ii) Dividends paid to shareholders of the Group in 1H23 totalled
US$98.0 million, a 44.6% decrease over 1H22 as a result of the 2022
final dividend of 13.3 cents per share paid in May 2023, in line
with our dividend policy.
iii) Financial income and foreign exchange effects of US$1.5
million in 1H23. Financial expenses in 1H23 included: i) interest
paid on the outstanding US$317.9 million from the US$800 million
Senior Notes due 2023, and ii) interest paid on the 4.250% Senior
Notes due 2050. Interest received during the period totalled
US$27.0 million.
The sources and uses of funds described above resulted in a net
decrease in cash of US$79.4 million (net decrease in cash and other
liquid assets), which combined with the US$969.1 million balance at
the beginning of the year resulted in cash and other liquid assets
of US$889.7 million at the end of June 2023.
BALANCE SHEET
Fresnillo plc continued to maintain a solid financial position
during the period with cash and other liquid funds of US$889.7
million as of 30 June 2023, decreasing 8.2% versus 31 December 2022
and 22.8% versus 30 June 2022. Taking into account the cash and
other liquid funds of US$889.7 million and the US$1,158.9 million
outstanding Senior Notes, Fresnillo plc's net debt is US$269.2
million as at 30 June 2023. This compares to the net debt position
of US$198.7 million as at 31 December 2022. Considering these
variations, the balance sheet at 30 June 2023 remains strong, with
a net debt / EBITDA ratio of 0.42x ([17])
Inventories decreased 7.4% to US$543.6 million mainly driven by
the consumption of inventories at Juanicipio due to the start up of
the beneficiation plant, and at Noche Buena as it approached the
end of its mine life.
Trade and other receivables increased 9.0% to US$441.1 million
mainly as a result of income tax recoverable.
The change in the value of the Silverstream derivative from
US$511.5 million at the end of the 2022 to US$477.2 million as of
30 June 2023 reflects proceeds of US$17.3 million in the period
(US$11.8 million in cash and US$5.4 million in accounts
receivables) and the Silverstream revaluation effect in the income
statement of US$17.0 million.
The net book value of property, plant and equipment was
US$2,860.6 million at the end of June, broadly stable over 31
December 2022.
The Group's total equity was US$3,877.2 million as of 30 June
2023, a 1.0% decrease over 31 December 2022. This was mainly
explained by the decrease in retained earnings as a result of the
dividends paid during the period.
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 2022. 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;
details of its financial instruments and hedging activities; and
its exposures to credit risk and liquidity risk were set out in the
Annual Report 2022.
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 2024 (being the going concern assessment period). The
Directors have also considered the cash position at 30 June 2023
(US$889.7 million), as described in the financial review. In
addition, they reviewed a more conservative cash flow scenario with
reduced silver and gold prices of US$21.1 and US$1,734 respectively
throughout this period, whilst maintaining current budgeted
expenditure and only considering projects approved by the Executive
Committee. This resulted in our current cash and cash equivalents
balances reducing over time but maintaining sufficient liquidity
throughout the period.
The Directors have further calculated prices (US$18.3 and
US$1,481 for silver and gold respectively), which should they
prevail to the end of 2024 would result in cash balances decreasing
to minimal levels by the end of 2024, without applying
mitigations.
Should metal prices remain below the stressed prices above for
an extended period, management have identified specific elements of
capital and exploration expenditures which could be deferred
without adversely affecting production profiles throughout the
period. Finally, management could amend the mining plans to
concentrate on production with a higher margin in order 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 have sufficient
flexibility in 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 the annual financial statements.
DIVIDS
The Board of Directors has declared an interim dividend of 1.40
US cents per Ordinary Share totalling US$10.3 million, which will
be paid on 14 September 2023 to shareholders on the register on 11
August 2023. The dividend will be paid in UK pounds sterling unless
shareholders elect to be paid in US dollars. This interim dividend
is lower than the previous period due to the decrease in profit in
1H23, and remains in line with the Group's dividend policy. This
decision was made after a comprehensive review of the 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.
As previously disclosed, the corporate income tax reform
introduced in Mexico in 2014 created a withholding tax obligation
of 10% (including to foreign nationals). The 2023 interim dividend
will be subject to this withholding obligation.
MANAGING OUR RISKS AND OPPORTUNITIES WITH RESILIENCE
Taking risks responsibly is key to delivering our strategy in a
way that creates value for our investors, shareholders and
employees.
Effective risk management is an essential part of our culture
and strategy. The accurate and timely identification, assessment
and management of principal and emerging risks give us a clear
understanding of the actions required to achieve our objectives. We
have embedded a global risk management framework across Fresnillo
plc which aims to ensure consistency and the application of the
appropriate level of oversight at all times.
Key elements of integrated risk management:
-- We recognise that risks are inherent to our business: Only
through adequate risk management can internal stakeholders be
effectively supported in making key strategic decisions and
implementing our strategy.
-- Exposure to risks must be consistent with our risk appetite:
The Board defines and regularly reviews the acceptable level of
exposure to emerging and principal risks: Risks are aligned with
our risk appetite, taking into consideration the balance between
threats and opportunities.
-- We are all responsible for managing risks: Each business
activity carries out risk evaluations to ensure the sound
identification, management, monitoring and reporting of risks that
could impact the achievement of our goals.
-- Risk is analysed using a consistent framework: Our risk
management methodology is applied to all our operating, projects,
exploration activities and support areas, so that we have a
comprehensive view of the uncertainties that could affect us in
achieving our strategic goals.
-- We are committed to continuous improvement: Lessons learned,
and best practices are incorporated into our procedures to protect
and unlock value sustainably.
I. How we manage risk.
As we explained in our 2022 Annual Report, the Company ended
2022 having made good progress in risk management, including
implementing actions that mitigated our most important risks. In
parallel, the Enterprise Risk Management (ERM) team developed a
training programme focused on identifying and mitigating fraud,
security and business continuity risks, which was rolled out across
the business to raise awareness of our risk culture. During this
current year, we are continuing to enhance our risk framework by
increasing the use of metrics and scenarios to more precisely
articulate the risk appetite and tolerance limits within which we
wish to operate.
We maintain a risk register through a robust assessment of the
potential principal risks that could affect the Company's
performance. This register ensures that principal risks are
identified in a thorough and systematic way and that agreed
definitions of risk are used.
Defining risk appetite is key in embedding the risk management
system into our organisational culture. The Company's risk appetite
statement helps to align our strategy with the objectives of each
business unit, clarifying which risk levels are, or are not,
acceptable. It promotes consistent decision-making on risk, allied
to the strategic focus and risk/reward balance approved by the
Board.
During the first half of 2023, our risk team focused its efforts
on identifying and assessing emerging risks, safety and climate
change (ESG) risks according to the TCFD criteria. For the second
part of the year, we will be assessing fraud, compliance,
cybersecurity and community relations risks.
II. Assessment of Principal Risks for the first half of the year
2023.
Due to the effects caused by: a. Mexico's new mining law, b.
global post-pandemic impacts of COVID-19, c. Russia's invasion of
Ukraine, d. some increased insecurity in the regions surrounding
our mining operations, e. disruptions to supply chains of key
inputs and inflation leading to higher operating costs and f.
climate change consequences, it has been necessary to re-evaluate
the Principal Risks set out in the 2022 Annual Report, to rethink
their relative importance, probability and impact, and to re-assess
the corresponding mitigation actions.
The following is a description of the Principal Risks with the
greatest impact and likelihood of occurrence during the first half
of the year 2023:
Principal risks Risk description Factors contributing to risk Mitigation
actions
Potential Regulatory 1. With the
actions actions can * In May, the Mexican government approved a package of news of
by the have an adverse legal reforms to the following laws: "Mining Law", the new mining
government impact "Law on National Waters", "Law on Ecological Balance law,
(political, on the Company. and Environmental Protection" and "General Law for risk scenarios
legal These the prevention and integrated management of waste in were
and could include the field of mining and water concessions", which developed for
regulatory) stricter directly affect the mining sector, including, among each change
environmental others, the following notable aspects: and impact,
regulations, considering
forms of the legal and
procurement operational
or explosives, * Granting of new concessions. Elimination of the criteria to
more challenging concept of "free land" whereby the party requesting a implement
permit processes, concession in an area that is not occupied, has a the necessary
more right to request the concession on a "first come mitigation
onerous tax first served" basis. Now, all new concessions would and prevention
compliance be subject to a tender process (licitación) measures.
obligations for supervised by the Federal Government. These scenarios
us and are
our contractors, updated
as well quarterly.
as more frequent * Exploration activities. The Federal Government will
reviews be in charge of the exploration activities directed 2. Commitment
by tax by the public Mexican Geological Service institution. to constant
authorities. It is possible to sign an agreement between the communication
public institution and private entities to develop with all
The right of exploration activities for five years. The levels of
indigenous possibility of signing five-year agreements with the government.
communities to be Mexican Geological Survey is envisaged so that mining
consulted companies can participate in the exploration process. 3. Increased
regarding mining monitoring
concessions of the
could potentially processes being
affect * Duration of new concessions. New concessions would be implemented at
the granting of valid for 30 years rather than 50 years, renewable the Ministry
new concessions exclusively for two periods of 25 years. For the of Labour and
in Mexico. second term of 25 years, it will be open to a tender Economy.
process. It is not clear how this would affect
The federal concessions that are already in the process of 4. We remain
government renewal - although from a legal view, no retroactive alert to
aims to effect could be given to shorten the life of the changes
discourage the concessions granted before the time that the new proposed
generation of mining law comes into effect. by the
energy authorities,
based on clean including
sources energy and
and to encourage * Inclusion of free, prior and informed consultation mining tax
that with communities and indigenous peoples, along with initiatives,
from fuel oil and the payment of 5% of profits to the communities. so that we can
coal. respond
in a timely and
We paid special relevant
attention * New grounds for cancellation of concessions, such as manner.
to the following public utility, damage to the population, lack of
aspects: indigenous consultation, and new conducts that are 5. We continue
now considered crimes. to collaborate
--Government with other
actions members of
that negatively the mining
impact * The legal reform to the mining law during 2022 about community
the mining lithium could have negative consequences for gold and through the
industry. silver or any other mineral considered strategic Mexican
--Regulatory because its exploitation could be reserved to the Mining Chamber
changes State. to lobby
to mining rights against any new
and harmful
adverse fiscal taxes,
changes. * Labour reform that prohibits subcontracting, which royalties or
--Increase in the mainly generates complications in relationships with regulations. We
frequency contractors.. also
of the reviews by support
the industry
tax authorities lobbying
with * The implementation of policies that support the efforts to
special focus on emission of coal into the atmosphere and reduce the improve the
the development of renewable energies. general
mining industry. public's
--Inability to understanding
obtain of the mining
necessary water * New taxes and discrepancies in the criteria used in industry.
concessions audits carried out by the tax authority.
because of
government
control or
private * Increase in the frequency of the reviews by the tax
interests. authorities, as well as environmental, labour and
--Failures/delays civil protection authorities, with special focus on
in the mining industry.
obtaining the
required
environmental
permits. * The United States-Mexico-Canada Agreement (USMCA or
TMEC) with new labour dispositions.
------------------- ------------------------------------------------------------- ----------------
Security Our employees, 1. Our property
contractors * Increased presence of organised crime in the security
and suppliers vicinities of mining units, particularly in Fresnillo teams closely
face the , monitor the
risk of theft, Saucito, Juanicipio and Penmont. security situation,
kidnapping, maintaining
extortion or clear internal
damage due communications
to insecurity * A severe increase in the number of high impact crimes and coordinating
in some (homicide, kidnapping, extortion) in the regions work in
of the regions where our mining units are located. areas of greater
where we insecurity.
operate.
2. We have adopted
The influence * Consumption and sale of drugs at the mining units, the
and dispute particularly in Saucito. following practices
of territories to
by drug manage our security
cartels, other risks
criminal * Theft of assets in mining units and/or during and prevent and
elements and transfer. treat possible
general anarchy incidents:
in some of the
regions a. Close and
where we * Roadblocks or blockages on the roads and/or highways constant
operate, near the mining units. communication
combined with federal and
with our state
exploration security
activities authorities.
and projects in
certain b. Regular
areas of drug interactions
deposit, and meetings with
transfer or the National
cultivation, Guard.
makes working
in these 3. An increase in
areas a the number
particular risk of anti-doping
to us. tests at
the start of the
The Federal day in
Government the mining units.
created the
Secretariat 4. Frequent
of Citizen inspections
Security and inside the mines to
Protection as verify
part of that drugs are not
the consumed
comprehensive and sold.
strategy
to reduce 5. Drug consumption
insecurity. prevention
It also created campaigns, with a
the National focus
Guard, mostly on employees.
comprising
military 6. An increase in
personnel, with logistical
the aim of controls in order
combating to reduce
organised the potential for
crime and drug theft
cartels. of mineral
Unfortunately, concentrate.
state or These controls
local police in include
most states the use of
are unprepared real-time tracking
and technology;
ill-equipped surveillance
to combat cameras to identify
organised alterations
crime, in the transported
have low wages material;
and are protection and
sometimes support
infiltrated services on
by criminal distribution
elements. routes; reduction
in the
According to number of
information authorised stops
from the in order to
Secretariat of optimise delivery
Security and times and minimise
Citizen exposure
Protection, of trucks
the National transporting
Guard and ore concentrates or
the Attorney doré.
General's
Office of the
Republic,
the presence of
organised
crime and
high-impact
crimes
(homicide,
kidnapping
and extortion)
increased
in 2023, in the
states
where our
business units
and projects
are located,
such as
Zacatecas,
Guanajuato,
and Sonora.
The main risks
we face
are:
-High-impact
robberies.
-Theft of
assets such
as minerals,
equipment,
instruments,
inputs, etc.
-Consumption
and sale
of toxic
substances in
our mining
units.
-Homicide.
-Kidnappings.
-Extortions.
-Vandalism.
------------------- ----------------------------------------------------------------- --------------------
Global Metal price 1. Regarding
macroeconomic performance * The impact of the post pandemic COVID-19 and critical inputs
developments for both gold Russia-Ukraine war on supply chains has been global, for operations
(energy and supply and silver, prolonged, and comprised a series of major shocks to and projects,
chain disruptions, has not been companies' logistical systems. supplies have
inflation, affected been secured
productivity for the time for this year
and cost) being. Even through
the price of * Disruptions in the value chain of critical inputs for alliances
gold has our operations such as spare parts (primarily and agreements
reached delivered by land transport from the US and maritime with suppliers
record transport from China and Europe). and
levels. contractors.
We see this
risk as 2. We
stable * Disruptions also include reduced availability of constantly seek
with no maintenance teams/contractors to resolve issues, to
threat in the resulting in delays. maintain a
short term. broad supplier
base to ensure
On the other a range
hand, about * Increased operating costs due to higher prices for of options for
global critical inputs such as steel, cyanide, copper, the purchase
macroeconomic diesel, haulage equipment, oxygen and truck tyres. of critical
development, inputs and
during the reduce the
first half likelihood of
of 2023, we shortages.
saw increases
in operating 3. We focus on
costs and cost,
greater efficiency
inflationary and capital
pressures, discipline
together with to deliver a
a shortage competitive
of critical total cost of
inputs and operation
equipment. We and
expect this maintenance.
situation to
continue 4. We increase
during the cost
second part competitiveness
of the year by improving
and in 2024. the quality
of the supplier
This and contractor
condition portfolio.
could create
an adverse
impact on our
operations,
costs, sales
and profits,
and
potentially
on the
economic
viability
of projects.
-------------- ----------------------------------------------------------------- ------------------
Union Relations We run the risk 1. As a result
(labour relations) of an * In May 2023, operations at the Herradura mine, of this
outside union operated by the Company's wholly-owned subsidiary, minor conflict,
seeking Minera Penmont, S. de R.L. de C.V. ("Penmont"), we talks were
to destabilise re held with
the current temporarily suspended following an illegal work representatives
union. stoppage by a small group of unionised Penmont of the
personnel. dissident group
National union in order to
politics reach
could adversely * The work stoppage, which prevented other workers f agreements
affect rom so as not to
us, as could accessing the site, was neither approved by the un affect the
pressure ion Company's
from other mining nor supported by the vast majority of Herradura's operations.
unions unionised workers, with whom Penmont has a very
seeking to take constructive and long-term relationship. 2. There is a
over Fresnillo's lot of
labour contracts. communication
with the
Unionised staff representatives
may not of the union's
agree with the sections,
decisions in order to
or compensation address their
the Company concerns and
provides requests,
(managing and and today we
resolving have a very
conflicts; safe stable
and comfortable relationship
work conditions; without
promotions and any threats.
discipline;
wage 3. The
negotiations; Company's legal
work team is
and life balance; prepared to
recruitment handle
and retention and any legal
payment proceedings
of profits), and that
may be may arise in
dissatisfied with connection
the with profit
Company's sharing.
decisions, even
going as far as a
partial
operational
stoppage or
strike.
------------------ -------------------------------------------------------- ------------------
III. Our risk matrix.
A consistent assessment of the probability and impact of risk
occurrence is fundamental to establishing, prioritising and
managing the risk profile of the Company. In common with many
organisations and in line with good practice, we use a probability
and impact matrix for this purpose.
IV. Emerging Risks.
We define an emerging risk as a new manifestation of risk that
cannot yet be fully assessed, a risk that is known to some degree
but is not likely to materialise or have an impact for several
years, or a risk that the company is not aware of but that could,
due to emerging macro trends in the mid or long-term future, have
significant implications for the achievement of our strategic plan.
Furthermore, we consider emerging risks in the context of
longer-term impact and shorter-term risk velocity.
We have therefore defined emerging risks as those risks captured
on a risk register that: (I) are likely to be of significant scale
beyond a five-year timeframe; or (II) have the velocity to
significantly increase in severity within the five-year period. To
strengthen our emerging risks management framework, during 2023 we
carried out activities to: (I) identify new emerging risks; II)
re-assess emerging risks identified in 2021-22; (III) deploy
effective monitoring mechanisms; (IV) carry out horizon scanning to
consider disruptive scenarios, and; (V) implement mitigating
control actions and enhance our risk awareness culture. This
process involved workshops, surveys and meetings with the Executive
Committee, business unit leaders, support and corporate areas, as
well as suppliers, contractors and customers. We also consulted
third party information from global risk reports, academic
publications, risk consulting experts and industry benchmarks. Our
risk management standards promote communication of up-to-date
information on the Company and industry risks, trends and emerging
risks.
The emerging risk assessment conducted during the first half of
the year concluded that the risks we presented in the 2022 annual
report are current. The only relevant change we observed is the
increase in the risk of "Water stress and drought", as the
temperatures we have reached this spring and summer in the regions
of Sonora, Durango, Chihuahua and Zacatecas, where we have
operations and projects, have reached ranges that had not occurred
before, reaching temperatures of more than 50 degrees Celsius. The
same is the case with rain and storms.
Emerging Risk Description Impact Mitigations Actions Time Scale
1 Water stress Lack of sufficient Water is critical to Strict control and > 3
and drought water resources to mining monitoring Years
(Linked to climate meet the water processes. Without of water concessions
change principal consumption this is maintained and
risk) demand in a region natural resource, we actions
and strong heat waves cannot are envisaged to
in desert regions. extract gold and ensure
silver. water for the coming
years.
Water consumption
planning
was improved in order
to make better use of
the water leaving the
operating process.
------------------------- ------------------------ ------------------------ ------------------------ ----------
2 Geopolitical Current global Disruptions in the Inventory control in < 1
instability geopolitical supply the mining units to Years
(Linked to global tensions, such as the chain of critical plan purchases in a
macroeconomic war between Russia operating timely manner and
development principal and Ukraine, the inputs such as maintain
risk) problems cyanide, sufficient stock to
between Taiwan and ammonia, spare parts, guarantee operations.
China, as well as U.S. equipment parts, etc. Strict control of
and Chinese tariff and rising prices of operating
matters, may affect key costs to avoid
our operations and inputs such as steel, increases.
projects. diesel, cement, etc.
------------------------- ------------------------ ------------------------ ------------------------ ----------
3 Transition to The transition to a Key areas of We have introduced new > 5
a low-carbon low-carbon future is uncertainty sources of information Years
future a "transition risk" include future climate to help us identify
(Linked to climate according to the TCFD change regulation and the impacts of climate
change principal and presents policies, the change. These include
risk) challenges development industry reports and
and opportunities for of low-carbon guides, energy
our portfolio in the technology scenarios,
short and long term. solutions and the pace and Global Circulation
It is considered of transition across Models (GCM) under
within our several
the climate change value chains, in Representative
principal risk particular Concentration
mitigation the decarbonisation Pathways (RCP). We
strategy. However, pathways have
we consider this risk across the steel used a well-below
to be an emerging risk sector. two-degree
due to the speed of decarbonisation
potential new climate pathway
change regulations to evaluate the
and the obstacles that flexibility
government may place of the energy
in the way of strategy.
supporting
investment in clean
energy.
------------------------- ------------------------ ------------------------ ------------------------ ----------
4 Technological Failure to identify, Obsolete or outdated Technological advances > 5
disruption invest in, or adopt mining in the mining industry Years
(Linked to cybersecurity technological and processes impact are constantly
principal risk) operational productivity monitored
productivity and efficiency levels (particularly in mine
innovations and impact sales and operations) in order
that significantly profits. to adopt the most
replace or optimise appropriate
a process through new best practices and new
systems with technology.
recognisably Automated equipment
superior attributes. (tunneling jumbos)
operating
with artificial
intelligence
has been included in
some business units.
------------------------- ------------------------ ------------------------ ------------------------ ----------
5 Infectious diseases The regional or global Another virus such as Mine and project < 1
( pandemics) spread of a new SARS-CoV-2 coronavirus personnel Years
disease (COVID-19) may affect are continuously
(bacteria or virus) the health of monitored
against which most employees by the medical team
people do not have and stop the Company's and receive medical
immunity. activities. examinations to ensure
that there are no
outbreaks
of contagion.
------------------------- ------------------------ ------------------------ ------------------------ ----------
6 Increasing societal We continued to see The increasing focus We always respond to < 3
and investor increasing on investor and societal Years
expectations expectations ESG has the potential requests and comments
and focus on social to shape the future of and promote action
equality, fairness the mining industry, plans
and sustainability. supply to meet their
Financial institutions cost structures, expectations.
are also placing demand A number of
greater for global commodities initiatives
emphasis on and capital markets. demonstrate our
environmental, While progress.
social and governance this presents us with For example, we were
(ESG) considerations opportunities for placed first in the
when making investment portfolio Corporate Integrity
decisions. and product Ranking in Mexico.
differentiation,
it has the potential
to
impact how we operate.
------------------------- ------------------------ ------------------------ ------------------------ ----------
7 Replacement The inability to By not replacing ore There are very > 5
on depletion replace reserves interesting Years
of ore reserves depletion of ore with new discoveries, exploration projects
(Linked to exploration reserves the company's such as Orisyvo,
principal risk) in key business units production Rodeo,
through exploration, capacity and Guanajuato that could
projects or eventually replace the mineral
acquisitions. its operation would be reserves that are
diminished. currently
being exploited. There
are also several
exploration
camps that explore new
territories every day
in search of minerals
in Mexico, Peru and
Chile.
------------------------- ------------------------ ------------------------ ------------------------ ----------
8 Future of the Create a culture of A lack of talent in The Human Resources < 3
workforce talent under an some department has a Years
(Linked to human inclusive, areas of the mines and highly
resources principal empowered and projects such as specialized training
risk) confident planning, programme in the
culture and career maintenance, safety, strategic
path to generate a etc. areas of the
future-ready is expected. There is operation.
workforce. a need to develop It also has a training
personnel programme for
to fill these developing
positions personnel focused on
in the future. filling vacant
Otherwise, positions.
we will not have
people
prepared to operate
the
mines.
------------------------- ------------------------ ------------------------ ------------------------ ----------
Statement of directors' responsibilities
The Directors of the Company hereby confirm that to the best of
their knowledge:
-- the condensed set of financial statements has been prepared
in accordance with IAS 34 Interim Financial Reporting as issued by
the International Accounting Standards Board IASB and as adopted by
UK 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
-- the interim management report includes a fair review of the information required by
o 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
o 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).
As mentioned in the Annual Report 2022, the Directors of the
Company are:
Alejandro Baillères Chairman
Juan Bordes Non-executive director
Arturo Fernández Non-executive director
Fernando Ruiz Non-executive director
Eduardo Cepeda Non-executive director
Charlie Jacobs Senior Independent non-executive
director
Bárbara Garza Lagüera Independent non-executive director
Georgina Kessel Independent non-executive director
Dame Judith Macgregor Independent non-executive director
Alberto Tiburcio Independent non-executive director
Guadalupe de la Vega Independent non-executive director
Héctor Rangel Independent non-executive director
On behalf of the board of directors of Fresnillo plc
Octavio Alvídrez
Chief Executive Officer
INDEPENT REVIEW REPORT TO FRESNILLO PLC
Conclusion
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 2023 which comprises Interim Consolidated
Income Statement, Interim Consolidated Statement of Comprehensive
Income, Interim Consolidated Balance Sheet, Interim Consolidated
Statement of Cash Flows 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 condensed set
of financial statements.
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 2023 is not prepared, in all material respects, in accordance
with UK adopted International Accounting Standard 34 and the
Disclosure Guidance and Transparency Rules of the United Kingdom's
Financial Conduct Authority.
Basis for Conclusion
We conducted our review in accordance with International
Standard on Review Engagements 2410 (UK) "Review of Interim
Financial Information Performed by the Independent Auditor of the
Entity" issued by the Financial Reporting Council. 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
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.
As disclosed in note 2a, the annual financial statements of the
group are prepared in accordance with UK adopted international
accounting standards. The condensed set of financial statements
included in this half-yearly financial report has been prepared in
accordance with UK adopted International Accounting Standard 34,
"Interim Financial Reporting".
Conclusions Relating to Going Concern
Based on our review procedures, which are less extensive than
those performed in an audit as described in the Basis for
Conclusion section of this report, nothing has come to our
attention to suggest that management have inappropriately adopted
the going concern basis of accounting or that management have
identified material uncertainties relating to going concern that
are not appropriately disclosed.
This conclusion is based on the review procedures performed in
accordance with International Standard on Review Engagements 2410
(UK) "Review of Interim Financial Information Performed by the
Independent Auditor of the Entity" issued by the Financial
Reporting Council, however future events or conditions may cause
the entity to cease to continue as a going concern.
Responsibilities of the directors
The directors are responsible for preparing the half-yearly
financial report in accordance with the Disclosure Guidance and
Transparency Rules of the United Kingdom's Financial Conduct
Authority.
In preparing the half-yearly financial report, the directors are
responsible for assessing the company's ability to continue as a
going concern, disclosing, as applicable, matters related to going
concern and using the going concern basis of accounting unless the
directors either intend to liquidate the company or to cease
operations, or have no realistic alternative but to do so.
Auditor's Responsibilities for the review of the financial
information
In reviewing the half-yearly report, we are responsible for
expressing to the Company a conclusion on the condensed set of
financial statements in the half-yearly financial report. Our
conclusion, including our Conclusions Relating to Going Concern,
are based on procedures that are less extensive than audit
procedures, as described in the Basis for Conclusion paragraph of
this report.
Use of our report
This report is made solely to the Company in accordance with
guidance contained in International Standard on Review Engagements
2410 (UK) "Review of Interim Financial Information Performed by the
Independent Auditor of the Entity" issued by the Financial
Reporting Council. 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.
Ernst & Young LLP
London
1 August 2023
Interim Consolidated Income Statement
Notes For the six months ended 30 June
2023 (Unaudited) 2022 (Unaudited)
(in thousands of US dollars)
| Pre-Silverstream Silverstream Total Pre- Silverstream Total
revaluation revaluation Silverstream revaluation
effect effect revaluation effect
effect
Continuing
operations:
Revenues 4 1,343,333 1,343,333 1,259,062 1,259,062
Cost of sales 5 (1,060,647) (1,060,647) (893,203) (893,203)
Gross profit 282,686 282,686 365,859 365,859
Administrative
expenses (54,766) (54,766) (49,114) (49,114)
Exploration
expenses (96,862) (96,862) (77,699) (77,699)
Selling expenses (16,415) (16,415) (13,718) (13,718)
Other operating
income 1,916 1,916 2,220 2,220
Other operating
expenses 2 (c) (35,399) (35,399) (9,396) (9,396)
Profit from
continuing
operations
before
net finance
costs
and income tax 81,160 81,160 218,152 218,152
Finance income 6 26,473 26,473 7,008 7,008
Finance costs 6 (46,010) (46,010) (34,913) (34,913)
Revaluation
effects
of Silverstream
contract 10 (17,009) (17,009) (36,259) (36,259)
Foreign exchange
gain 3,241 3,241 1,238 1,238
Profit from
continuing
operations
before
income tax 64,864 (17,009) 47,855 191,485 (36,259) 155,226
Corporate income
tax 7 14,437 5,103 19,540 (17,714) 10,878 (6,836)
Special mining
right 7 22,325 22,325 (7,426) (7,426)
Income tax
(expense)/credit 7 36,762 5,103 41,865 (25,140) 10,878 (14,262)
Profit for the
period
from continuing
operations 101,626 (11,906) 89,720 166,345 (25,381) 140,964
Attributable to:
Equity
shareholders
of the Company 76,632 (11,906) 64,726 142,753 (25,381) 117,372
Non-controlling
interests 24,994 24,994 23,592 23,592
101,626 (11,906) 89,720 166,345 (25,381) 140,964
Earnings per
share:
(US$)
Basic and diluted
earnings per
ordinary
share from
continuing
operations 8 0.088 0.159
Adjusted earnings
per share: (US$)
Adjusted basic
and
diluted earnings
per ordinary
share
from continuing
operations 8 0.104 0.194
Interim Consolidated Statement of Comprehensive Income
For the six months ended
30 June
2023 2022
(Unaudited) (Unaudited)
(in thousands of US dollars)
Profit for the period 89,720 140,964
Other comprehensive income
Items that may be reclassified
subsequently to profit or loss:
Loss on cash flow hedges recycled
to income statement - 3,771
Changes in the fair value of cost
of hedges - 194
Total effect of cash flow hedges - 3,965
Foreign currency translation (3,078) 348
Income tax effect on items that
may be reclassified subsequently
to loss or profit - (1,189)
Net other comprehensive income/(loss)
that may be reclassified subsequently
to profit or loss (3,078) 3,124
Items that will not be reclassified
to profit or loss:
Changes in the fair value of cash
flow hedges 72 (1,532)
Total effect of cash flow hedges 72 (1,532)
Changes in the fair value of equity
investments at fair value through
other comprehensive income (FVOCI) (43,989) (38,076)
Income tax effect on items that
will not be reclassified to profit
or loss 13,175 11,883
Net other comprehensive loss
that will not be reclassified
to loss or profit (30,742) (27,725)
Other comprehensive loss, net
of tax (33,820) (24,601)
Total comprehensive income, net
of tax 55,900 116,363
Attributable to:
Equity shareholders of the Company 30,935 93,918
Non-controlling interests 24,965 22,445
55,900 116,363
Interim Consolidated Balance Sheet
Notes
As of 30 As of 31
June December
2023 2022
(Unaudited) (Audited)
(in thousands of US
dollars)
ASSETS
Non-current assets
Property, plant and equipment 9 2,860,551 2,862,564
Equity instruments at FVOCI 18 117,137 158,813
Silverstream contract 10,18 442,183 475,256
Deferred tax asset 7 528,666 343,688
Inventories 11 69,760 91,620
Other receivables 12 45,004 38,458
Other assets 4,100 3,700
4,067,401 3,974,099
Current assets
Inventories 11 473,887 495,744
Trade and other receivables 12 375,343 404,499
Income tax recoverable 65,718 -
Prepayments 24,827 34,429
Derivative financial instruments 18 208 231
Silverstream contract 10,18 34,992 36,218
Cash and cash equivalents 13 889,684 969,060
1,864,659 1,940,181
Total assets 5,932,060 5,914,280
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)
Hedging reserve 29 (91)
Fair value reserve of financial assets
at FVOCI 48,994 79,786
Foreign currency translation reserve (4,964) (1,886)
Retained earnings 2,579,189 2,612,469
3,618,701 3,685,731
Non-controlling interests 258,522 231,206
Total equity 3,877,223 3,916,937
Non-current liabilities
Interest-bearing loans 841,017 840,678
Notes payable 118,579 95,853
Lease liabilities 9,908 9,920
Provision for mine closure cost 276,650 242,380
Provision for pensions and other post-employment
benefit plans 10,814 9,462
Deferred tax liability 7 200,125 111,120
1,457,093 1,309,413
Current liabilities
Trade and other payables 249,479 258,867
Interest-bearing loans 317,879 317,879
Notes payable 9,644 9,109
Income tax payable 7,432 81,235
Derivative financial instruments 18 271 487
Lease liabilities 4,960 5,209
Provision for mine closure cost 4,827 4,827
Employee profit sharing 3,252 10,317
597,744 687,930
Total liabilities 2,054,837 1,997,343
Total equity and liabilities 5,932,060 5,914,280
Interim Consolidated Statement of Cash Flows
Notes For the six months
ended 30 June
2023 2022
(Unaudited) (Unaudited)
(in thousands of US
dollars)
Net cash from operating activities 17 205,497 395,143
Cash flows from investing activities
Purchase of property, plant and
equipment (227,752) (299,026)
Proceeds from the sale of property,
plant and equipment and other assets 422 660
Silverstream contract 10 20,187 18,257
Interest received 27,024 7,923
Purchase of equity instruments at (2,313) -
FVOCI
Net cash used in investing activities (182,432) (272,186)
Cash flows from financing activities
Proceeds from notes payable(1) 22,726 -
Payment of notes payable - (9,941)
Principal elements of lease payment 1 (3,878) (2,641)
Dividends paid to shareholders of
the Company(2) (98,033) (176,875)
Capital contribution(3) 2,309 10,120
Interest paid(4) (29,867) (27,448)
Net cash used in financing activities (106,743) (206,785)
Net increase in cash and cash equivalents
during the period (83,678) (83,828)
Effect of exchange rate on cash
and cash equivalents 4,302 440
Cash and cash equivalents at 1 January 13 969,060 1,235,282
Cash and cash equivalents at 30
June 13 889,684 1,151,894
(1) Corresponds to interest-bearing notes payable received from
Minera los Lagartos, S.A. de C.V. which holds a non-controlling
interest in Juanicipio project.
(2) Includes the effect of hedging of dividend payments made in
currencies other than US dollar (note 14).
(3) Corresponds to capital contributions provided by Minera los
Lagartos, S.A. de C.V.
(4) Total interest paid during the six months ended 30 June 2023
less amounts capitalised totalling US$2.0 million (30 June 2022:
US$4.3 million) which is included within the caption Purchase of
property, plant and equipment.
Interim Consolidated Statement of Changes in Equity
Fair
value
reserve
of Total
Cost financial Foreign attributable
of assets currency to shareholders
Share Share Capital Hedging hedging at translation Retained of the Non-controlling Total
Notes capital premium reserve Reserve reserve(1) FVOCI reserve earnings Company interests equity
(in thousands of US dollars)
Balance at 1
January
2022
(Audited) 368,546 1,153,817 (526,910) (2,042) (38) 83,784 (2,120) 2,543,087 3,618,124 184,548 3,802,672
Profit for the
period 117,372 117,372 23,592 140,964
Other
comprehensive
income, net
of tax - - - 2,813 38 (26,653) 348 - (23,454) (1,147) (24,601)
Total
comprehensive
income for
the period - - - 2,813 38 (26,653) 348 117,372 93,918 22,445 116,363
Hedging gain
transferred
to the
carrying
value
of PPE
purchased
during
the period - - - (1,879) - - - - (1,879) 776 (1,103)
Capital
contribution - - - - - - - - - 10,120 10,120
Dividends paid 14 - - - - - - - (176,854) (176,854) - (176,854)
Balance at 30
June
2022
(Unaudited) 368,546 1,153,817 (526,910) (1,108) - 57,131 (1,772) 2,483,605 3,533,309 217,889 3,751,198
Balance at 1
January
2023
(Audited) 368,546 1,153,817 (526,910) (91) - 79,786 (1,886) 2,612,469 3,685,731 231,206 3,916,937
Profit for the
period 64,726 64,726 24,994 89,720
Other
comprehensive
income, net
of tax - - - 79 - (30,792) (3,078) - (33,791) (29) (33,820)
Total
comprehensive
income for
the period 79 (30,792) (3,078) 64,726 30,935 24,965 55,900
Hedging gain
transferred
to the
carrying
value
of PPE
purchased
during
the period - - - 41 - - - - 41 42 83
Capital
contribution - - - - - - - - - 2,309 2,309
Dividends paid 14 - - - - - - - (98,006) (98,006) - (98,006)
Balance at 30
June
2023
(Unaudited) 368,546 1,153,817 (526,910) 29 - 48,994 (4,964) 2,579,189 3,618,701 258,522 3,877,223
Notes to the Interim Condensed Consolidated Financial
Statements
1 Corporate Information
Fresnillo plc ("the Company", together with its subsidiaries,
"the Group") is a public limited company registered in England and
Wales with the registered number 6344120.
Industrias Peñoles S.A.B. de C.V. ("Peñoles") currently owns 75
percent of the shares of the Company and the ultimate controlling
party of the Company is the Baillères family, whose beneficial
interest is held through Peñoles. The registered address of Peñoles
is Calzada Legaria 549, Mexico City 11250. Copies of Peñoles'
accounts can be obtained from www.penoles.com.mx. Further
information on related party balances and transactions with Peñoles
group companies is disclosed in Note 16.
The interim condensed consolidated financial statements of the
Group for the six months ended 30 June 2023 ("interim consolidated
financial statements") were authorised for issue by the Board of
Directors of Fresnillo plc on 1 August 2023.
The Group's principal business is the mining and beneficiation
of non-ferrous minerals, and the sale of related production. The
primary contents of this production are silver, gold, lead and
zinc. Further information about the Group's operating mines and its
principal activities is disclosed in Note 3.
2 Significant accounting policies
(a) Basis of preparation and statement of compliance
The interim consolidated financial statements of the Group for
the six months ended 30 June 2023 have been prepared in accordance
with IAS 34 Interim Financial Reporting as issued by the
International Accounting Standards Board IASB and as adopted by the
UK.
These interim consolidated financial statements do not
constitute statutory accounts as defined in section 435 of the
Companies Act 2006. A copy of the statutory accounts for the year
ended 31 December 2022 has been delivered to the Registrar of
Companies. The auditor's report in accordance with Chapter 3 of
Part 16 of the Companies Act 2006 in relation to those accounts was
unqualified, did not include a reference to any matters to which
the auditor drew attention by way of emphasis without qualifying
the report and did not contain a statement under section 498(2) or
section 498(3) of the UK Companies Act 2006.
The interim consolidated financial statements have been prepared
on a historical cost basis, except for trade receivables,
derivative financial instruments, equity securities and defined
benefit pension scheme assets which have been measured at fair
value.
The interim consolidated financial statements are presented in
dollars of the United States of America (US dollars or US$) and all
values are rounded to the nearest thousand ($000) except where
otherwise indicated.
The impact of seasonality or cyclicality on operations is not
considered significant on the interim consolidated financial
statements.
(b) Basis of consolidation
The interim consolidated financial statements set out the
Group's financial position as of 30 June 2023 and 31 December 2022,
and its operations and cash flows for the six-month periods ended
30 June 2023 and 30 June 2022.
The basis of consolidation adopted in the preparation of the
interim consolidated financial statements is consistent with that
applied in the preparation of the consolidated financial statements
for the year ended 31 December 2022.
(c) Changes in accounting policies and presentation
The accounting policies adopted in the preparation of the
interim consolidated financial statements are consistent with those
applied in the preparation of the consolidated financial statements
for the year ended 31 December 2022.
New standards, amendments and interpretations as adopted by the
Group
A number of new or amended standards became applicable for the
current reporting period. The Group did not have to change its
accounting policies or make retrospective adjustments as a result
of adopting these standards.
Impact of standards issued but not yet applied by the Group
The IASB has issued other amendments resulting from improvements
to IFRSs that management considers do not have any impact on the
accounting policies, financial position or performance of the
Group. The Group has not early adopted any standard, interpretation
or amendment that was issued but is not yet effective.
Significant accounting judgments, estimates and assumptions
Significant accounting judgments, estimates and assumptions are
consistent with those disclosed in the consolidated financial
statements for the year ended 31 December 2022 except as set out
below.
Juanicipio project
Commercial Production is the term used for the point at which a
mining operation is available for use and capable of operating in
the manner intended by management. This generally means that the
operation can produce its intended output at stable and sustainable
levels. The determination of when a mine reaches commercial
production can be complex and judgemental. The Group considered a
number of factors when making this judgement, including completion
of substantially all construction development activities in
accordance with design, a production ramp up period which achieved
an average throughput of 70% of mill nameplate capacity, grades in
line with mine plan and recoveries consistent with design.
Considering the above-mentioned factors, the Group has concluded
Juanicipio mine has reached commercial production on 1 June 2023
following a successful commissioning period. Juanicipio mine,
processing facility and other vital systems are operating in line
with, or rapidly approaching design capacity. The Juanicipio mill
is operating at approximately 85% of its capacity of 4,000 tonnes
per day ("tpd") with metal recovery in line with design. As
commercial production has been achieved, the Group has started to
depreciate all the plant assets and recognised the corresponding
charge as production cost.
Estimate of recoverable ore on leaching pads
In the Group's open pit mines, certain mined ore is placed on
leaching pads where a solution is applied to the surface of the
heap to dissolve the gold and enable extraction. The determination
of the amount of recoverable gold requires estimation with
consideration of the quantities of ore placed on the pads, the
grade of the ore (based on assay data) and the estimated recovery
percentage (based on metallurgical studies and current
technology).
The grades of ore placed on pads are regularly compared to the
quantities of metal recovered through the leaching process to
evaluate the appropriateness of the estimated recovery
(metallurgical balancing). The Group monitors the results of the
metallurgical balancing process and recovery estimates are refined
based on actual results over time and when new information becomes
available.
The Group monitors the metallurgical balances to confirm the
grade and recovery of the ore in inventories. Based on new
technical information and the reconsideration of actual recovery
grades and updated leaching targets, the Group updated its estimate
of gold content in leaching pads increasing this by 30.7 thousand
ounces of gold as at 1 January 2023.
This change in estimation was incorporated prospectively in
inventory from 1 January 2023. The increase in the number of ounces
reduced the weighted average cost of inventory. Had the estimation
not changed, production cost during the six-month period ended 30
June 2023 would have been US$21.6 million higher, with an
offsetting impact against the work-in-progress inventory balance as
of 30 June 2023.
Soledad y Dipolos inventory
The Company has recently identified certain suspected illegal
extraction of gold content at its Soledad-Dipolos leaching pads.
The Company estimates a loss of approximately 20,000 ounces of gold
content and consequently has recognised a write off of US$21.9
million regarding the Soledad-Dipolos gold contents in inventory,
which has been presented as other expenses in the Interim
Consolidated Income Statement. The Company is taking relevant
actions so that the illegal leaching activities be ceased a soon as
possible. The Company does not currently expect any further losses
of this inventory to be significant.
The inventory write-off considered both the estimation of
recoverable amount of gold existing at the leaching pad, and
potential volume of solution being irrigated on the area that is
believed to have been leached to date. However, the nature of
estimation means that actual outcome may differ from those
estimates.
(d) Going concern
The Group's business activities, together with the factors
likely to affect its future development, performance and position
are set out above in the Operational Review, with further detail in
the Annual Report 2022. The financial position of the Group, its
cash flows and liquidity position are described in the Financial
Review. In addition, the Group's objectives, policies and processes
for managing its capital; its financial risk management objectives;
details of its financial instruments and hedging activities; and
its exposures to credit risk and liquidity risk were set out in the
Annual Report 2022.
In making their assessment of the Group's ability to manage its
future cash requirements, the Directors have considered the Group
budgets and the cash flow forecasts for the period to 31 December
2024 (being the going concern assessment period). The Directors
have also considered the cash position at 30 June 2023 (US$ 889.7
million), as described in the financial review. In addition, they
reviewed a more conservative cash flow scenario with reduced silver
and gold prices of US$21.1 and US$1,734 respectively throughout
this period, whilst maintaining current budgeted expenditure and
only considering projects approved by the Executive Committee. This
resulted in our current cash and cash equivalents balances reducing
over time but maintaining sufficient liquidity throughout the
period.
The Directors have further calculated prices (US$18.3 and
US$1,481 for silver and gold respectively), which should they
prevail to the end of 2024 would result in cash balances decreasing
to minimal levels by the end of 2024, without applying
mitigations.
Should metal prices remain below the stressed prices above for
an extended period, management have identified specific elements of
capital and exploration expenditures which could be deferred
without adversely affecting production profiles throughout the
period. Finally management could amend the mining plans to
concentrate on production with a higher margin in order 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 have sufficient
flexibility in 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 the interim financial statements.
3 Segment reporting
For management purposes, the Group is organised into operating
segments based on producing mines.
At 30 June 2023 the Group has seven reportable operating
segments represented by seven producing mines as follows:
The Fresnillo mine, located in the State of Zacatecas, an
underground silver mine;
The Saucito mine, located in the State of Zacatecas, an
underground silver mine;
The Cienega mine, located in the State of Durango, an
underground gold mine;
The Herradura mine, located in the State of Sonora, a surface
gold mine;
The Noche Buena mine, located in the State of Sonora, a surface
gold mine
The San Julian mine, located on the border of Chihuahua /
Durango states, an underground silver-gold mine; and
The Juanicipio mine, located in the State of Zacatecas, an
underground silver mine.
The operating performance and financial results for each of
these mines are reviewed by management. As the Group's chief
operating decision maker does not review segment assets and
liabilities, the Group has not disclosed this information.
In the six months ended 30 June 2023 and 2022, all revenue was
derived from customers based in Mexico.
Management monitors the results of its operating segments
separately for the purpose of performance assessment and making
decisions about resource allocation. Segment performance is
evaluated without taking into account certain adjustments included
in revenue as reported in the interim consolidated income
statements, and certain costs included within cost of sales and
gross profit which are considered to be outside of the control of
the operating management of the mines. The table below provides a
reconciliation from segment profit to gross profit as per the
interim consolidated income statement. Other income and expenses
included in the interim consolidated income statement are not
allocated to operating segments. Transactions between reportable
segments are accounted for on an arm's length basis similar to
transactions with third parties.
Operating segments
The following tables present revenue and profit information
regarding the Group's operating segments for the six months ended
30 June 2023 and 2022, respectively. Revenues for the six months
ended 30 June 2023 and 30 June 2022 include those derived from
contracts with customers and other revenues, as showed in note
4.
Six months ended 30 June 2023
------------------------------------------------------------------------------------------------------------------------------------
US$ thousands Fresnillo Herradura Cienega Saucito Noche San Juanicipio Other(4) Adjustments Total
Buena Julian and
eliminations
------------------ ---------- ---------- -------- -------- ------- -------- ----------- --------- ------------- ------------
Revenues:
Third party 221,728 379,509 76,150 308,791 48,436 197,639 111,080 - - 1,343,333
Inter-Segment
(3) 250 75,177 54,031 (129,458) -
------------------ ---------- ---------- -------- -------- ------- -------- ----------- --------- ------------- ----------
Segment revenues 221,978 379,509 76,150 308,791 48,436 197,639 186,257 54,031 (129,458) 1,343,333
Segment profit(1) 91,241 82,283 5,116 92,242 5,047 87,442 104,837 11,040 42,599 521,847
Depreciation and
amortisation (236,310)
Employee profit
sharing (2,851)
------------------ ---------- ---------- -------- -------- ------- -------- ----------- --------- ------------- ----------
Gross profit
as per the
income
statement 282,686
------------------ ---------- ---------- -------- -------- ------- -------- ----------- --------- ------------- ----------
Capital
expenditure(2) 43,470 28,732 23,927 54,120 2 34,348 41,289 1,864 227,752
------------------ ---------- ---------- -------- -------- ------- -------- ----------- --------- ------------- ----------
(1) Segment profit excluding f oreign exchange hedging gains,
depreciation and amortisation and employee profit sharing.
(2) Capital expenditure represents the cash outflow in respect
of additions to property, plant and equipment, including stripping
cost, mine development and purchase of mine equipment, excluding
additions relating to changes in the mine closure provision.
Significant additions include striping cost at Herradura mine,
mining works at San Julian and Fresnillo and tailing dams at
Saucito and Fresnillo.
(3) The ore production of Juanicipio mine has been partially
processed through Fresnillo and Saucito facilities while achieving
name plate capacity of plant facilities.
(4) Other inter-segment revenue corresponds to leasing services
provided by Minera Bermejal, S.A. de C.V; capital expenditure
mainly corresponds to Minera Bermejal, S. de R.L. de C.V.
Six months ended 30 June 2022
------------------------------------------------------------------------------------------------------------------------------------
US$ thousands Fresnillo Herradura Cienega Saucito Noche San Juanicipio Other(5) Adjustments Total
Buena Julian (4) and
eliminations
---------------- ---------- ---------- -------- -------- ------- -------- ----------- --------- ------------- ----------
Revenues:
Third party(1) 266,353 302,679 92,533 303,507 85,898 211,870 - - (3,778) 1,259,062
Inter-Segment - - - - - - 120,140 92,235 (212,375) -
---------------- ---------- ---------- -------- -------- ------- -------- ----------- --------- ------------- ----------
Segment
revenues 266,353 302,679 92,533 303,507 85,898 211,870 120,140 92,235 (216,153) 1,259,062
Segment
profit(2) 113,514 47,971 32,668 111,533 28,341 125,661 92,533 73,179 (20,188) 605,212
Depreciation
and
amortisation (233,735)
Employee profit
sharing (5,618)
---------------- ---------- ---------- -------- -------- ------- -------- ----------- --------- ------------- ----------
Gross profit
as per the
income
statement 365,859
---------------- ---------- ---------- -------- -------- ------- -------- ----------- --------- ------------- ----------
Capital
expenditure(3) 45,500 75,443 19,125 44,995 53 28,010 82,919 2,981 - 299,026
---------------- ---------- ---------- -------- -------- ------- -------- ----------- --------- ------------- ----------
(1) Adjustments and eliminations correspond to hedging loss
(note 4).
(2) Segment profit excluding f oreign exchange hedging gains,
depreciation and amortisation and employee profit sharing.
(3) Capital expenditure represents the cash outflow in respect
of additions to property, plant and equipment, including striping
cost, mine development and purchase of mine equipment, excluding
additions relating to changes in the mine closure provision.
Significant additions include striping cost at Herradura mine and
purchase of mobile equipment at Saucito.
(4) The ore production of Juanicipio mine has been processed
through Fresnillo and Saucito facilities.
(5) Other inter-segment revenue corresponds to leasing services
provided by Minera Bermejal, S.A. de C.V; capital expenditure
mainly corresponds to Minera Bermejal, S. de R.L. de C.V.
4 Revenues
Revenues reflect the sale of goods, being concentrates, doré,
slag, precipitates and activated carbon of which the primary
contents are silver, gold, lead and zinc.
(a) Revenues
Six months ended
30 June
2023 2022
(in thousands of
US dollars)
Revenues from contracts with customers 1,351,158 1,278,721
Revenues from other sources
Provisional pricing adjustment on products
sold (7,825) (15,888)
Hedging loss on sales - (3,771)
1,343,333 1,259,062
(b) Revenues by product sold
Six months ended
30 June
2023 2022
(in thousands of
US dollars)
Lead concentrates (containing silver, gold,
lead and by-products) 638,354 572,337
Doré and slag (containing gold, silver
and by-products) 387,037 312,802
Zinc concentrates (containing zinc, silver
and by-products) 141,458 186,503
Precipitates (containing gold and silver) 135,577 111,645
Activated carbon (containing gold, silver
and by-products) 40,907 75,775
1,343,333 1,259,062
All lead and zinc concentrates, precipitates, doré, activated
carbon and slag, were sold to Peñoles' metallurgical complex,
Met-Mex, for smelting and refining.
(c) Value of metal content in products sold
Invoiced revenues are derived from the value of metal content
which is determined by commodity market prices and adjusted for the
treatment and refining charges to be incurred by the metallurgical
complex of our customer. The value of the metal content of the
products sold, before treatment and refining charges is considered
as an alternative performance measure for the Group. The Group
considers this a useful additional measure to help understand
underlying factors driving revenue in terms of volumes sold and
realised prices. The value of production sold by metal is as
follows:
Six months ended
30 June
2023 2022
(in thousands of
US dollars)
Silver 631,111 576,885
Gold 626,375 555,702
Zinc 118,163 158,445
Lead 55,111 54,243
Value of metal content in products sold 1,430,760 1,345,275
Refining and treatment charges (87,427) (86,213)
Total revenues(1) 1,343,333 1,259,062
(1) Includes provisional price adjustments which represent
changes in the fair value of trade receivables resulting in a loss
of US$7.8 million (2022: loss of US$15.9 million). During the
six-month period ended 30 June 2023, there were no hedging on sales
(2022: loss of US$3.8 million).
The average realised prices for the gold and silver content of
products sold prior to the deduction of treatment and refining
charges, were:
Six months ended 30
June
2023 2022
(in US dollars per ounce)
Gold(2) 1,948.08 1,871.08
Silver(2) 23.31 22.77
(2) For the purpose of the calculation, revenue by content of
products sold does not include the results from hedging.
5 Cost of sales
Six months ended
30 June
2023 2022
(in thousands of
US dollars)
Depreciation and amortisation 236,310 233,735
Contractors 191,518 180,513
Operating materials 140,268 123,590
Maintenance and repairs 140,563 111,629
Energy 127,835 100,034
Personnel expenses(1) 107,471 79,016
Mine equipment leased 32,841 16,423
Mining concession rights and contributions 12,087 10,355
Surveillance 12,147 8,703
Freight 4,958 5,460
Insurance 6,034 5,457
Other 986 23,770
Cost of production 1,013,018 898,685
Unabsorbed production costs(2) 21,481 500
Gain on foreign currency hedges (132) -
Change in work in progress and finished
goods (ore inventories) (3) 26,280 (5,982)
Cost of sales 1,060,647 893,203
(1) Personnel expenses include employees' profit sharing of
US$2.9 million for the six months ended 30 June 2023 (six months
ended 30 June 2022: US$5.6 million).
(2) Corresponds to fixed cost at Juanicipio and pyrites plant of
US$3.9 million and US$1.7 million respectively, non-productive cost
for the temporary stoppage of activities in Penmont US$11.9 million
and non-productive fixed mine cost incurred in Noche Buena
resulting from finalisation of mining activities US$4.0 million
(2022: fixed costs incurred in Juanicipio plant activities).
(3) Refer to note 2 (c) for more detail related to change in
work in progress inventories for the six months ended 30 June 2023
following a change in estimation.
6 Finance income and finance costs
Six months ended
30 June
2023 2022
(in thousands of
US dollars)
Finance income:
Interest on short-term deposits and investments 24,434 4,202
Interest on tax receivables 1,663 2,656
Other 376 150
26,473 7,008
Finance costs:
Interest on interest-bearing loans and
notes payables 30,353 24,597
Interest on lease liabilities 561 276
Unwinding of discount on provisions 11,103 7,551
Other 3,993 2,489
46,010 34,913
7 Income tax expense
Six months ended
30 June
2023 2022
(in thousands of
US dollars)
Current corporate income tax:
Income tax charge 26,800 93,705
Amounts (over)/under provided in previous
periods 4,515 (5,100)
31,315 88,605
Deferred corporate income tax:
Origination and reversal of temporary differences (45,752) (70,891)
Revaluation effects of Silverstream contract (5,103) (10,878)
(50,855) (81,769)
Corporate income tax (19,540) 6,836
Current special mining right:
Special mining right charge(1) 9,655 24,582
9,655 24,582
Deferred special mining right:
Origination and reversal of temporary differences (31,980) (17,156)
Special mining right (22,325) 7,426
Income tax (credit)/expense as reported
in the income statement (41,865) 14,262
(1) The total mining concession rights paid during the six-month
period were US$14.8 million (2022: US$12.5 million) and have been
recognised in the income statement within cost of sales and
exploration expenses.
Tax charged within the six-month period ended 30 June 2023 has
been calculated by applying the effective rate of tax which is
expected to apply to the Group for the period ended 31 December
2023 using rates substantively enacted by 30 June 2023 as required
by IAS 34 Interim Financial Reporting.
The effective tax rate for corporate income tax for the six
months ended 30 June 2023 is (40.83%) (six months ended 30 June
2022: 4.40%) and (87.48%) including the special mining right (six
months ended 30 June 2022: 9.19%). The main factors that decrease
the effective tax rate for corporate income tax below 30% are the
foreign exchange effect on tax value of assets and liabilities
(76.70%) and the uplift of tax values corresponding to fixed assets
(9.83%). The net deferred tax asset increased to US$328.5 million
(31 December 2022: net deferred tax asset of US$232.6 million)
primarily due the reduction of deferred tax liabilities in respect
of fixed assets, derivatives including the Silverstream contract
and equity instruments at FVOCI.
8 Earnings per share
Earnings per share ('EPS') is calculated by dividing profit for
the period attributable to equity shareholders of the Company by
the weighted average number of ordinary shares in issue during the
period.
The Company has no dilutive potential ordinary shares.
For the six months ended 30 June 2023 and 30 June 2022, earnings
per share have been calculated as follows:
Six months ended
30 June
2023 2022
(in thousands of
US dollars)
Earnings:
Profit from continuing operations attributable
to equity holders of the Company 64,726 117,372
Adjusted profit from continuing operations
attributable to equity holders of the
Company 76,632 142,753
Adjusted profit is profit as disclosed in the Interim
Consolidated Income Statement adjusted to exclude revaluation
effects of the Silverstream contract of US$17.0 million loss
(US$11.9 million net of tax) (2022: US$36.3 million loss and
US$25.4 million net of tax).
Adjusted earnings per share have been provided in order to
provide a measure of the underlying performance of the Group, prior
to the revaluation effects of the Silverstream contract, a
derivative financial instrument.
Six months ended
30 June
2023 2022
Number of shares:
Weighted average number of ordinary shares
in issue ('000) 736,894 736,894
Six months ended
30 June
2023 2022
Earnings per share:
Basic and diluted earnings per ordinary share 0.088 0.159
from continuing operations (US$)
Adjusted basic and diluted earnings per ordinary 0.104 0.194
share from continuing operations (US$)
9 Property, plant and equipment
The changes in property, plant and equipment, including
right-of-use assets, during the six months ended 30 June 2023 are
principally additions of US$250.2 million (six months ended 30 June
2022: US$310.6 million) and depreciation and amortisation of
US$241.4 million, of which US$1.3 million was capitalised as a part
of the cost of other fixed assets (six months ended 30 June 2022:
US$237.6 million, of which US$2.7 million was capitalised).
Significant additions include stripping cost at Herradura mine,
mining works at San Julian and Fresnillo and tailing dams at
Saucito and Fresnillo.
As of 30 June 2023, the Group has contractual commitments
related to the construction and acquisition of property, plant and
equipment of US$144.9million (30 June 2022: US$219.0 million).
10 Silverstream contract
On 31 December 2007, the Group entered into an agreement with
Peñoles through which it is entitled to receive the proceeds
received by the Peñoles Group in respect of the refined silver sold
from the Sabinas Mine ('Sabinas'), a polymetallic mine owned and
operated by the Peñoles Group, for an upfront payment of US$350
million. In addition, a per ounce cash payment of US$2.00 in years
one to five and US$5.00 thereafter (subject to an inflationary
adjustment that commenced from 31 December 2013) is payable to
Peñoles. The cash payment per ounce for the period ended 30 June
2023 was US$5.65 per ounce (30 June 2022: US$5.54 per ounce). Under
the contract, the Group has the option to receive a net cash
settlement from Peñoles attributable to the silver produced and
sold from Sabinas, to take delivery of an equivalent amount of
refined silver or to receive settlement in the form of both cash
and silver. If, by 31 December 2032, the amount of silver produced
by Sabinas is less than 60 million ounces, a further payment is due
from Peñoles of US$1.00 per ounce of shortfall.
The Silverstream contract represents a derivative financial
instrument which has been recorded at FVPL and classified within
non-current and current assets as appropriate. The term of the
derivative is based on Sabinas' life of mine which is currently 25
years. Changes in the contract's fair value, other than those
represented by the realisation of the asset through the receipt of
either cash or refined silver, are charged or credited to the
income statement.
In the six months ended 30 June 2023, total proceeds received in
cash were US$20.2 million (2022: US$18.3 million) of which, US$8.3
million was in respect of proceeds receivable as at 31 December
2022 (2021: US$4.8 million). C ash received in respect of the
period of US$11.8 million (six months ended 30 June 2022: US$13.4
million) corresponds to 1.16 million ounces of payable silver (six
months ended 30 June 2022: 1.01 million ounces). As at 30 June
2023, a further US$5.4 million (30 June 2022: US$5.4 million) of
cash corresponding to 323,626 ounces of silver is due (30 June
2022: 360,944 ounces).
A reconciliation of the beginning balance to the ending balance
as at 30 June 2023 and 31 December 2022 is shown below.
30 June 31 December
2023 2022
(in thousands of
US dollars)
Beginning balance 511,474 529,544
Cash received in respect of the period (11,846) (28,513)
Cash receivable (5,444) (8,342)
Remeasurement (loss)/gain recognised
in profit or loss (17,009) 18,785
Ending balance 477,175 511,474
Less - Current portion 34,992 36,218
Non-current portion 442,183 475,256
The US$17.0 million unrealised loss recorded in the income
statement (six months ended 30 June 2022: US$36.3 million loss)
resulted mainly from an update in the production mine plan with
lower reserves and a decrease in the forward silver price
curve.
Significant assumptions used in the valuation of the
Silverstream contract are as follows:
- Forecasted volumes (millions of ounces/moz)
- Silver to be produced and sold over the life of mine 86.6 moz
(31 December 2022: 103.2 moz)
- Average annual silver to be produced and sold 3.5 moz (31
December 2022: 4.0 moz)
- Weighted average discount rate 9.84% (31 December 2022: 9.82%)
- Future silver prices (US$ per ounce)
As at Year 1 Year 2 Year 3 Year 4 Year 5 Long-term
30 June 2023 22.98 23.96 24.81 26.65 25.86 19.89
------- ------- ------- ------- ------- ----------
31 December
2022 24.45 25.53 26.22 27.12 27.33 18.81
------- ------- ------- ------- ------- ----------
The fair value of the Silverstream contract is determined using
a valuation model including unobservable inputs (Level 3). This
derivative has a term of over 25 years and the valuation model
utilises several inputs that are not based on observable market
data due to the nature of these inputs and/or the duration of the
contract. Inputs that have a significant effect on the recorded
fair value are the volume of silver that will be produced and sold
from the Sabinas mine over the contract life, the future price of
silver and the discount rate used to discount future cash flows.
Other inputs into the valuation are future inflation and future
foreign exchange rates between the Mexican peso and US dollar.
The estimate of the volume of silver that will be produced and
sold from the Sabinas mine requires estimates of the recoverable
silver reserves and resources, the related production profile based
on the Sabinas mine plan and the expected recovery of silver from
ore mined. The estimation of these inputs is subject to a range of
operating assumptions and may change over time. Estimates of
reserves and resources are updated annually by Peñoles, the
operator and sole interest holder in the Sabinas mine and provided
to the Company. The production profile and estimated payable silver
that will be recovered from ore mined is based on the operational
mine plan, with certain amendments to reflect a basis that a market
participant would consider, that is provided to the Company by
Peñoles. The inputs assume no interruption in production over the
life of the Silverstream contract and production levels which are
consistent with those achieved in recent years.
Management regularly assesses a range of reasonably possible
alternatives for those significant unobservable inputs described
above and determines their impact on the total fair value. The fair
value of the Silverstream contract is significantly sensitive to a
reasonably possible change in future silver price. the discount
rate used to discount future cash flows and total recoverable
resources and reserves over the life of mine. The sensitivity of
these key inputs is as follows:
Effect on
Increase/ profit before
30 June 2023 (decrease) tax: increase/
(decrease)
US$ thousands
---------------- ------------- ----------------
Silver price 15% 94,432
(15%) (94,432)
---------------- ------------- ----------------
25 basis
Interest rate point (8,966)
(50 basis
point) 18,837
---------------- ------------- ----------------
Effect on
Increase/ profit before
31 December 2022 (decrease) tax: increase/
(decrease)
US$ thousands
-------------------- ------------- ----------------
Silver price 20% 133,736
(15%) (100,302)
-------------------- ------------- ----------------
100 basis
Interest rate point (41,860)
(25 basis
point) 11,452
-------------------- ------------- ----------------
Management considers that an appropriate sensitivity for volumes
produced and sold is on the total recoverable reserve and resource
quantities over the contract term rather than annual production
volumes over the mine life. Reasonably possible change in total
recoverable resources and reserves quantities over the life of the
mine of an increase of approximately 6% (31 December 2022: 6%)
would result in an increase in the value of the contract of US$28.6
million (31 December 2022: US$30.6 million) (a reduction of 6% (31
December 2022: 6%) in reserves and resources quantity would
decrease the fair value of the contract by US$28.6 million (31
December 2022: US$30.6 million).
The significant unobservable inputs are not interrelated. The
Sabinas mine is a polymetallic mine that contains copper, lead and
zinc as well as silver, which is produced as a by-product.
Therefore, changes to base metals prices (rather than the price of
silver) are most relevant to the Sabinas mine production plans and
the overall economic assessment of the mine.
The effects on profit before tax and equity of reasonably
possible changes to the inflation rates and the US dollar exchange
rate compared to the Mexican peso on the Silverstream contract are
not material.
11 Inventories
As at 30 As at 31
June December
2023 2022
(in thousands of US
dollars)
Finished goods(1) 33,316 27,257
Work in progress(2) 334,379 375,603
Ore stockpile(3) 12,574 26,020
Operating materials and spare parts 169,665 163,947
Inventories at lower of cost and net realisable
value 549,934 592,827
Allowance for obsolete and slow-moving
inventories (6,287) (5,463)
Balance at lower of cost and net realisable
value 543,647 587,364
Less - Current portion 473,887 495,744
Non-current portion(4) 69,760 91,620
(1) Finished goods include metals contained in concentrates and
doré bars, and concentrates on hand or in transit to a smelter or
refinery.
(2) Work in progress includes metals contained in ores on
leaching pads and in stockpiles that will be processed in dynamic
leaching plants (note 2(c)).
(3) Ore stockpile includes ore mineral obtained at
Juanicipio.
(4) Non-current inventories relate to ore in leaching pads where
the leaching process has stopped and is not expected to restart
within twelve months. As 30 June 2023 the decrease in the value of
inventory corresponds to the write-off adjustment described in note
2(c).
12 Trade and other receivables
As at 30 June As at 31 December
2023 2022
(in thousands of US dollars)
Trade and other receivables from
related parties (Note 16)(1) 268,088 275,844
Value added tax receivable 67,903 85,979
Other receivables from related parties 5,577 8,377
Other receivable from contractors 2,410 52
Other receivables 8,469 8,697
Other receivables arising from the
layback agreement 23,267 25,994
375,714 404,943
Expected credit loss of 'Other receivables' (371) (444)
375,343 404,499
Other receivables classified as
non-current assets:
Other receivable from contractors 1,176 1,638
Value Added Tax receivable 43,828 36,820
45,004 38,458
420,347 442,957
(1) Trade receivables from related parties are valued at fair
value based on forward market prices.
Balances corresponding to Value Added Tax receivables and US$8.4
million within Other receivables (2022:US$8.7 million) are not
financial assets.
13 Cash and cash equivalents
The Group considers cash and cash equivalents when planning its
operations and in order to achieve its treasury objectives.
As at 30
June As at 31
2023 December 2022
( in thousands of US
dollars )
Cash at bank and on hand 5,570 2,516
Short-term deposits 884,114 966,544
Cash and cash equivalents 889,684 969,060
Cash at bank earns interest at floating rates based on daily
bank deposits. Short-term deposits are made for varying periods of
between one day and three months, depending on the immediate cash
requirements of the Group, and earn interest at the respective
short-term deposit rates. Short-term deposits can be withdrawn at
short notice without any penalty or loss in value.
14 Dividends paid
Dividends declared by the Company are as follows:
Per share Amounts
US Cents $Million
------------------------------------------- ---------- ----------
Six months ended 30 June 2023
Total dividends paid during the period(1) 13.3 98.0
Six months ended 30 June 2022
Total dividends paid during the period(2) 24.0 176.9
------------------------------------------- ---------- ----------
(1) Final dividend for 2022 approved at the Annual General
Meeting on 23 May 2023 and paid on 26 May 2023.
(2) Final dividend for 2021 approved at the Annual General
Meeting on 17 May 2022 and paid on 27 May 2022.
A reconciliation between dividend declared, dividends recognised
in retained earnings and dividend presented in the cash flow
statements is as follows:
Six months ended
30 June
------------------------------------- --------------------------------
2023 2022
US$ thousands US$ thousands
------------------------------------- --------------- ---------------
Dividends declared 98,006 176,854
Foreign exchange effect - -
------------------------------------- --------------- ---------------
Dividends recognised in retained
earnings 98,006 176,854
-------------------------------------- --------------- ---------------
Foreign exchange and hedging effect 27 21
-------------------------------------- --------------- ---------------
Dividends paid 98,033 176,875
-------------------------------------- --------------- ---------------
The directors have declared an interim dividend of US$1.40 cents
per share and is not recognised as a liability as at 30 June 2023.
Dividends paid from the profits generated from 1 January 2014 to
residents in Mexico and to non-resident shareholders may be subject
to an additional tax of up to 10%, which will be withheld by the
Group.
15 Contingencies
The contingencies in the Group's annual consolidated financial
statements for the year ended 31 December 2022 as published in the
2022 Annual Report, are still applicable as of 30 June 2023, with
the following updates:
On 24 March 2022, the SAT initiated an audit of the income tax
computation of Comercializadora de Metales Fresnillo for the year
2016. Findings were shared by the SAT on 22 March 2023, which
mainly relate to the tax treatment of the Silverstream transaction.
The Company responded on 20 April 2023 and began a Conclusive
Agreement procedure before the PRODECON. On 16 June 2023 and on 5
July 2023, the Company provided additional documentation and
information to the SAT through PRODECON. The SAT's response is
expected in August 2023.
It is not practical to determine the amount of any potential
claims or the likelihood of any unfavourable outcome arising from
this or any future inspections that may be initiated. However,
management believes that its interpretation of the relevant
legislation is appropriate and that the Group has complied with all
regulations and paid or accrued all taxes and withholdings that are
applicable.
16 Related party balances and transactions
The Group had the following related party transactions during
the six months ended 30 June 2023 and 30 June 2022 and balances as
at 30 June 2023 and 31 December 2022.
Related parties are those entities owned or controlled by the
ultimate controlling party, as well as those who have a minority
participation in Group companies and key management personnel of
the Group.
(a) Related party accounts receivable and payable
Accounts receivable Accounts payable
As at As at As at As at
30 June 31 December 30 June 31 December
2023 2022 2023 2022
(in thousands of US dollars)
Trade:
Metalúrgica Met-Mex
Peñoles, S.A. de C.V. 268,088 275,844 3,795 421
Other:
Industrias Peñoles,
S.A.B. de C.V. 5,444 8,342 8 -
Metalúrgica Met-Mex - - 421 -
Peñoles, S.A. de C.V.
Servicios Administrativos
Peñoles, S.A de C.V. 17 - 17,801 4,630
Servicios Especializados
Peñoles, S.A. de C.V. 1 - 12,748 8,964
Fuentes de Energía
Peñoles, S.A. de C.V. - - 2,991 1,062
Termoeléctrica Peñoles,
S. de R.L. de C.V. - - 2,358 3,206
Eólica de Coahuila
S.A. de C.V. - - 17,409 13,466
Minera Capela, S.A. de C.V. 30 - - -
Peñoles Tecnología, - - 3,137 -
S.A. de C.V.
Other 85 35 6,274 4,220
273,665 284,221 66,942 35,969
Related party accounts receivable and payable will be settled in
cash.
Other balances due from related parties:
As at 31
As at 30 December
June 2023 2022
(in thousands of US
dollars)
Silverstream contract :
Industrias Peñoles, S.A.B. de C.V. 477,175 511,474
The Silverstream contract can be settled in either silver or
cash. Details of the Silverstream contract are provided in note
10.
(b) Principal transactions with affiliates are as follows:
Six months ended 30 June
2023 2022
(in thousands of US dollars)
Income :
Sales (1) :
Metalúrgica Met-Mex Peñoles,
S.A. de C.V. 1,343,333 1,262,832
Other income 1,180 884
Total income 1,344,513 1,263,716
(1) Figures do not include the effects of hedging as the
derivative transactions are not undertaken with related
parties.
Six months ended 30 June
2023 2022
(in thousands of US dollars)
Expenses :
Administrative Services:
Servicios Administrativos Peñoles,
S.A. de C.V.(2) 29,438 17,065
Servicios Especializados Peñoles,
S.A. de C.V. (2) 8,830 13,289
Peñoles Tecnología, S.A.
de C.V. 4,479 2,350
42,747 32,704
Energy:
Fuentes de Energía Peñoles,
S.A. de C.V. 4,801 1,529
Termoeléctrica Peñoles,
S. de R.L. de C.V. 14,614 9,704
Eólica de Coahuila, S.A. de C.V. 13,927 15,722
33,342 26,955
Operating materials and spare parts:
Wideco Inc 2,503 3,159
Metalúrgica Met-Mex Peñoles,
S.A. de C.V. 15,613 4,686
18,116 7,845
Equipment repairs and administrative
services:
Serviminas, S.A. de C.V. 3,849 3,791
Insurance premiums:
Grupo Nacional Provincial, S.A.B.
de C.V. 1,597 6,515
Other expenses 3,175 1,405
Total expenses 102,826 79,215
(2) Based on the Service Agreement with Servicios
Administrativos Peñoles, S.A. de C.V., ("SAPSA") and Servicios
Especializados Peñoles, S.A. de C.V. ("SEPSA"), both wholly owned
Peñoles' subsidiaries, the companies provided administrative
services during the six months ended 30 June 2023 for a total
amount of US$38.3 million (US$30.4 million for the six months ended
30 June 2022). During the period US$6.7 million were administrative
expenses capitalised (30 June 2022: nil) as the services were in
relation to capital expenditures.
(c) Compensation of key management personnel of the Group
Key management personnel include the members of the Board of
Directors and the Executive Committee who receive remuneration.
Six months ended 30
June
2023 2022
(in thousands of US
dollars)
Salaries and bonuses 1,700 1,435
Post-employment pension 126 118
Other benefits 139 123
Total compensation paid to key management
personnel 1,965 1,676
17 Notes to the consolidated statement cash flows
Notes Six months ended 30 June
2023 2022
(in thousands of US dollars)
Reconciliation of profit
for the period to net cash
generated from operating
activities
Profit for the period 89,720 140,964
Adjustments to reconcile
profit for the period to
net cash inflows from operating
activities:
Depreciation and amortisation 236,924 234,281
Employee profit sharing 2,935 5,809
Deferred income tax credit 7 (82,835) (98,925)
Current income tax expense 7 40,970 113,187
Loss/(gain) on the sale of
property, plant and equipment 841 (102)
Net finance costs 19,529 27,875
Foreign exchange gain (2,874) (450)
Difference between pension
contributions paid and amounts
recognised in the income
statement 731 601
Non-cash movement on derivatives (2) 25
Changes in fair value of
Silverstream 10 17,009 36,259
Operating cash flow before
change in working capital 322,948 459,524
Working capital adjustments
Decrease in trade and other
receivables 22,791 70,285
Decrease/(increase) decrease
in prepayments and other
assets 9,201 (8,027)
Decrease/(increase) in inventories 43,718 (12,399)
Increase in trade and other
payables (326) 26,940
Cash generated from operations 398,332 536,323
Income tax paid(1) (182,078) (125,008)
Employee profit sharing paid (10,757) (16,172)
Net cash from operating
activities 205,497 395,143
(1) Income tax paid includes US$135.5 million corresponding to
corporate income tax (June 2022: US$71.7 million) and US$46.5
million corresponding to special mining right (June 2022: US$53.3
million), for further information refer to note 7.
18 Financial instruments
a. Classification
As at 30 June 2023
US$ thousands
-------------------------------------------------------------------------------------------
Financial assets: Amortized Fair value Fair value Fair value
cost through (hedging through
OCI instruments) profit or
loss
----------------------------------- ---------- ----------- -------------- -----------
Trade and other receivables
(1) 26,613 - - 273,532
Equity instruments at FVOCI 117,137 - -
Silverstream contract - - - 477,175
Derivative financial instruments - - 208 -
----------------------------------- ---------- ----------- -------------- -----------
Financial liabilities: Amortised Fair value Fair value
Cost (hedging through
instruments) profit or
loss
----------------------------------- ---------- ----------- -------------- -----------
Interest-bearing loans - 1,158,896 - -
Trade and other payables - 151,333 - -
Notes payable - 128,223 - -
Derivative financial instruments - - 271 -
----------------------------------- ---------- ----------- -------------- -----------
(1 Relates to trade and other receivables from related parties
and contractors, net of the provision for impairment)
As at 31 December 2022
US$ thousands
----------------------------------------------------------------------------
Financial assets: Amortized Fair value Fair value Fair value
Cost through (hedging through
OCI instruments) profit or
loss
----------------------------------- ---------- ----------- -------------- -----------
Trade and other receivables
(1) 27,276 - - 284,186
Equity instruments at FVOCI - 158,813 - -
Silverstream contract - - - 511,474
Derivative financial instruments - - 231 -
----------------------------------- ---------- ----------- -------------- -----------
Financial liabilities: Amortised Fair value Fair value
Cost (hedging through
instruments) profit or
loss
----------------------------------- ---------- ----------- -------------- -----------
Interest-bearing loans 1,158,557 - -
Trade and other payables 176,266 - -
Notes payable 104,962 - -
Derivative financial instruments - 487 -
----------------------------------- ---------- ----------- -------------- -----------
(1 Relates to trade and other receivables from related parties
and contractors, net of the provision for impairment)
b. Fair value measurement
Fair value hierarchy
Fair value is the price that would be received to sell an asset
or paid to transfer a liability in an orderly transaction between
market participants at the measurement date. The fair value
measurement is based on the presumption that the transaction to
sell the asset or transfer the liability takes place either: a) in
the principal market for the asset or liability, or b) in the
absence of a principal market, in the most advantageous market for
the asset or liability. The principal or the most advantageous
market must be accessible to the Group.
The fair value of an asset or a liability is measured using the
assumptions that market participants would use when pricing the
asset or liability, assuming that market participants act in their
economic best interest.
A fair value measurement of a non-financial asset takes into
account a market participant's ability to generate economic
benefits by using the asset in its highest and best use or by
selling it to another market participant that would use the asset
in its highest and best use.
The Group uses valuation techniques that are appropriate in the
circumstances and for which sufficient data are available to
measure fair value, maximising the use of relevant observable
inputs and minimising the use of unobservable inputs.
All assets and liabilities for which fair value is measured or
disclosed in the interim consolidated financial statements are
categorised within the fair value hierarchy, described as follows,
based on the lowest level input that is significant to the fair
value measurement as a whole:
Level 1 - Quoted (unadjusted) market prices in active markets
for identical assets or liabilities
Level 2 - Valuation techniques for which the lowest level input
that is significant to the fair value measurement is directly or
indirectly observable
Level 3 - Valuation techniques for which the lowest level input
that is significant to the fair value measurement is
unobservable
For assets and liabilities that are recognised in the financial
statements on a recurring basis, the Group determines whether
transfers have occurred between levels in the hierarchy by
re-assessing categorisation (based on the lowest level input that
is significant to the fair value measurement as a whole) at the end
of each reporting period.
For the purpose of fair value disclosures, the Group has
determined classes of assets and liabilities on the basis of the
nature, characteristics and risks of the asset or liability and the
level of the fair value hierarchy as explained above.
The value of financial assets and liabilities other than those
measured at fair value are as follows:
Carrying amount Fair value
----------------------------- ------------------------------ ---------------------------
30 June 31 December 30 June 31 December
2023 2022 2023 2022
US$ thousands
----------------------------- ---------------------------------------------------------
Financial assets:
Trade and other receivables 26,613 27,276 26,613 27,276
Financial liabilities:
Interest-bearing loans(1) 1,158,896 1,158,557 951,348 990,588
Trade and other payables 151,333 176,266 151,333 176,266
Note payable 128,223 104,962 128,223 104,962
----------------------------- ---------------- ------------ ----------- ------------
(1) Interest-bearing loans are categorised in Level 1 of the
fair value hierarchy.
The carrying amounts of all other financial instruments are
measured at fair value.
The financial assets and liabilities measured at fair value are
categorised into the fair value hierarchy as follows:
As of 30 June 2023
Fair value measure using
--------------------------------------------------------------------------------------------
Quoted prices Significant Significant Total
in active observable unobservable
markets (Level 2) (Level 3)
(Level 1)
US$ thousands
----------------------------------- -------------------------------------------------------
Financial assets:
Trade receivables (Note
12)(1) - - 273,532 273,532
Derivative financial instruments:
Option and forward foreign
exchange contracts - 208 - 208
Silverstream contract (Note
10) - - 477,175 477,175
Other financial assets:
Equity instruments at
FVOCI 117,137 - - 117,137
----------------------------------- -------------- ------------ -------------- ---------
117,137 208 750,707 868,052
----------------------------------- -------------- ------------ -------------- ---------
Financial liabilities:
Derivative financial instruments:
Option and forward foreign
exchange contracts - 271 - 271
- 271 - 271
----------------------------------- -------------- ------------ -------------- ---------
(1) Includes receivable corresponding Silverstream contract of
US$5.4 million.
As of 31 December 2022
Fair value measure using
-------------------------------------------------------------------------------------------
Quoted prices Significant Significant Total
in active observable unobservable
markets (Level 2) (Level 3)
(Level 1)
US$ thousands
----------------------------------- ------------------------------------------------------
Financial assets:
Trade receivables (Note
12) (1) - - 284,186 284,186
Derivative financial instruments:
Option and forward foreign
exchange contracts - 231 - 231
Silverstream contract (Note
10) - - 511,474 511,474
Other financial assets:
Equity instruments at
FVOCI 158,813 - - 158,813
----------------------------------- -------------- ------------ -------------- --------
158,813 231 795,660 954,704
----------------------------------- -------------- ------------ -------------- --------
Financial liabilities:
----------------------------------- -------------- ------------ -------------- --------
Derivative financial instruments:
Option and forward foreign
exchange contracts - 487 - 487
----------------------------------- -------------- ------------ -------------- --------
- 487 - 487
----------------------------------- -------------- ------------ -------------- --------
(1) Includes receivable corresponding Silverstream contract of
US$8.3 million.
There have been no significant transfers between Level 1 and
Level 2 of the fair value hierarchy, and no transfers into or out
of Level 3 fair value measurements.
A reconciliation of the opening balance to the closing balance
for Level 3 financial instruments other than Silverstream and the
related receivable with the contract (which is disclosed in Note
10) is shown below:
2023 2022
US$ thousands
-------------------------------------------------- --------------------------
Balance at 1 January 275,844 265,473
-------------------------------------------------- ------------ ------------
Sales 1,351,158 1,278,721
Cash collection (1,351,089) (1,283,670)
Changes in fair value(1) (4,969) (16,924)
Realised embedded derivatives during the year(1) (2,856) 1,034
-------------------------------------------------- ------------ ------------
Balance at 30 June 268,088 244,634
-------------------------------------------------- ------------ ------------
(1 Changes in fair value and realised embedded derivatives
during the year are recognised in revenues.)
Valuation techniques
The following valuation techniques were used to estimate the
fair values:
Option commodity contracts
The Group enters into derivative financial instruments with
various counterparties, principally financial institutions with
investment grade credit ratings. The Level 2 option commodity
contracts are measured based on observable spot commodity prices,
the yield curves of the respective commodity as well as the
commodity basis spreads between the respective commodities. The
option contracts are valued using the Black-Scholes model, the
significant inputs to which include observable spot commodities
price, interest rates and the volatility of the commodity.
Option and forward foreign exchange contracts
The Group enters into derivative financial instruments with
various counterparties, principally financial institutions with
investment grade credit ratings. The Level 2 foreign currency
forward contracts are measured based on observable spot exchange
rates, the yield curves of the respective currencies as well as the
currency basis spreads between the respective currencies. The
foreign currency option contracts are valued using the
Black-Scholes model, the significant inputs to which include
observable spot exchange rates, interest rates and the volatility
of the currency.
Silverstream contract
For further information relating to the valuation techniques
were used to estimate the fair value of the Silverstream contract
as well as the sensitivity of the valuation to the key inputs are
disclosed in note 10.
Equity investments
The fair value of equity investments is derived from quoted
market prices in active markets.
Interest-bearing loans
The fair value of the Group's interest-bearing loan is derived
from quoted market prices in active markets.
Receivables from provisional sales
Sales of concentrates, precipitates and doré bars are
'provisionally priced' and revenue is initially recognised using
this provisional price and the Group's best estimate of the
contained metal. Revenue is subject to final price and metal
content adjustments subsequent to the date of delivery. This price
exposure is considered to be an embedded derivative and therefore
the entire related trade receivable is measured at fair value.
At each reporting date, the provisionally priced metal content
is revalued based on the forward selling price for the quotational
period stipulated in the relevant sales contract. The selling price
of metals can be reliably measured as these metals are actively
traded on international exchanges but the estimated metal content
is a non-observable input to this valuation.
c. Capital management
The primary objective of the Group's capital management is to
ensure that it maintains a strong credit rating and healthy capital
ratios that support its business and maximise shareholder value.
Management considers capital to consist of equity and
interest-bearing loans, including loans from related parties, as
disclosed in the balance sheet, excluding net unrealised gains or
losses on revaluation of cash flow hedges and debt instruments. In
order to ensure an appropriate return for shareholder's capital
invested in the Group management thoroughly evaluates all material
projects and potential acquisitions and approves them at its
Executive Committee before submission to the Board for ultimate
approval, where applicable. The Group's dividend policy is based on
the profitability of the business and underlying growth in earnings
of the Group, as well as its capital requirements and cash flows,
including cash flows from the Silverstream.
One of the Group's metrics of capital is cash and other liquid
assets which as at 30 June 2023 and 2022 consisted of only cash and
cash equivalents.
[1] Adjusted revenues are the revenues shown in the income
statement adjusted to add back treatment and refining charges and
the effects of metals prices 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.
[2] Adjusted production costs are calculated as cost of sales
less depreciation, profit sharing, hedging, change in inventories
and unproductive costs. The Company considers this a useful
additional measure to help understand underlying factors driving
production costs in terms of the different stages involved in the
mining and plant processes, including efficiencies and
inefficiencies as the case may be and other factors outside the
Company's control such as cost inflation or changes in accounting
criteria.
[3] Earnings before interest, taxes, depreciation and
amortisation (EBITDA) is calculated as profit for the year from
continuing operations before income tax, less finance income, plus
finance costs, less foreign exchange gain/(loss), less revaluation
effects of the Silverstream contract and other operating income
plus other operating expenses and depreciation.
[4] Prior to Silverstream valuation effects.
[5] Free cash flow calculated as net cash flow after the effect
of foreign exchange on cash, less dividend payments.
(6) Net Debt is calculated as debt at 30 June 2023 less Cash and
other liquid funds at 30 June 2023 divided by the EBITDA generated
in the last 12 months
[6] Adjusted production cost is calculated as total production
costs less depreciation, profit sharing and the effects of exchange
rate hedging.
[7] Net debt is calculated as debt at 30 June 2023 less Cash and
other liquid funds at 30 June 2023 divided by the EBITDA generated
in the last 12 months
[8] Au:Ag ratio of 80:1
[9] Adjusted revenue is revenue as disclosed in the income
statement adjusted to exclude treatment and refining charges and
metals prices hedging.
[10] Earnings before interest, taxes, depreciation and
amortisation (EBITDA) is calculated as profit for the year from
continuing operations before income tax, less finance income, plus
finance costs, less foreign exchange gain/(loss), plus revaluation
effects of the Silverstream contract and other operating income
plus other operating expenses and depreciation.
[11] Adjusted revenue is revenue as disclosed in the income
statement adjusted to exclude treatment and refining charges and
metals prices hedging.
[12] Adjusted revenue is revenue as disclosed in the income
statement adjusted to exclude treatment and refining charges and
metals prices hedging.
[13] Adjusted revenue is revenue as disclosed in the income
statement adjusted to exclude treatment and refining charges and
metals prices hedging.
[14] Treatment and refining charges include the cost of
treatment and refining as well as the margin charged by the
refiner.
[15] Adjusted production costs are calculated as cost of sales
less depreciation, profit sharing, hedging, change in inventories
and unproductive costs. The Company considers this a useful
additional measure to help understand underlying factors driving
production costs in terms of the different stages involved in the
mining and plant processes, including efficiencies and
inefficiencies as the case may be and other factors outside the
Company's control such as cost inflation or changes in accounting
criteria.
[16] Unproductive costs primarily include unabsorbed production
costs such as non-productive cost for the temporary illegal
stoppage at Herradura, fixed costs incurred at Juanicipio and
pyrites plant, and fixed mine costs at Noche Buena as a result of
the end of its mine life.
[17] Net debt is calculated as debt at 30 June 2023 less Cash
and other liquid funds at 30 June 2023 divided by the EBITDA
generated in the last 12 months.
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